<PAGE>

   As filed with the Securities and Exchange Commission on September 28, 1999
                                                       Registration No. 333-

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     under
                           The Securities Act of 1933
                             ---------------------

                                  eBenX, Inc.
             (Exact name of registrant as specified in its charter)

       Minnesota                     7389                   41-1758843
    (State or other            (Primary Standard         (I.R.S. Employer
    jurisdiction of               Industrial          Identification Number)
   incorporation or           Classification Code
     organization)                  Number)
                             ---------------------

                       5500 Wayzata Boulevard, Suite 1450
                       Minneapolis, Minnesota 55416-1241
                                 (612) 525-2700
         (Address, including zip code, and telephone number, including
            area code, of registrant's principal executive offices)

                               Scott P. Halstead
                                  eBenX, Inc.
                       5500 Wayzata Boulevard, Suite 1450
                       Minneapolis, Minnesota 55416-1241
                                 (612) 525-2700
      (Name, address, including zip code, and telephone number, including
                        area code, of agent for service)
                             ---------------------

                                   Copies to:

          KENNETH L. CUTLER                       LELAND E. HUTCHINSON
         SCOTT L. BARRINGTON                        GREGORY J. BYNAN
          SCOTT A. NICHOLAS                         Winston & Strawn
        Dorsey & Whitney LLP                      35 West Wacker Drive
       220 South Sixth Street                    Chicago, Illinois 60601
  Minneapolis, Minnesota 55402-1498                  (312) 558-5600
           (612) 340-2600
                             ---------------------

  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

                        CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                    Maximum
                                                   Aggregate
            Titles of Each Class of              Offering Price    Amount of
          Securities to be Registered                 (1)       Registration Fee
--------------------------------------------------------------------------------
<S>                                              <C>            <C>
Common Stock, $.01 par value....................  $69,000,000       $19,182
--------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1)Estimated solely for purposes of calculating the registration fee pursuant
    to Rule 457(o).
                             ---------------------

    The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED [    ], 1999

                               [EBENX, INC. LOGO]

                                [      ] Shares

                                  Common Stock

  This is our initial public offering and no public market currently exists for
our common stock. We expect that our common stock will trade on the Nasdaq
National Market under the symbol "EBNX." We anticipate that the initial public
offering price will be between $[    ] and $[    ] per share.

                                --------------

                 Investing in our common stock involves risks.
                    See "Risk Factors" beginning on page 4.

                                --------------

<TABLE>
<CAPTION>
                                                            Per Share     Total
                                                            ---------     -----
<S>                                                         <C>       <C>
Public Offering Price...................................... $ [     ] $ [     ]
Underwriting Discounts..................................... $ [     ] $ [     ]
Proceeds to eBenX.......................................... $ [     ] $ [     ]
</TABLE>

  The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

  We have granted the underwriters a 30-day option to purchase up to an
additional [ ] shares of our common stock to cover overallotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of our common stock to
purchasers on [    ], 1999.

                                --------------

BancBoston Robertson Stephens

             Warburg Dillon Read LLC

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is [    ], 1999.
<PAGE>




                      [THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

  We are offering to sell, and seeking offers to buy, shares of our common
stock only in jurisdictions where offers and sales are permitted. You should
rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. Information on the eBenX and Network Management Services,
Inc. Web sites are not part of this prospectus. The information in this
document is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock. Except
as the context otherwise requires, the terms "eBenX," "we," "us" and "our" as
used in this prospectus refer to eBenX, Inc., together with its consolidated
subsidiary (unless the context otherwise requires).

                             ---------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   1
Risk Factors.............................................................   4
Forward-Looking Statements ..............................................  13
Use of Proceeds..........................................................  13
Dividend Policy..........................................................  13
Capitalization...........................................................  14
Dilution.................................................................  15
Selected Financial Data..................................................  16
Management's Discussion and Analysis of Financial Condition and Results
  of Operations..........................................................  17
Business.................................................................  24
Management...............................................................  38
Certain Transactions.....................................................  46
Principal Shareholders...................................................  47
Description of Capital Stock.............................................  49
Shares Eligible for Future Sale..........................................  50
Underwriting.............................................................  52
Legal Matters............................................................  53
Experts..................................................................  54
Additional Information...................................................  54
Index to Financial Statements............................................ F-1
</TABLE>

                             ---------------------

  BEN-NET(R) is a registered trademark and WebElect(R) is a registered service
mark of eBenX. eBenX(TM), BenX(TM) and Benefit Exchange Network(TM) are also
our trademarks. This prospectus contains other product names, trade names and
trademarks of eBenX and of other organizations.
<PAGE>

                                    SUMMARY

  Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.

                                  eBenX, Inc.

  We provide business-to-business e-commerce and connectivity solutions to
employers and health plans for the purchase, eligibility administration and
premium payment of group health insurance benefits. Through our proprietary and
licensed technology, we facilitate the flow of employee and dependent
eligibility and financial data between employer purchasers of group health
insurance benefits and health plan suppliers. The plan information, data and
financial exchange requirements in this $600 billion market are extremely
complex. Our proven Web-enabled services and high volume eligibility and
financial data pipelines provide the critical connectivity necessary for
employers and health plans to communicate electronically. Today, we connect
customers such as Bell Atlantic Corporation, PepsiCo, Inc., Northwest Airlines
Corporation and GE Capital Services Corporation to their wide array of health
plan trading partners.

  The widespread acceptance of the Internet as a business communications
platform has created a foundation for business-to-business e-commerce that
enables employers and health plans to streamline complex processes, lower costs
and improve productivity. The purchasing, eligibility administration and
premium payment process is encumbered by inefficient procedures for gathering
and transferring data and executing payment transactions. These inefficiencies,
along with other factors unique to the group health insurance benefits market,
create an environment which is conducive to e-commerce solutions. However,
unlike other e-commerce products and services, such as buying books or
individual insurance, the complexities of the group health insurance benefits
market require deep domain knowledge and advanced technology. Currently,
employers and health plans face the following challenges:

  .  fragmented marketplace: multi-site, multi-state employers must purchase
     health insurance from multiple, locally-based health plans;

  .  increasing costs: employers face pressure to purchase benefits more
     effectively due to the escalating costs of providing group health
     insurance benefits to employees and retirees;

  .  complex data: employers and health plans must exchange complex, detailed
     and dynamic data in multiple formats using various system platforms;

  .  complex pricing and payment reconciliation: employers and health plans
     must establish price on a case-by-case basis and continually reconcile
     complex billing and settlement transactions; and

  .  government regulation: federal, state and local laws and regulations
     burden the process of purchasing group health insurance benefits through
     additional reporting and coverage requirements.

  We are pioneering the use of the Internet to automate the purchase,
eligibility administration and premium payment process for the group health
insurance benefits market. By using our proprietary and licensed technology we
enable employers to streamline the administrative process and make purchasing
decisions in a more competitively priced market. Based on our six years of
industry experience with Fortune 1000 companies, we have developed a technology
platform that automates the data exchange, payment and reconciliation process
in this market. In 1999, we extended this technology platform to enable
enrollment data collection and plan information distribution, thus creating an
integrated end-to-end e-commerce solution for the group health insurance
benefits market.

  Our technology platform enables us to introduce the first fully integrated
end-to-end e-commerce solution for the procurement of group health insurance
benefits. We believe that with this technology platform and our

                                       1
<PAGE>

industry expertise we can fundamentally change the way group health insurance
benefits are purchased. Using this e-commerce solution, our near-term strategy
is to increase our penetration of, and service offerings to, the Fortune 1000
market, to leverage our technology through relationships with insurance brokers
to penetrate the mid-size employer market and to establish additional strategic
relationships.

                                  The Offering

<TABLE>
 <C>                                                  <S>
 Common stock offered................................ [    ] shares
 Common stock to be outstanding after this offering.. [    ] shares
 Use of proceeds..................................... We intend to use the net
                                                      proceeds of this offering
                                                      for general corporate
                                                      purposes, including
                                                      working capital, sales
                                                      and marketing
                                                      expenditures, development
                                                      of new products and
                                                      services, investment in
                                                      technology infrastructure
                                                      and possible
                                                      acquisitions. See "Use of
                                                      Proceeds."
 Proposed Nasdaq National Market symbol.............. EBNX
</TABLE>

  Common stock to be outstanding after this offering does not include:

  . 1,098,366 shares issuable upon exercise of outstanding stock options
    under existing stock option plans;

  . 27,805 shares issuable upon exercise of outstanding warrants; and

  . 1,118,974 shares available for future grant or issuance under our stock
    option plans.

  See "Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 4 of "Notes to Financial Statements," beginning on page F-9.

                              --------------------

  Our headquarters are located at 5500 Wayzata Boulevard, Suite 1450,
Minneapolis, Minnesota 55416-1241 and our telephone number is (612) 525-2700.
Our Web site addresses are www.ebenx.com and www.networkmanagementinc.com. In
September 1999, we changed our name from Network Management Services, Inc. to
eBenX, Inc.

  The foregoing information reflects a [  ]-for-one split of our common stock
on [   ], 1999. Unless otherwise indicated, all information contained in this
prospectus assumes that the underwriters' overallotment option is not exercised
and reflects the conversion of all outstanding preferred stock into common
stock immediately prior to the commencement of this offering.

                                       2
<PAGE>


                             Summary Financial Data
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    Six months
                                Year Ended December 31,           ended June 30,
                          --------------------------------------  ---------------
                           1994    1995   1996    1997    1998     1998    1999
                          ------  ------ ------  ------  -------  ------  -------
                                                                    (unaudited)
<S>                       <C>     <C>    <C>     <C>     <C>      <C>     <C>
Statement of Operations
  Data:
Net revenue.............  $  904  $2,497 $4,360  $7,093  $10,122  $3,929  $ 7,108
(Loss) income from
  operations............    (177)     31   (779)   (713)  (1,186)   (998)  (1,262)
Net (loss) income.......    (166)     62   (581)   (500)  (1,042)   (915)  (1,112)
Basic and diluted net
  (loss) income per
  share.................  $ (.15) $  .06 $ (.53) $ (.45) $  (.90) $ (.80) $  (.95)
Shares used in basic and
  diluted net income
  (loss) per share......   1,078   1,098  1,104   1,125    1,154   1,150    1,165
Pro forma basic and
  diluted net loss per
  share.................                                    (.42)            (.46)
Shares used in pro forma
  net loss
  per share.............                                   2,162            2,409
</TABLE>

<TABLE>
<CAPTION>
                                                             June 30, 1999
                                                        ------------------------
                                                          Actual    As Adjusted
                                                        ---------- -------------
                                                              (unaudited)
<S>                                                     <C>        <C>
Balance Sheet Data:
Cash and cash equivalents..............................  $ 9,268        $
Working capital........................................   10,821
Total assets...........................................   14,303
Long-term obligations, net of current portion..........      --
Total shareholders' equity.............................   12,772
</TABLE>

  The "as adjusted" column in the Balance Sheet Data table gives effect to the
receipt and application of the estimated net proceeds from our sale of the [
] shares of common stock offered by this prospectus at an assumed initial
public offering price of $[   ] per share, after deducting the estimated
underwriting discount and offering expenses that we will pay. See "Use of
Proceeds" and "Capitalization" for a further description of the estimated
proceeds of this offering.

  See Note 1 of "Notes to Financial Statements," beginning on page F-7, for an
explanation of the methods used to compute basic and diluted net (loss) income
per share data and pro forma basic and diluted net loss per share data.


                                       3
<PAGE>

                                  RISK FACTORS

  This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to purchase shares of our common stock. If
any of the following risks actually occur, our business and operating results
could be harmed. This could cause the trading price of our common stock to
decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have had net losses over the past several years and we may not be able to
achieve or maintain profitability in the future.

  Our business strategy may be unsuccessful and we may never achieve or
maintain significant revenues or profitability. With the exception of fiscal
1995, we have incurred net losses each year since we began operations in 1993.
We had net losses of approximately $1.0 million for the year ended December 31,
1998 and $1.1 million for the six month period ended June 30, 1999, and an
accumulated deficit of $3.3 million as of June 30, 1999. We expect to continue
to incur significant development, sales and marketing and other operational
expenses in connection with our business. We may also incur expenses in
connection with acquisitions or other strategic relationships. As a result of
these expenses, we will need to generate significant quarterly revenue
increases to achieve and maintain profitability. We expect that we will incur
net losses for the next several years.

We rely significantly on a limited number of customers and the loss of any
material customer could harm our business and operating results.

  In 1998, two customers accounted for approximately 40% of our total revenue.
In 1999 to date, ten customers have accounted for approximately 90% of our
total revenue. The loss of a material customer would significantly reduce our
revenue and harm our business and operating results. Further, because increased
employee participation from existing customers has substantially contributed to
our revenue growth, the loss of any material customer would harm our prospects
for future growth. We may continue to depend upon a small number of customers
for a substantial percentage of our revenue in the future.

Our success depends on industry acceptance of our products and services.

  Our success depends on our ability to provide products and services to a
large number of employers with a substantial base of participating employees
and to efficiently and accurately collect and process eligibility data and
execute payment transactions with numerous health plans. The acceptance by
employers of our products and services will require that all participants in
the group health insurance benefits market adopt new methods of administering
benefits, exchanging eligibility information and executing payment
transactions. These industry participants may not accept our products and
services as a replacement for traditional methods of operation.

  Further, our products and services facilitate competition among health plans
at the employer level by creating an infrastructure that allows multiple health
plans to service a single employer. Health plans have in the past resisted
servicing smaller companies on a non-exclusive basis. This resistance may
inhibit our growth, especially in the mid-size employer market.

We face intense competition in our industry and, if we are unable to compete
successfully, our business and operating results will be seriously harmed.

  The group health insurance benefits industry is intensely competitive,
rapidly evolving and subject to sudden technological change. We believe that
the principal competitive factors in this market are health

                                       4
<PAGE>

and managed care expertise, data integration and transfer technology, benefits
processing technology, customer service and support and product and service
fees. We expect competition to increase in the future. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any one of which could seriously harm our business and operating
results.

  We compete with administrative service providers and benefits consultants
with administrative capabilities. We also compete with the human resource and
information systems departments of the Fortune 1000 companies that perform
their own health care administration services. In the mid-size employer market
we compete with health benefit brokers and regional brokers. In addition, many
human resource systems and service companies have the health care expertise and
financial strength to develop the technology necessary to compete with us. As
the market evolves we expect increased competition from Internet-based service
providers in both the health care connectivity market between suppliers and
providers (e.g., physicians, hospitals and pharmacies) and the online insurance
market.

  Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than we do. In addition, many of our competitors have well-
established relationships with our current and potential customers and have
extensive knowledge of our industry. Current and potential competitors have
established or may establish strategic relationships among themselves or with
third parties to increase the ability of their products and services to address
employer needs. Accordingly, it is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share.

Failure to manage our growth effectively will harm our business and operating
results.

  Continued rapid growth will place significant strain upon our management and
operational systems and resources. Failure to manage our growth effectively
will harm our business and operating results. We will need to expand our
existing information systems or acquire new systems to meet the requirements of
our future operations. Any expansion or replacement of our information systems
may not be sufficient to meet our needs. In addition, we may experience
interruptions of service as we expand these systems.

  We recently have hired a significant number of new employees, including key
executives. We will continue to add personnel to maintain our ability to grow
in the future. We must integrate our new employees and key executives into a
cohesive team and at the same time increase the total number of employees and
train and manage our employee work force in a timely and effective manner to
expand our business. We may not be able to do so successfully.

Unsuccessful efforts or incurrence of unanticipated expenses in selling our
products and services could harm our business and operating results.

  The time, expense and effort of securing customers may exceed our
expectations and may harm our business and operating results. The decision to
implement our products and services requires a substantial and technical
analysis of a customer's healthcare benefits offerings and requirements and
time-intensive education of the customer of the advantages of our products and
services. Consequently, the length of our sales cycle generally varies from
three to twelve months. We, therefore, often devote significant resources and
incur costs without any assurance that a prospective customer will purchase our
products or services.

Our future growth depends upon our establishment and maintenance of successful
relationships with strategic partners.

  We believe that our future growth depends in part upon the successful
creation and maintenance of relationships with strategic partners such as
front-end healthcare information collection companies, human resources
information services firms, healthcare benefits consultants and brokers and
other industry participants. To date, we have established only a limited number
of strategic relationships. Strategic partners may offer

                                       5
<PAGE>

products or services of several different companies, including products and
services that compete with our products or services. Strategic partners and
potential strategic partners may be influenced by our competitors to scale back
or end their relationships with us. We may not establish additional strategic
relationships and these relationships may not be ultimately successful. Our
strategic partners may not devote adequate resources to selling our products
and services.

  If we are unable to establish and maintain successful strategic
relationships, we may have to devote substantially more resources to the sales
and marketing of our products and services.

Our quarterly results likely will fluctuate which may subject the market price
of our common stock to rapid and unpredictable change.

  Historically, we obtain 75% of each year's new customer commitments during
the months of February through May because most employers have open enrollment
periods for the selection of health plans by their employees in the fall. We
expect this seasonality in our business to continue. Our expenses are
relatively fixed in the short term and are based in part on our expectations of
future revenues, which may vary significantly. If we do not achieve expected
revenue targets, we may be unable to adjust our spending quickly enough to
offset any revenue shortfall which could harm our business and operating
results. Quarterly fluctuations in our operating results may subject the market
price of our common stock to rapid and unpredictable change.

  Other factors that may cause such quarterly fluctuations include:

  .  the number and size of new customers starting services;

  .  the decision of one or more customers to delay implementation or cancel
     ongoing services;

  .  seasonality;

  .  our ability to design, develop and introduce new services and features
     for existing services on a timely basis;

  .  costs associated with strategic acquisitions and alliances or
     investments in technology;

  .  the success of any such strategic acquisition, alliance or investment;

  .  costs to transition to new technologies;

  .  expenses incurred for geographic and service expansion;

  .  price competition;

  .  a reduction in the number of employees of our customers; and

  .  acquisitions of our customers by other companies.

Failure to retain our key executives or attract and retain qualified technical
personnel could harm our business and operating results.

  The loss of one or more of our executive officers could inhibit the
development of our business and, accordingly, harm our business and operating
results. While we generally enter into employment agreements with our key
executive officers, we may not be able to retain them.

  Qualified personnel are in great demand throughout the Internet and
healthcare industries. Our future growth and our ability to achieve our
financial and operational objectives will depend in large part upon our ability
to attract and retain highly skilled technical, engineering, sales and
marketing and customer support personnel. Our failure to attract and retain
personnel may limit the rate at which we can expand our business, including the
development of new products and services and the retention of additional
customers, which could harm our business and operating results.

                                       6
<PAGE>

We could be subject to potential liability claims related to our products and
services.

  Errors in the performance of our products or services on behalf of an
employer could result in the delay of processing of healthcare eligibility
information or execution of payment transactions or could otherwise result in
financial or other damages to our customers. These errors also may result in
the improper denial of healthcare benefits to employees. A liability claim
brought against us by an employer or an employee, even if not successful, would
likely be time consuming and costly and could seriously harm our business and
reputation.

  Our customer agreements generally require that we indemnify our customers for
certain losses and liabilities incurred by them that are caused by us. Any
indemnification payments required under these agreements may harm our business
and operating results.

  We also may become party to litigation brought by a participating employee
against an employer or health plan. We may not successfully avoid liability for
problems related to the provision of healthcare benefits even though we do not
make medical determinations or coverage decisions. Any claims or litigation
also could require expenditures in terms of management time and other resources
to defend ourselves. This could require us to implement measures to reduce our
exposure to this liability, which may require us, among other things, to expend
substantial resources or to discontinue certain product or service offerings or
to take other precautions. Liability of this type could harm our business and
operating results.

Failure to raise additional capital to fund our future operations and satisfy
working capital needs may harm our business and operating results.

  We do not currently generate sufficient cash to fully fund operations. To
date, we have financed our operations principally through the issuance of
equity securities and, to a limited extent, through borrowings. We may need to
raise additional capital in the future to fund our ongoing operations and to
support expansion of our business. We may not be able to obtain additional
financing when needed or on terms favorable to us. Any difficulty in obtaining
additional financing may require us to limit our operations or may inhibit our
future growth.

The failure to successfully integrate any future acquisitions could harm our
business and operating results.

  In order to remain competitive or to expand our business, we may find it
necessary or desirable to acquire other businesses, products or technologies.
If we identify an appropriate acquisition candidate, we may not be able to
negotiate the terms of the acquisition successfully, to finance the acquisition
or to integrate the acquired businesses, products or technologies into our
existing business and operations. Further, completing a potential acquisition
and integrating an acquired business may strain our resources and require
significant management time. Acquisition financing may not be available on
terms that are favorable to us, if available at all. In addition, we may be
required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions which would harm our operating
results.

Consolidation in the healthcare industry may interfere with our business.

  Our products and services are, in large part, beneficial to employers because
we are able to coordinate the exchange of eligibility and financial data and
execute payment transactions between an employer and its numerous health plans.
Consolidation in the healthcare industry may require us to reconfigure our
products, services and systems to accommodate a change in data formats and
codes utilized by recently acquired or consolidated health plans. Further, the
consolidation of health plans operating in the same geographic market may
substantially reduce the number of competitive health plans in that market.
Existing and potential customers, especially mid-size market employers that
operate in only one geographic market, may not find our products and services
beneficial if there is only limited competition among health plans.

                                       7
<PAGE>

Our business will suffer if the integrity of our systems is inadequate.

  Our systems process vast amounts of eligibility and financial data and
execute large numbers of payment transactions. Any delay or failure in our
systems or in our ability to communicate electronically with employers and
health plans or in our ability to collect, store, analyze or process accurate
eligibility and financial data may result in the denial of healthcare benefits,
or in the delay or failure to execute payment transactions accurately. This
type of denial or failure would harm our business and operating results.

  The occurrence of a catastrophic event or other system failure at our
facilities could interrupt our operations or result in the loss or corruption
of stored data. In addition, we depend on the efficient operation of Internet
and network connections among our systems, employers and health plans. These
connections depend on the efficient operation of data exchange tools, Web
browsers, Internet service providers and Internet and network backbone service
providers. In the past, Internet users have occasionally experienced
difficulties with Internet and online services due to system failures. Any
disruption in Internet or network access provided by third parties could harm
our business and operating results. Further, we are dependent on hardware
suppliers for prompt delivery, installation and service of equipment used to
deliver our services.

Our business will suffer if we or our business partners experience Year 2000
compliance problems or related system failures.

  We may experience Year 2000 compliance problems requiring substantial
revisions to our systems. In addition, third party software, hardware or other
technology incorporated into our information systems or upon which our business
depends may need to be revised or replaced as a result of Year 2000 compliance
problems. Any revision to our systems or revision or replacement of third-party
software, hardware or other technology could be time consuming and expensive.
In addition, a failure to identify, fix and/or replace these systems or third-
party software, hardware or other technology in a timely manner could disrupt
our business operations and result in lost revenue, increased operating costs,
the loss of customers and other business interruptions.

  Our customers may also experience Year 2000 compliance problems or related
system failures. These problems and failures could result in our inability to
properly collect eligibility and financial data and process payments on behalf
of employers and could generally interrupt our delivery of products and
services. Any inability to perform, or interruption in the performance of,
services on behalf of any employer or health plan could harm our business and
operating results.

  Furthermore, our business depends upon products, services and technology
provided by third parties, such as health care providers and insurers,
insurance and health care brokers, information technology consultants, network
support providers, telecommunication companies, Internet service and access
providers, third-party service providers, vendors, business partners and others
outside our control. These parties' information and non-information systems may
not be Year 2000 compliant. Any failure by such entities to be Year 2000 ready
could result in a disruption of our business, or could result in a systemic
failure beyond our control. A prolonged Internet or communications failure
could also prevent us from performing services on behalf of customers. A
failure of any of these parties to be Year 2000 ready could harm our business
and operating results. Also, a systemic failure could require potential
customers to dedicate substantial resources towards fixing or resolving Year
2000 compliance problems and may make the sales and marketing of our services
more difficult.

Our business and reputation may be harmed if we are unable to protect the
privacy of our customer information.

  Our information systems and Internet communications may be vulnerable to
damage from physical break-ins, computer viruses, programming errors, attacks
by computer hackers or similar disruptive problems. A user who is able to
access our computer or communication systems could gain access to confidential
employer, employee or health plan information or our own confidential
information. A material security breach could

                                       8
<PAGE>

harm our business and our reputation or could result in liability to us.
Therefore, it is critical that our facilities and infrastructure remain secure.
The occurrence of any of these events could result in the interruption, delay
or cessation of our services, which could harm our business or operating
results. Further, our reputation may suffer if third parties were to obtain
this information and we may be liable for this disclosure. Any effect on our
reputation or any liability for any disclosure could harm our business and
operating results.

We depend in part on increasing use of the Internet and on the growth of e-
commerce.

  Rapid growth in the use of the Internet is a recent phenomenon. As a result,
its acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced products and services over the Internet are subject to a high level
of uncertainty, and there exist few proven products and services.

  Our future profitability depends, to a certain extent, upon increased
employer demand for additional Internet and e-commerce solutions that we are in
the process of developing or may develop in the future.

We may be unable to adequately protect our intellectual property rights. We may
be subject to substantial claims if we infringe upon the intellectual property
rights of third parties.

  Our success depends in part upon our intellectual property rights to products
and services which we develop. We rely on a combination of contractual rights
including non-disclosure agreements, trade secrets, copyrights and trademarks
to establish and protect our intellectual property rights in our products,
services and related technology. Loss of intellectual property protection on
any of our confidential information or technology could harm our business and
operating results.

  We currently have no registered patents or pending patent applications
covering any of our technology. We have received a U.S. trademark registration
for BEN-NET and a U.S. service mark registration for WebElect. These
registrations may not be enforceable or effective in protecting the BEN-NET or
WebElect marks. We may in the future file patent, trademark or service mark
applications. These applications may not be approved or, if approved, may not
be enforceable or effective in protecting our technology, trademarks or service
marks.

  We typically enter into non-disclosure and confidentiality agreements with
our employees and consultants with access to sensitive information. These
agreements may not be adequate to protect our intellectual property rights or
prevent misappropriation of our technology. Products and services with features
similar to our products and services may be independently developed.

  Although we believe that our core technology has been independently developed
and that none of our technology or intellectual property infringes on the
rights of others, third parties may assert infringement claims against us in
the future. We may be required to modify our products, services, internal
systems or technologies or to obtain a license to permit our continued use of
those rights. We may not be able to do either in a timely manner or upon
reasonable terms and conditions. Failure to do so could harm our business and
operating results. In addition, future litigation relating to these matters
could result in substantial cost to, and diversion of resources by, us. Adverse
determinations in any such litigation or proceedings also could subject us to
significant liabilities to third parties and could prevent us from using
certain of our products, services, internal systems or technologies.

Rapidly changing technology may impair our financial performance.

  Our business depends upon the use of software, hardware, networking and
Internet technology and systems. These technologies and systems are rapidly
evolving and are subject to rapid change and obsolescence. As these
technologies mature, we must be able to quickly and successfully modify our
products

                                       9
<PAGE>

and services to adapt to such change. We may encounter difficulties that could
delay or harm the performance of our products or services. We may not be able
to respond to technological changes in a timely and cost-effective manner. In
addition, our competitors may develop technologically superior products and
services. Further, data formatting and eligibility rules within a particular
employer or health plan, or within the group health benefits industry as a
whole, may change and may require substantial and expensive re-engineering of
eligibility data and adjustment of the tools we use to process this eligibility
data.

State, federal and local laws could harm our business and operating results.

  The healthcare industry is highly regulated by federal, state and local laws.
The application of existing laws, or the implementation of new laws, applicable
to our business could harm our business and operating results. For example, the
confidentiality of patient records and the circumstances under which records
may be released for inclusion in our databases may be subject to substantial
regulation by state governments. These state laws govern both the disclosure
and the use of confidential patient medical records. Although compliance with
these laws currently is principally the responsibility of health care providers
and health plans, these regulations may be extended to cover our business and
the eligibility data and other information that we include in our databases.

  The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
mandates the use by health plans of standard transactions, identifiers,
security and other provisions by the year 2000. We have designed our products
and services to comply with HIPAA, but any change in federal standards would
require us to expend additional resources. In addition, the success of our
compliance efforts may be dependent on the success of healthcare industry
participants in dealing with these new standards.

  Further, our role in facilitating payments by employers to health plans may
subject us to the Employee Retirement Income Security Act. This act imposes
certain fiduciary duties on employers and health plans with respect to payments
made on behalf of participating employees and it is possible that these
fiduciary duties could be deemed to apply to us. In that event, we may become
subject to greater liability with respect to such payments and may experience
higher operating costs in order to comply with such regulation. These increases
in operating costs may harm our business and operating results.

State laws and regulations concerning the sale, marketing or distribution of
insurance over the Internet may adversely affect our business and operating
results.

  The insurance industry is subject to extensive regulation under state laws.
Insurance laws and regulations cover all aspects of the insurance process,
including sales techniques, underwriting for eligibility, rates, claim payments
and record keeping by licensed insurance companies and insurance agents.

  A company that does business as an insurance agent is generally required to
be licensed in each state in which it conducts that business. In the future,
our business or other activities may be considered by insurance regulatory
authorities to fall under their licensing jurisdiction. Should our business
activities require our licensing as an insurance agent, we would incur
increased costs and restrictions on our business which could harm our business
and financial results. Further, because the application of e-commerce to the
insurance market is relatively new, the impact of current or future insurance
laws and regulations on our business is difficult to anticipate.

Risks Related to this Offering and Ownership of Our Common Stock

The price for our common stock may be volatile due to a number of variables.

  Prior to this offering, there has not been a public market for our common
stock. An active trading market for our common stock may not develop or be
sustained after completion of this offering. The initial public offering price
of our common stock may not be indicative of the prices that will prevail in
the public market

                                       10
<PAGE>

after the offering, and the market price of our common stock could fall below
the initial public offering price. You may not be able to resell your shares at
or above the initial public offering price due to a number of factors,
including:

  .  actual or anticipated quarterly variations in our operating results;

  .  changes in expectations as to our future financial performance or
     changes in financial estimates, if any, of securities analysts;

  .  announcements of new healthcare products, services or technological
     innovations;

  .  announcements relating to strategic relationships and transactions;

  .  customer relationship developments;

  .  strategic alliance developments;

  .  regulatory changes;

  .  conditions generally affecting the group health insurance benefits
     industry;

  .  success of our operating strategy;

  .  competition; and

  .  the operating and stock price performance of other comparable companies.

  In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
Internet and e-commerce companies and which have often been unrelated to the
operating performance of these companies.

Future sales of our common stock in the public market after the offering could
cause the price of our common stock to decline.

  We cannot predict the timing or amount of future sales of shares of our stock
or the effect, if any, that market sales of shares, or the availability of
shares for sale, will have on the prevailing market price of our common stock.
If our shareholders sell substantial amounts of our common stock in the public
market following the offering, the price of our common stock could fall. Upon
completion of the offering, we will have [     ] outstanding shares of common
stock, assuming no exercise of outstanding options or warrants. Of these
shares, the [       ] shares sold in this offering will be freely tradeable.
This leaves 3,265,481 shares that will be eligible for sale in the public
market as follows:

<TABLE>
<CAPTION>
      Number of
       Shares                                 Date
      ---------                               ----
      <S>         <C>
         98,247   Available for immediate sale on the date of this prospectus
         84,260   Available for sale 90 days after the date of this prospectus
      3,082,974   Available for sale 180 days after the date of this prospectus
</TABLE>

Shortly after the closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register a total of 2,600,000
shares of common stock issuable under the 1993 Stock Option Plan, the 1999
Stock Incentive Plan and the Stock Purchase Plan.

  The holders of 2,082,974 shares of our preferred shares have registration
rights for the shares of common stock issuable upon conversion of these
preferred shares. All preferred shares will be converted into a total of
2,082,974 shares of common stock immediately prior to the offering. After the
offering, the holders of 2,082,974 shares of our common stock, which represent
[  %] of our outstanding common stock after this offering assuming no exercise
of the underwriters' overallotment option and no exercise of outstanding
options or warrants after June 30, 1999, will be entitled to have the resale of
their shares registered under the Securities

                                       11
<PAGE>

Act. If these holders cause a large number of securities to be registered and
sold in the public market, such sales could harm the market price for our
common stock. In addition, if we include in a company-initiated registration
statement shares held by these holders pursuant to the exercise of their
registration rights, such sales may harm our ability to raise needed capital.

Concentration of ownership may give some shareholders substantial influence and
may prevent or delay a change in control.

  We anticipate that certain shareholders, including officers and directors of
the company, will, in the aggregate, beneficially own approximately [   %] of
our outstanding common stock following completion of this offering. These
shareholders may be able to exercise substantial influence over all matters
requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of discouraging third party offers to acquire our
company or of delaying or preventing a change in control of our company.

Our charter documents and Minnesota law may discourage an acquisition of our
company.

  Provisions of our articles of incorporation, bylaws and Minnesota law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our shareholders. For instance, our bylaws provide for a
classified board of directors with each class of directors subject to re-
election every three years. This will make it more difficult for third parties
to insert their representatives on our board of directors and gain control of
our company. These provisions could also discourage proxy contests and make it
more difficult for you and other shareholders to elect directors and take other
corporate actions. Further, the Minnesota Control Share Acquisition Act and the
Minnesota Business Combination Act may make it more difficult for third parties
to secure control of our company or to complete an acquisition. These acts may
discourage unsolicited takeover offers.

Management could use the proceeds of this offering in ways with which the
shareholders may not agree.

  Our management can spend or invest the proceeds from this offering in ways
with which the shareholders may not agree. The investment of these proceeds may
not yield a favorable return.

You will incur immediate and substantial dilution.

  If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. If the holders of
outstanding options or warrants exercise those options or warrants, you will
experience further dilution.

We do not intend to pay dividends.

  We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding the development and
growth of our business and, therefore, do not expect to pay any dividends in
the foreseeable future.

                                       12
<PAGE>

                           FORWARD-LOOKING STATEMENTS

  This prospectus includes forward-looking statements based on our current
expectations and projections about future events. These statements are subject
to risks, uncertainties and assumptions about us, including, among other
things:

  . uncertainty of our future operating results;

  . delays or losses of sales due to long sales and implementation cycles for
      our products and services;

  . actions of our competitors; and

  . other factors discussed under "Risk Factors."

  We undertake no obligation to publicly update or revise any forward-looking
statements. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.

                                USE OF PROCEEDS

  We estimate our net proceeds from the sale of our common stock in this
offering will be approximately $[  ] million, or approximately $[  ] million
based on an assumed initial public offering price of $[  ] per share and after
deducting the estimated underwriting discounts and offering expenses.

  We intend to use the net proceeds from this offering for general corporate
purposes, including working capital, sales and marketing expenditures,
development of new products and services and investment in technology
infrastructure. In addition, a portion of the net proceeds may be used for
acquisitions of businesses, products and technologies that are complementary to
ours. We currently have no agreements with respect to any material acquisitions
as of the date of this prospectus. Pending use of the net proceeds for the
above purposes, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.

                                DIVIDEND POLICY

  We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth
of our business.

                                       13
<PAGE>

                                 CAPITALIZATION

  The following table sets forth our capitalization as of June 30, 1999 (a) on
an actual basis, (b) on a pro forma basis to reflect the conversion of all
outstanding shares of preferred stock into shares of common stock immediately
prior to the commencement of this offering, and (c) on a pro forma, as
adjusted, basis to give effect to the receipt and application of the estimated
net proceeds from the sale of [  ] shares of our common stock in this offering
at an assumed initial public offering price per share of $[  ] after deducting
the estimated underwriting discounts and offering expenses.

<TABLE>
<CAPTION>
                                                   As of June 30, 1999
                                            -----------------------------------
                                                                    Pro Forma,
                                            Actual     Pro Forma    As Adjusted
                                            -------  -------------- -----------
                                                     (in thousands)
<S>                                         <C>      <C>            <C>
Long-term debt and capitalized lease
  obligations, non-current
  portion.................................. $   --      $   --
Shareholders' equity:
  Preferred stock, $.01 par value per
    share; 2,088,974 shares authorized,
    2,082,974 shares outstanding, actual;
    no shares issued and outstanding, pro
    forma and pro forma as adjusted........      21         --
  Common stock, $.01 par value per share;
    7,000,000 shares authorized, 1,171,157
    shares outstanding, actual;
    100,000,000 shares authorized,
    3,254,131 shares outstanding, pro
    forma; 100,000,000 shares authorized,
    [   ] shares outstanding, pro forma as
    adjusted...............................      12          33
  Additional paid-in capital...............  16,073      16,073
  Accumulated deficit......................  (3,334)     (3,334)
                                            -------     -------         ---
     Total shareholders' equity............  12,772      12,772
                                            -------     -------         ---
       Total capitalization................ $12,772     $12,772         $
                                            =======     =======         ===
</TABLE>
--------
The preceding table excludes:

  .  928,616 shares issuable upon exercise of stock options outstanding under
     our stock option plans as of June 30, 1999;

  .  27,805 shares issuable upon exercise of warrants outstanding as of June
     30, 1999; and

  .  1,050,074 shares available for future grant or issuance under our stock
     option plans as of June 30, 1999.

                                       14
<PAGE>

                                    DILUTION

  If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately after this offering. Pro forma net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the pro forma net tangible book value per share of common stock immediately
after completion of this offering.

  Our pro forma net tangible book value as of June 30, 1999 was $12.8 million,
or $3.92 per share of common stock, assuming the conversion of all outstanding
shares of preferred stock into shares of common stock. Pro forma net tangible
book value per share represents the amount of our shareholders' equity, less
intangible assets, divided by the total number of shares of common stock
outstanding for the period immediately prior to this offering. After giving
effect to the sale of the [    ] shares of common stock offered in this
prospectus at an assumed initial public offering price of $[  ] per share and
after deducting the estimated underwriting discounts and offering expenses, our
adjusted pro forma net tangible book value as of June 30, 1999 would have been
$[  ], or $[  ] per share of common stock. This represents an immediate
increase in net tangible book value of $[  ] per share to existing shareholders
and an immediate dilution of $[  ] per share to new investors purchasing shares
in this offering. The following table illustrates this per share dilution:

<TABLE>
   <S>                                                             <C>    <C>
   Assumed initial public offering price per share................        $
   Pro forma net tangible book value per share as of June 30,
     1999......................................................... $ 3.92
   Increase per share attributable to new investors...............
                                                                   ------
   Pro forma net tangible book value per share after this
     offering.....................................................
                                                                          ----
   Net tangible book value dilution per share to new investors....        $
                                                                          ====
</TABLE>

  The following table summarizes as of June 30, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
shareholders and by investors purchasing shares of common stock in this
offering and before deducting estimated underwriting discounts and offering
expenses:

<TABLE>
<CAPTION>
                                                                        Average
                                                                       Price Per
                                 Shares Purchased  Total Consideration   Share
                                 ----------------- ------------------- ---------
                                  Number   Percent   Amount    Percent  Percent
                                 --------- ------- ----------- ------- ---------
<S>                              <C>       <C>     <C>         <C>     <C>
Existing shareholders..........  3,254,131      %  $16,062,000      %    $4.94
New investors..................
                                 ---------   ---   -----------   ---     -----
  Total........................              100%  $             100%    $
                                 =========   ===   ===========   ===     =====
</TABLE>

  The foregoing discussion and tables assume no exercise of any stock options
or warrants after June 30, 1999. As of June 30, 1999, there were options and
warrants to purchase a total of 956,421 shares of common stock. To the extent
that any of these options or warrants are exercised, there will be further
dilution to new investors. See "Capitalization," "Management--Employee Benefit
Plans," "Description of Capital Stock" and Note 4 of "Notes to Financial
Statements."


                                       15
<PAGE>

                            SELECTED FINANCIAL DATA
                     (In thousands, except per share data)

  The following selected financial data should be read together with the
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The selected statement of operations data shown below for
the years ended December 31, 1996, 1997 and 1998 and the balance sheet data as
of December 31, 1997 and 1998 are derived from our audited financial statements
included elsewhere in this prospectus. The selected statement of operations
data shown below for the years ended December 31, 1994 and 1995 and the balance
sheet data as of December 31, 1994, 1995 and 1996 are derived from our audited
financial statements not included elsewhere in this prospectus. The selected
financial data for the six months ended June 30, 1998 and 1999 has been derived
from our unaudited financial statements which, in the opinion of management,
include all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial information shown in these
statements. The results for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year or for
any future period.

<TABLE>
<CAPTION>
                                                                      Six Months
                                 Year Ended December 31,            Ended June 30,
                          ----------------------------------------  ----------------
                           1994    1995    1996    1997     1998     1998     1999
                          ------  ------- ------  ------  --------  ------  --------
                                                                      (unaudited)
<S>                       <C>     <C>     <C>     <C>     <C>       <C>     <C>
Statement of Operations
  Data:
Net revenues............  $  904  $ 2,497 $4,360  $7,093  $ 10,122  $3,929  $  7,108
Operating expenses
 Cost of revenues.......     330    1,323  2,480   4,496     6,958   2,935     5,233
 Selling, general &
   administrative.......     358      538  1,796   2,068     2,831   1,319     2,010
 Research and
   development..........     393      605    863   1,242     1,519     673     1,127
                          ------  ------- ------  ------  --------  ------  --------
  Total operating
    expenses............   1,081    2,466  5,139   7,806    11,308   4,927     8,370
                          ------  ------- ------  ------  --------  ------  --------
Operating income
  (loss)................    (177)      31   (779)   (713)   (1,186)   (998)   (1,262)
Interest income.........      11       31    198     213       144      83       150
                          ------  ------- ------  ------  --------  ------  --------
Net (loss) income.......  $ (166) $    62 $ (581) $ (500) $ (1,042) $ (915) $ (1,112)
                          ======  ======= ======  ======  ========  ======  ========
Basic and diluted net
  (loss) income per
  share.................  $ (.15) $   .06 $ (.53) $ (.45) $   (.90) $ (.80) $   (.95)
Shares used in basic and
  diluted net income
  (loss) per share......   1,078    1,098  1,104   1,125     1,154   1,150     1,165
Pro forma basic and
  diluted net loss per
  share.................                                      (.42)             (.46)
Shares used in pro forma
  net loss per share....                                     2,162             2,409
</TABLE>

<TABLE>
<CAPTION>
                                          December 31,               June 30,
                              ------------------------------------- ----------
                               1994   1995   1996    1997    1998      1999
                              ------ ------ ------- ------- ------- ----------
                                                                    (unaudited)
<S>                           <C>    <C>    <C>     <C>     <C>     <C>
Balance Sheet Data:
Cash and cash equivalents...  $  690 $  472 $ 1,614 $ 1,009 $ 1,681  $ 9,268
Working capital.............     482    411   3,981   3,102   1,782   10,821
Total assets................   1,177  1,253   5,179   5,084   5,596   14,303
Long-term obligations, net
  of current portion........     --     --      --      --      --       --
Total shareholders' equity..     869    991   4,904   4,423   3,391   12,772
</TABLE>

                                       16
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

  We were co-founded in 1993 by Mark Tierney, Michael Bingham and Barbara
Seykora, all of whom remain active with us today. From inception until June
1999, our activities principally involved providing back-end exchange services
for large, multi-site employers such as GE Capital, PepsiCo and Bell Atlantic.
In the second quarter of 1999, we initiated activities to leverage our success
in the large employer market to also serve the mid-size employer market
segment. From inception until September 1999, we were incorporated under the
name Network Management Services, Inc. In September 1999, we changed our name
to eBenX, Inc.

  Our principal source of revenue is derived from providing ongoing group
health eligibility and financial data exchange services. Exchange services
revenue is typically priced on a per employee per month basis with adjustments
made to accommodate the number of health plan interfaces that the customer
requires. In many cases, we allow fixed and variable fee structures to permit
volume-adjusted pricing. We recognize revenue for exchange services as the
services are performed. In addition, we earn revenue from health benefit plan
procurement and implementation fees for exchange services, which we recognize
on a percentage-of-completion basis or as services are performed. We typically
enter into contracts with our large employer customers that are three years in
length. Customers may purchase some or all of our services and the customer
relationship may evolve from utilizing procurement services to utilizing
implementation services and per employee-based exchange services. A significant
percentage of our revenues are earned from a few customers, most notably Bell
Atlantic and PepsiCo.

  The establishment of new customer relationships involves lengthy and
extensive sales and implementation processes. The sales process typically takes
four to six months, and the implementation process takes an additional two to
four months. The sales process is accounted for under the selling, general and
administrative expense category. The implementation process affects cost of
services but may also impact research and development expense to the extent new
customer relationships require new or enhanced service offerings.

  Cost of services consists primarily of personnel costs for account
management, operations, production and procurement and certain information
technology costs for both ongoing procurement and exchange services and for
customer implementation expense. The information technology costs relate to
personnel costs for implementing and maintaining customer and health plan
computer interfaces and computer hardware and software expenses related to
computer processing. A significant portion of cost of services consists of new
customer implementation expenses. Therefore, increasing numbers of new
customers will cause the cost of services as a percentage of net revenue to
increase.

  Selling, general and administrative expenses consist primarily of payroll and
payroll-related expenses associated with sales and marketing, executive
management and corporate administrative personnel, as well as professional fees
and expenditures for advertising, public relations and promotional efforts. We
intend to significantly increase our sales and marketing expenses over the next
several years. We intend to invest substantially in an integrated marketing
program, including the expansion and enhancement of our penetration into the
mid-size employer market through broker partners. At the same time, we intend
to devote additional resources to develop partnerships and relationships with
human resource services and systems organizations. We expect that, in support
of the continued growth and operation of our business, selling, general and
administrative expenses will continue to increase for the foreseeable future.

  Research and development expenses consist primarily of development personnel
and external contractor costs related to the development of new products and
services, enhancement of existing products and services, quality assurance and
testing. To date, we have not capitalized any of our software development
costs. Because the timing of the commercial release of our services has
substantially coincided with technological feasibility, all research and
development costs have been expensed as incurred. We intend to continue to
expand our

                                       17
<PAGE>

product offerings by adding additional services. We expect these activities
will require additional personnel. Accordingly, we expect our research and
development expenses will continue to increase for the foreseeable future.

  Since our inception, we have incurred losses. As of June 30, 1999, we had an
accumulated deficit of $3.3 million. These losses and this accumulated deficit
have resulted from the significant costs incurred in the development of our
technology platform, the establishment of relationships with our customers, and
the development and maintenance of our customer and health plan interfaces. We
intend to continue to invest heavily in research and development, sales and
marketing and in our computer and administrative infrastructure. As a result,
we believe that we will incur substantial operating losses for the foreseeable
future. Although we have experienced significant revenue growth in recent
periods, our operating results for future periods are subject to numerous
uncertainties. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.

Results of Operations

  The following table sets forth for the periods indicated selected statement
of operations data expressed as a percentage of net revenues.

<TABLE>
<CAPTION>
                                       Year Ended             Six Months
                                      December 31,           Ended June 30,
                                    ---------------------   -----------------
                                    1996    1997    1998     1998      1999
                                    -----   -----   -----   -------   -------
<S>                                 <C>     <C>     <C>     <C>       <C>
Net revenues....................... 100.0%  100.0%  100.0%    100.0%    100.0%
Operating expenses:
  Cost of services.................  56.9    63.4    68.7      74.7      73.6
  Selling, general and
    administrative.................  41.2    29.2    28.0      33.6      28.3
  Research and development.........  19.8    17.5    15.0      17.1      15.9
                                    -----   -----   -----   -------   -------
     Total operating costs and
       expenses.................... 117.9   110.1   111.7     125.4     117.8
                                    -----   -----   -----   -------   -------
Loss from operations............... (17.9)  (10.1)  (11.7)    (25.4)    (17.8)
Interest income (expense), net.....   4.5     3.0     1.4       2.1       2.1
                                    -----   -----   -----   -------   -------
Net loss........................... (13.4)%  (7.1)% (10.3)%   (23.3)%   (15.7)%
                                    =====   =====   =====   =======   =======
</TABLE>

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

  Net revenues. Net revenues increased from $3.9 million for the six months
ended June 30, 1998 to $7.1 million for the same period in 1999, representing
an increase of $3.2 million, or 80.9%. This increase primarily was due to a new
contract with Bell Atlantic and the expansion of our relationship with PepsiCo.

  Cost of services. Cost of services increased from $2.9 million for the six
months ended June 30, 1998 to $5.2 million for the same period in 1999,
representing an increase of $2.3 million, or 78.3%. This increase primarily was
due to increased personnel and computer-related infrastructure costs necessary
to support the increased demand for our services. Cost of services, as a
percentage of net revenues, decreased from 74.7% for the six months ended June
30, 1998 to 73.6% for the same period in 1999. Because a significant portion of
cost of services consists of new customer implementation expenses, we
anticipate that as we add new customers cost of services will increase as a
percentage of net revenues.

  Selling, general and administrative. Selling, general and administrative
expenses increased from $1.3 million for the six months ended June 30, 1998 to
$2.0 million for the same period in 1999, representing an increase of $0.7
million, or 52.4%. This increase primarily was due to the establishment of a
sales team in late 1998 and additions to management. We anticipate that sales
and marketing expenses will increase substantially in future periods as we
expand our sales and marketing efforts.

  Research and development. Research and development expenses increased from
$0.7 million for the six months ended June 30, 1998 to $1.1 million for the
same period in 1999, representing an increase of

                                       18
<PAGE>

$0.4 million, or 67.5%. This increase primarily was due to additions to our
research and development staff. We anticipate that we will continue to devote
substantial resources to our research and development efforts and that research
and development expenses will increase for the foreseeable future.

  Interest income (expense), net. Net interest income includes income earned
from our invested cash, income earned from facilitating our customers' payments
to their health plans and expenses related to outstanding debt obligations
under our bank credit facility. Net interest income increased from $83,000 for
the six months ended June 30, 1998 to $150,000 for the same period in 1999. In
the first six months of 1999, interest expense was incurred for bank
borrowings. There were no borrowings in the first six months of 1998.

Years Ended December 31, 1996, 1997 and 1998

  Net revenues. Net revenues increased from $7.1 million in 1997 to $10.1
million in 1998, or 42.7%. Net revenues in 1997 represented a 62.7% increase
over 1996 net revenues of $4.4 million. The increase in 1998 primarily was due
to a new contract with Bell Atlantic and servicing additional divisions of
PepsiCo. The increase in 1997 primarily was due to new contracts with The Blue
Cross/Blue Shield Association and R.R. Donnelley & Sons and the sale of
additional services to PepsiCo and General Electric.

  Cost of services. Cost of services increased from $4.5 million in 1997 to
$7.0 million in 1998, or 54.8%. Cost of services in 1997 represented an 81.3%
increase over 1996 cost of services of $2.5 million. The increase in 1998
primarily was due to increases in personnel and investments in computer
hardware and software infrastructure. The increase in 1997 primarily was due to
additions in personnel. Cost of services, as a percentage of net revenues,
increased from 56.9% in 1996 to 63.4% in 1997 and to 68.7% in 1998. A
significant portion of cost of services consists of new customer implementation
expenses. Therefore, increasing numbers of new customers will cause the cost of
services as a percentage of net revenue to increase.

  Selling, general and administrative. Selling, general and administrative
expenses increased from $2.1 million in 1997 to $2.8 million in 1998, or 36.9%.
Selling, general and administrative expenses in 1997 represented a 15.1%
increase over 1996 selling, general and administrative expenses of $1.8
million. The 1998 increase primarily was due to the establishment of a sales
team. The 1997 increase primarily was due to additions to management. Selling,
general and administrative expenses, as a percentage of net revenues, decreased
from 41.2% in 1996 to 29.2% in 1997 and to 28.0% in 1998.

  Research and development. Research and development expenses increased from
$1.2 million in 1997 to $1.5 million in 1998, or 22.3%. Research and
development expenses in 1997 represented a 43.9% increase over 1996 R&D
expenses of $0.9 million. These increases primarily were due to the hiring of
additional personnel.

  Interest income (expense), net. Net interest income decreased from $213,000
in 1997 to $144,000 in 1998, or 32.4%. Net interest income in 1997 represented
a 7.6% increase over 1996 net interest income of $198,000. The decrease from
1997 to 1998 primarily was due to decreased cash reserves resulting from the
losses incurred in 1998. The increase from 1996 to 1997 primarily was due to
increased cash reserves resulting from the sale of preferred stock in mid-1996.

  Income taxes. As of December 31, 1998, we had unused federal and state
research and development tax credit carryforwards of approximately $100,000
which expire at various times through 2011. In addition, we had unused federal
net operating loss carryforwards at December 31, 1998 of approximately $1.8
million which expire at various times through 2013. The utilization of these
carryforwards is dependent upon our ability to generate sufficient taxable
income during carryforward periods.

Selected Quarterly Operating Results

  The following table shows unaudited statement of operations data expressed in
dollars (in thousands) and as a percentage of net revenues for the last three
quarters in our fiscal year ended December 31, 1998 and for

                                       19
<PAGE>

the first two quarters in our fiscal year ending December 31, 1999. In
management's opinion, this unaudited quarterly information has been prepared on
the same basis as the audited financial statements and related notes and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the quarters
presented, when read in conjunction with the audited financial statements and
related notes included elsewhere in this prospectus. We believe that quarter-
to-quarter comparisons of our financial results are not necessarily meaningful
and should not be relied upon as an indication of future performance.

<TABLE>
<CAPTION>
                                           Three Months Ended
                         --------------------------------------------------------
                         June 30,  September 30, December 31, March 31,  June 30,
                           1998        1998          1998       1999       1999
                         --------  ------------- ------------ ---------  --------
<S>                      <C>       <C>           <C>          <C>        <C>
Net revenues............  $2,158      $2,740        $3,454     $3,342     $3,766
Operating expenses:
  Cost of services......   1,585       1,856         2,166      2,355      2,878
  Selling, general and
    administrative......     671         667           845        859      1.151
  Research and
    development.........     342         345           502        545        582
                          ------      ------        ------     ------     ------
     Total operating
       expenses.........   2,598       2,808         3,513      3,759      4,611
                          ------      ------        ------     ------     ------
Loss from operations....    (440)       (128)          (59)      (417)      (845)
Interest income
  (expense), net........      38          20            42         45        105
                          ------      ------        ------     ------     ------
Net loss................  $ (402)     $ (108)       $  (17)    $ (372)    $ (740)
                          ======      ======        ======     ======     ======
<CAPTION>
                                           Three Months Ended
                         --------------------------------------------------------
                         June 30,  September 30, December 31, March 31,  June 30,
                           1998        1998          1998       1999       1999
                         --------  ------------- ------------ ---------  --------
<S>                      <C>       <C>           <C>          <C>        <C>
Net revenues............   100.0%      100.0%        100.0%     100.0%     100.0%
Operating expenses:
  Cost of services......    73.4        67.8          62.7       70.5       76.4
  Selling, general and
    administrative......    31.1        24.3          24.5       25.7       30.6
  Research and
    development.........    15.8        12.6          14.5       16.3       15.5
                          ------      ------        ------     ------     ------
     Total operating
       expenses.........   120.3       104.7         101.7      112.5      122.5
                          ------      ------        ------     ------     ------
Loss from operations....   (20.3)       (4.7)         (1.7)     (12.5)     (22.5)
Interest income
  (expense), net........     1.7         0.7           1.2        1.3        2.8
                          ------      ------        ------     ------     ------
Net (loss) income.......   (18.6)%      (4.0)%        (0.5)%    (11.2)%    (19.7)%
                          ======      ======        ======     ======     ======
</TABLE>

  Our business is characterized by seasonality. As a result, our revenue may be
subject to seasonal fluctuations, with the largest percentage of annual revenue
typically being realized in the fourth quarter. This is primarily due to
implementation of services to new customers in the third and fourth quarters
and providing open enrollment services to new and existing customers in the
fourth quarter. Further, our operating expenses typically increase in the
second and third quarters as we add personnel in anticipation of acquiring new
customers and implementing and providing services to such new customers, most
of which begin using our services in the third and fourth quarters. In
addition, cost of services typically increases as a percentage of net revenues
as we implement services for new customers.

  Our quarterly operating results have in the past, and will in the future,
vary significantly depending on a variety of factors, including:

  .the number and size of new customers starting services;

  .the decision of one or more customers to delay implementation or cancel
      ongoing services;

  .seasonality;

                                       20
<PAGE>

  .  our ability to design, develop and introduce new services and features
     for existing services on a timely basis;

  .  costs associated with strategic acquisitions and alliances or
     investments in technology;

  .  the success of any such strategic acquisition, alliance or investment;

  .  costs to transition to new technologies;

  .  expenses incurred for geographic and service expansion;

  .  price competition;

  .  a reduction in the number of employees of our customers; and

  .  acquisitions of our customers by other companies.

  Revenue typically increases in the third and fourth quarters due to open
enrollment periods and new customer implementations. A substantial majority of
our operating expenses, particularly personnel and related costs, depreciation
and rent, are relatively fixed in advance of each quarter. Our agreements with
our customers generally do not have penalties for cancellation. As a result,
any decision by a customer to delay or cancel implementation of our services or
our underutilization of personnel may cause significant variations in operating
results in a particular quarter and could result in losses for such quarter. As
we secure larger customers, the time required for implementing our services
increases, which could contribute to larger fluctuations in revenue. It is
possible that in some future quarter our results of operations will be below
the expectations of public market analysts and investors. In either case, the
market price of our common stock could be materially adversely affected.

Liquidity and Capital Resources

  Historically, we have funded operations primarily through the private sales
of preferred stock, with net proceeds of approximately $16.0 million, limited
bank borrowings and equipment leases. All shares of our preferred stock will be
converted automatically into common stock immediately prior to the closing of
this offering. As of June 30, 1999, we had $9.3 million in cash and cash
equivalents and a secured revolving line of credit of $1.5 million, which bears
a variable interest rate of 1% above the lender's base rate and expires in
December 1999. At June 30, 1999, there were no borrowings under the line of
credit.

  Our operating activities used cash of $0.8 million in 1996, provided cash of
$67,000 in 1997 and used cash of $1.3 million in 1998. Our operating activities
used cash of approximately $1.5 million in the six months ended June 30, 1999.
The use of cash from operations in 1998 and for the first six months of 1999
primarily was due to our net loss and an increase in accounts receivable,
partially offset by an increase in depreciation.

  Our investing activities used cash of $2.5 million in 1996 and $0.7 million
in 1997, provided cash of $1.2 million in 1998 and used cash of $0.6 million
for the first six months of 1999. In 1996, $0.5 million of the cash used for
investing activities was for additions to equipment and $2.0 million was for
the purchase of U.S. Treasury Notes using proceeds from the sale of preferred
stock. In 1997, our investing activities used cash for additions to equipment.
In 1998, our investing activities used cash of $0.8 million for additions to
equipment and we received proceeds of $2.0 million from the sale of U.S.
Treasury Notes. For the first six months of 1999, our investing activities used
cash for additions to equipment.

    Our financing activities provided cash of $4.5 million in 1996, $19,000 in
1997, $0.8 million in 1998 and $9.8 million in the first six months of 1999.
For 1996, financing activities provided cash principally from the sale of
preferred stock. In 1997, financing activities provided cash from the exercise
of common stock options. In 1998, financing activities provided cash
principally from bank borrowings in December 1998 of $0.75 million. For the
first six months of 1999, financing activities provided cash from the sale of
$10.5 million in preferred stock, partially offset by the repayment of bank
borrowings.

                                       21
<PAGE>

  Our equipment additions consist primarily of computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
equipment additions will continue to increase in the future. Since inception,
we have generally funded equipment additions either through the use of working
capital or with operating leases. We expect to continue to add computer
hardware and software and to use operating leases to finance these additions.
In connection with the planned relocation of our headquarters, we expect to
make approximately $3.0 million in leasehold improvements and also need to
purchase additional office furniture. We intend to enter into a real estate
lease agreement that will finance the leasehold improvements over the term of
the lease. We intend to enter into a loan agreement to finance the office
furniture. To the extent we are unable to secure this financing, we may be
required to apply a portion of the proceeds from this offering toward these
expenditures.

  We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In
addition, we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or service lines. We believe that the
net proceeds from the sale of the common stock in this offering and cash from
operations will be sufficient to meet our working capital and operating
resource expenditure requirements for the foreseeable future. Thereafter, we
may find it necessary to obtain additional equity or debt financing. In the
event additional financing is required, we may not be able to raise it on
acceptable terms or at all.

Year 2000 Issue

  Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will
need to accept four-digit entries to distinguish 21st century dates from 20th
century dates. This problem could result in system failures or miscalculations
causing disruptions of business operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in other
similar business activities. As a result, many companies' computer systems and
software will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not
known, and, if not corrected in a timely manner, could affect us and the United
States and world economies generally.

  We have analyzed the potential effect of the Year 2000 issue on both the
system software included in our services and our word processing, billing and
other internal systems software, including information technology ("IT") and
non-IT systems (which systems contain embedded technology in manufacturing or
process control equipment containing microprocessors or other similar
circuitry). Our Year 2000 compliance program includes the following phases:
identifying systems that need to be modified or replaced; carrying out
remediation work to modify existing systems or convert to new systems; and
conducting validation testing of systems and applications to ensure compliance.
We are currently in the remediation phase of this program with respect to
software purchased or licensed from software vendors by us and used internally
and have completed the validation phase of this program with respect to our own
products.

  The amount of remediation work required to address Year 2000 problems is not
expected to be extensive. We have tested all of the system software included in
our services and determined that they are Year 2000 compliant. We also have
requested and received documentation from vendors supplying software for our
primary business applications addressing Year 2000 compliance. In all cases,
vendors' responses indicated that their applications were either currently Year
2000 compliant or that they would be compliant by the end of 1999. Therefore,
we will be required to modify some of our existing software applications in
order for our internal computer systems to function properly in the year 2000
and thereafter. We estimate that we will complete our Year 2000 compliance
program for all of our significant internal systems no later than December 31,
1999. We also have had discussions with our customers and the vast majority of
their health plans regarding their efforts to address the Year 2000 problem.
These actions are intended to help mitigate the possible external impact of the
Year 2000 problem. However, it is impossible to fully assess the potential

                                       22
<PAGE>

consequences in the event service interruptions occur or in the event that
there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government.

  Because essentially all of our services and internal systems were created in
the last few years, such products and internal systems were designed to avoid
the year 2000 problem. As a result, the total cost for resolving our Year 2000
issues is expected to be less than $50,000, a negligible amount of which has
been spent as of the date of the prospectus. The total cost estimate includes
the cost of replacing or upgrading non-compliant systems that were otherwise
planned or which have significant improvements and benefits unrelated to Year
2000 issues. Estimates of Year 2000 costs are based on numerous assumptions,
and there can be no assurance that the estimates are correct or that actual
costs will not be materially greater than anticipated.

  We are developing a contingency plan to provide for continuity of processing
in the event of various problem scenarios based on the outcome of the
validation phase of all of our systems and any additional results from surveys
of our major customers and their health plans with respect to their Year 2000
compliance.

  Based on our assessments to date, we believe we will not experience any
material disruption as a result of Year 2000 problems with respect to our
services and the third-party systems we use for our internal functions, and, in
any event, we do not anticipate the Year 2000 issues we will encounter will be
significantly different from those encountered by other computer-related
service providers. For example, if certain critical third-party suppliers, such
as those supplying electricity, water or telephone service, experience
difficulties resulting in disruption of service to us, a shutdown of our
operations could occur for the duration of the disruption. Assuming no major
disruption in service from utility companies or other critical third-party
suppliers, we believe that we will be able to manage our total Year 2000
transition without any material effect on our results of operations or
financial condition.

Recent Accounting Pronouncements

  In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and
identifies characteristics of internal use software as well as assists in
determining when computer software is for internal use. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998, with earlier application
permitted. We do not expect the adoption of this SOP to have a material impact
on our financial statements.

  In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." This statement
provides guidance on the financial reporting of start-up costs and organization
costs. It requires that the cost of start-up activities and organization costs
be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. We do not expect the
adoption of this SOP to have a material impact on our financial statements.

  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivatives which focused on
freestanding contracts, including, for example, options and forwards, futures
and swaps, expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded on the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. We do not anticipate
that the adoption of SFAS 133 will have a material impact on our financial
position or results of operations. We currently do not hold derivative
instruments or engage in hedging activities.

                                       23
<PAGE>

                                    BUSINESS

Overview

  We provide business-to-business e-commerce and connectivity solutions to
employers and health plans for the purchase, eligibility administration and
premium payment of group health insurance benefits. Through our proprietary and
licensed technology, we facilitate the flow of eligibility and financial data
between employers and health plans. Our proven, Web-enabled and high volume
eligibility and financial data pipelines provide the critical connectivity
necessary for employers and health plans to communicate electronically. The
result is reduced administrative and medical costs for employers, reduced
administrative costs for health plans, and broader access and improved quality
of care for employees and dependents.




  [Diagram of Group Health Insurance Benefits Market Sector (to be provided)]

                                       24
<PAGE>

Group Health Insurance Benefits

 General Industry Background

  Health care expenditures in the United States totaled more than $1.1 trillion
in 1998 and are expected to double by 2007. Employers are a significant
purchaser of group health insurance benefits for their employees, retirees and
their dependents. Currently, more than half of the U.S. population receives
group health insurance benefits through their employers. In 1998, the group
health insurance benefits market generated more than $600 billion in services
and payments between the two trading partners, employers and health plans.

  Employers can be segmented into three categories:

  . large employers, such as Fortune 1000 companies and federal, state and
      local governments;

  . mid-size employers with 50 to 5,000 employees; and

  . small employers with less than 50 employees.

  In 1998, the average cost of providing coverage for active and retired
workers was approximately $4,168 per employee. We expect this average cost to
increase by 7% this year. In 1998, on average, each active employee contributed
approximately 25% of this amount through payroll deductions and co-payments. We
believe that this percentage will increase.

  Broadly characterized, health plans consist of any organization that
reimburses physicians, hospitals, pharmacies and other direct providers of
health care. These organizations include:

  . health maintenance organizations;

  . preferred provider organizations;

  . point of service plans;

  . indemnity carriers;

  . third party administrators; and

  . pharmacy benefit managers.

  Prior to the 1980s, employers typically purchased health benefits through a
single third-party administrator or national indemnity insurance carrier.
However, with the growth of managed care in the 1980s and 1990s, employers
began to purchase coverage through an increasing number of health plans because
the managed care system is comprised of numerous provider networks that have
limited geographic locations. Among HMOs alone, there are over 700 licensed
local health plans in the United States. Reflecting this proliferation of new
types of plans and payers, we estimate that each Fortune 1000 employer today
contracts with an average of 60 different plans.

 Purchasing, Eligibility Administration and Premium Payment Process

  The purchasing, eligibility administration and premium payment process that
connects employers and health plans is complex, cumbersome, expensive and
highly inefficient. In particular, the financing arrangements are extremely
variable and complicated, making administration difficult. In general, health
plans either charge employers based on the number of projected enrolled
employees and their projected actuarial risk or, alternatively, pay providers
on behalf of the employer and then are reimbursed from the employer's account.
Therefore, depending on the financing arrangements, an individual employer is
subject to multiple administrative arrangements from multiple health plans.

  The purchasing, eligibility administration and premium payment process
consists of two basic components commonly referred to as the "front-end" and
"back-end" processes.

                                       25
<PAGE>

 Front-end

  The front-end process refers to the selection of various health plans by an
employer, the communication of health plan information to employees and the
collection and ongoing maintenance of enrollment and eligibility data.

  Health plan selection. Employers annually solicit rate quotes from health
plans and select which plans will be made available to their employees.
Employers may choose as few as one health plan or as many as 150 or more health
plans depending on the employers' geographic locations and the employers'
desire to offer health plan choices. Large and mid-size employers usually offer
multiple health plans to provide greater choice, geographic coverage and access
to specialized services for their employees. Employers choose various financing
mechanisms depending on the level of risk they wish to retain. These include
self funded, fully insured, partially insured, or a combination of all three
financing mechanisms. To make these decisions, benefit managers of large
employers usually are supported by consultants while benefit managers of mid-
size employers generally use brokers.

  Communication of health plan information to employees. Employers annually
provide information to employees regarding which health plans are available and
the material features of each plan. The process entails distribution of printed
materials, mailings and other manual, paper-based communications. On average,
this distribution costs $8 to $12 per employee. Due to the continuous changes
in the list of providers utilized by health plans, printed materials usually
are outdated by the time of delivery.

  Collection of enrollment and eligibility information. Employees enroll in one
of the available health plans during an annual open enrollment period.
Employers collect enrollment and eligibility data using a wide variety of
methods, including paper forms, telephone-based systems and Web-based self-
service enrollment systems. Enrollment data includes information on the
employee's health plan choice and primary care provider. Eligibility
information is basic information about the employee and his or her
dependent(s), such as name, address, date of birth, social security number,
employment code, benefit status, coverage level and eligibility period.

  Ongoing member management. In addition to collecting annual enrollment and
eligibility information, employers need to obtain and communicate daily life
event changes that affect coverage status. These changes include employee
marriages, divorces, child births and address changes, as well as career events
such as new hires, terminations and movements from hourly to salaried status.
No other benefit offered by employers requires as high a level of information
collection and continuous monitoring and modification because group health
insurance is the only benefit that must maintain and store precise family
history.

 Back-end

  While the front-end process focuses on communication of information between
employers and employees, the back-end process focuses on managing and storing
eligibility and financial data for communication with health plans and using
this data to reconcile payments.

  Enrollment and eligibility data management. Once enrollment and eligibility
data is collected, employers undertake a cumbersome process to authenticate,
edit, categorize and organize the data. This process also requires the ongoing
classification of employees by employment status, such as active, retired,
surviving spouse, student and COBRA-eligible, in order to accommodate diverse
collection and payment processes for each category. This data management is
critical to accurate billing and reconciling of payments between an employer
and its health plans.

  Eligibility data distribution. Eligibility data should be transferred on a
daily or weekly basis from employers to health plans and in a manner that
assures it will be correctly recorded. Today, however, this data is transferred
far less frequently and with little assurance that it will be correctly
interpreted. It is communicated electronically between legacy systems at best
and, at worst, via hard copy data entry. Ultimately, this eligibility data is
required when employees and dependents present themselves to physicians

                                       26
<PAGE>

and other providers for health care services. Providers obtain patient
eligibility information via telephone or computer from patients' health plans
prior to rendering services.

  Billing, reconciliation and settlement. Health plans bill employers on a
weekly or monthly basis based on either enrollment numbers and quoted rates or
on claims paid. Employers pay these multiple paper bills without auditing these
bills. They then manually reconcile the number of enrolled employees and their
eligibility status using their own internal data. Because of data discrepancies
and delays in transfer and billing cycles, the health plans' data and the
employers' data are rarely the same and thus ongoing payment disputes are
common.

Factors influencing the marketplace and related issues

  The purchasing, eligibility administration and premium payment process is
encumbered by inefficient procedures for rate setting, gathering and
transferring data and executing payment transactions. These inefficiencies,
together with other factors unique to health care delivery, result in the
following significant challenges:

  Fragmented employers and health plans. There are more than 30,000 large and
mid-sized employers in the United States, many of which have a broadly
dispersed employee base frequently located in multiple sites across the United
States. In contrast, there are over 700 independent HMOs in the United States
today, which generally operate in a single or limited geographic area. As a
result, employers contract with multiple health plans to provide complete
geographic coverage for all of their employees.

  Increasing group health insurance benefit costs. The average cost of employee
and retiree health care will increase by approximately 7% this year. As these
costs rise, employers likely will seek more cost-effective health insurance
benefits solutions. Employers will be more critical in their selection of
health plans and will demand a more competitive bidding process. In addition,
they will need to be able to switch health plans when necessary, and they
likely will shift more costs to employees.

  Complex data management. Health plans collect complex, detailed and dynamic
data in varying formats from multiple employers. Conversely, employers must
distribute this data in varying formats to multiple health plans. A failure to
accurately update eligibility and financial data in a timely fashion may result
in additional administrative costs and financial reconciliation problems and
can lead to employees and their dependents being wrongfully denied healthcare
services.

  Varied data formats. Eligibility and financial data formats vary considerably
throughout the health care industry and typically are unique to each particular
employer and health plan. The collection, storage and transmission of this data
remains a labor-intensive, paper-based and error-prone process. As a result,
most health plans are unable to frequently update this data. Some efforts have
been made to develop a common standard. However, these standards do not meet
the complex needs of multiple purchasers and have not been widely accepted.

  Varied systems platforms. Most employers use their own unique human resources
information systems and other benefit and payroll related systems to
communicate with multiple health plans. These health plans in turn rely on
their own unique legacy systems. Often, within a single employer or health
plan, there are several systems in place for collecting and storing this data
that are unable to communicate with one another. Each system has its own code
data rules, syntax and semantics, requiring substantial information technology
resources to interface.

  Inefficient pricing, billing, reconciliation and settlement
processes. Employers must obtain rate quotes from health plans based on the
estimated risk of the employers' employee population. Rates are difficult to
compare because of differing plan designs and underwriting methodologies.
Employers receive bills from each of their health plans in different formats
and in some cases for different coverage periods. These bills are

                                       27
<PAGE>

calculated using data provided by health plans. If a plan is late in
recognizing an employee's termination, the employer must perform an audit to
determine this. Depending on the number of health plans and the diversity of
the payment arrangements, this can be an arduous task. Inaccurate payments
require significant manual intervention by employers and health plans to
reconcile accounts.

  Brokers have limited transaction processing capability. In the mid-size
employer market, employers and health plans trade primarily through brokers. As
a result, brokers have been positioned to administer the processes required to
facilitate this trading. However, brokers generally do not have access to the
capital needed to develop e-commerce systems. Consequently, this process
essentially remains a labor-intensive, paper-based and highly inefficient
process. Because of increasing demand for business-to-business e-commerce
solutions, brokers likely must either embrace new technology or risk being
disintermediated.

  Added complexity caused by government regulation. Numerous federal, state and
local laws and regulations govern the healthcare industry. These laws and
regulations change frequently. In recent years, the responsibilities of
employers to provide their employees with access to health care have increased
significantly. In particular, COBRA and HIPAA have added substantial burdens to
employers administering employee health insurance benefits. The proposed
legislation covering patients' bill of rights includes a provision that may put
health plans and employers at more risk of litigation. This may have the effect
of pushing employers toward a defined contribution and voucher-based approach
to their employees' healthcare insurance benefits.

Opportunity for Business-to-Business E-Commerce Solutions for Group Health
Insurance Benefits

  The ubiquitous nature, low cost and scalability of the Internet have created
new opportunities for conducting commerce. Recently, the widespread adoption of
intranets and the acceptance of the Internet as a business communications
platform has created a foundation for business-to-business e-commerce that
enables organizations to streamline complex processes, lower costs and improve
productivity. It is projected that business-to-business e-commerce, which is
estimated to grow from $50 billion in revenue in 1998 to $1.3 trillion in 2003,
will account for more than 74% of the value of e-commerce in the United States.

  Group health insurance benefits purchasing, eligibility administration and
premium payment transactions lend themselves to Internet processing since most
of these transactions are information-based and do not require delivery of
durable goods at the point of payment. However, unlike other e-commerce
opportunities, such as purchasing books or individual insurance, group health
insurance benefits transactions involve complex group insurance pricing,
complex product presentation, and ongoing data management between multiple
organizations.

  We believe that business-to-business e-commerce technology solutions in this
market will require the following Internet-enabled components:

  Front-end quote and enrollment:

  .  quote systems that provide quick rate information from multiple plans;
     and

  .  annual and ongoing enrollment update tools that accommodate enrollment
     in numerous health plans, and content engines that provide plan
     descriptions, provider networks and rate information.

  Back-end eligibility and financial exchange:

  .  exchange systems that transfer eligibility and financial data files
     between trading partners and execute payment transactions with all
     applicable parties.


                                       28
<PAGE>





[Diagram of Group Health Insurance Benefits e-Commerce (to be provided)]

  Currently, there are numerous front-end Internet-based solutions that support
enrollment. However, we believe true e-commerce can only exist if there is
seamless end-to-end integration of the front- and back-end processes. We have
focused our efforts on developing our proprietary back-end eligibility and
financial data exchange platform, which we now are coupling with front-end
applications. As a result, we are able to provide a fully integrated end-to-end
solution for group health insurance benefits e-commerce.

Our Solution

  We provide the business-to-business e-commerce and connectivity solutions for
the purchase, eligibility administration and premium payment of group health
insurance benefits. Our Internet-based enrollment, eligibility and financial
exchange addresses requirements of both front- and back-end processes. During
the first six years of our operations, we focused on data and financial
management systems and on building custom and electronic connections between
customers, such as PepsiCo, Bell Atlantic, Northwest Airlines and GE Capital
and the United States' largest regional and local health plans. This effort has
resulted in connectivity to health plans that collectively serve approximately
85% of the managed care enrollment in the United States.

  In 1999, we began attaching this proprietary technology to multiple front-end
enrollment applications, including those offered by Healtheon,
PricewaterhouseCoopers and Watson Wyatt. It is this front-end/back-end
continuity that delivers the end-to-end business-to-business e-commerce
solutions for group health insurance benefits.

                                       29
<PAGE>

 Value Proposition to Trading Partners

  Our solution provides value to the trading partners through the collection,
management and storage of employee enrollment, eligibility and financial data
and the ongoing transmission of this data to health plans. Additionally, we
manage and execute the reconciling of payments between trading partners.

  For employers, our e-commerce solution:

    .  streamlines the enrollment process by moving it from paper or
       telephone voice response systems to self-service Internet
       applications;

    .  reduces administrative costs associated with disseminating basic
       health plan information to employees, the enrollment transaction,
       and the management and transfer of data among parties;

    .  eliminates the employer's responsibility for transmitting accurate
       enrollment and eligibility information to a variety of health plans
       and gives all trading partners access to real time eligibility via
       Web-enabled tools;

    .  eliminates the payment reconciling responsibilities currently
       imposed on both trading partners and delivers automated, accurate
       and retroactively adjusted payments to health plans;

    .  allows more choice of plans by lowering the barriers to entry for
       health plans thereby significantly reducing the cost of switching
       between competing health plans;

    .  reduces the cost of procuring health benefits by increasing health
       plan competition in the bidding process; and

    .  increases the ability to attract and retain employees through more
       diverse benefit offerings.

  For health plans, our e-commerce solution:

    .  improves timeliness and accuracy and lowers the cost of receiving
       eligibility and financial data;

    .  reduces the administrative burden associated with receiving
       eligibility and financial data;

    .  provides improved customer service and provider claims adjudication
       through twenty-four hour, seven day a week Web-enabled access to
       employers' eligibility and financial data;

    .  reduces distribution costs for the delivery of health plan
       information to employees; and

    .  opens new channels for them to distribute products and services over
       the Web.

  For group health insurance brokers, our e-commerce solution:

    .  allows access to technology without significant capital expense;

    .  moves services from a paper process to a more efficient Web-based
       solution;

    .  allows them to more easily offer multiple health plans to employer
       clients;

    .  provides significant differentiation from competing brokers; and

    .  allows them to retain a service position in a disintermediating
       marketplace by increasing customer retention and market share.

  For employees, our e-commerce solution:

    .  provides more opportunity for choice of plans and, through more
       competitive pricing, lower costs;

    .  provides Web-based enrollment and plan information; and

    .  improves quality of services, including the reduction of instances
       of wrongful denial of coverage due to eligibility data errors and
       incorrect calculation of co-payments.

Products and Services

  Since 1993, we have been servicing the back-end processing requirements of
our Fortune 1000 customers using our proprietary BEN-NET technology platform.
This platform provides a connective infrastructure and

                                       30
<PAGE>

neutral eligibility and financial data exchange mechanism. Leveraging our
client base, we have invested in building customized electronic connections
from our customers to their health plans.

  We are able to receive complex and dynamic data from employers and transmit
this data to fragmented health plans. Our core eligibility data and financial
exchange technology incorporates the business rules of each of the relevant
trading partners, as well as the format translations needed to automatically
reconcile and pay bills. Our solution creates the standard for group health
connectivity without causing employers or health plans to make major changes to
their disparate systems. Our technology enables the employer to send data in
whatever format and via whatever media the employer chooses. Once received, our
system edits and translates the data into a standard format. To facilitate
connectivity to the health plans, our systems then translate that data into the
format that is compatible with each of the computer systems of the individual
health plans utilized by our employer customer. This translated information is
then transmitted in whatever medium is acceptable to the health plan. Our BEN-
NET system electronically stores more current eligibility data than the data
held by employers or health plans that use our system, which helps us to
accurately bill the parties concerned.

  In 1999, we extended our suite of product offerings to support the data
management, communications and online transaction requirements for successful
group health insurance benefits e-commerce. We have done this by partnering
with other front-end application developers. We will provide end-to-end
processing for employers, brokers, health plans and employees through which
they will exchange information and transact business.

  This Internet-based solution will bring together the components necessary for
full transaction group health e-commerce: proposal requests, rate quotes,
online enrollment, eligibility management and financial exchange services.

                           Our Products and Services

<TABLE>
<CAPTION>
                                                                       Front or
 Product/Service     Process solution            Status                Back-end
 ---------------     ----------------            ------                --------
 <C>                 <S>                         <C>                   <C>
 eBenX Import Export Two sets of data            In service            Back-end
 (BEN-NET platform)  pipelines: one to front-    Mid-market interfaces
                     end applications and        in development
                     employer's human resource
                     information systems and
                     the other to health plans
                     and payroll companies
--------------------------------------------------------------------------------
 eBenX Financial     "Self bill" to health       In service            Back-end
 (BEN-NET platform)  plans and consolidated
                     invoice to employer
                     supports full financial
                     distribution; self-funded
                     management; auto-
                     adjudication and
                     consolidated premium
                     management
--------------------------------------------------------------------------------
 eBenX Inquiry       Internet-based real time,   In service            Back-end
 (BEN-NET platform)  enrollment eligibility
                     database access tool
--------------------------------------------------------------------------------
 eBenX Data Access   Internet-based, real time   In development        Back-end
 (BEN-NET platform)  reporting; standard
                     consolidated reports;
                     online financial reports
--------------------------------------------------------------------------------
 eBenX Enroll and    Internet-based employee     In service via        Front-end
 Member Maintenance  and human resource self-    front-end license
                     service benefit election;
                     Internet-based online
                     daily manager of employee
                     adds, deletes and
                     coverage changes from
                     life events
--------------------------------------------------------------------------------
 eBenX RFP           Internet-based census       In development        Front-end
                     acquisition and proposal
                     request tools to support
                     the competitive bidding
                     process
</TABLE>

We sell our products and services in selected packages designed to meet the
needs of each customer.

                                       31
<PAGE>

Health Benefit Plan Procurement Services

  We also provide health benefit plan procurement services to a number of our
Fortune 1000 customers. We undertake these services on a project basis. We
assist and advise our customers on selection of potential suppliers,
preparation of requests for proposals, evaluation of proposals, and rate
negotiations. Approximately 20 of our employees engage in delivering these
services. Our principal customers for these services are General Electric,
Eastman Kodak and Bell Atlantic. We view these activities as a complement to
the sales and customer development process for exchange services. In addition,
we gain valuable knowledge regarding market conditions and processes from
providing these services.

Our Strategy

  Our objective is to be the leading provider of Internet-based business-to-
business e-commerce for the purchase, eligibility administration and premium
payment of group health insurance benefits. Key elements to our strategy
include the following:

  Implement end-to-end e-commerce solution. We will implement an end-to-end e-
commerce solution by connecting with front-end applications and developing our
own front-end applications where appropriate. In the Fortune 1000 and mid-size
employer markets, front-end applications are being deployed by human resources
information systems platforms, by human resources record keeping service
companies, and enrollment software companies. We will aggressively pursue
front-end application providers to together offer a complete solution to
employers by linking our back-end eligibility and financial exchange services
with their front-end applications. In addition, through licensed technology, we
are deploying our own front-end applications.

  Increase penetration of the Fortune 1000 market. We will continue to focus on
marketing our services to Fortune 1000 companies. We demonstrate to these
companies the administrative efficiencies, cost savings and participant
satisfaction that we provide. We now provide services to 20 of the
approximately 1,500 U.S. companies that have more than 5,000 employees,
including PepsiCo, Bell Atlantic, Northwest Airlines, General Electric, Eastman
Kodak, Chevron, Dayton Hudson, Georgia-Pacific and Reader's Digest. The
remaining companies provide us with substantial growth opportunities.

  Expand service offerings to existing Fortune 1000 customers. We intend to
continue to aggressively expand our service offerings to our existing Fortune
1000 customers. We have been successful in increasing our revenues from most of
our current Fortune 1000 clients through an expanded level of services provided
to additional divisions, subsidiaries and locations of those clients.

  Expand to the mid-size employer market. We intend to leverage our technology
through relationships with insurance brokers to penetrate the mid-size employer
market. Mid-size employers typically purchase group health insurance benefits
using insurance brokers.

  Pursue key strategic relationships to further enhance our service offering
and client base. We intend to pursue key strategic relationships, including
customer agreements and acquisitions. We believe that making strategic
acquisitions and developing strategic relationships will enable us to enhance
our service offerings and expand our client base.

  Develop new products. We intend to use our market knowledge and experience to
develop new products to fully leverage the market channels opened by the
implementation of our technology. For example, we are developing Preferred
Plans.com, a prepackaged group health insurance solution for multi-site, multi-
state employers that will provide mid-size employers with rate quotes and
access to best-practice, best-value health plans throughout the United States.
This will give the health plan supplier access to the purchaser via the
Internet for the first time. In addition, we are designing our technology to
support the sophisticated data and financial reconciling requirements implicit
in the post-enrollment risk-adjusted payments to health plans that would result
from defined contribution and voucher systems that may constitute the future of
the health care benefit system.


                                       32
<PAGE>

Customers

  The following is a representative list of our customers.

     American Medical Response, Inc.     Northwest Airlines Corporation
     Bass Hotels & Resorts, Inc.         PepsiCo, Inc.
     Bell Atlantic Corporation           Promus Hotel Corporation
     Benefits Alliance, LLC              R.R. Donnelley & Sons Company
     Blue Cross Blue Shield Association  Reader's Digest Association, Inc.
     Dayton Hudson Corporation           State of Kansas
     Eastman Kodak Company               W.W. Grainger, Inc.
     GE Capital Services Corporation     White Consolidated Industries Inc.
     Georgia-Pacific Corporation         Xerox Corporation
     KPMG LLP

Connected Health Plans

   The following is a representative list of the health plans to which we have
built customized electronic communication pipelines.

     Aetna, Inc. Plans                   Kaiser Foundation Health Plan
     Blue Cross Blue Shield Plans        Merck-Medco
     CIGNA Health Plans, Inc.            PacifiCare Health Systems
     Delta Dental                        UnitedHealth Group Corporation Plans
     Harvard Pilgrim Health Care         More than 25 Blue Cross/Blue Shield
                                         Plans

Sales and Marketing

  Our sales and marketing staff is organized according to our three key
targeted customer segments: Fortune 1000, brokers for mid-size employers, and
human resource service and systems companies. Our sales force targets
significant potential customers in the Fortune 1000 and mid-size employer
segments. Senior management plays an active role in our sales and marketing
efforts.

  Due to the technical nature of our products and services, our typical sales
cycle in the Fortune 1000 market is four to six months and usually involves a
competitive bidding process. Our sales process also is somewhat seasonal
because most large employers undergo the open enrollment process in the fall of
each year. We obtain approximately 75% of our customer commitments during the
months of February through May. The mutual intent is that our systems will be
integrated with the customer's system and become operational prior to the open
enrollment period later that year.

  Fortune 1000. We sell directly to the Fortune 1000 market. As of September
15, 1999, we employed one senior vice president in charge of sales and
marketing to this market. He is supported by three sales people. We expect to
hire two additional sales personnel in the next several months. In addition,
this senior vice president is supported by two marketing assistants who assist
him with trade shows and developing prospective clients, and by a vice
president and four strategic procurement consultants who spend a portion of
their time cross-selling administrative services to the Fortune 1000 market.

  Brokers for Mid-size Employers. We utilize existing brokerage distribution
systems to penetrate the market of mid-size employers. As of September 15,
1999, we employed three senior staff members who are specifically focused on
developing our sales and marketing efforts to brokers. We intend to hire two
additional marketing employees to assist them and to further develop our broker
distribution network. We believe that emphasizing our collection and payment
capabilities to interface with numerous health plans will be a critical factor
in winning acceptance in this market.


                                       33
<PAGE>

  Human Resource Service and Systems Companies. We partner with human resource
service and systems companies to re-sell our products and services as a
component of the products and services that they offer to employers. This
effort is being led by one of our co-founders. We expect to add personnel to
this area as our partnership efforts develop.

Customer Support

  We believe a high level of customer support is necessary to broaden the
acceptance of our products and services. We provide a wide range of customer
support services through our call service center, our account managers, our
customer service staff and an e-mail help desk. By providing consolidated
customer service through our service center, we eliminate the need for our
customers to maintain numerous contact lists across benefit vendors in order to
resolve enrollment, eligibility and billing issues. We provide each customer
with a telephone number for it and its participants to use regarding enrollment
choices, grievances and benefit clarification. Our service center is open from
7:00 a.m. to 7:00 p.m. Central Time, Monday through Friday. When the service
center is closed, calls for existing clients are forwarded to our voice mail
system. We also offer Internet-based support services that are available 24
hours a day, 7 days a week. Finally, we use proprietary automated tracking
systems to ensure resolution of all inquiries. As of September 15, 1999, we had
35 employees in customer support functions.

Competition

  The market for health care administration services is intensely competitive,
rapidly evolving and subject to sudden technological change. Many of our actual
and potential competitors have announced or introduced solutions that compete,
at least in part, with our products and services. We believe that the principal
competitive factors in this market are health and managed care expertise, data
integration and transfer technology, health insurance benefits processing
technology, customer service and support and price. We believe our products and
services are competitive with respect to these factors and that no other
competitor has the Internet-based technology capabilities combined with managed
care expertise that we have. Further, we believe we are currently the only
participant in this market with both the connectivity link between employers
and health plans and our range of services. However competitors may develop
similar products or we may not be able to successfully market our products or
successfully develop and introduce products that are less costly than or
superior to those of our competitors.

  We compete with administrative service providers and benefits consultants
with administrative capabilities. We also compete with the internal information
systems departments of the Fortune 1000 companies that perform their own health
care administration services. In the mid-size employer market, we compete with
other technology solutions that serve the automation and administration needs
of health benefit brokers. In addition, many human resource service and systems
companies have the healthcare expertise and financial strength to develop the
technology necessary to compete with us. As the market evolves we expect
increasing competition from Internet-based service providers in both the health
care connectivity market and the online insurance market. We believe that our
established and proven technology and our knowledge of the healthcare market
provide us with the necessary capabilities to adapt to the evolving market and
to increasing competition.

Systems and Technology

 Primary Systems Information

  Historically, our services have been delivered using our proprietary BEN-NET
technology as the core eligibility and financial exchange engine. BEN-NET was
originally designed and implemented in 1994 to serve two distinct customer
bases: Fortune 1000 employers and health insurance purchasing coalitions.
Though the latter market never fully developed, the business requirements and
attendant system capabilities such as our permanent, member level detail have
provided additional benefit to our Fortune 1000 clients. We have incorporated a
number of enhancements to BEN-NET in three subsequent major releases.

                                       34
<PAGE>

  BEN-NET and its fully integrated attendant applications are delivered using a
multi-tier information system comprised of multiple midrange servers, PCs and
workstations. The midrange servers, Sun Enterprise Servers running Sun's
Solaris Unix operating system, are used to provide middle-tier application
component logic and as a platform for eBenX's relational database management
system. Batch and end-user local and Internet applications employ a number of
different languages, primarily PowerBuilder, C, and Java.

  Our production processing environment, maintained at our Minneapolis
facility, is composed of multiple servers, permitting maximum flexibility in
organizing and protecting client data. The environment in which our database
runs, UNIX, is a highly scalable platform. Given this platform, we are able to
add capacity relatively easily, we can also physically organize our databases
on different servers to optimize the processing performed on each server. For
example, an entire production server can be dedicated to a single large client
if this client has extensive processing requirements. Within this processing
environment, we establish separate physical production databases for each of
our Fortune 1000 customers to ensure that customer data remains confidential
and secure. This also ensures that it maintains its integrity. In so doing, we
are able to provide customer data access to customer specified user groups.
Secure, real time Internet-based customer and health plan access to source data
brings trading partners into alignment and reduces support costs.

  We believe our proprietary data import and export management application is a
key differentiator for our services. Electronic Vendor Interface Management
(EVIM) delivers the ability and flexibility to receive and transmit data
between trading partners. This application incorporates not only a library of
health plan data maps, but also a deep knowledge of the business rules that
must be incorporated in the complex managed care market.

  Electronic imports and exports (an average of 1,000 files per week with each
file ranging from 500-50,000 records) are managed via EVIM, ensuring automated,
timely distribution of data, payments, and reports to clients and vendors. This
precise management of the flow of data also supports a key function of BEN-NET,
which is the dynamic application of customer-related business rules to
customer-delivered eligibility data, streamlining both health plan delivery of
service and payment.

 Redundancy, System Backup, Security and Disaster Recovery

  We believe our facilities and operations include sufficient redundancy, back-
up and security to ensure minimal exposure to systems failure or unauthorized
access. A disaster recovery plan has been prepared and will be put in place
should the need arise. Incremental backups of both software and databases are
performed on a daily basis and a full system backup is performed weekly. Backup
tapes are stored at an offsite location along with copies of
schedules/production control procedures, procedures for recovery using an off-
site data center, documentation and other critical information necessary for
recovery and continued operation. Our current facility has two separate power
feeds to provide a level of redundancy should a power outage occur.

  We employ rigorous physical and electronic security to protect customer data.
Our data center is isolated within our corporate offices with restricted card
key access, and appropriate additional physical security measures. Electronic
protections include encryption, firewalls, multi-level access controls and
separate customer databases.

Proprietary Rights

  We rely upon a combination of contractual rights, trade secrets, copyrights,
technical measures, non-disclosure agreements and trademarks to establish and
protect proprietary rights in our products and technologies. However, we
believe that intellectual property protection is less important than our
ability to continue to develop new applications and services that meet the
requirements of our industry. We typically enter into non-disclosure and
confidentiality agreements with our employees and distributors with access to
sensitive information. These agreements may be breached and we may not have
adequate remedies for any

                                       35
<PAGE>

breach. Others may acquire substantially equivalent proprietary technologies or
otherwise gain access to our proprietary technologies. In addition, any
particular technology may not be regarded as a trade secret under applicable
law. As a result of the reliance that we place on our trade secrets, loss of
our trade secret protection could harm our business and results of operations.
We have no registered patents or pending patent applications. The steps taken
by us to protect our proprietary rights may not be adequate to prevent
misappropriation of our technology or independent development or sale by others
of software products with features based upon, or otherwise similar to, our
products.

  Although we believe that our technology has been independently developed and
that none of our technology or intellectual property infringes on the rights of
others, third parties may assert infringement claims against us in the future.
If such infringement were established, we would, under certain circumstances,
be required to modify our products or technologies or obtain a license to
permit our continued use of those rights. We may not be able to do either in a
timely manner or upon acceptable terms and conditions, and any failure to do so
could harm our business and results of operations. In addition, any future
litigation necessary to protect our trade secrets, know-how or other
proprietary rights, to defend ourselves against claimed infringement of the
rights of others or to determine the scope and validity of the proprietary
rights of others could result in substantial cost to us and diversion of our
resources. Adverse determinations in any litigation or proceedings also could
subject us to significant liabilities to third parties and could prevent us
from producing, selling or using certain of our products or technologies. We
may not have the resources to defend or prosecute a proprietary rights
infringement claim or other action.

Government Regulation

  The healthcare industry is highly regulated by state, federal and local laws
and regulations, which are subject to change. Currently, few of such laws and
regulations apply directly to our business but rather apply primarily to health
plans or employers. For example, the confidentiality of patient records and the
circumstances under which records may be released for inclusion in our
databases may be subject to substantial regulation by state governments. These
state laws and regulations govern both the disclosure and the use of
confidential patient medical records. Although compliance with these laws and
regulations currently is principally the responsibility of health care
providers and we typically do not include confidential patient medical
information in our databases, these regulations may be extended to cover our
business and the eligibility and other data that we do include in our
databases. Additional legislation governing the dissemination of medical
records has been proposed at both the state and federal level. This legislation
may require holders of these records to implement security measures that may
require substantial expenditures by us. Changes to federal, state or local laws
may materially restrict employers' and health plans' ability to store and
transmit medical records using our products and services.

  Laws and regulations may be adopted with respect to the Internet or other on-
line services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. The adoption of any additional laws or regulations may impede the
growth of the Internet or other on-line services. This could decrease the
demand for our products and services and increase our cost of doing business.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing property ownership, sales taxes and other forms of
taxation, libel and personal privacy is uncertain and may remain uncertain for
a considerable length of time.

  HIPAA mandates the use of standard transactions, identifiers, security and
other provisions by the year 2000. We have designed our products and services
to comply with HIPAA. However, any change in federal standards would require us
to expend additional resources. In addition, the success of our compliance
efforts may be dependent on the success of healthcare industry participants in
dealing with these new standards.

  Finally, our function as a conduit for payment by employers to health plans
may subject us to the ERISA. ERISA imposes certain fiduciary duties on
employers and health plans with respect to payments made on behalf of
participants. Although we believe our role in the payment process is a purely
mechanical one, it is

                                       36
<PAGE>

possible that these fiduciary duties could be deemed to apply to us. In that
event, we may become subject to greater liability with respect to such payments
and may experience higher operating costs in order to comply with such
regulation.

Properties

  Our offices are located in Minneapolis, Minnesota where we lease or sublease
approximately 37,100 square feet of office space. Our lease for 29,630 square
feet of this space expires on April 30, 2000 and the lease for the remainder
expires on February 28, 2003. We believe our existing facilities are adequate
to meet our needs until the expiration of our principal lease. Any future
growth during this period can be accommodated through the leasing of additional
or alternative space near our current facilities. Due to our current sales and
marketing plan, we anticipate the need for additional office space in the year
2000 and we currently are negotiating to lease approximately 70,000 square feet
of office space located in the Minneapolis metropolitan area upon the
expiration of our principal lease on April 30, 2000.

Employees

  As of September 15, 1999, we had 238 full-time employees, including 83 in
information technology, 80 in operations, 30 in account management, 6 in sales
and marketing, 23 in consulting and 16 in administration and executive
management. We have never had a work stoppage and none of our employees
currently are represented under collective bargaining agreements. We consider
our relations with our employees to be good. We believe that our future success
will depend in part on the continued service of our senior management and key
technical personnel and our ability to attract, integrate, retain and motivate
highly qualified technical and managerial personnel. This is particularly true
for sales and marketing personnel because of our plans to significantly expand
our sales and marketing groups. Competition for qualified personnel in our
industry and geographical location is intense. We may not continue to be
successful in attracting and retaining a sufficient number of qualified
personnel to conduct our business in the future.

                                       37
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

  The following table provides information as of September 10, 1999 regarding
our executive officers and directors:

<TABLE>
<CAPTION>
Name                Age                         Position
----                ---                         --------
<S>                 <C> <C>
Mark W. Tierney...   50 Chairman and Director
John J. Davis.....   40 Chief Executive Officer and Director
Michael C.
  Bingham.........   37 Senior Vice President, Business Development and Director
Scott P.
  Halstead........   36 Chief Financial Officer and Secretary
Paul V. Barber....   37 Director
James P. Bradley..   47 Director
Daniel M. Cain....   54 Director
William J. Geary..   40 Director
John M. Nehra.....   51 Director
</TABLE>

  Mr. Tierney is one of our co-founders. He has been our Chairman since
September 1993 and a member of our board of directors since September 1993.
Prior to founding our company, Mr. Tierney founded a joint venture company with
UnitedHealth Group Corporation which specializes in patient demand management,
patient advocacy and case management services to Fortune 500 companies and
served as its President and Chief Executive Officer from July 1985 to August
1993. From July 1983 to July 1985, Mr. Tierney served as Senior Vice President
of Medical Services for Allina Health System, the largest HMO in the
Minneapolis-St. Paul metropolitan area. Prior to July 1983, he held management
positions with CIGNA Health Plans, Inc. and Kaiser Permenente Southern
California. Mr. Tierney holds a master's degree in Hospital and Health Care
Administration from the University of Minnesota and today serves on their
clinical faculty.

  Mr. Davis has been our Chief Executive Officer since April 1999 and a member
of our board of directors since June 1999. From 1996 to 1999, Mr. Davis served
as President and Chief Executive Officer of MedManagement, L.L.C., a national
and leading provider of pharmacy management and medication use consulting
services to hospitals and health systems. Prior to his work with MedManagement,
L.L.C., Mr. Davis served for ten years in a number of operations and executive
management positions at UnitedHealth Group Corporation. Most recently, from
1994 to 1996, Mr. Davis served as President of Healthmarc, a UnitedHealth Group
Corporation specialty company providing innovative managed care services to
employers with populations resident outside health plan service areas. Mr.
Davis holds a bachelor's degree from St. John's University, Collegeville,
Minnesota.

  Mr. Bingham is one of our co-founders. He has been our Senior Vice President,
Business Development since August 1999 and a member of our board of directors
since September 1993. In addition, Mr. Bingham has held leadership roles in
many aspects of our company since its inception. Prior to founding our company,
Mr. Bingham held various management positions at UnitedHealth Group
Corporation, McKinsey & Company and Maxicare Health Plans. Mr. Bingham holds an
M.B.A. degree from the Wharton School at the University of Pennsylvania and a
bachelor's degree in economics from Claremont McKenna College.

  Mr. Halstead has been our Chief Financial Officer since February 1997. Prior
to joining our company, he spent six years with The Dun & Bradstreet
Corporation in various financial management positions in North America, Europe
and Asia. Most recently he was Chief Financial Officer of an operating division
of The Dun & Bradstreet Corporation. Mr. Halstead holds an M.B.A. degree from
the Wharton School at the University of Pennsylvania and a bachelor's degree in
Industrial Engineering from Northwestern University.

  Mr. Barber has been a director since June 1999. Mr. Barber is a Managing
Member of JMI Associates III, LLC, the general partner of JMI Equity Fund III,
L.P., a venture capital limited partnership. From 1990 to 1998, he was Managing
Director and head of the software investment banking practice of Deutsche Bank
Alex.

                                       38
<PAGE>

Brown, an investment banking firm. Mr. Barber serves on the board of directors
of several privately held companies. Mr. Barber holds an M.B.A. from Harvard
Business School and a bachelor's degree in Economics from Stanford University.

  Mr. Bradley has been a director since 1997. Mr. Bradley has been Chairman and
Chief Executive Officer of Abaton.com, Inc., a Web-based healthcare information
company, since January 1997. From 1989 to October 1995, Mr. Bradley was Chief
Information Officer of UnitedHealth Group Corporation. From October 1995 to
January 1997, Mr. Bradley was President of Health Systems Integration, Inc., a
healthcare software information company. Mr. Bradley holds an M.S. degree in
Bio Statistics and Data Processing and a bachelor's degree in Genetics and
Statistics from the University of Illinois.

  Mr. Cain has been one of our directors since March 1999. Mr. Cain is
President and Chief Executive Officer of Cain Brothers, LLC, a healthcare
investment bank which has served the financial and capital needs of the health
and medical industry since 1982, and a Manager of CB Health Ventures, L.L.C.
Mr. Cain is a director of New England Funds, a family of mutual funds and
Universal Health Realty Income Trust, a health care REIT. Mr. Cain is a trustee
of the Norman Rockwell Museum and Sharon Hospital and the National Committee
for Quality Health Care. Mr. Cain holds an M.B.A. degree from Columbia
University and a bachelor's degree in American Civilization from Brown
University.

  Mr. Geary has been a director since June 1998. Mr. Geary has been a Principal
of North Bridge Venture Partners, L.P. since its inception in March 1994 and a
General Partner of North Bridge Venture Partners II, L.P. since its inception
in September 1996 and in North Bridge Venture Partners II, L.P. since its
inception in August 1998. Mr. Geary also is a director of several private
technology companies. Mr. Geary holds a bachelor's degree from Boston College
and is a C.P.A.

  Mr. Nehra has been a director since 1996. Since 1989, Mr. Nehra has been the
managing general partner of Catalyst Ventures, Limited Partnership, a venture
capital limited partnership. Since December 1993, Mr. Nehra has also been a
general partner of New Enterprise Associates VI, VII, and VIII Limited
Partnerships, venture capital limited partnerships. Mr. Nehra has served as
Chairman of the Board of Directors of Celeris Corporation, a biomedical
contract research service company since July 1997 and as a director of Celeris
since November 1992. Mr. Nehra also has served as Chairman of the Board of
Iridex Corporation, a medical device company, since 1994, and as a director
since 1989. Mr. Nehra is also a director of several privately held companies.
Mr. Nehra holds a bachelor's degree from the University of Michigan.

Board Composition

  Following this offering, our board of directors will consist of eight
directors divided into three classes with each class serving for a term of
three years. At each annual meeting of shareholders, directors will be elected
by the holders of common stock to succeed those directors whose terms are
expiring. Messrs. Geary and Nehra will be Class I directors whose terms will
expire in 2000; Messrs. Barber, Bradley and Cain will be Class II directors
whose terms will expire in 2001; and Messrs. Bingham, Davis and Tierney will be
Class III directors whose terms will expire in 2002. We intend to add
additional outside directors.

Board Committees

  Our board of directors has established a compensation committee and an audit
committee.

  Messrs. Bradley, Cain and Nehra are members of our compensation committee and
Mr. Nehra is its chairman. Our compensation committee makes recommendations to
the board of directors concerning executive compensation and administers our
stock option plans and our Employee Stock Purchase Plan.

  Messrs. Barber, Geary and Nehra are members of our audit committee and Mr.
Geary is its chairman. Our audit committee reviews the results and scope of the
audit and other accounting related services and reviews our accounting
practices and systems of internal accounting controls.


                                       39
<PAGE>

Director Compensation

  We currently do not pay any compensation to directors for serving in that
capacity. We reimburse directors for out-of-pocket expenses incurred in
attending board meetings. Our board of directors has the discretion to grant
options to non-employee directors pursuant to our stock option plans. Mr.
Bradley currently holds options to purchase 15,565 shares of our common stock.

Compensation Committee Interlocks and Insider Participation

  Messrs. Bradley, Cain and Nehra currently serve on the compensation
committee. None of these individuals has at any time been an officer or
employee of ours. Prior to formation of the compensation committee, all
decisions regarding executive compensation were made by the full board of
directors. No interlocking relationship exists between the board of directors
or the compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.

  On March 19, 1996, we sold a total of 636,945 shares of our Series B
Preferred Stock at a purchase price of $7.065 per share, including 424,630
shares to New Enterprise Associates VI, Limited Partnership. On May 3, 1999, we
sold a total of 563,525 shares of our Series C Preferred Stock at a purchase
price of $9.76 per share, including 307,377 shares to CB Healthcare Fund, L.P.
and 102,459 shares to New Enterprise Associates VI, Limited Partnership. On
June 9, 1999, we sold a total of 512,295 shares of our Series C Preferred Stock
at a purchase price of $9.76 per share, including 102,459 shares to CB
Healthcare Fund, L.P.

  Mr. Nehra is a general partner of NEA Partners VI, Limited Partnership, which
is the general partner of New Enterprise Associates VI, Limited Partnership.
Mr. Cain is a Manager of CB Health Ventures, L.L.C. which is the general
partner of CB Healthcare Fund, L.P. We believe that the shares issued in the
transactions described above were sold at the then fair market value of the
shares and that the terms of such transactions were no less favorable than we
could have obtained from unaffiliated third parties.

Indemnification Matters and Limitation of Liability

  Minnesota law and our bylaws provide that we will, subject to limitations,
indemnify any person made or threatened to be made a party to a proceeding by
reason of that person's former or present official capacity with us. We will
indemnify such person against judgments, penalties, fines, settlements and
reasonable expenses, and, subject to limitations, we will pay or reimburse
reasonable expenses before the final disposition of the proceeding.

  As permitted by Minnesota law, our articles of incorporation provide that our
directors will not be personally liable to us or our shareholders for monetary
damages for a breach of fiduciary duty as a director, subject to the following
exceptions:

  .  any breach of the director's duty of loyalty to us or our shareholders;

  .  acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  liability for illegal distributions under section 302A.559 of the
     Minnesota Business Corporation Act or for civil liabilities for state
     securities law violations under section 80A.23 of the Minnesota
     statutes;

  .  any transaction from which the director derived an improper personal
     benefit; and

  .  any act or omission occurring prior to the effective date of Article
     VIII of our articles of incorporation.

  In addition, the employment agreements with our officers that are described
in this prospectus require us, to the extent permitted by law, to indemnify
each of these officers and to obtain directors' and officers' liability
insurance coverage in such amount as our board of directors determines to be
appropriate.

                                       40
<PAGE>

  Presently, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification.

Employment Agreements

  We entered into employment agreements with Mark Tierney, John Davis and Scott
Halstead in April 1999 that govern their employment with us. The agreements set
forth their compensation levels and eligibility for salary increases, bonuses,
benefits and option grants under our stock option plans. The initial employment
term is five years. During the term of their employment agreements, either
party may terminate the agreement by providing at least 30 days written notice
to the other party.

  Mr. Tierney's employment agreement provides for a payment of one year's base
salary and an immediate vesting of 100% of any remaining unvested stock options
in the event of termination of employment by mutual agreement or due to Mr.
Tierney's death or disability. Also, if we terminate his employment other than
for cause, other than as set forth in the preceding sentence, or Mr. Tierney
terminates his employment agreement because of a material reduction in his
duties or compensation or because we require him to relocate, then the
agreement provides for a payment of two years' base salary and an immediate
vesting of 100% of any remaining unvested stock options. If a change in control
occurs prior to April 22, 2001, his employment agreement provides for an
immediate vesting of 100% of any remaining unvested stock options.

  Mr. Davis' employment agreement provides for a payment of one year's base
salary and an immediate vesting of 50% of any remaining unvested stock options
in the event of termination of employment other than for cause. If, however,
the termination of employment occurs within two years of a change in control,
the employment agreements provide for severance pay of one year's base salary
and an immediate vesting of 100% of any remaining unvested stock options.

  Mr. Halstead's employment agreement provides for a payment of six months'
base salary and an immediate vesting of 50% of any remaining unvested stock
options in the event of termination of employment other than for cause. If,
however, the termination of employment occurs within one year of a change in
control, his employment agreement provides for severance pay of six months'
base salary and an immediate vesting of 100% of any remaining unvested stock
options.

Executive Compensation

  The following table provides information concerning compensation paid or
accrued by us to or on behalf of our chief executive officer and each of our
two other most highly compensated executive officers whose salary and bonus
during the fiscal year ended December 31, 1998 was more than $100,000:

                           Summary Compensation Table
<TABLE>
<CAPTION>
                               Annual       Long Term
                            Compensation   Compensation
                          ---------------- ------------
                                              Shares
Name and Principal                          Underlying
Position                   Salary   Bonus    Options
------------------        -------- ------- ------------
<S>                       <C>      <C>     <C>
Mark W. Tierney
  Chairman and
  Director..............  $152,000 $42,040    10,400
Michael C. Bingham
  Senior Vice President,
  Business Development..  $104,000 $28,580     7,800
Scott P. Halstead
  Chief Financial
  Officer and
  Secretary.............  $120,000 $12,000     3,900
</TABLE>
--------
 .  The aggregate amount of perquisites and other personal benefits, securities
   or property received by each named executive officer was less than either
   $50,000 or 10% of the total annual salary and bonus reported for each
   respective named executive officer.
 .  John Davis became Chief Executive Officer in April 1999. During the fiscal
   year ended December 31, 1998, Mark Tierney was Chairman and Chief Executive
   Officer. Michael Bingham has been Senior Vice President, Business
   Development since August 1999. During the fiscal year ended December 31,
   1998, Mr. Bingham was President.

                                       41
<PAGE>

  The following table provides information concerning the stock option grants
made to each of our named executive officers during the fiscal year ended
December 31, 1998.

                          Option Grants in Fiscal 1998

<TABLE>
<CAPTION>
                                          Individual Grants
                       --------------------------------------------------------
                       Number of
                       Securities Percentage of Total
                       Underlying Options Granted to
                        Options   Employees in Fiscal Exercise Price Expiration
Name                    Granted          1998           ($/Share)       Date
----                   ---------- ------------------- -------------- ----------
<S>                    <C>        <C>                 <C>            <C>
Mark W. Tierney.......   10,400          5.01%            $2.25      6/10/2008
Michael C. Bingham....    7,800          3.76%            $2.25      6/10/2008
Scott P. Halstead.....    3,900          1.88%            $2.25      6/10/2008
</TABLE>
--------
 .  The above options have a 10-year term from the grant date, and were fully
   vested and exerciseable as of the grant date. All stock options were granted
   with an exercise price equal to the fair market value of the common stock as
   determined by our board of directors on the date of grant.
 .  The data presented in the Percentage of Total Options Granted to Employees
   in Fiscal 1998 column based on an aggregate of 207,650 shares of common
   stock subject to options granted to our employees during fiscal 1998.

  The following table provides information concerning the exercise of options
to purchase common stock by our named executive officers during fiscal 1998 and
the number and value of unexercised stock options held by these executive
officers as of December 31, 1998.

                 Aggregated Option Exercises in Fiscal 1998 and
                         Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                         Number of Securities
                                              Underlying          Value of Unexercised
                                          Unexercised Options     In-the-Money Options
                                          at Fiscal Year-End       at Fiscal Year-End
                                        ----------------------- -------------------------
                              Shares
                            Acquired on
   Name                      Exercise   Exercisable Unexercisable Exercisable Unexercisable
   ----                     ----------- ----------- ------------- ----------- -------------
   <S>                      <C>         <C>         <C>           <C>         <C>
   Mark W. Tierney.........     --        25,210          --        $33,174      $  --
   Michael C. Bingham......     --         9,035          --        $ 2,766      $  --
   Scott P. Halstead.......     --        12,150       21,750       $ 3,713      $9,788
</TABLE>
--------
 .  The value of unexercised in-the-money options is based on a value of $2.25,
   the fair market value of our common stock as of December 31, 1998 as
   determined by our board of directors, less the applicable per share exercise
   price multiplied by the number of shares issued upon exercise of the option.

Benefit Plans

 1993 Stock Option Plan

  Our 1993 Stock Option Plan provides for the grant of options to purchase
shares of common stock and other long-term incentive awards to any of our full
or part-time employees, officers, directors, consultants and independent
contractors. Options granted under the 1993 Stock Option Plan may qualify as
incentive stock options under the Internal Revenue Code of 1986, or may be
options that do not qualify as incentive stock

                                       42
<PAGE>

options. Other long-term incentive awards that may be granted under the 1993
Stock Option Plan include stock appreciation rights, or SARs, restricted stock
and performance awards. We have reserved 1,300,000 shares of common stock for
issuance under the 1993 Stock Option Plan. The 1993 Stock Option Plan is
administered by our compensation committee. The committee has the discretion to
select the people to whom options are granted and to establish the terms and
conditions of each stock option, subject to the provisions of the 1993 Stock
Option Plan and to any special provisions approved by our board of directors.
The exercise price of an incentive stock option granted under the 1993 Stock
Option Plan must not be less than 100% of the fair market value of the common
stock on the date the option is granted. In the event that a proposed optionee
owns more than 10% of our common stock, any incentive stock option granted to
such optionee must have an exercise price not less than 110% of the fair market
value of our common stock on the grant date. The term of each option is
determined by the compensation committee. However, the term of an incentive
stock option may not exceed 10 years from the date of grant and the term of a
non-qualified stock option may not exceed 15 years from the date of grant. In
the case of an incentive option granted to an owner of more than 10% of our
common stock, the term may not exceed five years from the date of grant. The
1993 Stock Option Plan is subject to amendment by our board of directors,
except that the board may not increase the number of shares which may be issued
under the 1993 Stock Option Plan or decrease the minimum exercise price of
options granted under the 1993 Stock Option Plan without the approval of our
shareholders.

  As of December 31, 1998, options to purchase an aggregate of 553,930 shares
of common stock, at a weighted average exercise price of $1.35 per share, were
outstanding under the 1993 Stock Option Plan and a total of 113,961 shares were
available for future option grants.

 1999 Stock Incentive Plan

  Our 1999 Stock Incentive Plan was approved by our board of directors and
shareholders in September 1999. The 1999 Stock Incentive Plan provides for the
granting of:

  .  stock options, including incentive stock options and non-qualified stock
     options;

  .  stock appreciation rights, or SARs;

  .  restricted stock and restricted stock units;

  .  performance awards; and

  .  other stock-based awards.

  We have reserved 1,000,000 shares of common stock for issuance under the 1999
Stock Incentive Plan. The 1999 Stock Incentive Plan is administered by our
compensation committee. The compensation committee has the authority

  .  to establish rules for the administration of the 1999 Incentive Plan;

  .  to select the persons to whom awards are granted;

  .  to determine the types of awards to be granted and the number of shares
     of common stock covered by such awards; and

  .  to set the terms and conditions of such awards.

  The compensation committee may also determine whether the payment of any
amounts received under any award shall be deferred. Awards may provide that
upon the grant or exercise, the holder will receive shares of common stock,
cash or any combination, as the compensation committee shall determine.

  In order to meet the requirements of Section 162(m) of the Internal Revenue
Code, the 1999 Incentive Plan contains a limitation on the number of options
that may be granted to any single person in any one calendar year.

  The exercise price per share under any incentive stock option or the grant
price of any SAR cannot be less than 100% of the fair market value of our
common stock on the date of the grant of such incentive stock option

                                       43
<PAGE>

or SAR. In the event that a proposed optionee owns more than 10% of our common
stock, any incentive stock option granted to such optionee must have an
exercise price not less than 110% of the fair market value of our common stock
on the grant date and may not have a term longer than five years. Options may
be exercised by payment in full of the exercise price, either in cash or, at
the discretion of the compensation committee, in whole or in part by the
tendering of shares of common stock or other consideration having a fair market
value on the date the option is exercised equal to the exercise price.
Determinations of fair market value under the 1999 Stock Incentive Plan are
made in accordance with methods and procedures established by the compensation
committee.

  The holder of an SAR is entitled to receive the excess of the fair market
value of a specified number of shares over the grant price of the SAR.

  The holder of restricted stock may have all of the rights of a shareholder of
our company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends or such rights may be restricted.
Restricted stock may not be transferred by the holder until the restrictions
established by the compensation committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the compensation
committee, to receive shares of common stock, or a cash payment equal to the
fair market value of such shares, at some future date. Upon termination of the
holder's employment during the restriction period, restricted stock and
restricted stock units shall be forfeited, unless the compensation committee
determines otherwise.

  If any shares of common stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the 1999 Stock
Incentive Plan. Except as otherwise provided under procedures adopted by the
compensation committee to avoid double counting with respect to awards granted
in tandem with or in substitution for other awards, all shares relating to
awards granted are counted against the aggregate number of shares available for
granting awards under the 1999 Stock Incentive Plan.

  Our board of directors may amend, alter or discontinue the 1999 Stock
Incentive Plan at any time, provided that shareholder approval must be obtained
for any change that absent such shareholder approval:

  .  would cause Rule 16b-3 of the Exchange Act or section 162(m) of the
     Internal Revenue Code to become unavailable with respect to the 1999
     Stock Incentive Plan;

  .  would violate any rules or regulations of the National Association of
     Securities Dealers, Inc., the Nasdaq National Market or any securities
     exchange applicable to us; or

  .  would cause us to be unable under the Internal Revenue Code to grant
     incentive stock options under the 1999 Stock Incentive Plan.

  Under the 1999 Stock Incentive Plan, the compensation committee may permit
participants receiving or exercising awards to surrender shares of common stock
to us to satisfy federal and state withholding tax obligations. In addition,
the compensation committee may grant a bonus to a participant in order to
provide funds to pay all or a portion of federal and state taxes due as a
result of the receipt, exercise or lapse of restrictions relating to an award.

 Employee Stock Purchase Plan

  Our employee stock purchase plan will become effective upon consummation of
this offering and is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code. The stock purchase plan covers
an aggregate of 300,000 shares of common stock. In order to participate in the
stock purchase plan, employees must meet certain eligibility requirements.
Participating employees will be able to direct us to make payroll deductions of
up to 15% of their compensation during a purchase period for the purchase of
shares of common stock. Each purchase period, with the exception of the initial
offering period,

                                       44
<PAGE>

will be six months. The stock purchase plan will provide participating
employees with the right, subject to certain limitations, to purchase our
common stock at a price equal to 85% of the lesser of the fair market value of
our common stock on the first day or the last day of the applicable purchase
period. The price on the first day of the initial purchase period will be the
initial public offering price of the shares of the common stock in this
offering. The stock purchase plan will terminate on such date as our board of
directors may determine, or automatically as of the date on which all of the
shares of common stock reserved for purchase under the stock purchase plan have
been sold.

 401(k) Plan

  We have established a tax-qualified employee savings and retirement plan for
all of our employees who satisfy eligibility requirements, including
requirements relating to age and length of service. Pursuant to the 401(k)
plan, employees may elect to reduce their current compensation by up to the
lower of 20% or the statutory limit and have the amount of such reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by us to the
401(k) plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) plan. Our contributions, if any, will
be deductible by us when made.

                                       45
<PAGE>

                              CERTAIN TRANSACTIONS

  On March 19, 1996, we sold a total of 636,945 shares of our Series B
Preferred Stock at a purchase price of $7.065 per share as follows:

  .  212,315 shares to North Bridge Venture Partners, L.P.; and

  .  424,630 shares to New Enterprise Associates VI, Limited Partnership.

  On May 3, 1999, we sold a total of 563,525 shares of our Series C Preferred
Stock at a purchase price of $9.76 per share, including:

  .  307,377 shares to CB Healthcare Fund, L.P.;

  .  102,459 shares to North Bridge Venture Partners, L.P.; and

  .  102,459 shares to New Enterprise Associates VI, Limited Partnership.

  On June 9, 1999, we sold a total of 512,295 shares of our Series C Preferred
Stock at a purchase price of $9.76 per shares as follows:

  .  102,459 shares to CB Healthcare Fund, L.P.;

  .  364,754 shares to JMI Equity Fund III, L.P.; and

  .  45,082 shares to JMI Equity Side Fund, L.P.

  William J. Geary, who is one of our directors, is a principal of North Bridge
Venture Management, L.P. North Bridge Venture Management is a general partner
of North Bridge Venture Partners, L.P.

  John M. Nehra, who is one of our directors, is a general partner of NEA
Partners VI, Limited Partnership. NEA Partners VI, Limited Partnership is the
general partner of New Enterprise Associates VI, Limited Partnership.

  Daniel M. Cain, who is one of our directors, is a manager of CB Health
Ventures, L.L.C. CB Health Ventures, L.L.C. is the general partner of CB
Healthcare Fund, L.P.

  Paul V. Barber, who is one of our directors, is a managing member of JMI
Associates III, LLC. JMI Associates III, LLC, is the general partner of JMI
Equity Fund III, L.P. JMI Equity Side Fund, L.P. is affiliated with JMI Equity
Fund III, L.P. Mr. Barber has no beneficial ownership interest in JMI Equity
Side Fund, L.P.

  We believe that the shares issued in the transactions described above were
sold at the then fair market value of the shares and that the terms of such
transactions were no less favorable than we could have obtained from
unaffiliated third parties.

                                       46
<PAGE>

                             PRINCIPAL SHAREHOLDERS

  The following table provides information concerning beneficial ownership of
our common stock as of September 10, 1999 by:

  . each shareholder that we know owns more than 5% of our outstanding common
      stock;

  . each of our named executive officers;

  . each of our directors; and

  . all of our directors and named executive officers as a group.

  The following table lists the applicable percentage of beneficial ownership
based on approximately 3,265,481 shares of common stock outstanding as of
September 10, 1999, as adjusted to reflect the conversion of the outstanding
shares of preferred stock immediately prior to this offering. The table also
lists the applicable percentage beneficial ownership based on [    ] shares of
common stock outstanding upon completion of this offering, assuming no exercise
of the underwriters' overallotment option. Except where noted, the persons or
entities named have sole voting and investment power with respect to all shares
shown as beneficially owned by them.

  Unless otherwise indicated, the principal address of each listed 5%
shareholder is c/o eBenX, Inc., 5500 Wayzata Boulevard, Suite 1450,
Minneapolis, Minnesota 55416-1241.

<TABLE>
<CAPTION>
                                                               Percentage of
                                                            Shares Beneficially
                                                Number of         Owned(1)
                                                  Shares    --------------------
                                               Beneficially Before the After the
Beneficial Owners                                Owned(1)    Offering  Offering
-----------------                              ------------ ---------- ---------
<S>                                            <C>          <C>        <C>
North Bridge Venture Partners, L.P.
  950 Winter Street, Suite 4600
  Waltham, MA 02451..........................     684,983      21.0%
New Enterprise Associates VI, Limited
  Partnership
  1119 St. Paul Street
  Baltimore, MD 21202........................     527,089      16.1
Entities associated with
JMI Equity Fund III, L.P. (2)
  12680 High Bluff Drive
  San Diego, CA 92130........................     409,836      12.6
CB Healthcare Fund, L.P.
  452 Fifth Avenue, 25th Floor
  New York, NY...............................     409,836      12.6
Barbara J. Seykora (3).......................     198,062       5.9
Mark W. Tierney (4)..........................     645,210      19.5
John J. Davis (5)............................      49,609       1.5
Michael C. Bingham (6).......................     409,035      12.5
Scott P. Halstead (7)........................      22,400         *
Paul V. Barber (8)...........................     364,754      11.2
James P. Bradley (9).........................       6,339         *
Daniel M. Cain (10)..........................     409,836      12.6
William J. Geary (11)........................     684,983      21.0
John M. Nehra (12)...........................     527,089      16.1
All directors and executive officers as a
  group (9 persons) (13).....................   3,119,255      91.8
</TABLE>

                                       47
<PAGE>

--------
  *  Represents beneficial ownership of less than 1% of the outstanding shares
     of our common stock.
 (1)  Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to options, warrants or issuable on the conversion of preferred
      stock which are currently exercisable or convertible or may be exercised
      or converted within 60 days of September 10, 1999 are deemed to be
      outstanding and to be beneficially owned by the person holding these
      options, warrants or shares of convertible preferred stock for the
      purpose of computing the number of shares beneficially owned and the
      percentage ownership of the person or entity holding these securities but
      are not outstanding for the purpose of computing the percentage ownership
      of any other person or entity.
 (2) Includes 364,754 shares held by JMI Equity Fund III, L.P. and 45,082
     shares held by JMI Equity Side Fund, L.P. JMI Equity Side Fund, L.P. is
     affiliated with JMI Equity Fund III, L.P.
 (3)  Includes 119,115 shares issuable upon exercise of stock options
      exercisable within 60 days of September 10, 1999.
 (4) Includes 30,400 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999 and 14,810 shares
     issuable upon exercise of immediately exerciseable warrants.
 (5) Includes 49,609 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999.
 (6) Includes 7,800 shares issuable upon exercise of stock options exerciseable
     within 60 days of September 10, 1999 and 1,235 shares issuable upon
     exercise of immediately exerciseable warrants.
 (7) Includes 22,400 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999.
 (8) Includes 364,754 shares held by JMI Equity Fund III, L.P. Mr. Barber, one
     of our directors, is a Managing Member of JMI Associates III, LLC, which
     is the general partner of JMI Equity Fund III, L.P. JMI Equity Side Fund,
     L.P. is affiliated with JMI Equity Fund III, L.P. Mr. Barber disclaims
     beneficial ownership of shares held by JMI Equity Fund III, L.P. Mr.
     Barber has no beneficial ownership interest in JMI Equity Side Fund, L.P.
 (9) Includes 6,339 shares issuable upon exercise of stock options exerciseable
     within 60 days of September 10, 1999.
(10) Includes 409,836 shares held by CB Healthcare Fund, L.P. Mr. Cain, one of
     our directors, is a Manager of CB Health Ventures, L.L.C., which is the
     general partner of CB Healthcare Fund, L.P. Mr. Cain disclaims beneficial
     ownership of shares held by CB Healthcare Fund, L.P.
(11) Includes 684,983 shares held by North Bridge Venture Partners, L.P. Mr.
     Geary, one of our directors, is a principal of North Bridge Venture
     Management, L.P., which is a general partner of North Bridge Venture
     Partners, L.P. Mr. Geary disclaims beneficial ownership of shares held by
     North Bridge Venture Partners, L.P.
(12) Includes 527,089 shares held by New Enterprise Associates VI, Limited
     Partnership. Mr. Nehra, one of our directors, is a general partner of NEA
     Partners VI, Limited Partnership, which is the general partner of New
     Enterprise Associates VI, Limited Partnership. Mr. Nehra disclaims
     beneficial ownership of shares held by NEA Partners VI, Limited
     Partnership
(13) Includes 116,548 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999 and 16,045 shares
     issuable upon exercise of immediately exerciseable warrants. Includes
     364,754 shares held by JMI Equity Fund III, L.P., 409,836 shares held by
     CB Healthcare Fund, L.P., 684,983 shares held by North Bridge Venture
     Partners, L.P. and 527,089 shares held by New Enterprise Associates VI,
     Limited Partnership. Does not include shares beneficially owned by Barbara
     J. Seykora, who is not an executive officer of our company.

                                       48
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

  Effective upon the filing of our amended and restated articles of
incorporation immediately prior to the closing of this offering, our authorized
capital stock will consist of 100,000,000 shares of capital stock, par value
$.01 per share. Unless otherwise designated by our board of directors, all
issued shares shall be deemed common stock with equal rights and preferences.

Common Stock

  As of September 24, 1999, there were 3,265,481 shares of our common stock
outstanding.

  Holders of our common stock do not have cumulative voting rights and are
entitled to one vote for each share held of record on all matters submitted to
a vote of the shareholders, including the election of directors. Holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of legally available funds. These rights
are subject to the prior rights of any preferred stock then outstanding. See
"Dividend Policy" for a further description of dividend rights.

  Upon our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share ratably in the net assets legally available for
distribution to shareholders after the payment of our debts and other
liabilities. These rights are subject to the prior rights of any preferred
stock then outstanding. Holders of our common stock have no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking funds provisions applicable to the common stock. All outstanding shares
of common stock are, and the common stock outstanding upon completion of this
offering will be, fully paid and nonassessable.

Preferred Stock

  Effective upon the closing of this offering, our board of directors will have
the authority, without further action by the shareholders, to issue shares of
preferred stock in one or more series and to fix the number of shares,
designations and preferences, powers and relative, participating, optional or
other special rights and the qualifications or restrictions on those shares.
The preferences, powers, rights and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and purchase funds and other matters.

  The issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of common
stock. It may have the effect of delaying, deferring or preventing a change in
control our company. We currently do not plan to issue any shares of preferred
stock.

Registration Rights

  After this offering, the holders of 2,082,974 shares of common stock will be
entitled to rights with respect to the registration of these shares under the
Securities Act as follows:

  .  Demand Registration Rights: At any time beginning six months following
     our initial public offering, the holders of at least 30% of these shares
     of common stock can request that we register all or a portion of their
     shares. Upon such a request, we must, subject to specific restrictions
     and limitations, use our best efforts to cause a registration statement
     covering the number of shares of common stock that are subject to the
     request to become effective. The holders may only require us to file
     three registration statements in response to their demand registration
     rights.

  .  Piggyback Registration Rights: If we propose to register additional
     shares of our common stock under the Securities Act, subject to specific
     exceptions, the holders of the 2,082,974 shares can request that we
     register their shares in connection with our registration. However, the
     underwriter of the registration, if any, would have the right to limit
     the number of the 2,082,974 shares that may be included in the
     registration. These registration opportunities are unlimited.

                                       49
<PAGE>

  These registration rights terminate when all of these shares may be sold
during any 90-day period under Rule 144 under the Securities Act.

Provisions of our Restated Articles and Bylaws and State Law Provisions with
Potential Antitakeover Effects

  The existence of authorized but unissued preferred stock, described above,
and certain provisions of Minnesota law, described below, could have an anti-
takeover effect. These provisions are intended to provide management with
flexibility, to enhance the likelihood of continuity and stability in the
composition of our board of directors and the policies of our board and to
discourage an unsolicited takeover of our company if our board of directors
determines that such a takeover is not in the best interests of our company and
our shareholders. However, these provisions could have the effect of
discouraging attempts to acquire us, which could deprive our shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.

  Upon the closing of this offering, our board of directors will be divided
into three classes serving staggered three-year terms. As a result of this
division, generally at least two shareholders' meetings will be required for
shareholders to effect a change in control of the board of directors. In
addition, our bylaws will contain provisions that establish specific procedures
for calling meetings of shareholders and appointing and removing members of the
board of directors.

  Section 302A.671 of the Minnesota Business Corporation Act applies, with
exceptions, to any acquisition of our voting stock from a person other than us,
and other than in connection with certain mergers and exchanges to which we are
a party, that results in the beneficial ownership of 20% or more of the voting
stock then outstanding. Section 302A.671 requires approval of any such
acquisitions by a majority vote of our shareholders to accord full voting
rights to the acquired shares. In general, shares acquired in the absence of
such approval are denied voting rights and are redeemable at their then fair
market value by us within 30 days after the acquiring person has failed to give
a timely information statement to us or the date the shareholders voted not to
grant voting rights to the acquiring person's shares.

  Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by us, or by any of our subsidiaries, with
any shareholder that purchases 10 percent or more of our voting shares within
four years following this interested shareholder's share acquisition date. The
business combination may be permitted if it is approved by a committee of all
of the disinterested members of our board of directors before the interested
shareholder's share acquisition date.

Listing

  We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "EBNX."

Transfer Agent and Registrar

  The transfer agent and registrar for our common stock will be Norwest Bank
Minnesota, N.A. Its address is 161 North Concord Exchange, South Saint Paul,
Minnesota 55075, and its telephone number is (651) 450-4064.

                        SHARES ELIGIBLE FOR FUTURE SALE

  Upon the closing of this offering, we will have [            ] shares of
common stock outstanding, assuming no exercise of the underwriters'
overallotment option and no exercise of outstanding options to purchase common
stock. All of our directors and executive officers and 5% shareholders, holding
in the aggregate in excess of [ ]% of the outstanding shares of our common
stock, have agreed that they will not, without the prior written consent of the
representatives of the underwriters, sell or otherwise dispose of any shares of
common stock or options to acquire shares of common stock during the 180-day
period following the closing of this offering. See "Underwriting."

                                       50
<PAGE>

  The [    ] shares of common stock being sold in this offering will be freely
tradeable without restriction or further registration under the Securities
Act, except for shares held by our "affiliates," as such term is defined in
Rule 144 under the Securities Act, which may generally only be sold in
compliance with the limitations of Rule 144, described below. The remaining
3,265,481 shares were issued and sold by us in private transactions and are
deemed restricted securities under Rule 144. These shares may be sold in the
public market only if registered under the Securities Act or if exempt from
registration under Rules 144, 144(k) or 701 under the Securities Act, which
rules are summarized below. Subject to the agreements between our shareholders
and the underwriters, described above, and the provisions of Rules 144, 144(k)
and 701, additional shares will be available for sale in the public market,
subject in the case of shares held by affiliates to compliance with volume
restrictions, as follows:

  .  98,247 shares will be available for immediate sale in the public market
     on the date of this prospectus;

  .  84,260 shares will be available for sale 90 days after the date of this
     prospectus; and

  .  3,082,974 shares will be available for sale under Rules 144 and 701 upon
     the expiration of agreements between our shareholders and the
     underwriters 180 days after the date of this prospectus.

  In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person or persons whose shares are aggregated, including an
affiliate, who has beneficially owned restricted shares for at least one year,
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then outstanding shares of common stock,
or approximately [    ] shares immediately after this offering, or the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding the date of such sale. Sales under Rule 144
also are subject to requirements pertaining to the manner and notice of such
sales and the availability of current public information concerning our
company.

  Under Rule 144(k), a person who is not deemed to have been an affiliate of
our company at any time during the 90 days before a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell these shares without regard to the requirements described
above. To the extent that shares were acquired from an affiliate of our
company, the transferee's holding period for the purpose of effecting a sale
under Rule 144(k) commences on the date of transfer from the affiliate.

  Rule 701 provides that, beginning 90 days after the date of this prospectus,
persons other than affiliates may sell shares of common stock acquired from us
in connection with written compensatory benefit plans, including our 1993
Stock Option Plans, subject only to the manner of sale provisions of Rule 144.
Beginning 90 days after the date of this prospectus, affiliates may sell these
shares of common stock subject to all provisions of Rule 144 except the one-
year minimum holding period.

  Shortly after the closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all shares of
common stock issuable under the 1993 Stock Option Plan, the 1999 Stock
Incentive Plan and the Stock Purchase Plan. See "Management--Benefit Plans"
for a further discussion of these plans. This Form S-8 registration statement
is expected to become effective immediately upon filing and shares covered by
that registration statement will then be eligible for sale in the public
markets, subject to the Rule 144 limitations applicable to affiliates.

  Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that sales of
shares in the open market or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price.

  After the closing of this offering, the holders of 2,082,974 shares of our
common stock will be entitled to rights with respect to the registration of
such shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradeable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of registration. For a
discussion of these rights, see "Description of Capital Stock--Registration
Rights."

                                      51
<PAGE>

                                  UNDERWRITING

  The underwriters, through their representatives, BancBoston Robertson
Stephens Inc., Warburg Dillon Read LLC and Thomas Weisel Partners LLC, have
severally agreed to purchase from us the number of shares of common stock next
to their respective names below. The underwriters are committed to purchase and
pay for all the shares if any are purchased.


<TABLE>
<CAPTION>
                                                                      Number of
Underwriters                                                            Shares
------------                                                          ----------
<S>                                                                   <C>
BancBoston Robertson Stephens Inc...................................  [        ]
Warburg Dillon Read LLC.............................................  [        ]
Thomas Weisel Partners LLC..........................................  [        ]
                                                                      ----------
  Total.............................................................  [        ]
                                                                      ==========
</TABLE>

  The underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at the public offering price less a concession of $[ .  ] per
share, of which $[ .  ] may be reallowed to other dealers. After the initial
public offering, the public offering price, concession and reallowance to
dealers may be reduced by the representatives. However, no reduction will
change the amount of proceeds to be received by us as set forth on the cover
page of this prospectus. The common stock is offered by the underwriters
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.

  The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

  Over allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to [    ] additional shares of our common stock at the same price
per share as we will receive for the [    ] shares that the underwriters have
agreed to purchase. If the underwriters exercise this option, each of the
underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of these additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the total shares offered in this offering. These
additional shares will be sold by the underwriters on the same terms as those
on which the [    ] shares are being sold. We will be obligated to sell shares
to the extent the option is exercised. The underwriters may exercise this
option only to cover over allotments made in connection with the sale of the
shares of common stock offered in this offering.

  Indemnity. Our underwriting agreement among us and the underwriter contains
covenants of indemnity among the underwriters and us against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.

  Lock-up Agreements. Under the terms of lock-up agreements, each of our
officers and directors and certain of our shareholders have agreed with the
representatives, for a period of 180 days after the date of this prospectus,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to, any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock, owned
by these holders or with respect to which they have the power of disposition,
without the prior written consent of BancBoston Robertson Stephens, Inc.
BancBoston Robertson Stephens, Inc. may, in its sole discretion, release all or
any portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of our shareholders providing
consent by the representatives to the sale of shares prior to the expiration of
the period 180 days after this prospectus.


                                       52
<PAGE>

  Future Sales. In addition, we have agreed that during the 180 days after the
date of this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens, Inc.:

  .  consent to the disposition of any shares held by shareholders prior to
     the expiration of the period of 180 days after the date of this
     prospectus; or

  .  issue, sell, contract to sell or otherwise dispose of any shares of
     common stock or any securities convertible into, exercisable for or
     exchangeable for shares of common stock, other than the sale of shares
     in this offering, the issuance of common stock upon the exercise of
     outstanding options or warrants or our issuance of options or shares
     under our 1993 Stock Option Plan.

  No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the public offering price for our
common stock has been determined through negotiations between us and the
representatives. Among the factors considered in these negotiations are
prevailing market conditions, financial information of our market valuations
of other companies that the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.

  Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock by the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of
common stock by the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised us that these types of
transactions may be effected on the Nasdaq National Market or otherwise and if
commenced may be discontinued at any time.

  Costs of Offering. We estimate that total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$[       ].

  Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 70 filed public offerings of equity securities, of which 39 have
been completed, and has acted as a syndicate member in an additional 34 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

                                 LEGAL MATTERS

  The validity of the issuance of shares of common stock offered by us in this
offering will be passed upon for us by Dorsey & Whitney LLP, Minneapolis,
Minnesota. Legal matters related to the offering will be passed upon for the
underwriters by Winston & Strawn, Chicago, Illinois.


                                      53
<PAGE>

                                    EXPERTS

  Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.

                             ADDITIONAL INFORMATION

  We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. For further information about us and our common stock,
you should review the registration statement and exhibits and schedules
thereto. You may read and copy any document we file at the Commission's public
reference room in Washington, D.C. Please call the Commission at 1-800-SEC-0330
for further information on the public reference room. Our filings are also
available to the public from the Commission's Web site at http://www.sec.gov.

  Upon completion of this offering, we will be required to file periodic
reports, proxy statements and other information with the Commission. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the Commission's public reference room and the Web
site of the Commission referred to above.

                                       54
<PAGE>

                                  EBENX, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                      <C>
Report of Independent Auditors..........................................   F-2
Consolidated Balance Sheets.............................................   F-3
Consolidated Statements of Operations...................................   F-4
Consolidated Statement of Changes in Shareholders' Equity...............   F-5
Consolidated Statements of Cash Flows...................................   F-6
Notes to Consolidated Financial Statements..............................   F-7
</TABLE>

                                      F-1
<PAGE>

                         Report of Independent Auditors

Board of Directors and Shareholders
eBenX, Inc.

  We have audited the accompanying consolidated balance sheets of eBenX, Inc.
(formerly known as Network Management Services, Inc.) as of December 31, 1998
and 1997, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of eBenX, Inc. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.

                                          /s/ Ernst & Young LLP

Minneapolis, Minnesota
March 22, 1999

                                      F-2
<PAGE>

                                  EBENX, INC.

                          CONSOLIDATED BALANCE SHEETS
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                             December 31      June    Pro forma
                                           ----------------    30,    June 30,
                                            1997     1998     1999      1999
                                           -------  -------  -------  ---------
                                                                (unaudited)
<S>                                        <C>      <C>      <C>      <C>
                  ASSETS
Current assets:
  Cash and cash equivalents............... $ 1,009  $ 1,681  $ 9,268   $ 9,268
  Investments.............................   2,005       --       --        --
  Accounts receivable, less allowance of
    $51 at December 31, 1997 and 1998 and
    June 30, 1999.........................     573    1,964    2,445     2,445
  Prepaid expenses........................     143      324      639       639
  Other...................................      33       18       --        --
                                           -------  -------  -------   -------
     Total current assets.................   3,763    3,987   12,352    12,352
  Property and equipment, net.............   1,288    1,568    1,908     1,908
  Deposits................................      33       41       43        43
                                           -------  -------  -------   -------
     Total assets......................... $ 5,084  $ 5,596  $14,303   $14,303
                                           =======  =======  =======   =======
   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................ $   181  $   837  $   793   $   793
  Accrued payroll.........................     333      493      590       590
  Accrued expenses........................      83      115      137       137
  Deferred revenue........................      64       10       11        11
  Note payable............................      --      750       --        --
                                           -------  -------  -------   -------
     Total current liabilities............     661    2,205    1,531     1,531
Shareholders' equity:
  Redeemable Convertible Preferred Stock:
     Series A, $.01 par value: Authorized
       shares--376,209 Issued and
       outstanding shares--370,209;
       Liquidation value--$1,000..........       4        4        4        --
     Series B, $.01 par value: Authorized
       shares--636,945 Issued and
       outstanding shares--636,945;
       Liquidation value--$500............       6        6        6        --
     Series C, $.01 par value: Authorized
       shares--1,075,820 Issued and
       outstanding shares--1,075,820;
       Liquidation value--$10,500.........      --       --       11        --
  Common Stock, $.01 par value:
     Authorized shares--7,000,000; Issued
       and outstanding shares--1,148,507--
       1997; 1,160,107--1998; 1,171,157--
       1999...............................      11       12       12        33
     Pro forma issued and outstanding
       shares--3,254,131..................
  Additional paid-in capital..............   5,582    5,591   16,073    16,073
  Retained deficit........................  (1,180)  (2,222)  (3,334)   (3,334)
                                           -------  -------  -------   -------
Total shareholders' equity................   4,423    3,391   12,772    12,772
                                           -------  -------  -------   -------
Total liabilities and shareholders'
  equity.................................. $ 5,084  $ 5,596  $14,303   $14,303
                                           =======  =======  =======   =======
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                                  EBENX, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Six months ended
                             Year ended December 31             June 30,
                         --------------------------------  --------------------
                           1996       1997        1998       1998       1999
                         ---------  ---------  ----------  ---------  ---------
                                                               (unaudited)
<S>                      <C>        <C>        <C>         <C>        <C>
Net revenue............. $   4,360  $   7,093  $   10,122  $   3,929  $   7,108
Costs and expenses:
  Costs of revenues.....     2,480      4,496       6,958      2,935      5,233
  Selling, general and
    administrative......     1,796      2,068       2,831      1,319      2,010
  Research and
    development.........       863      1,242       1,519        673      1,127
                         ---------  ---------  ----------  ---------  ---------
     Total costs and
       expenses.........     5,139      7,806      11,308      4,927      8,370
                         ---------  ---------  ----------  ---------  ---------
Loss from operations....      (779)      (713)     (1,186)      (998)    (1,262)
Interest income.........       198        213         144         83        150
                         ---------  ---------  ----------  ---------  ---------
Net loss................ $    (581) $    (500) $   (1,042) $    (915) $  (1,112)
                         =========  =========  ==========  =========  =========
Net loss per share:
  Basic and diluted..... $    (.53) $    (.45) $     (.90) $    (.80) $    (.95)
                         =========  =========  ==========  =========  =========
Shares used in
  calculation of net
  loss per share:
  Basic and diluted..... 1,104,327  1,125,244   1,154,372  1,150,455  1,164,878
                         =========  =========  ==========  =========  =========
Pro forma net loss per
  share:
  Basic and diluted.....                       $     (.42)            $    (.46)
                                               ==========             =========
Shares used in
  calculation of pro
  forma net loss per
  share:
  Basic and diluted.....                        2,161,526             2,409,216
                                               ==========             =========
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                                  EBENX, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                            (dollars in thousands)

<TABLE>
<CAPTION>
                           Convertible Preferred Stock
                          -----------------------------
                             Series A       Series B        Series C       Common Stock   Additional
                          -------------- -------------- ---------------- ----------------  Paid-In   Retained
                          Shares  Amount Shares  Amount  Shares   Amount  Shares   Amount  Capital   Deficit    Total
                          ------- ------ ------- ------ --------- ------ --------- ------ ---------- --------  -------
<S>                       <C>     <C>    <C>     <C>    <C>       <C>    <C>       <C>    <C>        <C>       <C>
Balance at December 31,
 1995...................  370,209  $ 4        --  $ --         --  $ --  1,098,247  $11    $ 1,075   $   (99)  $   991
 Issuance of Preferred
  Stock (net of offering
  costs of $10).........       --   --   636,945     6         --    --         --   --      4,484        --     4,490
 Exercise of stock
  options...............       --   --        --    --         --    --     10,560   --          3        --         3
 Exercise of stock
  warrants..............       --   --        --    --         --    --      1,600   --          1        --         1
 Net loss...............       --   --        --    --         --    --         --   --         --      (581)     (581)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1996...................  370,209    4   636,945     6         --    --  1,110,407   11      5,563      (680)    4,904
 Exercise of stock
  options...............       --   --        --    --         --    --     38,100   --         19        --        19
 Net loss...............       --   --        --    --         --    --         --   --         --      (500)     (500)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1997...................  370,209    4   636,945     6         --    --  1,148,507   11      5,582    (1,180)    4,423
 Exercise of stock
  options...............       --   --        --    --         --    --     11,600    1          9        --        10
 Net loss...............       --   --        --    --         --    --         --   --         --    (1,042)   (1,042)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1998...................  370,209    4   636,945     6         --    --  1,160,107   12      5,591    (2,222)    3,391
 Issuance of Series C
  Preferred Stock (net
  of offering costs of
  $29)..................       --   --        --    --  1,075,820    11         --   --     10,471        --    10,482
 Exercise of stock
  options...............       --   --        --    --         --    --     11,050   --         11        --        11
 Net loss...............       --   --        --    --         --    --         --   --         --    (1,112)   (1,112)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at June 30, 1999
 (unaudited)............  370,209  $ 4   636,945  $  6  1,075,820  $ 11  1,171,157  $12    $16,073   $(3,334)  $12,772
                          =======  ===   =======  ====  =========  ====  =========  ===    =======   =======   =======
</TABLE>


                            See accompanying notes.

                                      F-5
<PAGE>

                                  EBENX, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                   Six months
                                        Year ended December 31    ended June 30
                                        ------------------------  --------------
                                         1996     1997    1998    1998    1999
                                        -------  ------  -------  -----  -------
                                                                   (unaudited)
<S>                                     <C>      <C>     <C>      <C>    <C>
Operating activities:
 Net loss.............................  $  (581) $ (500) $(1,042) $(915) $(1,112)
 Adjustments to reconcile net loss to
  net cash (used in) provided by
  operating activities:
  Depreciation of property and
    equipment.........................      192     327      481    222      315
  Noncash expense relating to common
    stock issued......................        3      --       --     --       --
  Changes in operating assets and
    liabilities:
   Accounts receivable................     (440)     27   (1,391)  (294)    (483)
   Other current assets...............        6    (151)    (166)  (120)    (300)
   Accounts payable...................      (11)     84      656     36      (44)
   Accrued expenses...................       62     238      192     21      119
   Deferred revenue...................      (50)     65      (55)   546        1
   Deposits...........................       --     (23)      (6)    --       (1)
                                        -------  ------  -------  -----  -------
     Net cash (used in) provided by
      operating activities............     (819)     67   (1,331)  (504)  (1,506)
Investing activities:
 Additions to property and equipment..     (523)   (692)    (761)  (352)    (639)
 Purchase of investments..............   (2,006)     --       --     --       --
 Sale of investments..................       --       1    2,005     --       --
                                        -------  ------  -------  -----  -------
  Net cash (used in) provided by
    investing activities..............   (2,529)   (691)   1,244   (352)    (639)
Financing activities:
 Proceeds from note payable...........       --      --      750     --       --
 Payment of note payable..............       --      --       --     --     (750)
 Stock options and warrants
   exercised..........................        1      19        9      1       11
 Proceeds from issuance of preferred
   stock..............................    4,490      --       --     --   10,471
                                        -------  ------  -------  -----  -------
  Net cash provided by financing
    activities........................    4,491      19      759      1    9,732
                                        -------  ------  -------  -----  -------
Net increase (decrease) in cash and
  cash equivalents....................    1,143    (605)     672   (855)   7,587
Cash and cash equivalents at beginning
  of year.............................      471   1,614    1,009  1,009    1,681
                                        -------  ------  -------  -----  -------
Cash and cash equivalents at end of
  year................................  $ 1,614  $1,009  $ 1,681  $ 154  $ 9,268
                                        =======  ======  =======  =====  =======
</TABLE>


                            See accompanying notes.

                                      F-6
<PAGE>

                                  EBENX, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1998

1. Business Description and Summary of Significant Accounting Policies

Business Description

  EBenX, Inc. (formerly known as Network Management Services, Inc.), a
Minnesota corporation incorporated in September 1993 (the Company), provides
business-to-business e-commerce and connectivity solutions to employers and
health plans for the purchase, eligibility administration and premium payment
of group health insurance benefits. The Company's customers are located
throughout the United States.

Principles of Consolidation

  The consolidated financial statements include the Company and Managed Care
Buyer's Group, Inc., its wholly owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

  The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are considered to be available for sale. The carrying value of cash
equivalents approximates fair value at December 31, 1998 and 1997.

Investments

  Investments at December 31, 1997 consist of United States Treasury notes
which are classified as available for sale. The cost of investments
approximates fair value.

Property and Equipment

  Property and equipment, including purchased software, is stated at cost for
items purchased and at estimated fair value for items contributed by the
founding shareholders. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets of five to seven years. Leasehold
improvements are amortized over the estimated life of the assets or the related
lease term, whichever is less, on a straight-line basis.

Income Taxes

  Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and
tax bases of assets and liabilities.

Revenue Recognition

  Revenues are recognized when the services are rendered to the customer.
Deferred revenue represents cash received from customers prior to services
being performed by the Company.

Research and Development and Software Development

  Research and development costs are expensed when incurred. Software
development costs are expensed as incurred. Such costs are required to be
expensed until the point that technological feasibility and proven
marketability of the product are established.


                                      F-7
<PAGE>

                                  EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Business Description and Summary of Significant Accounting Policies
(Continued)

Use of Estimates

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

Impairment of Long-Lived Assets

  The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

Stock-Based Compensation

  The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Net Loss Per Share

  Basic earnings per share is based on the weighted average shares outstanding
during the period. Diluted earnings per share increases the shares used in the
per share calculation by the dilutive effects of options, warrants, and
convertible securities. The Company's common stock equivalent shares
outstanding from stock options and warrants are excluded from the diluted
earnings per share computation as their effect is antidilutive.

Pro Forma Shareholders' Equity

  Upon the closing of the Company's planned initial public offering, all
outstanding shares of Series A, B and C preferred stock will automatically
convert into 2,082,974 shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.

Pro Forma Net Loss Per Share

  Pro forma net loss per share for the year ended December 31, 1998 and the six
months ended June 30, 1999 is computed using the weighted average number of
common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C preferred stock into shares of
the Company's common stock as if such conversion occurred on January 1, 1998,
or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic and diluted net loss per share of 1,007,154 shares for the year ended
December 31, 1998 and 1,244,370 shares for the six months ended June 30, 1999.
The pro forma effects of these transactions are unaudited.

Interim Financial Statements

  The interim financial statements for the six months ended June 30, 1998 and
1999, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,

                                      F-8
<PAGE>

                                  EBENX, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Business Description and Summary of Significant Accounting Policies
(Continued)

they do not include all of the information and footnotes required by generally
accepted accounting principles. In the opinion of the Company's management,
the unaudited interim financial statements contain all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of the entire year.

Reclassification

Certain prior year items have been reclassified to conform to the current year
presentation.

2. Property and Equipment, Net

Property and equipment as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                           1997        1998
                                                        ----------  -----------
   <S>                                                  <C>         <C>
   Office equipment.................................... $1,198,887  $ 1,455,009
   Purchased software..................................    363,612      563,532
   Furniture and fixtures..............................    241,763      474,085
   Leasehold improvements..............................    154,488      227,321
                                                        ----------  -----------
                                                         1,958,750    2,719,947
   Less accumulated depreciation.......................   (670,642)  (1,151,684)
                                                        ----------  -----------
                                                        $1,288,108  $ 1,568,263
                                                        ==========  ===========
</TABLE>

3. Note Payable

The Company has a $1,500,000 revolving promissory note with a bank with
interest at 1% over the bank's base rate (8.75% at December 31, 1998). The
promissory note is secured by all business assets of the Company and matures
on December 31, 1999. The loan is guaranteed by the Company's wholly owned
subsidiary. At December 31, 1998, the outstanding balance was $750,000. The
promissory note was repaid during 1999.

4. Shareholders' Equity

Common Stock

The Company had agreements with two founding shareholders which entitled the
Company to repurchase one-half of the shares held by these shareholders for
$.01 per share if the shareholders' employment was terminated with cause or in
the event that the employee terminated employment under certain circumstances.
These agreements expired in August 1997 and no shares were repurchased under
the agreements.

Convertible Preferred Stock

Under provisions of stock purchase agreements, the holders of the Company's
preferred stock are entitled to:

  .  liquidation preference of $2.701 and $7.065 for each Series A and Series
     B preferred share, respectively, plus unpaid accumulated dividends.
     After payment of this preference amount, remaining distributable assets,
     if any, will be distributed on a pro rata basis between the preferred
     and common shareholders.

  .  Annual preferential noncumulative dividends of $.2701 (Series A) and
     $.7065 (Series B) for each share payable only if declared by the Board
     of Directors.

                                      F-9
<PAGE>

                                  EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Shareholder's Equity--(Continued)

  . Voting rights similar to common shareholders.

  . One director each, to the Company's Board of Directors for Series A and
      Series B.

Each preferred share may be converted to common shares at the option of the
holder. In addition, the preferred shares shall be automatically converted to
common shares if (i) the Company closes the issuance and sale of common shares
in a public offering in which the gross proceeds equal or exceed $10,000,000,
or (ii) 80% of the preferred stock has been converted. The number of shares
issuable in exchange for each preferred share upon either optional or automatic
conversion shall be equal to $2.701 (Series A) and $7.065 (Series B) divided by
the conversion price then in effect, as defined. The initial conversion price
of $2.701 (Series A) and $7.065 (Series B) will be adjusted as necessary to
prevent dilution resulting from, among other things, issuance of additional
common stock, options or convertible securities.

On November 1, 1999 and March 19, 2001, and on each of the first and second
anniversaries thereof, the Company shall offer to redeem 33 1/3%, 50% and 100%,
respectively, of the Series A preferred shares for $2.701 and Series B
preferred shares for $7.065, respectively, per share plus accrued but unpaid
dividends.

The preferred stock purchase agreements contain certain restrictive covenants
which prohibit, among other things, the Company from authorizing additional
shares of Series A and Series B preferred stock or new classes of capital stock
with preferences greater than those given to the Series A and Series B
preferred shareholder, merging or consolidating with another corporation, or
effecting a change in control of the Company. In addition, capital expenditures
in excess of $100,000 for any item or related items require the approval of the
director elected by the preferred shareholders.

5. Income Taxes

At December 31, 1997 and 1998, the Company's deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                            1997       1998
                                                          ---------  ---------
   <S>                                                    <C>        <C>
   Deferred tax assets:
     Net operating loss carryforwards...................  $ 409,000  $ 665,000
     Bonus and vacation.................................    127,000    188,000
     Accounts receivable allowance......................     19,000     19,000
                                                          ---------  ---------
                                                            555,000    872,000
   Deferred tax liabilities:
     Depreciation.......................................    (96,000)   (93,000)
                                                          ---------  ---------
                                                            (96,000)   (93,000)
                                                          ---------  ---------
   Net deferred tax assets before valuation allowance...    459,000    779,000
   Less valuation allowance.............................   (459,000)  (779,000)
                                                          ---------  ---------
   Net deferred tax assets..............................  $      --  $      --
                                                          =========  =========
</TABLE>

As of December 31, 1998, the Company has unused federal and state research and
development tax credit carryforwards of approximately $100,000 which expire at
various times through 2011. In addition, the Company has unused federal net
operating loss carryforwards at December 31, 1998 of approximately $1,751,000,
which expire at various times through 2013. The utilization of these
carryforwards is dependent upon the Company's ability to generate sufficient
taxable income during the carryforward periods.

                                      F-10
<PAGE>

                                  EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Operating Leases

The Company leases or subleases its office space and certain equipment under
terms of noncancelable operating lease agreements which expire through February
2003. Future lease payments for all operating leases, excluding executory
costs, such as management and maintenance fees are as follows:

<TABLE>
   <S>                                                              <C>
   Year ending December 31:
   1999............................................................ $1,100,020
   2000............................................................    863,391
   2001............................................................    530,439
   2002............................................................    118,730
   2003............................................................     19,840
                                                                    ----------
                                                                    $2,632,420
                                                                    ==========
</TABLE>

Rent expense, including the Company's pro rata share of certain operating
costs, was $239,042, $560,281 and $975,731 in 1996, 1997 and 1998,
respectively.

7. Significant Customers

Significant customer activity as a percent of the Company's net revenue in 1997
and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                 1996  1997  1998
                                                                 ----  ----  ----
   <S>                                                           <C>   <C>   <C>
   Customer A...................................................  21%   13%   19%
   Customer B...................................................  17%   --    17%
   Customer C...................................................  13%   14%   14%
   Customer D...................................................   7%    6%   10%
   Customer E...................................................  --    10%    9%
   Customer F...................................................  --    13%   --
</TABLE>

8. Stock Options and Warrants

In 1993, the Company adopted the 1993 Stock Option Plan (the Plan) to encourage
stock ownership by employees, directors and other individuals as determined by
the Board of Directors. The Plan provides that options granted thereunder may
be either incentive stock options (ISOs), as defined by the Internal Revenue
Code, or nonqualified stock options.

The Board of Directors determines who will receive options under the Plan and
sets the terms, including vesting dates. Options may have a maximum term of no
more than ten years except in the case of a shareholder possessing more than
10% of the total voting power of all classes of stock (a 10% shareholder) in
which case the maximum term is five years. The exercise price of ISOs granted
under the Plan must be at least equal to the fair market value (or in the case
of a 10% shareholder, 110% of the fair market value) of the common stock on the
date of grant. The exercise price of nonqualified options is determined by the
Board of Directors.

The exercise price may be paid in cash, shares of previously owned common
stock, or by issuance of a promissory note. In addition, the Plan also contains
a provision allowing the Company to permit option holders to pay their
withholding obligation through share redirection. If an option expires,
terminates or is canceled, the shares not purchased thereunder may become
available for additional option awards under the Plan. The Plan expires in
2003.

                                      F-11
<PAGE>

                                  EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Stock Options and Warrants--(Continued)

Option activity is summarized as follows:

<TABLE>
<CAPTION>
                                    Shares         Shares       Weighted
                                 Available for  Outstanding   Average Price
                                     Grant     Under the Plan   Per Share
                                 ------------- -------------- -------------
   <S>                           <C>           <C>            <C>           <C>
   Balance at December 31,
     1996.....................      227,676        389,915        $ .54
     Granted..................     (204,615)       204,615        $1.80
     Exercised................           --        (38,100)       $ .49
     Canceled.................      100,400       (100,400)       $ .95
                                   --------       --------        -----     ---
   Balance at December 31,
     1997.....................      123,461        456,030        $1.02
     Additional shares
       reserved for issuance..      100,000             --           --
     Granted..................     (207,650)       207,650        $2.13
     Exercised................           --        (11,600)       $ .81
     Canceled.................       98,150        (98,150)       $ .50
                                   --------       --------        -----     ---
   Balance at December 31,
     1998.....................      113,961        553,930        $1.35
                                   ========       ========        =====     ===
</TABLE>

The weighted average fair value of options granted in 1998 and 1997 was $.45
and $.42 per share, respectively. The exercise prices are equal to the
estimated fair value of the common stock as determined by the Board of
Directors on the grant dates. The options are exercisable over a four-year to
five-year vesting period and expire at various dates through 2003. At December
31, 1998 and 1997, options to purchase 159,026 and 96,868 shares of common
stock are exercisable, respectively, at weighted average exercise prices of
$.68 and $.39, respectively. Exercise prices for options outstanding as of
December 31, 1998 and 1997, ranged from $.30 to $1.80 and $.30 to $2.25,
respectively. The weighted average remaining contractual life of those options
at December 31, 1998 and 1997 is 4.4 and 4.5 years, respectively.

Pro forma information regarding net loss and loss per share is required by
Statement 123, an has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the minimum
value option pricing model with the following weighted average assumptions for
1998 and 1997: risk free interest rate of 5.50%, dividend yield of 0%, and a
weighted average expected life of the option of five years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net loss is not materially different from the amounts reported for 1998,
1997 and 1996.

The pro forma effect on net loss of 1998 is not representative of the pro forma
effect on net loss in future years.

During September 1995, the Company entered into a line of credit agreement to
borrow up to $550,000, which expired in August 1996. In connection with the
agreement, the Company issued a warrant to purchase 6,000 shares of the
Company's Series A Convertible Preferred Stock at $2.701 per share. The
warrants are exercisable over ten years.

During 1995, the Company granted three employees warrants to purchase 21,805
shares of common stock at $.01 per share. The warrants, which are immediately
exercisable and expire at various times between June 30, 2000 and August 31,
2000, were granted in lieu of cash compensation.

                                      F-12
<PAGE>

                                  EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Employee Benefit Plans

The Company has a 401(k) plan covering substantially all employees. Under the
terms of the plan, participants may contribute 2% to 20% of their salary to the
plan. Employees are eligible after one day of service and upon attainment of
age 21. The Company may make matching contributions based on a discretionary
formula or may contribute a discretionary amount. The Company did not make any
contributions in 1996, 1997 or 1998.

10. Subsequent Event (Unaudited)

In May and June 1999, the Company sold a total of 1,075,820 shares of Series C
preferred stock resulting in net proceeds to the Company of $10,471,005. The
Series C shareholders have liquidation preference of $9.76 per share, plus
accumulated dividends. Annual preferential cumulative dividends of $.49 per
share are payable only if declared by the Board. The Series C preferred
shareholders are able to elect two members on the Company's Board of Directors.
The Series C preferred shares have voting rights similar to common
shareholders. The Series C preferred shares are convertible into common shares
at a conversion rate of $9.76 per share.

                                      F-13
<PAGE>





                              [Inside Back Cover]
<PAGE>

  Until [   ], 1999 25 days after the date of this prospectus, all dealers that
buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.



                                  [eBenX Logo]
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

  Except as set forth below the following fees and expenses will be paid by
eBenX in connection with the issuance and distribution of the securities
registered hereby and do not include underwriting commissions and discounts.
All such expenses, except for the SEC registration, NASD filing and Nasdaq
listing fees, are estimated.

<TABLE>
   <S>                                                                   <C>
   SEC registration fee................................................  $19,182
   NASD filing fee.....................................................  $ 7,400
   Nasdaq National Market listing fee..................................  $
   Legal fees and expenses.............................................  $
   Accounting fees and expenses........................................  $
   Transfer Agent's and Registrar's fees...............................  $
   Printing and engraving expenses.....................................  $
   Miscellaneous.......................................................  $
                                                                         -------
     Total.............................................................  $
                                                                         =======
</TABLE>

Item 14. Indemnification of Directors and Officers

  Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.

  Provisions regarding indemnification of officers and directors of eBenX to
the extent permitted by Section 302A.521 are contained in eBenX's Bylaws.

  In addition, the employment agreements with officers of eBenX that are
described in this prospectus require eBenX, to the extent permitted by law, to
indemnify each of these officers and to obtain directors' and officers'
liability insurance coverage in such amount as the board of directors of eBenX
determines to be appropriate.

Item 15. Recent Sales of Unregistered Securities

  During the three years prior to the date of this Registration Statement, we
have sold and issued the following securities:

      (1) In December 1997, pursuant to Rule 701 of the Securities Act, we
  issued and sold 38,100 shares of common stock to employees for aggregate
  consideration of $18,670 upon the exercise of stock options issued
  pursuant to our 1993 Stock Option Plan.

                                      II-1
<PAGE>

      (2) From May until August 1998, pursuant to Rule 701 of the Securities
  Act, we issued and sold 11,100 shares of common stock to employees for
  aggregate consideration of $8,415 upon the exercise of stock options
  issued pursuant to our 1993 Stock Option Plan.

      (3) From March until September 1999, pursuant to Rule 701 of the
  Securities Act, we issued and sold 19,450 shares of common stock to
  employees for aggregate consideration of $16,200 upon the exercise of
  stock options issued pursuant to our 1993 Stock Option Plan.

      (4) In May and June 1999, we issued and sold 1,075,820 shares of
  Series C Convertible Preferred Stock to certain accredited investors for
  aggregate consideration of $10,500,003.20 pursuant to Rule 506 of
  Regulation D of the Securities Act.

  The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with us, to
information about us. No placement agents were used in any of the foregoing
transactions.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
 Number  Description
 ------  -----------
 <C>     <S>
   1.1*  Underwriting Agreement.
   3.1   Fifth Amended and Restated Articles of Incorporation of the Company
         (proposed to be effective immediately prior to the offering).
   3.2   Amended and Restated Bylaws of the Company (proposed to be effective
         immediately prior to the offering).
   4.1*  Form of Certificate of Common Stock of the Company.
   5.1*  Opinion of Dorsey & Whitney LLP.
  10.1   1993 Stock Option Plan.
  10.2   1999 Stock Incentive Plan.
  10.3   1999 Employee Stock Purchase Plan.
  10.4*  Services Agreement by and between the Company and PepsiCo, Inc., dated
         June 1, 1997.
  10.5*  Services Agreement by and between the Company and Bell Atlantic
         Corporation, dated July 1, 1998.
  10.6*  Services Agreement by and between the Company and The Blue Cross Blue
         Shield Association, dated August 29, 1997.
  10.7*  Services Agreement by and between the Company and GE Capital Services
         Corporation, dated January 1, 1996.
  10.8*  Services Agreement by and between the Company and General Electric
         Company, dated January 1, 1997.
  10.9   Employment Agreement by and between the Company and Mark Tierney,
         dated as of April 22, 1999 and amended and restated on September 28,
         1999.
  10.10  Employment Agreement by and between the Company and John Davis, dated
         as of April 12, 1999.
  10.11  Employment Agreement by and between the Company and Scott Halstead,
         dated as of April 22, 1999.
  10.12* Office Lease by and between Minnesota CC Properties, Inc. and The
         Prudential Insurance Company of America, dated December 31, 1993.
  10.13* Office Sublease by and between the Company and The Prudential
         Insurance Company of America, dated March 9, 1997.
  10.14* First Amendment to Office Sublease by and between the Company and The
         Prudential Insurance Company of America, dated August 10, 1999.
  10.15* Consent of Landlord to Office Sublease by and between the Company,
         Teachers Insurance and Annuity Association (successor to Minnesota CC
         Properties, Inc.), The Prudential Insurance Company of America, dated
         August 30, 1999.
  10.16* Office Lease by and between the Company and ND Properties, Inc., dated
         March 12, 1997.
</TABLE>

                                     II-2
<PAGE>

(a) Exhibits (continued)

<TABLE>
<CAPTION>
 Number  Description
 ------  -----------
 <C>     <S>
  10.17* Amendment No. 1 to Office Lease by and between the Company and ND
         Properties, Inc., dated October 1, 1997.
  10.18* Amendment No. 2 to Office Lease by and between the Company and ND
         Properties, Inc., dated December 23, 1997.
  10.19* Amendment No. 3 to Office Lease by and between the Company and
         Teachers Insurance and Annuity Association of America (successor to ND
         Properties, Inc.), dated January 19, 1999.
  23.1   Consent of Ernst & Young LLP.
  23.2*  Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
  24.1   Powers of Attorney (included on signature page).
  27.1   Financial Data Schedule.
</TABLE>
--------
*To be filed by amendment.

  (b) Financial Statement Schedules

  Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

Item 17. Undertakings

  The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

  The undersigned registrant hereby undertakes that:

      (1) For purposes of determining any liability under the Securities Act
  of 1933, the information omitted from the form of prospectus filed as part
  of this registration statement in reliance upon Rule 430A and contained in
  a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
  (4) or 497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective.

      (2) For the purpose of determining any liability under the Securities
  Act of 1933, each post-effective amendment that contains a form of
  prospectus shall be deemed to be a new registration statement relating to
  the securities offered therein, and the offering of such securities at
  that time shall be deemed to be the initial bona fide offering thereof.

                                      II-3
<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all if the
requirements for filing on Form S-1 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, State of Minnesota, on September
28, 1999.

                                          EBENX, INC.

                                                      /s/ John J. Davis
                                          By: _________________________________
                                                       John J. Davis,
                                                President and Chief Executive
                                                           Officer

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark Tierney, John Davis and Scott
Halstead, and each of them, his true and lawful attorney-in-fact and agents,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all (i) amendments
(including post-effective amendments) and additions to this Registration
Statement and (ii) Registration Statements, and any and all amendments thereto
(including post-effective amendments), relating to the offering contemplated
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

  Pursuant to the requirements of the Securities Act of 1933, this registration
statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----


<S>                                  <C>                           <C>
        /s/ Mark W. Tierney          Chairman and Director         September 28, 1999
____________________________________  (principal executive
          Mark W. Tierney             officer)

         /s/ John J. Davis           President, Chief Executive    September 28, 1999
____________________________________  Officer and Director
           John J. Davis              (principal executive
                                      officer)

       /s/ Scott P. Halstead         Chief Financial Officer and   September 28, 1999
____________________________________  Secretary (principal
         Scott P. Halstead            financial officer and
                                      principal accounting
                                      officer)

       /s/ Michael C. Bingham        Senior Vice President,        September 28, 1999
____________________________________  Business Development and
         Michael C. Bingham           Director

         /s/ Paul V. Barber          Director                      September 28, 1999
____________________________________
           Paul V. Barber

        /s/ James P. Bradley         Director                      September 28, 1999
____________________________________
          James P. Bradley

</TABLE>


                                      II-4
<PAGE>

<TABLE>
<CAPTION>
             Signature                           Title                    Date
             ---------                           -----                    ----


<S>                                  <C>                           <C>
         /s/ Daniel M. Cain          Director                      September 28, 1999
____________________________________
           Daniel M. Cain

        /s/ William J. Geary         Director                      September 28, 1999
____________________________________
          William J. Geary

           /s/ John Nehra            Director                      September 28, 1999
____________________________________
             John Nehra

</TABLE>

                                      II-5
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Number  Description
 ------  -----------
 <C>     <S>
   1.1*  Underwriting Agreement.
   3.1   Fifth Amended and Restated Articles of Incorporation of the Company
         (proposed to be effective immediately prior to the offering).
   3.2   Amended and Restated Bylaws of the Company (proposed to be effective
         immediately prior to the offering).
   4.1*  Form of Certificate of Common Stock of the Company.
   5.1*  Opinion of Dorsey & Whitney LLP.
  10.1   1993 Stock Option Plan.
  10.2   1999 Stock Incentive Plan.
  10.3   1999 Employee Stock Purchase Plan.
  10.4*  Services Agreement by and between the Company and PepsiCo, Inc., dated
         June 1, 1997.
  10.5*  Services Agreement by and between the Company and Bell Atlantic
         Corporation, dated July 1, 1998.
  10.6*  Services Agreement by and between the Company and The Blue Cross Blue
         Shield Association, dated August 29, 1997.
  10.7*  Services Agreement by and between the Company and GE Capital Services
         Corporation, dated January 1, 1996.
  10.8*  Services Agreement by and between the Company and General Electric
         Company, dated January 1, 1997.
  10.9   Employment Agreement by and between the Company and Mark Tierney,
         dated as of April 22, 1999, and amended and restated on September 28,
         1999.
  10.10  Employment Agreement by and between the Company and John Davis, dated
         as of April 12, 1999.
  10.11  Employment Agreement by and between the Company and Scott Halstead,
         dated as of April 22, 1999.
  10.12* Office Lease by and between Minnesota CC Properties, Inc. and The
         Prudential Insurance Company of America, dated December 31, 1993.
  10.13* Office Sublease by and between the Company and The Prudential
         Insurance Company of America, dated March 9, 1997.
  10.14* First Amendment to Office Sublease by and between the Company and The
         Prudential Insurance Company of America, dated August 10, 1999.
  10.15* Consent of Landlord to Office Sublease by and between the Company,
         Teachers Insurance and Annuity Association (successor to Minnesota CC
         Properties, Inc.), The Prudential Insurance Company of America, dated
         August 30, 1999.
  10.16* Office Lease by and between the Company and ND Properties, Inc., dated
         March 12, 1997.
  10.17* Amendment No. 1 to Office Lease by and between the Company and ND
         Properties, Inc., dated October 1, 1997.
  10.18* Amendment No. 2 to Office Lease by and between the Company and ND
         Properties, Inc., dated December 23, 1997.
  10.19* Amendment No. 3 to Office Lease by and between the Company and
         Teachers Insurance and Annuity Association of America (successor to ND
         Properties, Inc.), dated January 19, 1999.
  23.1   Consent of Ernst & Young LLP.
  23.2*  Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
  24.1   Powers of Attorney (included on signature page).
  27.1   Financial Data Schedule.
</TABLE>
--------
*To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 274841}]
{"company-data": {"conformed-name": "EBENX INC", "cik": "0001095825", "assigned-sic": "", "state-of-incorporation": "MN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-87985", "film-number": "99719024"}, "business-address": {"street1": "5500 WAYZATA BLVD STE 1450", "city": "GOLDEN VALLEY", "state": "MN", "zip": "55416", "phone": "6125252700"}, "mail-address": {"street1": "5500 WAYZATA BLVD STE 1450", "city": "GOLDEN VALLEY", "state": "MN", "zip": "55416"}}
As filed with the Securities and Exchange Commission on September 28, 1999
                                                       Registration No. 333-

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     under
                           The Securities Act of 1933
                             ---------------------

                                  eBenX, Inc.
             (Exact name of registrant as specified in its charter)

       Minnesota                     7389                   41-1758843
    (State or other            (Primary Standard         (I.R.S. Employer
    jurisdiction of               Industrial          Identification Number)
   incorporation or           Classification Code
     organization)                  Number)
                             ---------------------

                       5500 Wayzata Boulevard, Suite 1450
                       Minneapolis, Minnesota 55416-1241
                                 (612) 525-2700
         (Address, including zip code, and telephone number, including
            area code, of registrant's principal executive offices)

                               Scott P. Halstead
                                  eBenX, Inc.
                       5500 Wayzata Boulevard, Suite 1450
                       Minneapolis, Minnesota 55416-1241
                                 (612) 525-2700
      (Name, address, including zip code, and telephone number, including
                        area code, of agent for service)
                             ---------------------

                                   Copies to:

          KENNETH L. CUTLER                       LELAND E. HUTCHINSON
         SCOTT L. BARRINGTON                        GREGORY J. BYNAN
          SCOTT A. NICHOLAS                         Winston & Strawn
        Dorsey & Whitney LLP                      35 West Wacker Drive
       220 South Sixth Street                    Chicago, Illinois 60601
  Minneapolis, Minnesota 55402-1498                  (312) 558-5600
           (612) 340-2600
                             ---------------------

  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

                        CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum
                                                   Aggregate
            Titles of Each Class of              Offering Price    Amount of
          Securities to be Registered                 (1)       Registration Fee
--------------------------------------------------------------------------------
Common Stock, $.01 par value....................  $69,000,000       $19,182
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1)Estimated solely for purposes of calculating the registration fee pursuant
    to Rule 457(o).
                             ---------------------

    The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED [    ], 1999

                               [EBENX, INC. LOGO]

                                [      ] Shares

                                  Common Stock

  This is our initial public offering and no public market currently exists for
our common stock. We expect that our common stock will trade on the Nasdaq
National Market under the symbol "EBNX." We anticipate that the initial public
offering price will be between $[    ] and $[    ] per share.

                                --------------

                 Investing in our common stock involves risks.
                    See "Risk Factors" beginning on page 4.

                                --------------
Per Share     Total
                                                            ---------     -----
Public Offering Price...................................... $ [     ] $ [     ]
Underwriting Discounts..................................... $ [     ] $ [     ]
Proceeds to eBenX.......................................... $ [     ] $ [     ]
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

  We have granted the underwriters a 30-day option to purchase up to an
additional [ ] shares of our common stock to cover overallotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of our common stock to
purchasers on [    ], 1999.

                                --------------

BancBoston Robertson Stephens

             Warburg Dillon Read LLC

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is [    ], 1999.
[THIS PAGE INTENTIONALLY LEFT BLANK]
We are offering to sell, and seeking offers to buy, shares of our common
stock only in jurisdictions where offers and sales are permitted. You should
rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. Information on the eBenX and Network Management Services,
Inc. Web sites are not part of this prospectus. The information in this
document is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common stock. Except
as the context otherwise requires, the terms "eBenX," "we," "us" and "our" as
used in this prospectus refer to eBenX, Inc., together with its consolidated
subsidiary (unless the context otherwise requires).

                             ---------------------

                               TABLE OF CONTENTS
Page
                                                                          ----
Summary..................................................................   1
Risk Factors.............................................................   4
Forward-Looking Statements ..............................................  13
Use of Proceeds..........................................................  13
Dividend Policy..........................................................  13
Capitalization...........................................................  14
Dilution.................................................................  15
Selected Financial Data..................................................  16
Management's Discussion and Analysis of Financial Condition and Results
  of Operations..........................................................  17
Business.................................................................  24
Management...............................................................  38
Certain Transactions.....................................................  46
Principal Shareholders...................................................  47
Description of Capital Stock.............................................  49
Shares Eligible for Future Sale..........................................  50
Underwriting.............................................................  52
Legal Matters............................................................  53
Experts..................................................................  54
Additional Information...................................................  54
Index to Financial Statements............................................ F-1
---------------------

  BEN-NET(R) is a registered trademark and WebElect(R) is a registered service
mark of eBenX. eBenX(TM), BenX(TM) and Benefit Exchange Network(TM) are also
our trademarks. This prospectus contains other product names, trade names and
trademarks of eBenX and of other organizations.
SUMMARY

  Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.

                                  eBenX, Inc.

  We provide business-to-business e-commerce and connectivity solutions to
employers and health plans for the purchase, eligibility administration and
premium payment of group health insurance benefits. Through our proprietary and
licensed technology, we facilitate the flow of employee and dependent
eligibility and financial data between employer purchasers of group health
insurance benefits and health plan suppliers. The plan information, data and
financial exchange requirements in this $600 billion market are extremely
complex. Our proven Web-enabled services and high volume eligibility and
financial data pipelines provide the critical connectivity necessary for
employers and health plans to communicate electronically. Today, we connect
customers such as Bell Atlantic Corporation, PepsiCo, Inc., Northwest Airlines
Corporation and GE Capital Services Corporation to their wide array of health
plan trading partners.

  The widespread acceptance of the Internet as a business communications
platform has created a foundation for business-to-business e-commerce that
enables employers and health plans to streamline complex processes, lower costs
and improve productivity. The purchasing, eligibility administration and
premium payment process is encumbered by inefficient procedures for gathering
and transferring data and executing payment transactions. These inefficiencies,
along with other factors unique to the group health insurance benefits market,
create an environment which is conducive to e-commerce solutions. However,
unlike other e-commerce products and services, such as buying books or
individual insurance, the complexities of the group health insurance benefits
market require deep domain knowledge and advanced technology. Currently,
employers and health plans face the following challenges:

  .  fragmented marketplace: multi-site, multi-state employers must purchase
     health insurance from multiple, locally-based health plans;

  .  increasing costs: employers face pressure to purchase benefits more
     effectively due to the escalating costs of providing group health
     insurance benefits to employees and retirees;

  .  complex data: employers and health plans must exchange complex, detailed
     and dynamic data in multiple formats using various system platforms;

  .  complex pricing and payment reconciliation: employers and health plans
     must establish price on a case-by-case basis and continually reconcile
     complex billing and settlement transactions; and

  .  government regulation: federal, state and local laws and regulations
     burden the process of purchasing group health insurance benefits through
     additional reporting and coverage requirements.

  We are pioneering the use of the Internet to automate the purchase,
eligibility administration and premium payment process for the group health
insurance benefits market. By using our proprietary and licensed technology we
enable employers to streamline the administrative process and make purchasing
decisions in a more competitively priced market. Based on our six years of
industry experience with Fortune 1000 companies, we have developed a technology
platform that automates the data exchange, payment and reconciliation process
in this market. In 1999, we extended this technology platform to enable
enrollment data collection and plan information distribution, thus creating an
integrated end-to-end e-commerce solution for the group health insurance
benefits market.

  Our technology platform enables us to introduce the first fully integrated
end-to-end e-commerce solution for the procurement of group health insurance
benefits. We believe that with this technology platform and our

                                       1
industry expertise we can fundamentally change the way group health insurance
benefits are purchased. Using this e-commerce solution, our near-term strategy
is to increase our penetration of, and service offerings to, the Fortune 1000
market, to leverage our technology through relationships with insurance brokers
to penetrate the mid-size employer market and to establish additional strategic
relationships.

                                  The Offering
Common stock offered................................ [    ] shares
 Common stock to be outstanding after this offering.. [    ] shares
 Use of proceeds..................................... We intend to use the net
                                                      proceeds of this offering
                                                      for general corporate
                                                      purposes, including
                                                      working capital, sales
                                                      and marketing
                                                      expenditures, development
                                                      of new products and
                                                      services, investment in
                                                      technology infrastructure
                                                      and possible
                                                      acquisitions. See "Use of
                                                      Proceeds."
 Proposed Nasdaq National Market symbol.............. EBNX
Common stock to be outstanding after this offering does not include:

  . 1,098,366 shares issuable upon exercise of outstanding stock options
    under existing stock option plans;

  . 27,805 shares issuable upon exercise of outstanding warrants; and

  . 1,118,974 shares available for future grant or issuance under our stock
    option plans.

  See "Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 4 of "Notes to Financial Statements," beginning on page F-9.

                              --------------------

  Our headquarters are located at 5500 Wayzata Boulevard, Suite 1450,
Minneapolis, Minnesota 55416-1241 and our telephone number is (612) 525-2700.
Our Web site addresses are www.ebenx.com and www.networkmanagementinc.com. In
September 1999, we changed our name from Network Management Services, Inc. to
eBenX, Inc.

  The foregoing information reflects a [  ]-for-one split of our common stock
on [   ], 1999. Unless otherwise indicated, all information contained in this
prospectus assumes that the underwriters' overallotment option is not exercised
and reflects the conversion of all outstanding preferred stock into common
stock immediately prior to the commencement of this offering.

                                       2
Summary Financial Data
                     (in thousands, except per share data)
Six months
                                Year Ended December 31,           ended June 30,
                          --------------------------------------  ---------------
                           1994    1995   1996    1997    1998     1998    1999
                          ------  ------ ------  ------  -------  ------  -------
                                                                    (unaudited)
Statement of Operations
  Data:
Net revenue.............  $  904  $2,497 $4,360  $7,093  $10,122  $3,929  $ 7,108
(Loss) income from
  operations............    (177)     31   (779)   (713)  (1,186)   (998)  (1,262)
Net (loss) income.......    (166)     62   (581)   (500)  (1,042)   (915)  (1,112)
Basic and diluted net
  (loss) income per
  share.................  $ (.15) $  .06 $ (.53) $ (.45) $  (.90) $ (.80) $  (.95)
Shares used in basic and
  diluted net income
  (loss) per share......   1,078   1,098  1,104   1,125    1,154   1,150    1,165
Pro forma basic and
  diluted net loss per
  share.................                                    (.42)            (.46)
Shares used in pro forma
  net loss
  per share.............                                   2,162            2,409
June 30, 1999
                                                        ------------------------
                                                          Actual    As Adjusted
                                                        ---------- -------------
                                                              (unaudited)
Balance Sheet Data:
Cash and cash equivalents..............................  $ 9,268        $
Working capital........................................   10,821
Total assets...........................................   14,303
Long-term obligations, net of current portion..........      --
Total shareholders' equity.............................   12,772
The "as adjusted" column in the Balance Sheet Data table gives effect to the
receipt and application of the estimated net proceeds from our sale of the [
] shares of common stock offered by this prospectus at an assumed initial
public offering price of $[   ] per share, after deducting the estimated
underwriting discount and offering expenses that we will pay. See "Use of
Proceeds" and "Capitalization" for a further description of the estimated
proceeds of this offering.

  See Note 1 of "Notes to Financial Statements," beginning on page F-7, for an
explanation of the methods used to compute basic and diluted net (loss) income
per share data and pro forma basic and diluted net loss per share data.

                                       3
RISK FACTORS

  This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to purchase shares of our common stock. If
any of the following risks actually occur, our business and operating results
could be harmed. This could cause the trading price of our common stock to
decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have had net losses over the past several years and we may not be able to
achieve or maintain profitability in the future.

  Our business strategy may be unsuccessful and we may never achieve or
maintain significant revenues or profitability. With the exception of fiscal
1995, we have incurred net losses each year since we began operations in 1993.
We had net losses of approximately $1.0 million for the year ended December 31,
1998 and $1.1 million for the six month period ended June 30, 1999, and an
accumulated deficit of $3.3 million as of June 30, 1999. We expect to continue
to incur significant development, sales and marketing and other operational
expenses in connection with our business. We may also incur expenses in
connection with acquisitions or other strategic relationships. As a result of
these expenses, we will need to generate significant quarterly revenue
increases to achieve and maintain profitability. We expect that we will incur
net losses for the next several years.

We rely significantly on a limited number of customers and the loss of any
material customer could harm our business and operating results.

  In 1998, two customers accounted for approximately 40% of our total revenue.
In 1999 to date, ten customers have accounted for approximately 90% of our
total revenue. The loss of a material customer would significantly reduce our
revenue and harm our business and operating results. Further, because increased
employee participation from existing customers has substantially contributed to
our revenue growth, the loss of any material customer would harm our prospects
for future growth. We may continue to depend upon a small number of customers
for a substantial percentage of our revenue in the future.

Our success depends on industry acceptance of our products and services.

  Our success depends on our ability to provide products and services to a
large number of employers with a substantial base of participating employees
and to efficiently and accurately collect and process eligibility data and
execute payment transactions with numerous health plans. The acceptance by
employers of our products and services will require that all participants in
the group health insurance benefits market adopt new methods of administering
benefits, exchanging eligibility information and executing payment
transactions. These industry participants may not accept our products and
services as a replacement for traditional methods of operation.

  Further, our products and services facilitate competition among health plans
at the employer level by creating an infrastructure that allows multiple health
plans to service a single employer. Health plans have in the past resisted
servicing smaller companies on a non-exclusive basis. This resistance may
inhibit our growth, especially in the mid-size employer market.

We face intense competition in our industry and, if we are unable to compete
successfully, our business and operating results will be seriously harmed.

  The group health insurance benefits industry is intensely competitive,
rapidly evolving and subject to sudden technological change. We believe that
the principal competitive factors in this market are health

                                       4
and managed care expertise, data integration and transfer technology, benefits
processing technology, customer service and support and product and service
fees. We expect competition to increase in the future. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any one of which could seriously harm our business and operating
results.

  We compete with administrative service providers and benefits consultants
with administrative capabilities. We also compete with the human resource and
information systems departments of the Fortune 1000 companies that perform
their own health care administration services. In the mid-size employer market
we compete with health benefit brokers and regional brokers. In addition, many
human resource systems and service companies have the health care expertise and
financial strength to develop the technology necessary to compete with us. As
the market evolves we expect increased competition from Internet-based service
providers in both the health care connectivity market between suppliers and
providers (e.g., physicians, hospitals and pharmacies) and the online insurance
market.

  Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than we do. In addition, many of our competitors have well-
established relationships with our current and potential customers and have
extensive knowledge of our industry. Current and potential competitors have
established or may establish strategic relationships among themselves or with
third parties to increase the ability of their products and services to address
employer needs. Accordingly, it is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share.

Failure to manage our growth effectively will harm our business and operating
results.

  Continued rapid growth will place significant strain upon our management and
operational systems and resources. Failure to manage our growth effectively
will harm our business and operating results. We will need to expand our
existing information systems or acquire new systems to meet the requirements of
our future operations. Any expansion or replacement of our information systems
may not be sufficient to meet our needs. In addition, we may experience
interruptions of service as we expand these systems.

  We recently have hired a significant number of new employees, including key
executives. We will continue to add personnel to maintain our ability to grow
in the future. We must integrate our new employees and key executives into a
cohesive team and at the same time increase the total number of employees and
train and manage our employee work force in a timely and effective manner to
expand our business. We may not be able to do so successfully.

Unsuccessful efforts or incurrence of unanticipated expenses in selling our
products and services could harm our business and operating results.

  The time, expense and effort of securing customers may exceed our
expectations and may harm our business and operating results. The decision to
implement our products and services requires a substantial and technical
analysis of a customer's healthcare benefits offerings and requirements and
time-intensive education of the customer of the advantages of our products and
services. Consequently, the length of our sales cycle generally varies from
three to twelve months. We, therefore, often devote significant resources and
incur costs without any assurance that a prospective customer will purchase our
products or services.

Our future growth depends upon our establishment and maintenance of successful
relationships with strategic partners.

  We believe that our future growth depends in part upon the successful
creation and maintenance of relationships with strategic partners such as
front-end healthcare information collection companies, human resources
information services firms, healthcare benefits consultants and brokers and
other industry participants. To date, we have established only a limited number
of strategic relationships. Strategic partners may offer

                                       5
products or services of several different companies, including products and
services that compete with our products or services. Strategic partners and
potential strategic partners may be influenced by our competitors to scale back
or end their relationships with us. We may not establish additional strategic
relationships and these relationships may not be ultimately successful. Our
strategic partners may not devote adequate resources to selling our products
and services.

  If we are unable to establish and maintain successful strategic
relationships, we may have to devote substantially more resources to the sales
and marketing of our products and services.

Our quarterly results likely will fluctuate which may subject the market price
of our common stock to rapid and unpredictable change.

  Historically, we obtain 75% of each year's new customer commitments during
the months of February through May because most employers have open enrollment
periods for the selection of health plans by their employees in the fall. We
expect this seasonality in our business to continue. Our expenses are
relatively fixed in the short term and are based in part on our expectations of
future revenues, which may vary significantly. If we do not achieve expected
revenue targets, we may be unable to adjust our spending quickly enough to
offset any revenue shortfall which could harm our business and operating
results. Quarterly fluctuations in our operating results may subject the market
price of our common stock to rapid and unpredictable change.

  Other factors that may cause such quarterly fluctuations include:

  .  the number and size of new customers starting services;

  .  the decision of one or more customers to delay implementation or cancel
     ongoing services;

  .  seasonality;

  .  our ability to design, develop and introduce new services and features
     for existing services on a timely basis;

  .  costs associated with strategic acquisitions and alliances or
     investments in technology;

  .  the success of any such strategic acquisition, alliance or investment;

  .  costs to transition to new technologies;

  .  expenses incurred for geographic and service expansion;

  .  price competition;

  .  a reduction in the number of employees of our customers; and

  .  acquisitions of our customers by other companies.

Failure to retain our key executives or attract and retain qualified technical
personnel could harm our business and operating results.

  The loss of one or more of our executive officers could inhibit the
development of our business and, accordingly, harm our business and operating
results. While we generally enter into employment agreements with our key
executive officers, we may not be able to retain them.

  Qualified personnel are in great demand throughout the Internet and
healthcare industries. Our future growth and our ability to achieve our
financial and operational objectives will depend in large part upon our ability
to attract and retain highly skilled technical, engineering, sales and
marketing and customer support personnel. Our failure to attract and retain
personnel may limit the rate at which we can expand our business, including the
development of new products and services and the retention of additional
customers, which could harm our business and operating results.

                                       6
We could be subject to potential liability claims related to our products and
services.

  Errors in the performance of our products or services on behalf of an
employer could result in the delay of processing of healthcare eligibility
information or execution of payment transactions or could otherwise result in
financial or other damages to our customers. These errors also may result in
the improper denial of healthcare benefits to employees. A liability claim
brought against us by an employer or an employee, even if not successful, would
likely be time consuming and costly and could seriously harm our business and
reputation.

  Our customer agreements generally require that we indemnify our customers for
certain losses and liabilities incurred by them that are caused by us. Any
indemnification payments required under these agreements may harm our business
and operating results.

  We also may become party to litigation brought by a participating employee
against an employer or health plan. We may not successfully avoid liability for
problems related to the provision of healthcare benefits even though we do not
make medical determinations or coverage decisions. Any claims or litigation
also could require expenditures in terms of management time and other resources
to defend ourselves. This could require us to implement measures to reduce our
exposure to this liability, which may require us, among other things, to expend
substantial resources or to discontinue certain product or service offerings or
to take other precautions. Liability of this type could harm our business and
operating results.

Failure to raise additional capital to fund our future operations and satisfy
working capital needs may harm our business and operating results.

  We do not currently generate sufficient cash to fully fund operations. To
date, we have financed our operations principally through the issuance of
equity securities and, to a limited extent, through borrowings. We may need to
raise additional capital in the future to fund our ongoing operations and to
support expansion of our business. We may not be able to obtain additional
financing when needed or on terms favorable to us. Any difficulty in obtaining
additional financing may require us to limit our operations or may inhibit our
future growth.

The failure to successfully integrate any future acquisitions could harm our
business and operating results.

  In order to remain competitive or to expand our business, we may find it
necessary or desirable to acquire other businesses, products or technologies.
If we identify an appropriate acquisition candidate, we may not be able to
negotiate the terms of the acquisition successfully, to finance the acquisition
or to integrate the acquired businesses, products or technologies into our
existing business and operations. Further, completing a potential acquisition
and integrating an acquired business may strain our resources and require
significant management time. Acquisition financing may not be available on
terms that are favorable to us, if available at all. In addition, we may be
required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions which would harm our operating
results.

Consolidation in the healthcare industry may interfere with our business.

  Our products and services are, in large part, beneficial to employers because
we are able to coordinate the exchange of eligibility and financial data and
execute payment transactions between an employer and its numerous health plans.
Consolidation in the healthcare industry may require us to reconfigure our
products, services and systems to accommodate a change in data formats and
codes utilized by recently acquired or consolidated health plans. Further, the
consolidation of health plans operating in the same geographic market may
substantially reduce the number of competitive health plans in that market.
Existing and potential customers, especially mid-size market employers that
operate in only one geographic market, may not find our products and services
beneficial if there is only limited competition among health plans.

                                       7
Our business will suffer if the integrity of our systems is inadequate.

  Our systems process vast amounts of eligibility and financial data and
execute large numbers of payment transactions. Any delay or failure in our
systems or in our ability to communicate electronically with employers and
health plans or in our ability to collect, store, analyze or process accurate
eligibility and financial data may result in the denial of healthcare benefits,
or in the delay or failure to execute payment transactions accurately. This
type of denial or failure would harm our business and operating results.

  The occurrence of a catastrophic event or other system failure at our
facilities could interrupt our operations or result in the loss or corruption
of stored data. In addition, we depend on the efficient operation of Internet
and network connections among our systems, employers and health plans. These
connections depend on the efficient operation of data exchange tools, Web
browsers, Internet service providers and Internet and network backbone service
providers. In the past, Internet users have occasionally experienced
difficulties with Internet and online services due to system failures. Any
disruption in Internet or network access provided by third parties could harm
our business and operating results. Further, we are dependent on hardware
suppliers for prompt delivery, installation and service of equipment used to
deliver our services.

Our business will suffer if we or our business partners experience Year 2000
compliance problems or related system failures.

  We may experience Year 2000 compliance problems requiring substantial
revisions to our systems. In addition, third party software, hardware or other
technology incorporated into our information systems or upon which our business
depends may need to be revised or replaced as a result of Year 2000 compliance
problems. Any revision to our systems or revision or replacement of third-party
software, hardware or other technology could be time consuming and expensive.
In addition, a failure to identify, fix and/or replace these systems or third-
party software, hardware or other technology in a timely manner could disrupt
our business operations and result in lost revenue, increased operating costs,
the loss of customers and other business interruptions.

  Our customers may also experience Year 2000 compliance problems or related
system failures. These problems and failures could result in our inability to
properly collect eligibility and financial data and process payments on behalf
of employers and could generally interrupt our delivery of products and
services. Any inability to perform, or interruption in the performance of,
services on behalf of any employer or health plan could harm our business and
operating results.

  Furthermore, our business depends upon products, services and technology
provided by third parties, such as health care providers and insurers,
insurance and health care brokers, information technology consultants, network
support providers, telecommunication companies, Internet service and access
providers, third-party service providers, vendors, business partners and others
outside our control. These parties' information and non-information systems may
not be Year 2000 compliant. Any failure by such entities to be Year 2000 ready
could result in a disruption of our business, or could result in a systemic
failure beyond our control. A prolonged Internet or communications failure
could also prevent us from performing services on behalf of customers. A
failure of any of these parties to be Year 2000 ready could harm our business
and operating results. Also, a systemic failure could require potential
customers to dedicate substantial resources towards fixing or resolving Year
2000 compliance problems and may make the sales and marketing of our services
more difficult.

Our business and reputation may be harmed if we are unable to protect the
privacy of our customer information.

  Our information systems and Internet communications may be vulnerable to
damage from physical break-ins, computer viruses, programming errors, attacks
by computer hackers or similar disruptive problems. A user who is able to
access our computer or communication systems could gain access to confidential
employer, employee or health plan information or our own confidential
information. A material security breach could

                                       8
harm our business and our reputation or could result in liability to us.
Therefore, it is critical that our facilities and infrastructure remain secure.
The occurrence of any of these events could result in the interruption, delay
or cessation of our services, which could harm our business or operating
results. Further, our reputation may suffer if third parties were to obtain
this information and we may be liable for this disclosure. Any effect on our
reputation or any liability for any disclosure could harm our business and
operating results.

We depend in part on increasing use of the Internet and on the growth of e-
commerce.

  Rapid growth in the use of the Internet is a recent phenomenon. As a result,
its acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced products and services over the Internet are subject to a high level
of uncertainty, and there exist few proven products and services.

  Our future profitability depends, to a certain extent, upon increased
employer demand for additional Internet and e-commerce solutions that we are in
the process of developing or may develop in the future.

We may be unable to adequately protect our intellectual property rights. We may
be subject to substantial claims if we infringe upon the intellectual property
rights of third parties.

  Our success depends in part upon our intellectual property rights to products
and services which we develop. We rely on a combination of contractual rights
including non-disclosure agreements, trade secrets, copyrights and trademarks
to establish and protect our intellectual property rights in our products,
services and related technology. Loss of intellectual property protection on
any of our confidential information or technology could harm our business and
operating results.

  We currently have no registered patents or pending patent applications
covering any of our technology. We have received a U.S. trademark registration
for BEN-NET and a U.S. service mark registration for WebElect. These
registrations may not be enforceable or effective in protecting the BEN-NET or
WebElect marks. We may in the future file patent, trademark or service mark
applications. These applications may not be approved or, if approved, may not
be enforceable or effective in protecting our technology, trademarks or service
marks.

  We typically enter into non-disclosure and confidentiality agreements with
our employees and consultants with access to sensitive information. These
agreements may not be adequate to protect our intellectual property rights or
prevent misappropriation of our technology. Products and services with features
similar to our products and services may be independently developed.

  Although we believe that our core technology has been independently developed
and that none of our technology or intellectual property infringes on the
rights of others, third parties may assert infringement claims against us in
the future. We may be required to modify our products, services, internal
systems or technologies or to obtain a license to permit our continued use of
those rights. We may not be able to do either in a timely manner or upon
reasonable terms and conditions. Failure to do so could harm our business and
operating results. In addition, future litigation relating to these matters
could result in substantial cost to, and diversion of resources by, us. Adverse
determinations in any such litigation or proceedings also could subject us to
significant liabilities to third parties and could prevent us from using
certain of our products, services, internal systems or technologies.

Rapidly changing technology may impair our financial performance.

  Our business depends upon the use of software, hardware, networking and
Internet technology and systems. These technologies and systems are rapidly
evolving and are subject to rapid change and obsolescence. As these
technologies mature, we must be able to quickly and successfully modify our
products

                                       9
and services to adapt to such change. We may encounter difficulties that could
delay or harm the performance of our products or services. We may not be able
to respond to technological changes in a timely and cost-effective manner. In
addition, our competitors may develop technologically superior products and
services. Further, data formatting and eligibility rules within a particular
employer or health plan, or within the group health benefits industry as a
whole, may change and may require substantial and expensive re-engineering of
eligibility data and adjustment of the tools we use to process this eligibility
data.

State, federal and local laws could harm our business and operating results.

  The healthcare industry is highly regulated by federal, state and local laws.
The application of existing laws, or the implementation of new laws, applicable
to our business could harm our business and operating results. For example, the
confidentiality of patient records and the circumstances under which records
may be released for inclusion in our databases may be subject to substantial
regulation by state governments. These state laws govern both the disclosure
and the use of confidential patient medical records. Although compliance with
these laws currently is principally the responsibility of health care providers
and health plans, these regulations may be extended to cover our business and
the eligibility data and other information that we include in our databases.

  The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
mandates the use by health plans of standard transactions, identifiers,
security and other provisions by the year 2000. We have designed our products
and services to comply with HIPAA, but any change in federal standards would
require us to expend additional resources. In addition, the success of our
compliance efforts may be dependent on the success of healthcare industry
participants in dealing with these new standards.

  Further, our role in facilitating payments by employers to health plans may
subject us to the Employee Retirement Income Security Act. This act imposes
certain fiduciary duties on employers and health plans with respect to payments
made on behalf of participating employees and it is possible that these
fiduciary duties could be deemed to apply to us. In that event, we may become
subject to greater liability with respect to such payments and may experience
higher operating costs in order to comply with such regulation. These increases
in operating costs may harm our business and operating results.

State laws and regulations concerning the sale, marketing or distribution of
insurance over the Internet may adversely affect our business and operating
results.

  The insurance industry is subject to extensive regulation under state laws.
Insurance laws and regulations cover all aspects of the insurance process,
including sales techniques, underwriting for eligibility, rates, claim payments
and record keeping by licensed insurance companies and insurance agents.

  A company that does business as an insurance agent is generally required to
be licensed in each state in which it conducts that business. In the future,
our business or other activities may be considered by insurance regulatory
authorities to fall under their licensing jurisdiction. Should our business
activities require our licensing as an insurance agent, we would incur
increased costs and restrictions on our business which could harm our business
and financial results. Further, because the application of e-commerce to the
insurance market is relatively new, the impact of current or future insurance
laws and regulations on our business is difficult to anticipate.

Risks Related to this Offering and Ownership of Our Common Stock

The price for our common stock may be volatile due to a number of variables.

  Prior to this offering, there has not been a public market for our common
stock. An active trading market for our common stock may not develop or be
sustained after completion of this offering. The initial public offering price
of our common stock may not be indicative of the prices that will prevail in
the public market

                                       10
after the offering, and the market price of our common stock could fall below
the initial public offering price. You may not be able to resell your shares at
or above the initial public offering price due to a number of factors,
including:

  .  actual or anticipated quarterly variations in our operating results;

  .  changes in expectations as to our future financial performance or
     changes in financial estimates, if any, of securities analysts;

  .  announcements of new healthcare products, services or technological
     innovations;

  .  announcements relating to strategic relationships and transactions;

  .  customer relationship developments;

  .  strategic alliance developments;

  .  regulatory changes;

  .  conditions generally affecting the group health insurance benefits
     industry;

  .  success of our operating strategy;

  .  competition; and

  .  the operating and stock price performance of other comparable companies.

  In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
Internet and e-commerce companies and which have often been unrelated to the
operating performance of these companies.

Future sales of our common stock in the public market after the offering could
cause the price of our common stock to decline.

  We cannot predict the timing or amount of future sales of shares of our stock
or the effect, if any, that market sales of shares, or the availability of
shares for sale, will have on the prevailing market price of our common stock.
If our shareholders sell substantial amounts of our common stock in the public
market following the offering, the price of our common stock could fall. Upon
completion of the offering, we will have [     ] outstanding shares of common
stock, assuming no exercise of outstanding options or warrants. Of these
shares, the [       ] shares sold in this offering will be freely tradeable.
This leaves 3,265,481 shares that will be eligible for sale in the public
market as follows:
Number of
       Shares                                 Date
      ---------                               ----
98,247   Available for immediate sale on the date of this prospectus
         84,260   Available for sale 90 days after the date of this prospectus
      3,082,974   Available for sale 180 days after the date of this prospectus
Shortly after the closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register a total of 2,600,000
shares of common stock issuable under the 1993 Stock Option Plan, the 1999
Stock Incentive Plan and the Stock Purchase Plan.

  The holders of 2,082,974 shares of our preferred shares have registration
rights for the shares of common stock issuable upon conversion of these
preferred shares. All preferred shares will be converted into a total of
2,082,974 shares of common stock immediately prior to the offering. After the
offering, the holders of 2,082,974 shares of our common stock, which represent
[  %] of our outstanding common stock after this offering assuming no exercise
of the underwriters' overallotment option and no exercise of outstanding
options or warrants after June 30, 1999, will be entitled to have the resale of
their shares registered under the Securities

                                       11
Act. If these holders cause a large number of securities to be registered and
sold in the public market, such sales could harm the market price for our
common stock. In addition, if we include in a company-initiated registration
statement shares held by these holders pursuant to the exercise of their
registration rights, such sales may harm our ability to raise needed capital.

Concentration of ownership may give some shareholders substantial influence and
may prevent or delay a change in control.

  We anticipate that certain shareholders, including officers and directors of
the company, will, in the aggregate, beneficially own approximately [   %] of
our outstanding common stock following completion of this offering. These
shareholders may be able to exercise substantial influence over all matters
requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of discouraging third party offers to acquire our
company or of delaying or preventing a change in control of our company.

Our charter documents and Minnesota law may discourage an acquisition of our
company.

  Provisions of our articles of incorporation, bylaws and Minnesota law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our shareholders. For instance, our bylaws provide for a
classified board of directors with each class of directors subject to re-
election every three years. This will make it more difficult for third parties
to insert their representatives on our board of directors and gain control of
our company. These provisions could also discourage proxy contests and make it
more difficult for you and other shareholders to elect directors and take other
corporate actions. Further, the Minnesota Control Share Acquisition Act and the
Minnesota Business Combination Act may make it more difficult for third parties
to secure control of our company or to complete an acquisition. These acts may
discourage unsolicited takeover offers.

Management could use the proceeds of this offering in ways with which the
shareholders may not agree.

  Our management can spend or invest the proceeds from this offering in ways
with which the shareholders may not agree. The investment of these proceeds may
not yield a favorable return.

You will incur immediate and substantial dilution.

  If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. If the holders of
outstanding options or warrants exercise those options or warrants, you will
experience further dilution.

We do not intend to pay dividends.

  We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding the development and
growth of our business and, therefore, do not expect to pay any dividends in
the foreseeable future.

                                       12
FORWARD-LOOKING STATEMENTS

  This prospectus includes forward-looking statements based on our current
expectations and projections about future events. These statements are subject
to risks, uncertainties and assumptions about us, including, among other
things:

  . uncertainty of our future operating results;

  . delays or losses of sales due to long sales and implementation cycles for
      our products and services;

  . actions of our competitors; and

  . other factors discussed under "Risk Factors."

  We undertake no obligation to publicly update or revise any forward-looking
statements. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.

                                USE OF PROCEEDS

  We estimate our net proceeds from the sale of our common stock in this
offering will be approximately $[  ] million, or approximately $[  ] million
based on an assumed initial public offering price of $[  ] per share and after
deducting the estimated underwriting discounts and offering expenses.

  We intend to use the net proceeds from this offering for general corporate
purposes, including working capital, sales and marketing expenditures,
development of new products and services and investment in technology
infrastructure. In addition, a portion of the net proceeds may be used for
acquisitions of businesses, products and technologies that are complementary to
ours. We currently have no agreements with respect to any material acquisitions
as of the date of this prospectus. Pending use of the net proceeds for the
above purposes, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.

                                DIVIDEND POLICY

  We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth
of our business.

                                       13
CAPITALIZATION

  The following table sets forth our capitalization as of June 30, 1999 (a) on
an actual basis, (b) on a pro forma basis to reflect the conversion of all
outstanding shares of preferred stock into shares of common stock immediately
prior to the commencement of this offering, and (c) on a pro forma, as
adjusted, basis to give effect to the receipt and application of the estimated
net proceeds from the sale of [  ] shares of our common stock in this offering
at an assumed initial public offering price per share of $[  ] after deducting
the estimated underwriting discounts and offering expenses.
As of June 30, 1999
                                            -----------------------------------
                                                                    Pro Forma,
                                            Actual     Pro Forma    As Adjusted
                                            -------  -------------- -----------
                                                     (in thousands)
Long-term debt and capitalized lease
  obligations, non-current
  portion.................................. $   --      $   --
Shareholders' equity:
  Preferred stock, $.01 par value per
    share; 2,088,974 shares authorized,
    2,082,974 shares outstanding, actual;
    no shares issued and outstanding, pro
    forma and pro forma as adjusted........      21         --
  Common stock, $.01 par value per share;
    7,000,000 shares authorized, 1,171,157
    shares outstanding, actual;
    100,000,000 shares authorized,
    3,254,131 shares outstanding, pro
    forma; 100,000,000 shares authorized,
    [   ] shares outstanding, pro forma as
    adjusted...............................      12          33
  Additional paid-in capital...............  16,073      16,073
  Accumulated deficit......................  (3,334)     (3,334)
                                            -------     -------         ---
     Total shareholders' equity............  12,772      12,772
                                            -------     -------         ---
       Total capitalization................ $12,772     $12,772         $
                                            =======     =======         ===
--------
The preceding table excludes:

  .  928,616 shares issuable upon exercise of stock options outstanding under
     our stock option plans as of June 30, 1999;

  .  27,805 shares issuable upon exercise of warrants outstanding as of June
     30, 1999; and

  .  1,050,074 shares available for future grant or issuance under our stock
     option plans as of June 30, 1999.

                                       14
DILUTION

  If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately after this offering. Pro forma net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the pro forma net tangible book value per share of common stock immediately
after completion of this offering.

  Our pro forma net tangible book value as of June 30, 1999 was $12.8 million,
or $3.92 per share of common stock, assuming the conversion of all outstanding
shares of preferred stock into shares of common stock. Pro forma net tangible
book value per share represents the amount of our shareholders' equity, less
intangible assets, divided by the total number of shares of common stock
outstanding for the period immediately prior to this offering. After giving
effect to the sale of the [    ] shares of common stock offered in this
prospectus at an assumed initial public offering price of $[  ] per share and
after deducting the estimated underwriting discounts and offering expenses, our
adjusted pro forma net tangible book value as of June 30, 1999 would have been
$[  ], or $[  ] per share of common stock. This represents an immediate
increase in net tangible book value of $[  ] per share to existing shareholders
and an immediate dilution of $[  ] per share to new investors purchasing shares
in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share................        $
   Pro forma net tangible book value per share as of June 30,
     1999......................................................... $ 3.92
   Increase per share attributable to new investors...............
                                                                   ------
   Pro forma net tangible book value per share after this
     offering.....................................................
                                                                          ----
   Net tangible book value dilution per share to new investors....        $
                                                                          ====
The following table summarizes as of June 30, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
shareholders and by investors purchasing shares of common stock in this
offering and before deducting estimated underwriting discounts and offering
expenses:
Average
                                                                       Price Per
                                 Shares Purchased  Total Consideration   Share
                                 ----------------- ------------------- ---------
                                  Number   Percent   Amount    Percent  Percent
                                 --------- ------- ----------- ------- ---------
Existing shareholders..........  3,254,131      %  $16,062,000      %    $4.94
New investors..................
                                 ---------   ---   -----------   ---     -----
  Total........................              100%  $             100%    $
                                 =========   ===   ===========   ===     =====
The foregoing discussion and tables assume no exercise of any stock options
or warrants after June 30, 1999. As of June 30, 1999, there were options and
warrants to purchase a total of 956,421 shares of common stock. To the extent
that any of these options or warrants are exercised, there will be further
dilution to new investors. See "Capitalization," "Management--Employee Benefit
Plans," "Description of Capital Stock" and Note 4 of "Notes to Financial
Statements."

                                       15
SELECTED FINANCIAL DATA
                     (In thousands, except per share data)

  The following selected financial data should be read together with the
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The selected statement of operations data shown below for
the years ended December 31, 1996, 1997 and 1998 and the balance sheet data as
of December 31, 1997 and 1998 are derived from our audited financial statements
included elsewhere in this prospectus. The selected statement of operations
data shown below for the years ended December 31, 1994 and 1995 and the balance
sheet data as of December 31, 1994, 1995 and 1996 are derived from our audited
financial statements not included elsewhere in this prospectus. The selected
financial data for the six months ended June 30, 1998 and 1999 has been derived
from our unaudited financial statements which, in the opinion of management,
include all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial information shown in these
statements. The results for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year or for
any future period.
Six Months
                                 Year Ended December 31,            Ended June 30,
                          ----------------------------------------  ----------------
                           1994    1995    1996    1997     1998     1998     1999
                          ------  ------- ------  ------  --------  ------  --------
                                                                      (unaudited)
Statement of Operations
  Data:
Net revenues............  $  904  $ 2,497 $4,360  $7,093  $ 10,122  $3,929  $  7,108
Operating expenses
 Cost of revenues.......     330    1,323  2,480   4,496     6,958   2,935     5,233
 Selling, general &
   administrative.......     358      538  1,796   2,068     2,831   1,319     2,010
 Research and
   development..........     393      605    863   1,242     1,519     673     1,127
                          ------  ------- ------  ------  --------  ------  --------
  Total operating
    expenses............   1,081    2,466  5,139   7,806    11,308   4,927     8,370
                          ------  ------- ------  ------  --------  ------  --------
Operating income
  (loss)................    (177)      31   (779)   (713)   (1,186)   (998)   (1,262)
Interest income.........      11       31    198     213       144      83       150
                          ------  ------- ------  ------  --------  ------  --------
Net (loss) income.......  $ (166) $    62 $ (581) $ (500) $ (1,042) $ (915) $ (1,112)
                          ======  ======= ======  ======  ========  ======  ========
Basic and diluted net
  (loss) income per
  share.................  $ (.15) $   .06 $ (.53) $ (.45) $   (.90) $ (.80) $   (.95)
Shares used in basic and
  diluted net income
  (loss) per share......   1,078    1,098  1,104   1,125     1,154   1,150     1,165
Pro forma basic and
  diluted net loss per
  share.................                                      (.42)             (.46)
Shares used in pro forma
  net loss per share....                                     2,162             2,409
December 31,               June 30,
                              ------------------------------------- ----------
                               1994   1995   1996    1997    1998      1999
                              ------ ------ ------- ------- ------- ----------
                                                                    (unaudited)
Balance Sheet Data:
Cash and cash equivalents...  $  690 $  472 $ 1,614 $ 1,009 $ 1,681  $ 9,268
Working capital.............     482    411   3,981   3,102   1,782   10,821
Total assets................   1,177  1,253   5,179   5,084   5,596   14,303
Long-term obligations, net
  of current portion........     --     --      --      --      --       --
Total shareholders' equity..     869    991   4,904   4,423   3,391   12,772
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

  We were co-founded in 1993 by Mark Tierney, Michael Bingham and Barbara
Seykora, all of whom remain active with us today. From inception until June
1999, our activities principally involved providing back-end exchange services
for large, multi-site employers such as GE Capital, PepsiCo and Bell Atlantic.
In the second quarter of 1999, we initiated activities to leverage our success
in the large employer market to also serve the mid-size employer market
segment. From inception until September 1999, we were incorporated under the
name Network Management Services, Inc. In September 1999, we changed our name
to eBenX, Inc.

  Our principal source of revenue is derived from providing ongoing group
health eligibility and financial data exchange services. Exchange services
revenue is typically priced on a per employee per month basis with adjustments
made to accommodate the number of health plan interfaces that the customer
requires. In many cases, we allow fixed and variable fee structures to permit
volume-adjusted pricing. We recognize revenue for exchange services as the
services are performed. In addition, we earn revenue from health benefit plan
procurement and implementation fees for exchange services, which we recognize
on a percentage-of-completion basis or as services are performed. We typically
enter into contracts with our large employer customers that are three years in
length. Customers may purchase some or all of our services and the customer
relationship may evolve from utilizing procurement services to utilizing
implementation services and per employee-based exchange services. A significant
percentage of our revenues are earned from a few customers, most notably Bell
Atlantic and PepsiCo.

  The establishment of new customer relationships involves lengthy and
extensive sales and implementation processes. The sales process typically takes
four to six months, and the implementation process takes an additional two to
four months. The sales process is accounted for under the selling, general and
administrative expense category. The implementation process affects cost of
services but may also impact research and development expense to the extent new
customer relationships require new or enhanced service offerings.

  Cost of services consists primarily of personnel costs for account
management, operations, production and procurement and certain information
technology costs for both ongoing procurement and exchange services and for
customer implementation expense. The information technology costs relate to
personnel costs for implementing and maintaining customer and health plan
computer interfaces and computer hardware and software expenses related to
computer processing. A significant portion of cost of services consists of new
customer implementation expenses. Therefore, increasing numbers of new
customers will cause the cost of services as a percentage of net revenue to
increase.

  Selling, general and administrative expenses consist primarily of payroll and
payroll-related expenses associated with sales and marketing, executive
management and corporate administrative personnel, as well as professional fees
and expenditures for advertising, public relations and promotional efforts. We
intend to significantly increase our sales and marketing expenses over the next
several years. We intend to invest substantially in an integrated marketing
program, including the expansion and enhancement of our penetration into the
mid-size employer market through broker partners. At the same time, we intend
to devote additional resources to develop partnerships and relationships with
human resource services and systems organizations. We expect that, in support
of the continued growth and operation of our business, selling, general and
administrative expenses will continue to increase for the foreseeable future.

  Research and development expenses consist primarily of development personnel
and external contractor costs related to the development of new products and
services, enhancement of existing products and services, quality assurance and
testing. To date, we have not capitalized any of our software development
costs. Because the timing of the commercial release of our services has
substantially coincided with technological feasibility, all research and
development costs have been expensed as incurred. We intend to continue to
expand our

                                       17
product offerings by adding additional services. We expect these activities
will require additional personnel. Accordingly, we expect our research and
development expenses will continue to increase for the foreseeable future.

  Since our inception, we have incurred losses. As of June 30, 1999, we had an
accumulated deficit of $3.3 million. These losses and this accumulated deficit
have resulted from the significant costs incurred in the development of our
technology platform, the establishment of relationships with our customers, and
the development and maintenance of our customer and health plan interfaces. We
intend to continue to invest heavily in research and development, sales and
marketing and in our computer and administrative infrastructure. As a result,
we believe that we will incur substantial operating losses for the foreseeable
future. Although we have experienced significant revenue growth in recent
periods, our operating results for future periods are subject to numerous
uncertainties. In view of the rapidly evolving nature of our business and our
limited operating history, we believe that period-to-period comparisons of our
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.

Results of Operations

  The following table sets forth for the periods indicated selected statement
of operations data expressed as a percentage of net revenues.
Year Ended             Six Months
                                      December 31,           Ended June 30,
                                    ---------------------   -----------------
                                    1996    1997    1998     1998      1999
                                    -----   -----   -----   -------   -------
Net revenues....................... 100.0%  100.0%  100.0%    100.0%    100.0%
Operating expenses:
  Cost of services.................  56.9    63.4    68.7      74.7      73.6
  Selling, general and
    administrative.................  41.2    29.2    28.0      33.6      28.3
  Research and development.........  19.8    17.5    15.0      17.1      15.9
                                    -----   -----   -----   -------   -------
     Total operating costs and
       expenses.................... 117.9   110.1   111.7     125.4     117.8
                                    -----   -----   -----   -------   -------
Loss from operations............... (17.9)  (10.1)  (11.7)    (25.4)    (17.8)
Interest income (expense), net.....   4.5     3.0     1.4       2.1       2.1
                                    -----   -----   -----   -------   -------
Net loss........................... (13.4)%  (7.1)% (10.3)%   (23.3)%   (15.7)%
                                    =====   =====   =====   =======   =======
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

  Net revenues. Net revenues increased from $3.9 million for the six months
ended June 30, 1998 to $7.1 million for the same period in 1999, representing
an increase of $3.2 million, or 80.9%. This increase primarily was due to a new
contract with Bell Atlantic and the expansion of our relationship with PepsiCo.

  Cost of services. Cost of services increased from $2.9 million for the six
months ended June 30, 1998 to $5.2 million for the same period in 1999,
representing an increase of $2.3 million, or 78.3%. This increase primarily was
due to increased personnel and computer-related infrastructure costs necessary
to support the increased demand for our services. Cost of services, as a
percentage of net revenues, decreased from 74.7% for the six months ended June
30, 1998 to 73.6% for the same period in 1999. Because a significant portion of
cost of services consists of new customer implementation expenses, we
anticipate that as we add new customers cost of services will increase as a
percentage of net revenues.

  Selling, general and administrative. Selling, general and administrative
expenses increased from $1.3 million for the six months ended June 30, 1998 to
$2.0 million for the same period in 1999, representing an increase of $0.7
million, or 52.4%. This increase primarily was due to the establishment of a
sales team in late 1998 and additions to management. We anticipate that sales
and marketing expenses will increase substantially in future periods as we
expand our sales and marketing efforts.

  Research and development. Research and development expenses increased from
$0.7 million for the six months ended June 30, 1998 to $1.1 million for the
same period in 1999, representing an increase of

                                       18
$0.4 million, or 67.5%. This increase primarily was due to additions to our
research and development staff. We anticipate that we will continue to devote
substantial resources to our research and development efforts and that research
and development expenses will increase for the foreseeable future.

  Interest income (expense), net. Net interest income includes income earned
from our invested cash, income earned from facilitating our customers' payments
to their health plans and expenses related to outstanding debt obligations
under our bank credit facility. Net interest income increased from $83,000 for
the six months ended June 30, 1998 to $150,000 for the same period in 1999. In
the first six months of 1999, interest expense was incurred for bank
borrowings. There were no borrowings in the first six months of 1998.

Years Ended December 31, 1996, 1997 and 1998

  Net revenues. Net revenues increased from $7.1 million in 1997 to $10.1
million in 1998, or 42.7%. Net revenues in 1997 represented a 62.7% increase
over 1996 net revenues of $4.4 million. The increase in 1998 primarily was due
to a new contract with Bell Atlantic and servicing additional divisions of
PepsiCo. The increase in 1997 primarily was due to new contracts with The Blue
Cross/Blue Shield Association and R.R. Donnelley & Sons and the sale of
additional services to PepsiCo and General Electric.

  Cost of services. Cost of services increased from $4.5 million in 1997 to
$7.0 million in 1998, or 54.8%. Cost of services in 1997 represented an 81.3%
increase over 1996 cost of services of $2.5 million. The increase in 1998
primarily was due to increases in personnel and investments in computer
hardware and software infrastructure. The increase in 1997 primarily was due to
additions in personnel. Cost of services, as a percentage of net revenues,
increased from 56.9% in 1996 to 63.4% in 1997 and to 68.7% in 1998. A
significant portion of cost of services consists of new customer implementation
expenses. Therefore, increasing numbers of new customers will cause the cost of
services as a percentage of net revenue to increase.

  Selling, general and administrative. Selling, general and administrative
expenses increased from $2.1 million in 1997 to $2.8 million in 1998, or 36.9%.
Selling, general and administrative expenses in 1997 represented a 15.1%
increase over 1996 selling, general and administrative expenses of $1.8
million. The 1998 increase primarily was due to the establishment of a sales
team. The 1997 increase primarily was due to additions to management. Selling,
general and administrative expenses, as a percentage of net revenues, decreased
from 41.2% in 1996 to 29.2% in 1997 and to 28.0% in 1998.

  Research and development. Research and development expenses increased from
$1.2 million in 1997 to $1.5 million in 1998, or 22.3%. Research and
development expenses in 1997 represented a 43.9% increase over 1996 R&D
expenses of $0.9 million. These increases primarily were due to the hiring of
additional personnel.

  Interest income (expense), net. Net interest income decreased from $213,000
in 1997 to $144,000 in 1998, or 32.4%. Net interest income in 1997 represented
a 7.6% increase over 1996 net interest income of $198,000. The decrease from
1997 to 1998 primarily was due to decreased cash reserves resulting from the
losses incurred in 1998. The increase from 1996 to 1997 primarily was due to
increased cash reserves resulting from the sale of preferred stock in mid-1996.

  Income taxes. As of December 31, 1998, we had unused federal and state
research and development tax credit carryforwards of approximately $100,000
which expire at various times through 2011. In addition, we had unused federal
net operating loss carryforwards at December 31, 1998 of approximately $1.8
million which expire at various times through 2013. The utilization of these
carryforwards is dependent upon our ability to generate sufficient taxable
income during carryforward periods.

Selected Quarterly Operating Results

  The following table shows unaudited statement of operations data expressed in
dollars (in thousands) and as a percentage of net revenues for the last three
quarters in our fiscal year ended December 31, 1998 and for

                                       19
the first two quarters in our fiscal year ending December 31, 1999. In
management's opinion, this unaudited quarterly information has been prepared on
the same basis as the audited financial statements and related notes and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for the quarters
presented, when read in conjunction with the audited financial statements and
related notes included elsewhere in this prospectus. We believe that quarter-
to-quarter comparisons of our financial results are not necessarily meaningful
and should not be relied upon as an indication of future performance.
Three Months Ended
                         --------------------------------------------------------
                         June 30,  September 30, December 31, March 31,  June 30,
                           1998        1998          1998       1999       1999
                         --------  ------------- ------------ ---------  --------
Net revenues............  $2,158      $2,740        $3,454     $3,342     $3,766
Operating expenses:
  Cost of services......   1,585       1,856         2,166      2,355      2,878
  Selling, general and
    administrative......     671         667           845        859      1.151
  Research and
    development.........     342         345           502        545        582
                          ------      ------        ------     ------     ------
     Total operating
       expenses.........   2,598       2,808         3,513      3,759      4,611
                          ------      ------        ------     ------     ------
Loss from operations....    (440)       (128)          (59)      (417)      (845)
Interest income
  (expense), net........      38          20            42         45        105
                          ------      ------        ------     ------     ------
Net loss................  $ (402)     $ (108)       $  (17)    $ (372)    $ (740)
                          ======      ======        ======     ======     ======
Three Months Ended
                         --------------------------------------------------------
                         June 30,  September 30, December 31, March 31,  June 30,
                           1998        1998          1998       1999       1999
                         --------  ------------- ------------ ---------  --------
Net revenues............   100.0%      100.0%        100.0%     100.0%     100.0%
Operating expenses:
  Cost of services......    73.4        67.8          62.7       70.5       76.4
  Selling, general and
    administrative......    31.1        24.3          24.5       25.7       30.6
  Research and
    development.........    15.8        12.6          14.5       16.3       15.5
                          ------      ------        ------     ------     ------
     Total operating
       expenses.........   120.3       104.7         101.7      112.5      122.5
                          ------      ------        ------     ------     ------
Loss from operations....   (20.3)       (4.7)         (1.7)     (12.5)     (22.5)
Interest income
  (expense), net........     1.7         0.7           1.2        1.3        2.8
                          ------      ------        ------     ------     ------
Net (loss) income.......   (18.6)%      (4.0)%        (0.5)%    (11.2)%    (19.7)%
                          ======      ======        ======     ======     ======
Our business is characterized by seasonality. As a result, our revenue may be
subject to seasonal fluctuations, with the largest percentage of annual revenue
typically being realized in the fourth quarter. This is primarily due to
implementation of services to new customers in the third and fourth quarters
and providing open enrollment services to new and existing customers in the
fourth quarter. Further, our operating expenses typically increase in the
second and third quarters as we add personnel in anticipation of acquiring new
customers and implementing and providing services to such new customers, most
of which begin using our services in the third and fourth quarters. In
addition, cost of services typically increases as a percentage of net revenues
as we implement services for new customers.

  Our quarterly operating results have in the past, and will in the future,
vary significantly depending on a variety of factors, including:

  .the number and size of new customers starting services;

  .the decision of one or more customers to delay implementation or cancel
      ongoing services;

  .seasonality;

                                       20
.  our ability to design, develop and introduce new services and features
     for existing services on a timely basis;

  .  costs associated with strategic acquisitions and alliances or
     investments in technology;

  .  the success of any such strategic acquisition, alliance or investment;

  .  costs to transition to new technologies;

  .  expenses incurred for geographic and service expansion;

  .  price competition;

  .  a reduction in the number of employees of our customers; and

  .  acquisitions of our customers by other companies.

  Revenue typically increases in the third and fourth quarters due to open
enrollment periods and new customer implementations. A substantial majority of
our operating expenses, particularly personnel and related costs, depreciation
and rent, are relatively fixed in advance of each quarter. Our agreements with
our customers generally do not have penalties for cancellation. As a result,
any decision by a customer to delay or cancel implementation of our services or
our underutilization of personnel may cause significant variations in operating
results in a particular quarter and could result in losses for such quarter. As
we secure larger customers, the time required for implementing our services
increases, which could contribute to larger fluctuations in revenue. It is
possible that in some future quarter our results of operations will be below
the expectations of public market analysts and investors. In either case, the
market price of our common stock could be materially adversely affected.

Liquidity and Capital Resources

  Historically, we have funded operations primarily through the private sales
of preferred stock, with net proceeds of approximately $16.0 million, limited
bank borrowings and equipment leases. All shares of our preferred stock will be
converted automatically into common stock immediately prior to the closing of
this offering. As of June 30, 1999, we had $9.3 million in cash and cash
equivalents and a secured revolving line of credit of $1.5 million, which bears
a variable interest rate of 1% above the lender's base rate and expires in
December 1999. At June 30, 1999, there were no borrowings under the line of
credit.

  Our operating activities used cash of $0.8 million in 1996, provided cash of
$67,000 in 1997 and used cash of $1.3 million in 1998. Our operating activities
used cash of approximately $1.5 million in the six months ended June 30, 1999.
The use of cash from operations in 1998 and for the first six months of 1999
primarily was due to our net loss and an increase in accounts receivable,
partially offset by an increase in depreciation.

  Our investing activities used cash of $2.5 million in 1996 and $0.7 million
in 1997, provided cash of $1.2 million in 1998 and used cash of $0.6 million
for the first six months of 1999. In 1996, $0.5 million of the cash used for
investing activities was for additions to equipment and $2.0 million was for
the purchase of U.S. Treasury Notes using proceeds from the sale of preferred
stock. In 1997, our investing activities used cash for additions to equipment.
In 1998, our investing activities used cash of $0.8 million for additions to
equipment and we received proceeds of $2.0 million from the sale of U.S.
Treasury Notes. For the first six months of 1999, our investing activities used
cash for additions to equipment.

    Our financing activities provided cash of $4.5 million in 1996, $19,000 in
1997, $0.8 million in 1998 and $9.8 million in the first six months of 1999.
For 1996, financing activities provided cash principally from the sale of
preferred stock. In 1997, financing activities provided cash from the exercise
of common stock options. In 1998, financing activities provided cash
principally from bank borrowings in December 1998 of $0.75 million. For the
first six months of 1999, financing activities provided cash from the sale of
$10.5 million in preferred stock, partially offset by the repayment of bank
borrowings.

                                       21
Our equipment additions consist primarily of computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
equipment additions will continue to increase in the future. Since inception,
we have generally funded equipment additions either through the use of working
capital or with operating leases. We expect to continue to add computer
hardware and software and to use operating leases to finance these additions.
In connection with the planned relocation of our headquarters, we expect to
make approximately $3.0 million in leasehold improvements and also need to
purchase additional office furniture. We intend to enter into a real estate
lease agreement that will finance the leasehold improvements over the term of
the lease. We intend to enter into a loan agreement to finance the office
furniture. To the extent we are unable to secure this financing, we may be
required to apply a portion of the proceeds from this offering toward these
expenditures.

  We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In
addition, we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or service lines. We believe that the
net proceeds from the sale of the common stock in this offering and cash from
operations will be sufficient to meet our working capital and operating
resource expenditure requirements for the foreseeable future. Thereafter, we
may find it necessary to obtain additional equity or debt financing. In the
event additional financing is required, we may not be able to raise it on
acceptable terms or at all.

Year 2000 Issue

  Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will
need to accept four-digit entries to distinguish 21st century dates from 20th
century dates. This problem could result in system failures or miscalculations
causing disruptions of business operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in other
similar business activities. As a result, many companies' computer systems and
software will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not
known, and, if not corrected in a timely manner, could affect us and the United
States and world economies generally.

  We have analyzed the potential effect of the Year 2000 issue on both the
system software included in our services and our word processing, billing and
other internal systems software, including information technology ("IT") and
non-IT systems (which systems contain embedded technology in manufacturing or
process control equipment containing microprocessors or other similar
circuitry). Our Year 2000 compliance program includes the following phases:
identifying systems that need to be modified or replaced; carrying out
remediation work to modify existing systems or convert to new systems; and
conducting validation testing of systems and applications to ensure compliance.
We are currently in the remediation phase of this program with respect to
software purchased or licensed from software vendors by us and used internally
and have completed the validation phase of this program with respect to our own
products.

  The amount of remediation work required to address Year 2000 problems is not
expected to be extensive. We have tested all of the system software included in
our services and determined that they are Year 2000 compliant. We also have
requested and received documentation from vendors supplying software for our
primary business applications addressing Year 2000 compliance. In all cases,
vendors' responses indicated that their applications were either currently Year
2000 compliant or that they would be compliant by the end of 1999. Therefore,
we will be required to modify some of our existing software applications in
order for our internal computer systems to function properly in the year 2000
and thereafter. We estimate that we will complete our Year 2000 compliance
program for all of our significant internal systems no later than December 31,
1999. We also have had discussions with our customers and the vast majority of
their health plans regarding their efforts to address the Year 2000 problem.
These actions are intended to help mitigate the possible external impact of the
Year 2000 problem. However, it is impossible to fully assess the potential

                                       22
consequences in the event service interruptions occur or in the event that
there are disruptions in such infrastructure areas as utilities,
communications, transportation, banking and government.

  Because essentially all of our services and internal systems were created in
the last few years, such products and internal systems were designed to avoid
the year 2000 problem. As a result, the total cost for resolving our Year 2000
issues is expected to be less than $50,000, a negligible amount of which has
been spent as of the date of the prospectus. The total cost estimate includes
the cost of replacing or upgrading non-compliant systems that were otherwise
planned or which have significant improvements and benefits unrelated to Year
2000 issues. Estimates of Year 2000 costs are based on numerous assumptions,
and there can be no assurance that the estimates are correct or that actual
costs will not be materially greater than anticipated.

  We are developing a contingency plan to provide for continuity of processing
in the event of various problem scenarios based on the outcome of the
validation phase of all of our systems and any additional results from surveys
of our major customers and their health plans with respect to their Year 2000
compliance.

  Based on our assessments to date, we believe we will not experience any
material disruption as a result of Year 2000 problems with respect to our
services and the third-party systems we use for our internal functions, and, in
any event, we do not anticipate the Year 2000 issues we will encounter will be
significantly different from those encountered by other computer-related
service providers. For example, if certain critical third-party suppliers, such
as those supplying electricity, water or telephone service, experience
difficulties resulting in disruption of service to us, a shutdown of our
operations could occur for the duration of the disruption. Assuming no major
disruption in service from utility companies or other critical third-party
suppliers, we believe that we will be able to manage our total Year 2000
transition without any material effect on our results of operations or
financial condition.

Recent Accounting Pronouncements

  In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and
identifies characteristics of internal use software as well as assists in
determining when computer software is for internal use. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998, with earlier application
permitted. We do not expect the adoption of this SOP to have a material impact
on our financial statements.

  In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." This statement
provides guidance on the financial reporting of start-up costs and organization
costs. It requires that the cost of start-up activities and organization costs
be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. We do not expect the
adoption of this SOP to have a material impact on our financial statements.

  In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivatives which focused on
freestanding contracts, including, for example, options and forwards, futures
and swaps, expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded on the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. We do not anticipate
that the adoption of SFAS 133 will have a material impact on our financial
position or results of operations. We currently do not hold derivative
instruments or engage in hedging activities.

                                       23
BUSINESS

Overview

  We provide business-to-business e-commerce and connectivity solutions to
employers and health plans for the purchase, eligibility administration and
premium payment of group health insurance benefits. Through our proprietary and
licensed technology, we facilitate the flow of eligibility and financial data
between employers and health plans. Our proven, Web-enabled and high volume
eligibility and financial data pipelines provide the critical connectivity
necessary for employers and health plans to communicate electronically. The
result is reduced administrative and medical costs for employers, reduced
administrative costs for health plans, and broader access and improved quality
of care for employees and dependents.

  [Diagram of Group Health Insurance Benefits Market Sector (to be provided)]

                                       24
Group Health Insurance Benefits

 General Industry Background

  Health care expenditures in the United States totaled more than $1.1 trillion
in 1998 and are expected to double by 2007. Employers are a significant
purchaser of group health insurance benefits for their employees, retirees and
their dependents. Currently, more than half of the U.S. population receives
group health insurance benefits through their employers. In 1998, the group
health insurance benefits market generated more than $600 billion in services
and payments between the two trading partners, employers and health plans.

  Employers can be segmented into three categories:

  . large employers, such as Fortune 1000 companies and federal, state and
      local governments;

  . mid-size employers with 50 to 5,000 employees; and

  . small employers with less than 50 employees.

  In 1998, the average cost of providing coverage for active and retired
workers was approximately $4,168 per employee. We expect this average cost to
increase by 7% this year. In 1998, on average, each active employee contributed
approximately 25% of this amount through payroll deductions and co-payments. We
believe that this percentage will increase.

  Broadly characterized, health plans consist of any organization that
reimburses physicians, hospitals, pharmacies and other direct providers of
health care. These organizations include:

  . health maintenance organizations;

  . preferred provider organizations;

  . point of service plans;

  . indemnity carriers;

  . third party administrators; and

  . pharmacy benefit managers.

  Prior to the 1980s, employers typically purchased health benefits through a
single third-party administrator or national indemnity insurance carrier.
However, with the growth of managed care in the 1980s and 1990s, employers
began to purchase coverage through an increasing number of health plans because
the managed care system is comprised of numerous provider networks that have
limited geographic locations. Among HMOs alone, there are over 700 licensed
local health plans in the United States. Reflecting this proliferation of new
types of plans and payers, we estimate that each Fortune 1000 employer today
contracts with an average of 60 different plans.

 Purchasing, Eligibility Administration and Premium Payment Process

  The purchasing, eligibility administration and premium payment process that
connects employers and health plans is complex, cumbersome, expensive and
highly inefficient. In particular, the financing arrangements are extremely
variable and complicated, making administration difficult. In general, health
plans either charge employers based on the number of projected enrolled
employees and their projected actuarial risk or, alternatively, pay providers
on behalf of the employer and then are reimbursed from the employer's account.
Therefore, depending on the financing arrangements, an individual employer is
subject to multiple administrative arrangements from multiple health plans.

  The purchasing, eligibility administration and premium payment process
consists of two basic components commonly referred to as the "front-end" and
"back-end" processes.

                                       25
Front-end

  The front-end process refers to the selection of various health plans by an
employer, the communication of health plan information to employees and the
collection and ongoing maintenance of enrollment and eligibility data.

  Health plan selection. Employers annually solicit rate quotes from health
plans and select which plans will be made available to their employees.
Employers may choose as few as one health plan or as many as 150 or more health
plans depending on the employers' geographic locations and the employers'
desire to offer health plan choices. Large and mid-size employers usually offer
multiple health plans to provide greater choice, geographic coverage and access
to specialized services for their employees. Employers choose various financing
mechanisms depending on the level of risk they wish to retain. These include
self funded, fully insured, partially insured, or a combination of all three
financing mechanisms. To make these decisions, benefit managers of large
employers usually are supported by consultants while benefit managers of mid-
size employers generally use brokers.

  Communication of health plan information to employees. Employers annually
provide information to employees regarding which health plans are available and
the material features of each plan. The process entails distribution of printed
materials, mailings and other manual, paper-based communications. On average,
this distribution costs $8 to $12 per employee. Due to the continuous changes
in the list of providers utilized by health plans, printed materials usually
are outdated by the time of delivery.

  Collection of enrollment and eligibility information. Employees enroll in one
of the available health plans during an annual open enrollment period.
Employers collect enrollment and eligibility data using a wide variety of
methods, including paper forms, telephone-based systems and Web-based self-
service enrollment systems. Enrollment data includes information on the
employee's health plan choice and primary care provider. Eligibility
information is basic information about the employee and his or her
dependent(s), such as name, address, date of birth, social security number,
employment code, benefit status, coverage level and eligibility period.

  Ongoing member management. In addition to collecting annual enrollment and
eligibility information, employers need to obtain and communicate daily life
event changes that affect coverage status. These changes include employee
marriages, divorces, child births and address changes, as well as career events
such as new hires, terminations and movements from hourly to salaried status.
No other benefit offered by employers requires as high a level of information
collection and continuous monitoring and modification because group health
insurance is the only benefit that must maintain and store precise family
history.

 Back-end

  While the front-end process focuses on communication of information between
employers and employees, the back-end process focuses on managing and storing
eligibility and financial data for communication with health plans and using
this data to reconcile payments.

  Enrollment and eligibility data management. Once enrollment and eligibility
data is collected, employers undertake a cumbersome process to authenticate,
edit, categorize and organize the data. This process also requires the ongoing
classification of employees by employment status, such as active, retired,
surviving spouse, student and COBRA-eligible, in order to accommodate diverse
collection and payment processes for each category. This data management is
critical to accurate billing and reconciling of payments between an employer
and its health plans.

  Eligibility data distribution. Eligibility data should be transferred on a
daily or weekly basis from employers to health plans and in a manner that
assures it will be correctly recorded. Today, however, this data is transferred
far less frequently and with little assurance that it will be correctly
interpreted. It is communicated electronically between legacy systems at best
and, at worst, via hard copy data entry. Ultimately, this eligibility data is
required when employees and dependents present themselves to physicians

                                       26
and other providers for health care services. Providers obtain patient
eligibility information via telephone or computer from patients' health plans
prior to rendering services.

  Billing, reconciliation and settlement. Health plans bill employers on a
weekly or monthly basis based on either enrollment numbers and quoted rates or
on claims paid. Employers pay these multiple paper bills without auditing these
bills. They then manually reconcile the number of enrolled employees and their
eligibility status using their own internal data. Because of data discrepancies
and delays in transfer and billing cycles, the health plans' data and the
employers' data are rarely the same and thus ongoing payment disputes are
common.

Factors influencing the marketplace and related issues

  The purchasing, eligibility administration and premium payment process is
encumbered by inefficient procedures for rate setting, gathering and
transferring data and executing payment transactions. These inefficiencies,
together with other factors unique to health care delivery, result in the
following significant challenges:

  Fragmented employers and health plans. There are more than 30,000 large and
mid-sized employers in the United States, many of which have a broadly
dispersed employee base frequently located in multiple sites across the United
States. In contrast, there are over 700 independent HMOs in the United States
today, which generally operate in a single or limited geographic area. As a
result, employers contract with multiple health plans to provide complete
geographic coverage for all of their employees.

  Increasing group health insurance benefit costs. The average cost of employee
and retiree health care will increase by approximately 7% this year. As these
costs rise, employers likely will seek more cost-effective health insurance
benefits solutions. Employers will be more critical in their selection of
health plans and will demand a more competitive bidding process. In addition,
they will need to be able to switch health plans when necessary, and they
likely will shift more costs to employees.

  Complex data management. Health plans collect complex, detailed and dynamic
data in varying formats from multiple employers. Conversely, employers must
distribute this data in varying formats to multiple health plans. A failure to
accurately update eligibility and financial data in a timely fashion may result
in additional administrative costs and financial reconciliation problems and
can lead to employees and their dependents being wrongfully denied healthcare
services.

  Varied data formats. Eligibility and financial data formats vary considerably
throughout the health care industry and typically are unique to each particular
employer and health plan. The collection, storage and transmission of this data
remains a labor-intensive, paper-based and error-prone process. As a result,
most health plans are unable to frequently update this data. Some efforts have
been made to develop a common standard. However, these standards do not meet
the complex needs of multiple purchasers and have not been widely accepted.

  Varied systems platforms. Most employers use their own unique human resources
information systems and other benefit and payroll related systems to
communicate with multiple health plans. These health plans in turn rely on
their own unique legacy systems. Often, within a single employer or health
plan, there are several systems in place for collecting and storing this data
that are unable to communicate with one another. Each system has its own code
data rules, syntax and semantics, requiring substantial information technology
resources to interface.

  Inefficient pricing, billing, reconciliation and settlement
processes. Employers must obtain rate quotes from health plans based on the
estimated risk of the employers' employee population. Rates are difficult to
compare because of differing plan designs and underwriting methodologies.
Employers receive bills from each of their health plans in different formats
and in some cases for different coverage periods. These bills are

                                       27
calculated using data provided by health plans. If a plan is late in
recognizing an employee's termination, the employer must perform an audit to
determine this. Depending on the number of health plans and the diversity of
the payment arrangements, this can be an arduous task. Inaccurate payments
require significant manual intervention by employers and health plans to
reconcile accounts.

  Brokers have limited transaction processing capability. In the mid-size
employer market, employers and health plans trade primarily through brokers. As
a result, brokers have been positioned to administer the processes required to
facilitate this trading. However, brokers generally do not have access to the
capital needed to develop e-commerce systems. Consequently, this process
essentially remains a labor-intensive, paper-based and highly inefficient
process. Because of increasing demand for business-to-business e-commerce
solutions, brokers likely must either embrace new technology or risk being
disintermediated.

  Added complexity caused by government regulation. Numerous federal, state and
local laws and regulations govern the healthcare industry. These laws and
regulations change frequently. In recent years, the responsibilities of
employers to provide their employees with access to health care have increased
significantly. In particular, COBRA and HIPAA have added substantial burdens to
employers administering employee health insurance benefits. The proposed
legislation covering patients' bill of rights includes a provision that may put
health plans and employers at more risk of litigation. This may have the effect
of pushing employers toward a defined contribution and voucher-based approach
to their employees' healthcare insurance benefits.

Opportunity for Business-to-Business E-Commerce Solutions for Group Health
Insurance Benefits

  The ubiquitous nature, low cost and scalability of the Internet have created
new opportunities for conducting commerce. Recently, the widespread adoption of
intranets and the acceptance of the Internet as a business communications
platform has created a foundation for business-to-business e-commerce that
enables organizations to streamline complex processes, lower costs and improve
productivity. It is projected that business-to-business e-commerce, which is
estimated to grow from $50 billion in revenue in 1998 to $1.3 trillion in 2003,
will account for more than 74% of the value of e-commerce in the United States.

  Group health insurance benefits purchasing, eligibility administration and
premium payment transactions lend themselves to Internet processing since most
of these transactions are information-based and do not require delivery of
durable goods at the point of payment. However, unlike other e-commerce
opportunities, such as purchasing books or individual insurance, group health
insurance benefits transactions involve complex group insurance pricing,
complex product presentation, and ongoing data management between multiple
organizations.

  We believe that business-to-business e-commerce technology solutions in this
market will require the following Internet-enabled components:

  Front-end quote and enrollment:

  .  quote systems that provide quick rate information from multiple plans;
     and

  .  annual and ongoing enrollment update tools that accommodate enrollment
     in numerous health plans, and content engines that provide plan
     descriptions, provider networks and rate information.

  Back-end eligibility and financial exchange:

  .  exchange systems that transfer eligibility and financial data files
     between trading partners and execute payment transactions with all
     applicable parties.

                                       28
[Diagram of Group Health Insurance Benefits e-Commerce (to be provided)]

  Currently, there are numerous front-end Internet-based solutions that support
enrollment. However, we believe true e-commerce can only exist if there is
seamless end-to-end integration of the front- and back-end processes. We have
focused our efforts on developing our proprietary back-end eligibility and
financial data exchange platform, which we now are coupling with front-end
applications. As a result, we are able to provide a fully integrated end-to-end
solution for group health insurance benefits e-commerce.

Our Solution

  We provide the business-to-business e-commerce and connectivity solutions for
the purchase, eligibility administration and premium payment of group health
insurance benefits. Our Internet-based enrollment, eligibility and financial
exchange addresses requirements of both front- and back-end processes. During
the first six years of our operations, we focused on data and financial
management systems and on building custom and electronic connections between
customers, such as PepsiCo, Bell Atlantic, Northwest Airlines and GE Capital
and the United States' largest regional and local health plans. This effort has
resulted in connectivity to health plans that collectively serve approximately
85% of the managed care enrollment in the United States.

  In 1999, we began attaching this proprietary technology to multiple front-end
enrollment applications, including those offered by Healtheon,
PricewaterhouseCoopers and Watson Wyatt. It is this front-end/back-end
continuity that delivers the end-to-end business-to-business e-commerce
solutions for group health insurance benefits.

                                       29
Value Proposition to Trading Partners

  Our solution provides value to the trading partners through the collection,
management and storage of employee enrollment, eligibility and financial data
and the ongoing transmission of this data to health plans. Additionally, we
manage and execute the reconciling of payments between trading partners.

  For employers, our e-commerce solution:

    .  streamlines the enrollment process by moving it from paper or
       telephone voice response systems to self-service Internet
       applications;

    .  reduces administrative costs associated with disseminating basic
       health plan information to employees, the enrollment transaction,
       and the management and transfer of data among parties;

    .  eliminates the employer's responsibility for transmitting accurate
       enrollment and eligibility information to a variety of health plans
       and gives all trading partners access to real time eligibility via
       Web-enabled tools;

    .  eliminates the payment reconciling responsibilities currently
       imposed on both trading partners and delivers automated, accurate
       and retroactively adjusted payments to health plans;

    .  allows more choice of plans by lowering the barriers to entry for
       health plans thereby significantly reducing the cost of switching
       between competing health plans;

    .  reduces the cost of procuring health benefits by increasing health
       plan competition in the bidding process; and

    .  increases the ability to attract and retain employees through more
       diverse benefit offerings.

  For health plans, our e-commerce solution:

    .  improves timeliness and accuracy and lowers the cost of receiving
       eligibility and financial data;

    .  reduces the administrative burden associated with receiving
       eligibility and financial data;

    .  provides improved customer service and provider claims adjudication
       through twenty-four hour, seven day a week Web-enabled access to
       employers' eligibility and financial data;

    .  reduces distribution costs for the delivery of health plan
       information to employees; and

    .  opens new channels for them to distribute products and services over
       the Web.

  For group health insurance brokers, our e-commerce solution:

    .  allows access to technology without significant capital expense;

    .  moves services from a paper process to a more efficient Web-based
       solution;

    .  allows them to more easily offer multiple health plans to employer
       clients;

    .  provides significant differentiation from competing brokers; and

    .  allows them to retain a service position in a disintermediating
       marketplace by increasing customer retention and market share.

  For employees, our e-commerce solution:

    .  provides more opportunity for choice of plans and, through more
       competitive pricing, lower costs;

    .  provides Web-based enrollment and plan information; and

    .  improves quality of services, including the reduction of instances
       of wrongful denial of coverage due to eligibility data errors and
       incorrect calculation of co-payments.

Products and Services

  Since 1993, we have been servicing the back-end processing requirements of
our Fortune 1000 customers using our proprietary BEN-NET technology platform.
This platform provides a connective infrastructure and

                                       30
neutral eligibility and financial data exchange mechanism. Leveraging our
client base, we have invested in building customized electronic connections
from our customers to their health plans.

  We are able to receive complex and dynamic data from employers and transmit
this data to fragmented health plans. Our core eligibility data and financial
exchange technology incorporates the business rules of each of the relevant
trading partners, as well as the format translations needed to automatically
reconcile and pay bills. Our solution creates the standard for group health
connectivity without causing employers or health plans to make major changes to
their disparate systems. Our technology enables the employer to send data in
whatever format and via whatever media the employer chooses. Once received, our
system edits and translates the data into a standard format. To facilitate
connectivity to the health plans, our systems then translate that data into the
format that is compatible with each of the computer systems of the individual
health plans utilized by our employer customer. This translated information is
then transmitted in whatever medium is acceptable to the health plan. Our BEN-
NET system electronically stores more current eligibility data than the data
held by employers or health plans that use our system, which helps us to
accurately bill the parties concerned.

  In 1999, we extended our suite of product offerings to support the data
management, communications and online transaction requirements for successful
group health insurance benefits e-commerce. We have done this by partnering
with other front-end application developers. We will provide end-to-end
processing for employers, brokers, health plans and employees through which
they will exchange information and transact business.

  This Internet-based solution will bring together the components necessary for
full transaction group health e-commerce: proposal requests, rate quotes,
online enrollment, eligibility management and financial exchange services.

                           Our Products and Services
Front or
 Product/Service     Process solution            Status                Back-end
 ---------------     ----------------            ------                --------
eBenX Import Export Two sets of data            In service            Back-end
 (BEN-NET platform)  pipelines: one to front-    Mid-market interfaces
                     end applications and        in development
                     employer's human resource
                     information systems and
                     the other to health plans
                     and payroll companies
--------------------------------------------------------------------------------
 eBenX Financial     "Self bill" to health       In service            Back-end
 (BEN-NET platform)  plans and consolidated
                     invoice to employer
                     supports full financial
                     distribution; self-funded
                     management; auto-
                     adjudication and
                     consolidated premium
                     management
--------------------------------------------------------------------------------
 eBenX Inquiry       Internet-based real time,   In service            Back-end
 (BEN-NET platform)  enrollment eligibility
                     database access tool
--------------------------------------------------------------------------------
 eBenX Data Access   Internet-based, real time   In development        Back-end
 (BEN-NET platform)  reporting; standard
                     consolidated reports;
                     online financial reports
--------------------------------------------------------------------------------
 eBenX Enroll and    Internet-based employee     In service via        Front-end
 Member Maintenance  and human resource self-    front-end license
                     service benefit election;
                     Internet-based online
                     daily manager of employee
                     adds, deletes and
                     coverage changes from
                     life events
--------------------------------------------------------------------------------
 eBenX RFP           Internet-based census       In development        Front-end
                     acquisition and proposal
                     request tools to support
                     the competitive bidding
                     process
We sell our products and services in selected packages designed to meet the
needs of each customer.

                                       31
Health Benefit Plan Procurement Services

  We also provide health benefit plan procurement services to a number of our
Fortune 1000 customers. We undertake these services on a project basis. We
assist and advise our customers on selection of potential suppliers,
preparation of requests for proposals, evaluation of proposals, and rate
negotiations. Approximately 20 of our employees engage in delivering these
services. Our principal customers for these services are General Electric,
Eastman Kodak and Bell Atlantic. We view these activities as a complement to
the sales and customer development process for exchange services. In addition,
we gain valuable knowledge regarding market conditions and processes from
providing these services.

Our Strategy

  Our objective is to be the leading provider of Internet-based business-to-
business e-commerce for the purchase, eligibility administration and premium
payment of group health insurance benefits. Key elements to our strategy
include the following:

  Implement end-to-end e-commerce solution. We will implement an end-to-end e-
commerce solution by connecting with front-end applications and developing our
own front-end applications where appropriate. In the Fortune 1000 and mid-size
employer markets, front-end applications are being deployed by human resources
information systems platforms, by human resources record keeping service
companies, and enrollment software companies. We will aggressively pursue
front-end application providers to together offer a complete solution to
employers by linking our back-end eligibility and financial exchange services
with their front-end applications. In addition, through licensed technology, we
are deploying our own front-end applications.

  Increase penetration of the Fortune 1000 market. We will continue to focus on
marketing our services to Fortune 1000 companies. We demonstrate to these
companies the administrative efficiencies, cost savings and participant
satisfaction that we provide. We now provide services to 20 of the
approximately 1,500 U.S. companies that have more than 5,000 employees,
including PepsiCo, Bell Atlantic, Northwest Airlines, General Electric, Eastman
Kodak, Chevron, Dayton Hudson, Georgia-Pacific and Reader's Digest. The
remaining companies provide us with substantial growth opportunities.

  Expand service offerings to existing Fortune 1000 customers. We intend to
continue to aggressively expand our service offerings to our existing Fortune
1000 customers. We have been successful in increasing our revenues from most of
our current Fortune 1000 clients through an expanded level of services provided
to additional divisions, subsidiaries and locations of those clients.

  Expand to the mid-size employer market. We intend to leverage our technology
through relationships with insurance brokers to penetrate the mid-size employer
market. Mid-size employers typically purchase group health insurance benefits
using insurance brokers.

  Pursue key strategic relationships to further enhance our service offering
and client base. We intend to pursue key strategic relationships, including
customer agreements and acquisitions. We believe that making strategic
acquisitions and developing strategic relationships will enable us to enhance
our service offerings and expand our client base.

  Develop new products. We intend to use our market knowledge and experience to
develop new products to fully leverage the market channels opened by the
implementation of our technology. For example, we are developing Preferred
Plans.com, a prepackaged group health insurance solution for multi-site, multi-
state employers that will provide mid-size employers with rate quotes and
access to best-practice, best-value health plans throughout the United States.
This will give the health plan supplier access to the purchaser via the
Internet for the first time. In addition, we are designing our technology to
support the sophisticated data and financial reconciling requirements implicit
in the post-enrollment risk-adjusted payments to health plans that would result
from defined contribution and voucher systems that may constitute the future of
the health care benefit system.

                                       32
Customers

  The following is a representative list of our customers.

     American Medical Response, Inc.     Northwest Airlines Corporation
     Bass Hotels & Resorts, Inc.         PepsiCo, Inc.
     Bell Atlantic Corporation           Promus Hotel Corporation
     Benefits Alliance, LLC              R.R. Donnelley & Sons Company
     Blue Cross Blue Shield Association  Reader's Digest Association, Inc.
     Dayton Hudson Corporation           State of Kansas
     Eastman Kodak Company               W.W. Grainger, Inc.
     GE Capital Services Corporation     White Consolidated Industries Inc.
     Georgia-Pacific Corporation         Xerox Corporation
     KPMG LLP

Connected Health Plans

   The following is a representative list of the health plans to which we have
built customized electronic communication pipelines.

     Aetna, Inc. Plans                   Kaiser Foundation Health Plan
     Blue Cross Blue Shield Plans        Merck-Medco
     CIGNA Health Plans, Inc.            PacifiCare Health Systems
     Delta Dental                        UnitedHealth Group Corporation Plans
     Harvard Pilgrim Health Care         More than 25 Blue Cross/Blue Shield
                                         Plans

Sales and Marketing

  Our sales and marketing staff is organized according to our three key
targeted customer segments: Fortune 1000, brokers for mid-size employers, and
human resource service and systems companies. Our sales force targets
significant potential customers in the Fortune 1000 and mid-size employer
segments. Senior management plays an active role in our sales and marketing
efforts.

  Due to the technical nature of our products and services, our typical sales
cycle in the Fortune 1000 market is four to six months and usually involves a
competitive bidding process. Our sales process also is somewhat seasonal
because most large employers undergo the open enrollment process in the fall of
each year. We obtain approximately 75% of our customer commitments during the
months of February through May. The mutual intent is that our systems will be
integrated with the customer's system and become operational prior to the open
enrollment period later that year.

  Fortune 1000. We sell directly to the Fortune 1000 market. As of September
15, 1999, we employed one senior vice president in charge of sales and
marketing to this market. He is supported by three sales people. We expect to
hire two additional sales personnel in the next several months. In addition,
this senior vice president is supported by two marketing assistants who assist
him with trade shows and developing prospective clients, and by a vice
president and four strategic procurement consultants who spend a portion of
their time cross-selling administrative services to the Fortune 1000 market.

  Brokers for Mid-size Employers. We utilize existing brokerage distribution
systems to penetrate the market of mid-size employers. As of September 15,
1999, we employed three senior staff members who are specifically focused on
developing our sales and marketing efforts to brokers. We intend to hire two
additional marketing employees to assist them and to further develop our broker
distribution network. We believe that emphasizing our collection and payment
capabilities to interface with numerous health plans will be a critical factor
in winning acceptance in this market.

                                       33
Human Resource Service and Systems Companies. We partner with human resource
service and systems companies to re-sell our products and services as a
component of the products and services that they offer to employers. This
effort is being led by one of our co-founders. We expect to add personnel to
this area as our partnership efforts develop.

Customer Support

  We believe a high level of customer support is necessary to broaden the
acceptance of our products and services. We provide a wide range of customer
support services through our call service center, our account managers, our
customer service staff and an e-mail help desk. By providing consolidated
customer service through our service center, we eliminate the need for our
customers to maintain numerous contact lists across benefit vendors in order to
resolve enrollment, eligibility and billing issues. We provide each customer
with a telephone number for it and its participants to use regarding enrollment
choices, grievances and benefit clarification. Our service center is open from
7:00 a.m. to 7:00 p.m. Central Time, Monday through Friday. When the service
center is closed, calls for existing clients are forwarded to our voice mail
system. We also offer Internet-based support services that are available 24
hours a day, 7 days a week. Finally, we use proprietary automated tracking
systems to ensure resolution of all inquiries. As of September 15, 1999, we had
35 employees in customer support functions.

Competition

  The market for health care administration services is intensely competitive,
rapidly evolving and subject to sudden technological change. Many of our actual
and potential competitors have announced or introduced solutions that compete,
at least in part, with our products and services. We believe that the principal
competitive factors in this market are health and managed care expertise, data
integration and transfer technology, health insurance benefits processing
technology, customer service and support and price. We believe our products and
services are competitive with respect to these factors and that no other
competitor has the Internet-based technology capabilities combined with managed
care expertise that we have. Further, we believe we are currently the only
participant in this market with both the connectivity link between employers
and health plans and our range of services. However competitors may develop
similar products or we may not be able to successfully market our products or
successfully develop and introduce products that are less costly than or
superior to those of our competitors.

  We compete with administrative service providers and benefits consultants
with administrative capabilities. We also compete with the internal information
systems departments of the Fortune 1000 companies that perform their own health
care administration services. In the mid-size employer market, we compete with
other technology solutions that serve the automation and administration needs
of health benefit brokers. In addition, many human resource service and systems
companies have the healthcare expertise and financial strength to develop the
technology necessary to compete with us. As the market evolves we expect
increasing competition from Internet-based service providers in both the health
care connectivity market and the online insurance market. We believe that our
established and proven technology and our knowledge of the healthcare market
provide us with the necessary capabilities to adapt to the evolving market and
to increasing competition.

Systems and Technology

 Primary Systems Information

  Historically, our services have been delivered using our proprietary BEN-NET
technology as the core eligibility and financial exchange engine. BEN-NET was
originally designed and implemented in 1994 to serve two distinct customer
bases: Fortune 1000 employers and health insurance purchasing coalitions.
Though the latter market never fully developed, the business requirements and
attendant system capabilities such as our permanent, member level detail have
provided additional benefit to our Fortune 1000 clients. We have incorporated a
number of enhancements to BEN-NET in three subsequent major releases.

                                       34
BEN-NET and its fully integrated attendant applications are delivered using a
multi-tier information system comprised of multiple midrange servers, PCs and
workstations. The midrange servers, Sun Enterprise Servers running Sun's
Solaris Unix operating system, are used to provide middle-tier application
component logic and as a platform for eBenX's relational database management
system. Batch and end-user local and Internet applications employ a number of
different languages, primarily PowerBuilder, C, and Java.

  Our production processing environment, maintained at our Minneapolis
facility, is composed of multiple servers, permitting maximum flexibility in
organizing and protecting client data. The environment in which our database
runs, UNIX, is a highly scalable platform. Given this platform, we are able to
add capacity relatively easily, we can also physically organize our databases
on different servers to optimize the processing performed on each server. For
example, an entire production server can be dedicated to a single large client
if this client has extensive processing requirements. Within this processing
environment, we establish separate physical production databases for each of
our Fortune 1000 customers to ensure that customer data remains confidential
and secure. This also ensures that it maintains its integrity. In so doing, we
are able to provide customer data access to customer specified user groups.
Secure, real time Internet-based customer and health plan access to source data
brings trading partners into alignment and reduces support costs.

  We believe our proprietary data import and export management application is a
key differentiator for our services. Electronic Vendor Interface Management
(EVIM) delivers the ability and flexibility to receive and transmit data
between trading partners. This application incorporates not only a library of
health plan data maps, but also a deep knowledge of the business rules that
must be incorporated in the complex managed care market.

  Electronic imports and exports (an average of 1,000 files per week with each
file ranging from 500-50,000 records) are managed via EVIM, ensuring automated,
timely distribution of data, payments, and reports to clients and vendors. This
precise management of the flow of data also supports a key function of BEN-NET,
which is the dynamic application of customer-related business rules to
customer-delivered eligibility data, streamlining both health plan delivery of
service and payment.

 Redundancy, System Backup, Security and Disaster Recovery

  We believe our facilities and operations include sufficient redundancy, back-
up and security to ensure minimal exposure to systems failure or unauthorized
access. A disaster recovery plan has been prepared and will be put in place
should the need arise. Incremental backups of both software and databases are
performed on a daily basis and a full system backup is performed weekly. Backup
tapes are stored at an offsite location along with copies of
schedules/production control procedures, procedures for recovery using an off-
site data center, documentation and other critical information necessary for
recovery and continued operation. Our current facility has two separate power
feeds to provide a level of redundancy should a power outage occur.

  We employ rigorous physical and electronic security to protect customer data.
Our data center is isolated within our corporate offices with restricted card
key access, and appropriate additional physical security measures. Electronic
protections include encryption, firewalls, multi-level access controls and
separate customer databases.

Proprietary Rights

  We rely upon a combination of contractual rights, trade secrets, copyrights,
technical measures, non-disclosure agreements and trademarks to establish and
protect proprietary rights in our products and technologies. However, we
believe that intellectual property protection is less important than our
ability to continue to develop new applications and services that meet the
requirements of our industry. We typically enter into non-disclosure and
confidentiality agreements with our employees and distributors with access to
sensitive information. These agreements may be breached and we may not have
adequate remedies for any

                                       35
breach. Others may acquire substantially equivalent proprietary technologies or
otherwise gain access to our proprietary technologies. In addition, any
particular technology may not be regarded as a trade secret under applicable
law. As a result of the reliance that we place on our trade secrets, loss of
our trade secret protection could harm our business and results of operations.
We have no registered patents or pending patent applications. The steps taken
by us to protect our proprietary rights may not be adequate to prevent
misappropriation of our technology or independent development or sale by others
of software products with features based upon, or otherwise similar to, our
products.

  Although we believe that our technology has been independently developed and
that none of our technology or intellectual property infringes on the rights of
others, third parties may assert infringement claims against us in the future.
If such infringement were established, we would, under certain circumstances,
be required to modify our products or technologies or obtain a license to
permit our continued use of those rights. We may not be able to do either in a
timely manner or upon acceptable terms and conditions, and any failure to do so
could harm our business and results of operations. In addition, any future
litigation necessary to protect our trade secrets, know-how or other
proprietary rights, to defend ourselves against claimed infringement of the
rights of others or to determine the scope and validity of the proprietary
rights of others could result in substantial cost to us and diversion of our
resources. Adverse determinations in any litigation or proceedings also could
subject us to significant liabilities to third parties and could prevent us
from producing, selling or using certain of our products or technologies. We
may not have the resources to defend or prosecute a proprietary rights
infringement claim or other action.

Government Regulation

  The healthcare industry is highly regulated by state, federal and local laws
and regulations, which are subject to change. Currently, few of such laws and
regulations apply directly to our business but rather apply primarily to health
plans or employers. For example, the confidentiality of patient records and the
circumstances under which records may be released for inclusion in our
databases may be subject to substantial regulation by state governments. These
state laws and regulations govern both the disclosure and the use of
confidential patient medical records. Although compliance with these laws and
regulations currently is principally the responsibility of health care
providers and we typically do not include confidential patient medical
information in our databases, these regulations may be extended to cover our
business and the eligibility and other data that we do include in our
databases. Additional legislation governing the dissemination of medical
records has been proposed at both the state and federal level. This legislation
may require holders of these records to implement security measures that may
require substantial expenditures by us. Changes to federal, state or local laws
may materially restrict employers' and health plans' ability to store and
transmit medical records using our products and services.

  Laws and regulations may be adopted with respect to the Internet or other on-
line services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. The adoption of any additional laws or regulations may impede the
growth of the Internet or other on-line services. This could decrease the
demand for our products and services and increase our cost of doing business.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing property ownership, sales taxes and other forms of
taxation, libel and personal privacy is uncertain and may remain uncertain for
a considerable length of time.

  HIPAA mandates the use of standard transactions, identifiers, security and
other provisions by the year 2000. We have designed our products and services
to comply with HIPAA. However, any change in federal standards would require us
to expend additional resources. In addition, the success of our compliance
efforts may be dependent on the success of healthcare industry participants in
dealing with these new standards.

  Finally, our function as a conduit for payment by employers to health plans
may subject us to the ERISA. ERISA imposes certain fiduciary duties on
employers and health plans with respect to payments made on behalf of
participants. Although we believe our role in the payment process is a purely
mechanical one, it is

                                       36
possible that these fiduciary duties could be deemed to apply to us. In that
event, we may become subject to greater liability with respect to such payments
and may experience higher operating costs in order to comply with such
regulation.

Properties

  Our offices are located in Minneapolis, Minnesota where we lease or sublease
approximately 37,100 square feet of office space. Our lease for 29,630 square
feet of this space expires on April 30, 2000 and the lease for the remainder
expires on February 28, 2003. We believe our existing facilities are adequate
to meet our needs until the expiration of our principal lease. Any future
growth during this period can be accommodated through the leasing of additional
or alternative space near our current facilities. Due to our current sales and
marketing plan, we anticipate the need for additional office space in the year
2000 and we currently are negotiating to lease approximately 70,000 square feet
of office space located in the Minneapolis metropolitan area upon the
expiration of our principal lease on April 30, 2000.

Employees

  As of September 15, 1999, we had 238 full-time employees, including 83 in
information technology, 80 in operations, 30 in account management, 6 in sales
and marketing, 23 in consulting and 16 in administration and executive
management. We have never had a work stoppage and none of our employees
currently are represented under collective bargaining agreements. We consider
our relations with our employees to be good. We believe that our future success
will depend in part on the continued service of our senior management and key
technical personnel and our ability to attract, integrate, retain and motivate
highly qualified technical and managerial personnel. This is particularly true
for sales and marketing personnel because of our plans to significantly expand
our sales and marketing groups. Competition for qualified personnel in our
industry and geographical location is intense. We may not continue to be
successful in attracting and retaining a sufficient number of qualified
personnel to conduct our business in the future.

                                       37
MANAGEMENT

Executive Officers and Directors

  The following table provides information as of September 10, 1999 regarding
our executive officers and directors:
Name                Age                         Position
----                ---                         --------
Mark W. Tierney...   50 Chairman and Director
John J. Davis.....   40 Chief Executive Officer and Director
Michael C.
  Bingham.........   37 Senior Vice President, Business Development and Director
Scott P.
  Halstead........   36 Chief Financial Officer and Secretary
Paul V. Barber....   37 Director
James P. Bradley..   47 Director
Daniel M. Cain....   54 Director
William J. Geary..   40 Director
John M. Nehra.....   51 Director
Mr. Tierney is one of our co-founders. He has been our Chairman since
September 1993 and a member of our board of directors since September 1993.
Prior to founding our company, Mr. Tierney founded a joint venture company with
UnitedHealth Group Corporation which specializes in patient demand management,
patient advocacy and case management services to Fortune 500 companies and
served as its President and Chief Executive Officer from July 1985 to August
1993. From July 1983 to July 1985, Mr. Tierney served as Senior Vice President
of Medical Services for Allina Health System, the largest HMO in the
Minneapolis-St. Paul metropolitan area. Prior to July 1983, he held management
positions with CIGNA Health Plans, Inc. and Kaiser Permenente Southern
California. Mr. Tierney holds a master's degree in Hospital and Health Care
Administration from the University of Minnesota and today serves on their
clinical faculty.

  Mr. Davis has been our Chief Executive Officer since April 1999 and a member
of our board of directors since June 1999. From 1996 to 1999, Mr. Davis served
as President and Chief Executive Officer of MedManagement, L.L.C., a national
and leading provider of pharmacy management and medication use consulting
services to hospitals and health systems. Prior to his work with MedManagement,
L.L.C., Mr. Davis served for ten years in a number of operations and executive
management positions at UnitedHealth Group Corporation. Most recently, from
1994 to 1996, Mr. Davis served as President of Healthmarc, a UnitedHealth Group
Corporation specialty company providing innovative managed care services to
employers with populations resident outside health plan service areas. Mr.
Davis holds a bachelor's degree from St. John's University, Collegeville,
Minnesota.

  Mr. Bingham is one of our co-founders. He has been our Senior Vice President,
Business Development since August 1999 and a member of our board of directors
since September 1993. In addition, Mr. Bingham has held leadership roles in
many aspects of our company since its inception. Prior to founding our company,
Mr. Bingham held various management positions at UnitedHealth Group
Corporation, McKinsey & Company and Maxicare Health Plans. Mr. Bingham holds an
M.B.A. degree from the Wharton School at the University of Pennsylvania and a
bachelor's degree in economics from Claremont McKenna College.

  Mr. Halstead has been our Chief Financial Officer since February 1997. Prior
to joining our company, he spent six years with The Dun & Bradstreet
Corporation in various financial management positions in North America, Europe
and Asia. Most recently he was Chief Financial Officer of an operating division
of The Dun & Bradstreet Corporation. Mr. Halstead holds an M.B.A. degree from
the Wharton School at the University of Pennsylvania and a bachelor's degree in
Industrial Engineering from Northwestern University.

  Mr. Barber has been a director since June 1999. Mr. Barber is a Managing
Member of JMI Associates III, LLC, the general partner of JMI Equity Fund III,
L.P., a venture capital limited partnership. From 1990 to 1998, he was Managing
Director and head of the software investment banking practice of Deutsche Bank
Alex.

                                       38
Brown, an investment banking firm. Mr. Barber serves on the board of directors
of several privately held companies. Mr. Barber holds an M.B.A. from Harvard
Business School and a bachelor's degree in Economics from Stanford University.

  Mr. Bradley has been a director since 1997. Mr. Bradley has been Chairman and
Chief Executive Officer of Abaton.com, Inc., a Web-based healthcare information
company, since January 1997. From 1989 to October 1995, Mr. Bradley was Chief
Information Officer of UnitedHealth Group Corporation. From October 1995 to
January 1997, Mr. Bradley was President of Health Systems Integration, Inc., a
healthcare software information company. Mr. Bradley holds an M.S. degree in
Bio Statistics and Data Processing and a bachelor's degree in Genetics and
Statistics from the University of Illinois.

  Mr. Cain has been one of our directors since March 1999. Mr. Cain is
President and Chief Executive Officer of Cain Brothers, LLC, a healthcare
investment bank which has served the financial and capital needs of the health
and medical industry since 1982, and a Manager of CB Health Ventures, L.L.C.
Mr. Cain is a director of New England Funds, a family of mutual funds and
Universal Health Realty Income Trust, a health care REIT. Mr. Cain is a trustee
of the Norman Rockwell Museum and Sharon Hospital and the National Committee
for Quality Health Care. Mr. Cain holds an M.B.A. degree from Columbia
University and a bachelor's degree in American Civilization from Brown
University.

  Mr. Geary has been a director since June 1998. Mr. Geary has been a Principal
of North Bridge Venture Partners, L.P. since its inception in March 1994 and a
General Partner of North Bridge Venture Partners II, L.P. since its inception
in September 1996 and in North Bridge Venture Partners II, L.P. since its
inception in August 1998. Mr. Geary also is a director of several private
technology companies. Mr. Geary holds a bachelor's degree from Boston College
and is a C.P.A.

  Mr. Nehra has been a director since 1996. Since 1989, Mr. Nehra has been the
managing general partner of Catalyst Ventures, Limited Partnership, a venture
capital limited partnership. Since December 1993, Mr. Nehra has also been a
general partner of New Enterprise Associates VI, VII, and VIII Limited
Partnerships, venture capital limited partnerships. Mr. Nehra has served as
Chairman of the Board of Directors of Celeris Corporation, a biomedical
contract research service company since July 1997 and as a director of Celeris
since November 1992. Mr. Nehra also has served as Chairman of the Board of
Iridex Corporation, a medical device company, since 1994, and as a director
since 1989. Mr. Nehra is also a director of several privately held companies.
Mr. Nehra holds a bachelor's degree from the University of Michigan.

Board Composition

  Following this offering, our board of directors will consist of eight
directors divided into three classes with each class serving for a term of
three years. At each annual meeting of shareholders, directors will be elected
by the holders of common stock to succeed those directors whose terms are
expiring. Messrs. Geary and Nehra will be Class I directors whose terms will
expire in 2000; Messrs. Barber, Bradley and Cain will be Class II directors
whose terms will expire in 2001; and Messrs. Bingham, Davis and Tierney will be
Class III directors whose terms will expire in 2002. We intend to add
additional outside directors.

Board Committees

  Our board of directors has established a compensation committee and an audit
committee.

  Messrs. Bradley, Cain and Nehra are members of our compensation committee and
Mr. Nehra is its chairman. Our compensation committee makes recommendations to
the board of directors concerning executive compensation and administers our
stock option plans and our Employee Stock Purchase Plan.

  Messrs. Barber, Geary and Nehra are members of our audit committee and Mr.
Geary is its chairman. Our audit committee reviews the results and scope of the
audit and other accounting related services and reviews our accounting
practices and systems of internal accounting controls.

                                       39
Director Compensation

  We currently do not pay any compensation to directors for serving in that
capacity. We reimburse directors for out-of-pocket expenses incurred in
attending board meetings. Our board of directors has the discretion to grant
options to non-employee directors pursuant to our stock option plans. Mr.
Bradley currently holds options to purchase 15,565 shares of our common stock.

Compensation Committee Interlocks and Insider Participation

  Messrs. Bradley, Cain and Nehra currently serve on the compensation
committee. None of these individuals has at any time been an officer or
employee of ours. Prior to formation of the compensation committee, all
decisions regarding executive compensation were made by the full board of
directors. No interlocking relationship exists between the board of directors
or the compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.

  On March 19, 1996, we sold a total of 636,945 shares of our Series B
Preferred Stock at a purchase price of $7.065 per share, including 424,630
shares to New Enterprise Associates VI, Limited Partnership. On May 3, 1999, we
sold a total of 563,525 shares of our Series C Preferred Stock at a purchase
price of $9.76 per share, including 307,377 shares to CB Healthcare Fund, L.P.
and 102,459 shares to New Enterprise Associates VI, Limited Partnership. On
June 9, 1999, we sold a total of 512,295 shares of our Series C Preferred Stock
at a purchase price of $9.76 per share, including 102,459 shares to CB
Healthcare Fund, L.P.

  Mr. Nehra is a general partner of NEA Partners VI, Limited Partnership, which
is the general partner of New Enterprise Associates VI, Limited Partnership.
Mr. Cain is a Manager of CB Health Ventures, L.L.C. which is the general
partner of CB Healthcare Fund, L.P. We believe that the shares issued in the
transactions described above were sold at the then fair market value of the
shares and that the terms of such transactions were no less favorable than we
could have obtained from unaffiliated third parties.

Indemnification Matters and Limitation of Liability

  Minnesota law and our bylaws provide that we will, subject to limitations,
indemnify any person made or threatened to be made a party to a proceeding by
reason of that person's former or present official capacity with us. We will
indemnify such person against judgments, penalties, fines, settlements and
reasonable expenses, and, subject to limitations, we will pay or reimburse
reasonable expenses before the final disposition of the proceeding.

  As permitted by Minnesota law, our articles of incorporation provide that our
directors will not be personally liable to us or our shareholders for monetary
damages for a breach of fiduciary duty as a director, subject to the following
exceptions:

  .  any breach of the director's duty of loyalty to us or our shareholders;

  .  acts or omissions not in good faith or that involve intentional
     misconduct or a knowing violation of law;

  .  liability for illegal distributions under section 302A.559 of the
     Minnesota Business Corporation Act or for civil liabilities for state
     securities law violations under section 80A.23 of the Minnesota
     statutes;

  .  any transaction from which the director derived an improper personal
     benefit; and

  .  any act or omission occurring prior to the effective date of Article
     VIII of our articles of incorporation.

  In addition, the employment agreements with our officers that are described
in this prospectus require us, to the extent permitted by law, to indemnify
each of these officers and to obtain directors' and officers' liability
insurance coverage in such amount as our board of directors determines to be
appropriate.

                                       40
Presently, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification.

Employment Agreements

  We entered into employment agreements with Mark Tierney, John Davis and Scott
Halstead in April 1999 that govern their employment with us. The agreements set
forth their compensation levels and eligibility for salary increases, bonuses,
benefits and option grants under our stock option plans. The initial employment
term is five years. During the term of their employment agreements, either
party may terminate the agreement by providing at least 30 days written notice
to the other party.

  Mr. Tierney's employment agreement provides for a payment of one year's base
salary and an immediate vesting of 100% of any remaining unvested stock options
in the event of termination of employment by mutual agreement or due to Mr.
Tierney's death or disability. Also, if we terminate his employment other than
for cause, other than as set forth in the preceding sentence, or Mr. Tierney
terminates his employment agreement because of a material reduction in his
duties or compensation or because we require him to relocate, then the
agreement provides for a payment of two years' base salary and an immediate
vesting of 100% of any remaining unvested stock options. If a change in control
occurs prior to April 22, 2001, his employment agreement provides for an
immediate vesting of 100% of any remaining unvested stock options.

  Mr. Davis' employment agreement provides for a payment of one year's base
salary and an immediate vesting of 50% of any remaining unvested stock options
in the event of termination of employment other than for cause. If, however,
the termination of employment occurs within two years of a change in control,
the employment agreements provide for severance pay of one year's base salary
and an immediate vesting of 100% of any remaining unvested stock options.

  Mr. Halstead's employment agreement provides for a payment of six months'
base salary and an immediate vesting of 50% of any remaining unvested stock
options in the event of termination of employment other than for cause. If,
however, the termination of employment occurs within one year of a change in
control, his employment agreement provides for severance pay of six months'
base salary and an immediate vesting of 100% of any remaining unvested stock
options.

Executive Compensation

  The following table provides information concerning compensation paid or
accrued by us to or on behalf of our chief executive officer and each of our
two other most highly compensated executive officers whose salary and bonus
during the fiscal year ended December 31, 1998 was more than $100,000:

                           Summary Compensation Table
Annual       Long Term
                            Compensation   Compensation
                          ---------------- ------------
                                              Shares
Name and Principal                          Underlying
Position                   Salary   Bonus    Options
------------------        -------- ------- ------------
Mark W. Tierney
  Chairman and
  Director..............  $152,000 $42,040    10,400
Michael C. Bingham
  Senior Vice President,
  Business Development..  $104,000 $28,580     7,800
Scott P. Halstead
  Chief Financial
  Officer and
  Secretary.............  $120,000 $12,000     3,900
--------
 .  The aggregate amount of perquisites and other personal benefits, securities
   or property received by each named executive officer was less than either
   $50,000 or 10% of the total annual salary and bonus reported for each
   respective named executive officer.
 .  John Davis became Chief Executive Officer in April 1999. During the fiscal
   year ended December 31, 1998, Mark Tierney was Chairman and Chief Executive
   Officer. Michael Bingham has been Senior Vice President, Business
   Development since August 1999. During the fiscal year ended December 31,
   1998, Mr. Bingham was President.

                                       41
The following table provides information concerning the stock option grants
made to each of our named executive officers during the fiscal year ended
December 31, 1998.

                          Option Grants in Fiscal 1998
Individual Grants
                       --------------------------------------------------------
                       Number of
                       Securities Percentage of Total
                       Underlying Options Granted to
                        Options   Employees in Fiscal Exercise Price Expiration
Name                    Granted          1998           ($/Share)       Date
----                   ---------- ------------------- -------------- ----------
Mark W. Tierney.......   10,400          5.01%            $2.25      6/10/2008
Michael C. Bingham....    7,800          3.76%            $2.25      6/10/2008
Scott P. Halstead.....    3,900          1.88%            $2.25      6/10/2008
--------
 .  The above options have a 10-year term from the grant date, and were fully
   vested and exerciseable as of the grant date. All stock options were granted
   with an exercise price equal to the fair market value of the common stock as
   determined by our board of directors on the date of grant.
 .  The data presented in the Percentage of Total Options Granted to Employees
   in Fiscal 1998 column based on an aggregate of 207,650 shares of common
   stock subject to options granted to our employees during fiscal 1998.

  The following table provides information concerning the exercise of options
to purchase common stock by our named executive officers during fiscal 1998 and
the number and value of unexercised stock options held by these executive
officers as of December 31, 1998.

                 Aggregated Option Exercises in Fiscal 1998 and
                         Fiscal Year-End Option Values
Number of Securities
                                              Underlying          Value of Unexercised
                                          Unexercised Options     In-the-Money Options
                                          at Fiscal Year-End       at Fiscal Year-End
                                        ----------------------- -------------------------
                              Shares
                            Acquired on
   Name                      Exercise   Exercisable Unexercisable Exercisable Unexercisable
   ----                     ----------- ----------- ------------- ----------- -------------
Mark W. Tierney.........     --        25,210          --        $33,174      $  --
   Michael C. Bingham......     --         9,035          --        $ 2,766      $  --
   Scott P. Halstead.......     --        12,150       21,750       $ 3,713      $9,788
--------
 .  The value of unexercised in-the-money options is based on a value of $2.25,
   the fair market value of our common stock as of December 31, 1998 as
   determined by our board of directors, less the applicable per share exercise
   price multiplied by the number of shares issued upon exercise of the option.

Benefit Plans

 1993 Stock Option Plan

  Our 1993 Stock Option Plan provides for the grant of options to purchase
shares of common stock and other long-term incentive awards to any of our full
or part-time employees, officers, directors, consultants and independent
contractors. Options granted under the 1993 Stock Option Plan may qualify as
incentive stock options under the Internal Revenue Code of 1986, or may be
options that do not qualify as incentive stock

                                       42
options. Other long-term incentive awards that may be granted under the 1993
Stock Option Plan include stock appreciation rights, or SARs, restricted stock
and performance awards. We have reserved 1,300,000 shares of common stock for
issuance under the 1993 Stock Option Plan. The 1993 Stock Option Plan is
administered by our compensation committee. The committee has the discretion to
select the people to whom options are granted and to establish the terms and
conditions of each stock option, subject to the provisions of the 1993 Stock
Option Plan and to any special provisions approved by our board of directors.
The exercise price of an incentive stock option granted under the 1993 Stock
Option Plan must not be less than 100% of the fair market value of the common
stock on the date the option is granted. In the event that a proposed optionee
owns more than 10% of our common stock, any incentive stock option granted to
such optionee must have an exercise price not less than 110% of the fair market
value of our common stock on the grant date. The term of each option is
determined by the compensation committee. However, the term of an incentive
stock option may not exceed 10 years from the date of grant and the term of a
non-qualified stock option may not exceed 15 years from the date of grant. In
the case of an incentive option granted to an owner of more than 10% of our
common stock, the term may not exceed five years from the date of grant. The
1993 Stock Option Plan is subject to amendment by our board of directors,
except that the board may not increase the number of shares which may be issued
under the 1993 Stock Option Plan or decrease the minimum exercise price of
options granted under the 1993 Stock Option Plan without the approval of our
shareholders.

  As of December 31, 1998, options to purchase an aggregate of 553,930 shares
of common stock, at a weighted average exercise price of $1.35 per share, were
outstanding under the 1993 Stock Option Plan and a total of 113,961 shares were
available for future option grants.

 1999 Stock Incentive Plan

  Our 1999 Stock Incentive Plan was approved by our board of directors and
shareholders in September 1999. The 1999 Stock Incentive Plan provides for the
granting of:

  .  stock options, including incentive stock options and non-qualified stock
     options;

  .  stock appreciation rights, or SARs;

  .  restricted stock and restricted stock units;

  .  performance awards; and

  .  other stock-based awards.

  We have reserved 1,000,000 shares of common stock for issuance under the 1999
Stock Incentive Plan. The 1999 Stock Incentive Plan is administered by our
compensation committee. The compensation committee has the authority

  .  to establish rules for the administration of the 1999 Incentive Plan;

  .  to select the persons to whom awards are granted;

  .  to determine the types of awards to be granted and the number of shares
     of common stock covered by such awards; and

  .  to set the terms and conditions of such awards.

  The compensation committee may also determine whether the payment of any
amounts received under any award shall be deferred. Awards may provide that
upon the grant or exercise, the holder will receive shares of common stock,
cash or any combination, as the compensation committee shall determine.

  In order to meet the requirements of Section 162(m) of the Internal Revenue
Code, the 1999 Incentive Plan contains a limitation on the number of options
that may be granted to any single person in any one calendar year.

  The exercise price per share under any incentive stock option or the grant
price of any SAR cannot be less than 100% of the fair market value of our
common stock on the date of the grant of such incentive stock option

                                       43
or SAR. In the event that a proposed optionee owns more than 10% of our common
stock, any incentive stock option granted to such optionee must have an
exercise price not less than 110% of the fair market value of our common stock
on the grant date and may not have a term longer than five years. Options may
be exercised by payment in full of the exercise price, either in cash or, at
the discretion of the compensation committee, in whole or in part by the
tendering of shares of common stock or other consideration having a fair market
value on the date the option is exercised equal to the exercise price.
Determinations of fair market value under the 1999 Stock Incentive Plan are
made in accordance with methods and procedures established by the compensation
committee.

  The holder of an SAR is entitled to receive the excess of the fair market
value of a specified number of shares over the grant price of the SAR.

  The holder of restricted stock may have all of the rights of a shareholder of
our company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends or such rights may be restricted.
Restricted stock may not be transferred by the holder until the restrictions
established by the compensation committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the compensation
committee, to receive shares of common stock, or a cash payment equal to the
fair market value of such shares, at some future date. Upon termination of the
holder's employment during the restriction period, restricted stock and
restricted stock units shall be forfeited, unless the compensation committee
determines otherwise.

  If any shares of common stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the 1999 Stock
Incentive Plan. Except as otherwise provided under procedures adopted by the
compensation committee to avoid double counting with respect to awards granted
in tandem with or in substitution for other awards, all shares relating to
awards granted are counted against the aggregate number of shares available for
granting awards under the 1999 Stock Incentive Plan.

  Our board of directors may amend, alter or discontinue the 1999 Stock
Incentive Plan at any time, provided that shareholder approval must be obtained
for any change that absent such shareholder approval:

  .  would cause Rule 16b-3 of the Exchange Act or section 162(m) of the
     Internal Revenue Code to become unavailable with respect to the 1999
     Stock Incentive Plan;

  .  would violate any rules or regulations of the National Association of
     Securities Dealers, Inc., the Nasdaq National Market or any securities
     exchange applicable to us; or

  .  would cause us to be unable under the Internal Revenue Code to grant
     incentive stock options under the 1999 Stock Incentive Plan.

  Under the 1999 Stock Incentive Plan, the compensation committee may permit
participants receiving or exercising awards to surrender shares of common stock
to us to satisfy federal and state withholding tax obligations. In addition,
the compensation committee may grant a bonus to a participant in order to
provide funds to pay all or a portion of federal and state taxes due as a
result of the receipt, exercise or lapse of restrictions relating to an award.

 Employee Stock Purchase Plan

  Our employee stock purchase plan will become effective upon consummation of
this offering and is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code. The stock purchase plan covers
an aggregate of 300,000 shares of common stock. In order to participate in the
stock purchase plan, employees must meet certain eligibility requirements.
Participating employees will be able to direct us to make payroll deductions of
up to 15% of their compensation during a purchase period for the purchase of
shares of common stock. Each purchase period, with the exception of the initial
offering period,

                                       44
will be six months. The stock purchase plan will provide participating
employees with the right, subject to certain limitations, to purchase our
common stock at a price equal to 85% of the lesser of the fair market value of
our common stock on the first day or the last day of the applicable purchase
period. The price on the first day of the initial purchase period will be the
initial public offering price of the shares of the common stock in this
offering. The stock purchase plan will terminate on such date as our board of
directors may determine, or automatically as of the date on which all of the
shares of common stock reserved for purchase under the stock purchase plan have
been sold.

 401(k) Plan

  We have established a tax-qualified employee savings and retirement plan for
all of our employees who satisfy eligibility requirements, including
requirements relating to age and length of service. Pursuant to the 401(k)
plan, employees may elect to reduce their current compensation by up to the
lower of 20% or the statutory limit and have the amount of such reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by us to the
401(k) plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) plan. Our contributions, if any, will
be deductible by us when made.

                                       45
CERTAIN TRANSACTIONS

  On March 19, 1996, we sold a total of 636,945 shares of our Series B
Preferred Stock at a purchase price of $7.065 per share as follows:

  .  212,315 shares to North Bridge Venture Partners, L.P.; and

  .  424,630 shares to New Enterprise Associates VI, Limited Partnership.

  On May 3, 1999, we sold a total of 563,525 shares of our Series C Preferred
Stock at a purchase price of $9.76 per share, including:

  .  307,377 shares to CB Healthcare Fund, L.P.;

  .  102,459 shares to North Bridge Venture Partners, L.P.; and

  .  102,459 shares to New Enterprise Associates VI, Limited Partnership.

  On June 9, 1999, we sold a total of 512,295 shares of our Series C Preferred
Stock at a purchase price of $9.76 per shares as follows:

  .  102,459 shares to CB Healthcare Fund, L.P.;

  .  364,754 shares to JMI Equity Fund III, L.P.; and

  .  45,082 shares to JMI Equity Side Fund, L.P.

  William J. Geary, who is one of our directors, is a principal of North Bridge
Venture Management, L.P. North Bridge Venture Management is a general partner
of North Bridge Venture Partners, L.P.

  John M. Nehra, who is one of our directors, is a general partner of NEA
Partners VI, Limited Partnership. NEA Partners VI, Limited Partnership is the
general partner of New Enterprise Associates VI, Limited Partnership.

  Daniel M. Cain, who is one of our directors, is a manager of CB Health
Ventures, L.L.C. CB Health Ventures, L.L.C. is the general partner of CB
Healthcare Fund, L.P.

  Paul V. Barber, who is one of our directors, is a managing member of JMI
Associates III, LLC. JMI Associates III, LLC, is the general partner of JMI
Equity Fund III, L.P. JMI Equity Side Fund, L.P. is affiliated with JMI Equity
Fund III, L.P. Mr. Barber has no beneficial ownership interest in JMI Equity
Side Fund, L.P.

  We believe that the shares issued in the transactions described above were
sold at the then fair market value of the shares and that the terms of such
transactions were no less favorable than we could have obtained from
unaffiliated third parties.

                                       46
PRINCIPAL SHAREHOLDERS

  The following table provides information concerning beneficial ownership of
our common stock as of September 10, 1999 by:

  . each shareholder that we know owns more than 5% of our outstanding common
      stock;

  . each of our named executive officers;

  . each of our directors; and

  . all of our directors and named executive officers as a group.

  The following table lists the applicable percentage of beneficial ownership
based on approximately 3,265,481 shares of common stock outstanding as of
September 10, 1999, as adjusted to reflect the conversion of the outstanding
shares of preferred stock immediately prior to this offering. The table also
lists the applicable percentage beneficial ownership based on [    ] shares of
common stock outstanding upon completion of this offering, assuming no exercise
of the underwriters' overallotment option. Except where noted, the persons or
entities named have sole voting and investment power with respect to all shares
shown as beneficially owned by them.

  Unless otherwise indicated, the principal address of each listed 5%
shareholder is c/o eBenX, Inc., 5500 Wayzata Boulevard, Suite 1450,
Minneapolis, Minnesota 55416-1241.
Percentage of
                                                            Shares Beneficially
                                                Number of         Owned(1)
                                                  Shares    --------------------
                                               Beneficially Before the After the
Beneficial Owners                                Owned(1)    Offering  Offering
-----------------                              ------------ ---------- ---------
North Bridge Venture Partners, L.P.
  950 Winter Street, Suite 4600
  Waltham, MA 02451..........................     684,983      21.0%
New Enterprise Associates VI, Limited
  Partnership
  1119 St. Paul Street
  Baltimore, MD 21202........................     527,089      16.1
Entities associated with
JMI Equity Fund III, L.P. (2)
  12680 High Bluff Drive
  San Diego, CA 92130........................     409,836      12.6
CB Healthcare Fund, L.P.
  452 Fifth Avenue, 25th Floor
  New York, NY...............................     409,836      12.6
Barbara J. Seykora (3).......................     198,062       5.9
Mark W. Tierney (4)..........................     645,210      19.5
John J. Davis (5)............................      49,609       1.5
Michael C. Bingham (6).......................     409,035      12.5
Scott P. Halstead (7)........................      22,400         *
Paul V. Barber (8)...........................     364,754      11.2
James P. Bradley (9).........................       6,339         *
Daniel M. Cain (10)..........................     409,836      12.6
William J. Geary (11)........................     684,983      21.0
John M. Nehra (12)...........................     527,089      16.1
All directors and executive officers as a
  group (9 persons) (13).....................   3,119,255      91.8
47
--------
  *  Represents beneficial ownership of less than 1% of the outstanding shares
     of our common stock.
 (1)  Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to options, warrants or issuable on the conversion of preferred
      stock which are currently exercisable or convertible or may be exercised
      or converted within 60 days of September 10, 1999 are deemed to be
      outstanding and to be beneficially owned by the person holding these
      options, warrants or shares of convertible preferred stock for the
      purpose of computing the number of shares beneficially owned and the
      percentage ownership of the person or entity holding these securities but
      are not outstanding for the purpose of computing the percentage ownership
      of any other person or entity.
 (2) Includes 364,754 shares held by JMI Equity Fund III, L.P. and 45,082
     shares held by JMI Equity Side Fund, L.P. JMI Equity Side Fund, L.P. is
     affiliated with JMI Equity Fund III, L.P.
 (3)  Includes 119,115 shares issuable upon exercise of stock options
      exercisable within 60 days of September 10, 1999.
 (4) Includes 30,400 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999 and 14,810 shares
     issuable upon exercise of immediately exerciseable warrants.
 (5) Includes 49,609 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999.
 (6) Includes 7,800 shares issuable upon exercise of stock options exerciseable
     within 60 days of September 10, 1999 and 1,235 shares issuable upon
     exercise of immediately exerciseable warrants.
 (7) Includes 22,400 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999.
 (8) Includes 364,754 shares held by JMI Equity Fund III, L.P. Mr. Barber, one
     of our directors, is a Managing Member of JMI Associates III, LLC, which
     is the general partner of JMI Equity Fund III, L.P. JMI Equity Side Fund,
     L.P. is affiliated with JMI Equity Fund III, L.P. Mr. Barber disclaims
     beneficial ownership of shares held by JMI Equity Fund III, L.P. Mr.
     Barber has no beneficial ownership interest in JMI Equity Side Fund, L.P.
 (9) Includes 6,339 shares issuable upon exercise of stock options exerciseable
     within 60 days of September 10, 1999.
(10) Includes 409,836 shares held by CB Healthcare Fund, L.P. Mr. Cain, one of
     our directors, is a Manager of CB Health Ventures, L.L.C., which is the
     general partner of CB Healthcare Fund, L.P. Mr. Cain disclaims beneficial
     ownership of shares held by CB Healthcare Fund, L.P.
(11) Includes 684,983 shares held by North Bridge Venture Partners, L.P. Mr.
     Geary, one of our directors, is a principal of North Bridge Venture
     Management, L.P., which is a general partner of North Bridge Venture
     Partners, L.P. Mr. Geary disclaims beneficial ownership of shares held by
     North Bridge Venture Partners, L.P.
(12) Includes 527,089 shares held by New Enterprise Associates VI, Limited
     Partnership. Mr. Nehra, one of our directors, is a general partner of NEA
     Partners VI, Limited Partnership, which is the general partner of New
     Enterprise Associates VI, Limited Partnership. Mr. Nehra disclaims
     beneficial ownership of shares held by NEA Partners VI, Limited
     Partnership
(13) Includes 116,548 shares issuable upon exercise of stock options
     exerciseable within 60 days of September 10, 1999 and 16,045 shares
     issuable upon exercise of immediately exerciseable warrants. Includes
     364,754 shares held by JMI Equity Fund III, L.P., 409,836 shares held by
     CB Healthcare Fund, L.P., 684,983 shares held by North Bridge Venture
     Partners, L.P. and 527,089 shares held by New Enterprise Associates VI,
     Limited Partnership. Does not include shares beneficially owned by Barbara
     J. Seykora, who is not an executive officer of our company.

                                       48
DESCRIPTION OF CAPITAL STOCK

  Effective upon the filing of our amended and restated articles of
incorporation immediately prior to the closing of this offering, our authorized
capital stock will consist of 100,000,000 shares of capital stock, par value
$.01 per share. Unless otherwise designated by our board of directors, all
issued shares shall be deemed common stock with equal rights and preferences.

Common Stock

  As of September 24, 1999, there were 3,265,481 shares of our common stock
outstanding.

  Holders of our common stock do not have cumulative voting rights and are
entitled to one vote for each share held of record on all matters submitted to
a vote of the shareholders, including the election of directors. Holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the board of directors out of legally available funds. These rights
are subject to the prior rights of any preferred stock then outstanding. See
"Dividend Policy" for a further description of dividend rights.

  Upon our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share ratably in the net assets legally available for
distribution to shareholders after the payment of our debts and other
liabilities. These rights are subject to the prior rights of any preferred
stock then outstanding. Holders of our common stock have no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking funds provisions applicable to the common stock. All outstanding shares
of common stock are, and the common stock outstanding upon completion of this
offering will be, fully paid and nonassessable.

Preferred Stock

  Effective upon the closing of this offering, our board of directors will have
the authority, without further action by the shareholders, to issue shares of
preferred stock in one or more series and to fix the number of shares,
designations and preferences, powers and relative, participating, optional or
other special rights and the qualifications or restrictions on those shares.
The preferences, powers, rights and restrictions of different series of
preferred stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and purchase funds and other matters.

  The issuance of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of common stock or adversely
affect the rights and powers, including voting rights, of the holders of common
stock. It may have the effect of delaying, deferring or preventing a change in
control our company. We currently do not plan to issue any shares of preferred
stock.

Registration Rights

  After this offering, the holders of 2,082,974 shares of common stock will be
entitled to rights with respect to the registration of these shares under the
Securities Act as follows:

  .  Demand Registration Rights: At any time beginning six months following
     our initial public offering, the holders of at least 30% of these shares
     of common stock can request that we register all or a portion of their
     shares. Upon such a request, we must, subject to specific restrictions
     and limitations, use our best efforts to cause a registration statement
     covering the number of shares of common stock that are subject to the
     request to become effective. The holders may only require us to file
     three registration statements in response to their demand registration
     rights.

  .  Piggyback Registration Rights: If we propose to register additional
     shares of our common stock under the Securities Act, subject to specific
     exceptions, the holders of the 2,082,974 shares can request that we
     register their shares in connection with our registration. However, the
     underwriter of the registration, if any, would have the right to limit
     the number of the 2,082,974 shares that may be included in the
     registration. These registration opportunities are unlimited.

                                       49
These registration rights terminate when all of these shares may be sold
during any 90-day period under Rule 144 under the Securities Act.

Provisions of our Restated Articles and Bylaws and State Law Provisions with
Potential Antitakeover Effects

  The existence of authorized but unissued preferred stock, described above,
and certain provisions of Minnesota law, described below, could have an anti-
takeover effect. These provisions are intended to provide management with
flexibility, to enhance the likelihood of continuity and stability in the
composition of our board of directors and the policies of our board and to
discourage an unsolicited takeover of our company if our board of directors
determines that such a takeover is not in the best interests of our company and
our shareholders. However, these provisions could have the effect of
discouraging attempts to acquire us, which could deprive our shareholders of
opportunities to sell their shares of common stock at prices higher than
prevailing market prices.

  Upon the closing of this offering, our board of directors will be divided
into three classes serving staggered three-year terms. As a result of this
division, generally at least two shareholders' meetings will be required for
shareholders to effect a change in control of the board of directors. In
addition, our bylaws will contain provisions that establish specific procedures
for calling meetings of shareholders and appointing and removing members of the
board of directors.

  Section 302A.671 of the Minnesota Business Corporation Act applies, with
exceptions, to any acquisition of our voting stock from a person other than us,
and other than in connection with certain mergers and exchanges to which we are
a party, that results in the beneficial ownership of 20% or more of the voting
stock then outstanding. Section 302A.671 requires approval of any such
acquisitions by a majority vote of our shareholders to accord full voting
rights to the acquired shares. In general, shares acquired in the absence of
such approval are denied voting rights and are redeemable at their then fair
market value by us within 30 days after the acquiring person has failed to give
a timely information statement to us or the date the shareholders voted not to
grant voting rights to the acquiring person's shares.

  Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by us, or by any of our subsidiaries, with
any shareholder that purchases 10 percent or more of our voting shares within
four years following this interested shareholder's share acquisition date. The
business combination may be permitted if it is approved by a committee of all
of the disinterested members of our board of directors before the interested
shareholder's share acquisition date.

Listing

  We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "EBNX."

Transfer Agent and Registrar

  The transfer agent and registrar for our common stock will be Norwest Bank
Minnesota, N.A. Its address is 161 North Concord Exchange, South Saint Paul,
Minnesota 55075, and its telephone number is (651) 450-4064.

                        SHARES ELIGIBLE FOR FUTURE SALE

  Upon the closing of this offering, we will have [            ] shares of
common stock outstanding, assuming no exercise of the underwriters'
overallotment option and no exercise of outstanding options to purchase common
stock. All of our directors and executive officers and 5% shareholders, holding
in the aggregate in excess of [ ]% of the outstanding shares of our common
stock, have agreed that they will not, without the prior written consent of the
representatives of the underwriters, sell or otherwise dispose of any shares of
common stock or options to acquire shares of common stock during the 180-day
period following the closing of this offering. See "Underwriting."

                                       50
The [    ] shares of common stock being sold in this offering will be freely
tradeable without restriction or further registration under the Securities
Act, except for shares held by our "affiliates," as such term is defined in
Rule 144 under the Securities Act, which may generally only be sold in
compliance with the limitations of Rule 144, described below. The remaining
3,265,481 shares were issued and sold by us in private transactions and are
deemed restricted securities under Rule 144. These shares may be sold in the
public market only if registered under the Securities Act or if exempt from
registration under Rules 144, 144(k) or 701 under the Securities Act, which
rules are summarized below. Subject to the agreements between our shareholders
and the underwriters, described above, and the provisions of Rules 144, 144(k)
and 701, additional shares will be available for sale in the public market,
subject in the case of shares held by affiliates to compliance with volume
restrictions, as follows:

  .  98,247 shares will be available for immediate sale in the public market
     on the date of this prospectus;

  .  84,260 shares will be available for sale 90 days after the date of this
     prospectus; and

  .  3,082,974 shares will be available for sale under Rules 144 and 701 upon
     the expiration of agreements between our shareholders and the
     underwriters 180 days after the date of this prospectus.

  In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person or persons whose shares are aggregated, including an
affiliate, who has beneficially owned restricted shares for at least one year,
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then outstanding shares of common stock,
or approximately [    ] shares immediately after this offering, or the average
weekly trading volume of our common stock on the Nasdaq National Market during
the four calendar weeks preceding the date of such sale. Sales under Rule 144
also are subject to requirements pertaining to the manner and notice of such
sales and the availability of current public information concerning our
company.

  Under Rule 144(k), a person who is not deemed to have been an affiliate of
our company at any time during the 90 days before a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell these shares without regard to the requirements described
above. To the extent that shares were acquired from an affiliate of our
company, the transferee's holding period for the purpose of effecting a sale
under Rule 144(k) commences on the date of transfer from the affiliate.

  Rule 701 provides that, beginning 90 days after the date of this prospectus,
persons other than affiliates may sell shares of common stock acquired from us
in connection with written compensatory benefit plans, including our 1993
Stock Option Plans, subject only to the manner of sale provisions of Rule 144.
Beginning 90 days after the date of this prospectus, affiliates may sell these
shares of common stock subject to all provisions of Rule 144 except the one-
year minimum holding period.

  Shortly after the closing of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all shares of
common stock issuable under the 1993 Stock Option Plan, the 1999 Stock
Incentive Plan and the Stock Purchase Plan. See "Management--Benefit Plans"
for a further discussion of these plans. This Form S-8 registration statement
is expected to become effective immediately upon filing and shares covered by
that registration statement will then be eligible for sale in the public
markets, subject to the Rule 144 limitations applicable to affiliates.

  Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that sales of
shares in the open market or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price.

  After the closing of this offering, the holders of 2,082,974 shares of our
common stock will be entitled to rights with respect to the registration of
such shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradeable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of registration. For a
discussion of these rights, see "Description of Capital Stock--Registration
Rights."

                                      51
UNDERWRITING

  The underwriters, through their representatives, BancBoston Robertson
Stephens Inc., Warburg Dillon Read LLC and Thomas Weisel Partners LLC, have
severally agreed to purchase from us the number of shares of common stock next
to their respective names below. The underwriters are committed to purchase and
pay for all the shares if any are purchased.
Number of
Underwriters                                                            Shares
------------                                                          ----------
BancBoston Robertson Stephens Inc...................................  [        ]
Warburg Dillon Read LLC.............................................  [        ]
Thomas Weisel Partners LLC..........................................  [        ]
                                                                      ----------
  Total.............................................................  [        ]
                                                                      ==========
The underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at the public offering price less a concession of $[ .  ] per
share, of which $[ .  ] may be reallowed to other dealers. After the initial
public offering, the public offering price, concession and reallowance to
dealers may be reduced by the representatives. However, no reduction will
change the amount of proceeds to be received by us as set forth on the cover
page of this prospectus. The common stock is offered by the underwriters
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.

  The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

  Over allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to [    ] additional shares of our common stock at the same price
per share as we will receive for the [    ] shares that the underwriters have
agreed to purchase. If the underwriters exercise this option, each of the
underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of these additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the total shares offered in this offering. These
additional shares will be sold by the underwriters on the same terms as those
on which the [    ] shares are being sold. We will be obligated to sell shares
to the extent the option is exercised. The underwriters may exercise this
option only to cover over allotments made in connection with the sale of the
shares of common stock offered in this offering.

  Indemnity. Our underwriting agreement among us and the underwriter contains
covenants of indemnity among the underwriters and us against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.

  Lock-up Agreements. Under the terms of lock-up agreements, each of our
officers and directors and certain of our shareholders have agreed with the
representatives, for a period of 180 days after the date of this prospectus,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to, any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock, owned
by these holders or with respect to which they have the power of disposition,
without the prior written consent of BancBoston Robertson Stephens, Inc.
BancBoston Robertson Stephens, Inc. may, in its sole discretion, release all or
any portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of our shareholders providing
consent by the representatives to the sale of shares prior to the expiration of
the period 180 days after this prospectus.

                                       52
Future Sales. In addition, we have agreed that during the 180 days after the
date of this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens, Inc.:

  .  consent to the disposition of any shares held by shareholders prior to
     the expiration of the period of 180 days after the date of this
     prospectus; or

  .  issue, sell, contract to sell or otherwise dispose of any shares of
     common stock or any securities convertible into, exercisable for or
     exchangeable for shares of common stock, other than the sale of shares
     in this offering, the issuance of common stock upon the exercise of
     outstanding options or warrants or our issuance of options or shares
     under our 1993 Stock Option Plan.

  No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the public offering price for our
common stock has been determined through negotiations between us and the
representatives. Among the factors considered in these negotiations are
prevailing market conditions, financial information of our market valuations
of other companies that the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.

  Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock by the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of
common stock by the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter
or syndicate member. The representatives have advised us that these types of
transactions may be effected on the Nasdaq National Market or otherwise and if
commenced may be discontinued at any time.

  Costs of Offering. We estimate that total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$[       ].

  Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 70 filed public offerings of equity securities, of which 39 have
been completed, and has acted as a syndicate member in an additional 34 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

                                 LEGAL MATTERS

  The validity of the issuance of shares of common stock offered by us in this
offering will be passed upon for us by Dorsey & Whitney LLP, Minneapolis,
Minnesota. Legal matters related to the offering will be passed upon for the
underwriters by Winston & Strawn, Chicago, Illinois.

                                      53
EXPERTS

  Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.

                             ADDITIONAL INFORMATION

  We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. For further information about us and our common stock,
you should review the registration statement and exhibits and schedules
thereto. You may read and copy any document we file at the Commission's public
reference room in Washington, D.C. Please call the Commission at 1-800-SEC-0330
for further information on the public reference room. Our filings are also
available to the public from the Commission's Web site at http://www.sec.gov.

  Upon completion of this offering, we will be required to file periodic
reports, proxy statements and other information with the Commission. These
periodic reports, proxy statements and other information will be available for
inspection and copying at the Commission's public reference room and the Web
site of the Commission referred to above.

                                       54
EBENX, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors..........................................   F-2
Consolidated Balance Sheets.............................................   F-3
Consolidated Statements of Operations...................................   F-4
Consolidated Statement of Changes in Shareholders' Equity...............   F-5
Consolidated Statements of Cash Flows...................................   F-6
Notes to Consolidated Financial Statements..............................   F-7
F-1
Report of Independent Auditors

Board of Directors and Shareholders
eBenX, Inc.

  We have audited the accompanying consolidated balance sheets of eBenX, Inc.
(formerly known as Network Management Services, Inc.) as of December 31, 1998
and 1997, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of eBenX, Inc. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.

                                          /s/ Ernst & Young LLP

Minneapolis, Minnesota
March 22, 1999

                                      F-2
EBENX, INC.

                          CONSOLIDATED BALANCE SHEETS
                 (dollars in thousands, except per share data)
December 31      June    Pro forma
                                           ----------------    30,    June 30,
                                            1997     1998     1999      1999
                                           -------  -------  -------  ---------
                                                                (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents............... $ 1,009  $ 1,681  $ 9,268   $ 9,268
  Investments.............................   2,005       --       --        --
  Accounts receivable, less allowance of
    $51 at December 31, 1997 and 1998 and
    June 30, 1999.........................     573    1,964    2,445     2,445
  Prepaid expenses........................     143      324      639       639
  Other...................................      33       18       --        --
                                           -------  -------  -------   -------
     Total current assets.................   3,763    3,987   12,352    12,352
  Property and equipment, net.............   1,288    1,568    1,908     1,908
  Deposits................................      33       41       43        43
                                           -------  -------  -------   -------
     Total assets......................... $ 5,084  $ 5,596  $14,303   $14,303
                                           =======  =======  =======   =======
   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................ $   181  $   837  $   793   $   793
  Accrued payroll.........................     333      493      590       590
  Accrued expenses........................      83      115      137       137
  Deferred revenue........................      64       10       11        11
  Note payable............................      --      750       --        --
                                           -------  -------  -------   -------
     Total current liabilities............     661    2,205    1,531     1,531
Shareholders' equity:
  Redeemable Convertible Preferred Stock:
     Series A, $.01 par value: Authorized
       shares--376,209 Issued and
       outstanding shares--370,209;
       Liquidation value--$1,000..........       4        4        4        --
     Series B, $.01 par value: Authorized
       shares--636,945 Issued and
       outstanding shares--636,945;
       Liquidation value--$500............       6        6        6        --
     Series C, $.01 par value: Authorized
       shares--1,075,820 Issued and
       outstanding shares--1,075,820;
       Liquidation value--$10,500.........      --       --       11        --
  Common Stock, $.01 par value:
     Authorized shares--7,000,000; Issued
       and outstanding shares--1,148,507--
       1997; 1,160,107--1998; 1,171,157--
       1999...............................      11       12       12        33
     Pro forma issued and outstanding
       shares--3,254,131..................
  Additional paid-in capital..............   5,582    5,591   16,073    16,073
  Retained deficit........................  (1,180)  (2,222)  (3,334)   (3,334)
                                           -------  -------  -------   -------
Total shareholders' equity................   4,423    3,391   12,772    12,772
                                           -------  -------  -------   -------
Total liabilities and shareholders'
  equity.................................. $ 5,084  $ 5,596  $14,303   $14,303
                                           =======  =======  =======   =======
See accompanying notes.

                                      F-3
EBENX, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (dollars in thousands, except per share data)
Six months ended
                             Year ended December 31             June 30,
                         --------------------------------  --------------------
                           1996       1997        1998       1998       1999
                         ---------  ---------  ----------  ---------  ---------
                                                               (unaudited)
Net revenue............. $   4,360  $   7,093  $   10,122  $   3,929  $   7,108
Costs and expenses:
  Costs of revenues.....     2,480      4,496       6,958      2,935      5,233
  Selling, general and
    administrative......     1,796      2,068       2,831      1,319      2,010
  Research and
    development.........       863      1,242       1,519        673      1,127
                         ---------  ---------  ----------  ---------  ---------
     Total costs and
       expenses.........     5,139      7,806      11,308      4,927      8,370
                         ---------  ---------  ----------  ---------  ---------
Loss from operations....      (779)      (713)     (1,186)      (998)    (1,262)
Interest income.........       198        213         144         83        150
                         ---------  ---------  ----------  ---------  ---------
Net loss................ $    (581) $    (500) $   (1,042) $    (915) $  (1,112)
                         =========  =========  ==========  =========  =========
Net loss per share:
  Basic and diluted..... $    (.53) $    (.45) $     (.90) $    (.80) $    (.95)
                         =========  =========  ==========  =========  =========
Shares used in
  calculation of net
  loss per share:
  Basic and diluted..... 1,104,327  1,125,244   1,154,372  1,150,455  1,164,878
                         =========  =========  ==========  =========  =========
Pro forma net loss per
  share:
  Basic and diluted.....                       $     (.42)            $    (.46)
                                               ==========             =========
Shares used in
  calculation of pro
  forma net loss per
  share:
  Basic and diluted.....                        2,161,526             2,409,216
                                               ==========             =========
See accompanying notes.

                                      F-4
EBENX, INC.

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                            (dollars in thousands)
Convertible Preferred Stock
                          -----------------------------
                             Series A       Series B        Series C       Common Stock   Additional
                          -------------- -------------- ---------------- ----------------  Paid-In   Retained
                          Shares  Amount Shares  Amount  Shares   Amount  Shares   Amount  Capital   Deficit    Total
                          ------- ------ ------- ------ --------- ------ --------- ------ ---------- --------  -------
Balance at December 31,
 1995...................  370,209  $ 4        --  $ --         --  $ --  1,098,247  $11    $ 1,075   $   (99)  $   991
 Issuance of Preferred
  Stock (net of offering
  costs of $10).........       --   --   636,945     6         --    --         --   --      4,484        --     4,490
 Exercise of stock
  options...............       --   --        --    --         --    --     10,560   --          3        --         3
 Exercise of stock
  warrants..............       --   --        --    --         --    --      1,600   --          1        --         1
 Net loss...............       --   --        --    --         --    --         --   --         --      (581)     (581)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1996...................  370,209    4   636,945     6         --    --  1,110,407   11      5,563      (680)    4,904
 Exercise of stock
  options...............       --   --        --    --         --    --     38,100   --         19        --        19
 Net loss...............       --   --        --    --         --    --         --   --         --      (500)     (500)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1997...................  370,209    4   636,945     6         --    --  1,148,507   11      5,582    (1,180)    4,423
 Exercise of stock
  options...............       --   --        --    --         --    --     11,600    1          9        --        10
 Net loss...............       --   --        --    --         --    --         --   --         --    (1,042)   (1,042)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at December 31,
 1998...................  370,209    4   636,945     6         --    --  1,160,107   12      5,591    (2,222)    3,391
 Issuance of Series C
  Preferred Stock (net
  of offering costs of
  $29)..................       --   --        --    --  1,075,820    11         --   --     10,471        --    10,482
 Exercise of stock
  options...............       --   --        --    --         --    --     11,050   --         11        --        11
 Net loss...............       --   --        --    --         --    --         --   --         --    (1,112)   (1,112)
                          -------  ---   -------  ----  ---------  ----  ---------  ---    -------   -------   -------
Balance at June 30, 1999
 (unaudited)............  370,209  $ 4   636,945  $  6  1,075,820  $ 11  1,171,157  $12    $16,073   $(3,334)  $12,772
                          =======  ===   =======  ====  =========  ====  =========  ===    =======   =======   =======
See accompanying notes.

                                      F-5
EBENX, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)
Six months
                                        Year ended December 31    ended June 30
                                        ------------------------  --------------
                                         1996     1997    1998    1998    1999
                                        -------  ------  -------  -----  -------
                                                                   (unaudited)
Operating activities:
 Net loss.............................  $  (581) $ (500) $(1,042) $(915) $(1,112)
 Adjustments to reconcile net loss to
  net cash (used in) provided by
  operating activities:
  Depreciation of property and
    equipment.........................      192     327      481    222      315
  Noncash expense relating to common
    stock issued......................        3      --       --     --       --
  Changes in operating assets and
    liabilities:
   Accounts receivable................     (440)     27   (1,391)  (294)    (483)
   Other current assets...............        6    (151)    (166)  (120)    (300)
   Accounts payable...................      (11)     84      656     36      (44)
   Accrued expenses...................       62     238      192     21      119
   Deferred revenue...................      (50)     65      (55)   546        1
   Deposits...........................       --     (23)      (6)    --       (1)
                                        -------  ------  -------  -----  -------
     Net cash (used in) provided by
      operating activities............     (819)     67   (1,331)  (504)  (1,506)
Investing activities:
 Additions to property and equipment..     (523)   (692)    (761)  (352)    (639)
 Purchase of investments..............   (2,006)     --       --     --       --
 Sale of investments..................       --       1    2,005     --       --
                                        -------  ------  -------  -----  -------
  Net cash (used in) provided by
    investing activities..............   (2,529)   (691)   1,244   (352)    (639)
Financing activities:
 Proceeds from note payable...........       --      --      750     --       --
 Payment of note payable..............       --      --       --     --     (750)
 Stock options and warrants
   exercised..........................        1      19        9      1       11
 Proceeds from issuance of preferred
   stock..............................    4,490      --       --     --   10,471
                                        -------  ------  -------  -----  -------
  Net cash provided by financing
    activities........................    4,491      19      759      1    9,732
                                        -------  ------  -------  -----  -------
Net increase (decrease) in cash and
  cash equivalents....................    1,143    (605)     672   (855)   7,587
Cash and cash equivalents at beginning
  of year.............................      471   1,614    1,009  1,009    1,681
                                        -------  ------  -------  -----  -------
Cash and cash equivalents at end of
  year................................  $ 1,614  $1,009  $ 1,681  $ 154  $ 9,268
                                        =======  ======  =======  =====  =======
See accompanying notes.

                                      F-6
EBENX, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1998

1. Business Description and Summary of Significant Accounting Policies

Business Description

  EBenX, Inc. (formerly known as Network Management Services, Inc.), a
Minnesota corporation incorporated in September 1993 (the Company), provides
business-to-business e-commerce and connectivity solutions to employers and
health plans for the purchase, eligibility administration and premium payment
of group health insurance benefits. The Company's customers are located
throughout the United States.

Principles of Consolidation

  The consolidated financial statements include the Company and Managed Care
Buyer's Group, Inc., its wholly owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

  The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are considered to be available for sale. The carrying value of cash
equivalents approximates fair value at December 31, 1998 and 1997.

Investments

  Investments at December 31, 1997 consist of United States Treasury notes
which are classified as available for sale. The cost of investments
approximates fair value.

Property and Equipment

  Property and equipment, including purchased software, is stated at cost for
items purchased and at estimated fair value for items contributed by the
founding shareholders. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets of five to seven years. Leasehold
improvements are amortized over the estimated life of the assets or the related
lease term, whichever is less, on a straight-line basis.

Income Taxes

  Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and
tax bases of assets and liabilities.

Revenue Recognition

  Revenues are recognized when the services are rendered to the customer.
Deferred revenue represents cash received from customers prior to services
being performed by the Company.

Research and Development and Software Development

  Research and development costs are expensed when incurred. Software
development costs are expensed as incurred. Such costs are required to be
expensed until the point that technological feasibility and proven
marketability of the product are established.

                                      F-7
EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Business Description and Summary of Significant Accounting Policies
(Continued)

Use of Estimates

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

Impairment of Long-Lived Assets

  The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

Stock-Based Compensation

  The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.

Net Loss Per Share

  Basic earnings per share is based on the weighted average shares outstanding
during the period. Diluted earnings per share increases the shares used in the
per share calculation by the dilutive effects of options, warrants, and
convertible securities. The Company's common stock equivalent shares
outstanding from stock options and warrants are excluded from the diluted
earnings per share computation as their effect is antidilutive.

Pro Forma Shareholders' Equity

  Upon the closing of the Company's planned initial public offering, all
outstanding shares of Series A, B and C preferred stock will automatically
convert into 2,082,974 shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.

Pro Forma Net Loss Per Share

  Pro forma net loss per share for the year ended December 31, 1998 and the six
months ended June 30, 1999 is computed using the weighted average number of
common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C preferred stock into shares of
the Company's common stock as if such conversion occurred on January 1, 1998,
or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic and diluted net loss per share of 1,007,154 shares for the year ended
December 31, 1998 and 1,244,370 shares for the six months ended June 30, 1999.
The pro forma effects of these transactions are unaudited.

Interim Financial Statements

  The interim financial statements for the six months ended June 30, 1998 and
1999, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,

                                      F-8
EBENX, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Business Description and Summary of Significant Accounting Policies
(Continued)

they do not include all of the information and footnotes required by generally
accepted accounting principles. In the opinion of the Company's management,
the unaudited interim financial statements contain all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of the entire year.

Reclassification

Certain prior year items have been reclassified to conform to the current year
presentation.

2. Property and Equipment, Net

Property and equipment as of December 31 are as follows:
1997        1998
                                                        ----------  -----------
Office equipment.................................... $1,198,887  $ 1,455,009
   Purchased software..................................    363,612      563,532
   Furniture and fixtures..............................    241,763      474,085
   Leasehold improvements..............................    154,488      227,321
                                                        ----------  -----------
                                                         1,958,750    2,719,947
   Less accumulated depreciation.......................   (670,642)  (1,151,684)
                                                        ----------  -----------
                                                        $1,288,108  $ 1,568,263
                                                        ==========  ===========
3. Note Payable

The Company has a $1,500,000 revolving promissory note with a bank with
interest at 1% over the bank's base rate (8.75% at December 31, 1998). The
promissory note is secured by all business assets of the Company and matures
on December 31, 1999. The loan is guaranteed by the Company's wholly owned
subsidiary. At December 31, 1998, the outstanding balance was $750,000. The
promissory note was repaid during 1999.

4. Shareholders' Equity

Common Stock

The Company had agreements with two founding shareholders which entitled the
Company to repurchase one-half of the shares held by these shareholders for
$.01 per share if the shareholders' employment was terminated with cause or in
the event that the employee terminated employment under certain circumstances.
These agreements expired in August 1997 and no shares were repurchased under
the agreements.

Convertible Preferred Stock

Under provisions of stock purchase agreements, the holders of the Company's
preferred stock are entitled to:

  .  liquidation preference of $2.701 and $7.065 for each Series A and Series
     B preferred share, respectively, plus unpaid accumulated dividends.
     After payment of this preference amount, remaining distributable assets,
     if any, will be distributed on a pro rata basis between the preferred
     and common shareholders.

  .  Annual preferential noncumulative dividends of $.2701 (Series A) and
     $.7065 (Series B) for each share payable only if declared by the Board
     of Directors.

                                      F-9
EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Shareholder's Equity--(Continued)

  . Voting rights similar to common shareholders.

  . One director each, to the Company's Board of Directors for Series A and
      Series B.

Each preferred share may be converted to common shares at the option of the
holder. In addition, the preferred shares shall be automatically converted to
common shares if (i) the Company closes the issuance and sale of common shares
in a public offering in which the gross proceeds equal or exceed $10,000,000,
or (ii) 80% of the preferred stock has been converted. The number of shares
issuable in exchange for each preferred share upon either optional or automatic
conversion shall be equal to $2.701 (Series A) and $7.065 (Series B) divided by
the conversion price then in effect, as defined. The initial conversion price
of $2.701 (Series A) and $7.065 (Series B) will be adjusted as necessary to
prevent dilution resulting from, among other things, issuance of additional
common stock, options or convertible securities.

On November 1, 1999 and March 19, 2001, and on each of the first and second
anniversaries thereof, the Company shall offer to redeem 33 1/3%, 50% and 100%,
respectively, of the Series A preferred shares for $2.701 and Series B
preferred shares for $7.065, respectively, per share plus accrued but unpaid
dividends.

The preferred stock purchase agreements contain certain restrictive covenants
which prohibit, among other things, the Company from authorizing additional
shares of Series A and Series B preferred stock or new classes of capital stock
with preferences greater than those given to the Series A and Series B
preferred shareholder, merging or consolidating with another corporation, or
effecting a change in control of the Company. In addition, capital expenditures
in excess of $100,000 for any item or related items require the approval of the
director elected by the preferred shareholders.

5. Income Taxes

At December 31, 1997 and 1998, the Company's deferred taxes are as follows:
1997       1998
                                                          ---------  ---------
Deferred tax assets:
     Net operating loss carryforwards...................  $ 409,000  $ 665,000
     Bonus and vacation.................................    127,000    188,000
     Accounts receivable allowance......................     19,000     19,000
                                                          ---------  ---------
                                                            555,000    872,000
   Deferred tax liabilities:
     Depreciation.......................................    (96,000)   (93,000)
                                                          ---------  ---------
                                                            (96,000)   (93,000)
                                                          ---------  ---------
   Net deferred tax assets before valuation allowance...    459,000    779,000
   Less valuation allowance.............................   (459,000)  (779,000)
                                                          ---------  ---------
   Net deferred tax assets..............................  $      --  $      --
                                                          =========  =========
As of December 31, 1998, the Company has unused federal and state research and
development tax credit carryforwards of approximately $100,000 which expire at
various times through 2011. In addition, the Company has unused federal net
operating loss carryforwards at December 31, 1998 of approximately $1,751,000,
which expire at various times through 2013. The utilization of these
carryforwards is dependent upon the Company's ability to generate sufficient
taxable income during the carryforward periods.

                                      F-10
EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Operating Leases

The Company leases or subleases its office space and certain equipment under
terms of noncancelable operating lease agreements which expire through February
2003. Future lease payments for all operating leases, excluding executory
costs, such as management and maintenance fees are as follows:
Year ending December 31:
   1999............................................................ $1,100,020
   2000............................................................    863,391
   2001............................................................    530,439
   2002............................................................    118,730
   2003............................................................     19,840
                                                                    ----------
                                                                    $2,632,420
                                                                    ==========
Rent expense, including the Company's pro rata share of certain operating
costs, was $239,042, $560,281 and $975,731 in 1996, 1997 and 1998,
respectively.

7. Significant Customers

Significant customer activity as a percent of the Company's net revenue in 1997
and 1998 is as follows:
1996  1997  1998
                                                                 ----  ----  ----
Customer A...................................................  21%   13%   19%
   Customer B...................................................  17%   --    17%
   Customer C...................................................  13%   14%   14%
   Customer D...................................................   7%    6%   10%
   Customer E...................................................  --    10%    9%
   Customer F...................................................  --    13%   --
8. Stock Options and Warrants

In 1993, the Company adopted the 1993 Stock Option Plan (the Plan) to encourage
stock ownership by employees, directors and other individuals as determined by
the Board of Directors. The Plan provides that options granted thereunder may
be either incentive stock options (ISOs), as defined by the Internal Revenue
Code, or nonqualified stock options.

The Board of Directors determines who will receive options under the Plan and
sets the terms, including vesting dates. Options may have a maximum term of no
more than ten years except in the case of a shareholder possessing more than
10% of the total voting power of all classes of stock (a 10% shareholder) in
which case the maximum term is five years. The exercise price of ISOs granted
under the Plan must be at least equal to the fair market value (or in the case
of a 10% shareholder, 110% of the fair market value) of the common stock on the
date of grant. The exercise price of nonqualified options is determined by the
Board of Directors.

The exercise price may be paid in cash, shares of previously owned common
stock, or by issuance of a promissory note. In addition, the Plan also contains
a provision allowing the Company to permit option holders to pay their
withholding obligation through share redirection. If an option expires,
terminates or is canceled, the shares not purchased thereunder may become
available for additional option awards under the Plan. The Plan expires in
2003.

                                      F-11
EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Stock Options and Warrants--(Continued)

Option activity is summarized as follows:
Shares         Shares       Weighted
                                 Available for  Outstanding   Average Price
                                     Grant     Under the Plan   Per Share
                                 ------------- -------------- -------------
Balance at December 31,
     1996.....................      227,676        389,915        $ .54
     Granted..................     (204,615)       204,615        $1.80
     Exercised................           --        (38,100)       $ .49
     Canceled.................      100,400       (100,400)       $ .95
                                   --------       --------        -----     ---
   Balance at December 31,
     1997.....................      123,461        456,030        $1.02
     Additional shares
       reserved for issuance..      100,000             --           --
     Granted..................     (207,650)       207,650        $2.13
     Exercised................           --        (11,600)       $ .81
     Canceled.................       98,150        (98,150)       $ .50
                                   --------       --------        -----     ---
   Balance at December 31,
     1998.....................      113,961        553,930        $1.35
                                   ========       ========        =====     ===
The weighted average fair value of options granted in 1998 and 1997 was $.45
and $.42 per share, respectively. The exercise prices are equal to the
estimated fair value of the common stock as determined by the Board of
Directors on the grant dates. The options are exercisable over a four-year to
five-year vesting period and expire at various dates through 2003. At December
31, 1998 and 1997, options to purchase 159,026 and 96,868 shares of common
stock are exercisable, respectively, at weighted average exercise prices of
$.68 and $.39, respectively. Exercise prices for options outstanding as of
December 31, 1998 and 1997, ranged from $.30 to $1.80 and $.30 to $2.25,
respectively. The weighted average remaining contractual life of those options
at December 31, 1998 and 1997 is 4.4 and 4.5 years, respectively.

Pro forma information regarding net loss and loss per share is required by
Statement 123, an has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the minimum
value option pricing model with the following weighted average assumptions for
1998 and 1997: risk free interest rate of 5.50%, dividend yield of 0%, and a
weighted average expected life of the option of five years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net loss is not materially different from the amounts reported for 1998,
1997 and 1996.

The pro forma effect on net loss of 1998 is not representative of the pro forma
effect on net loss in future years.

During September 1995, the Company entered into a line of credit agreement to
borrow up to $550,000, which expired in August 1996. In connection with the
agreement, the Company issued a warrant to purchase 6,000 shares of the
Company's Series A Convertible Preferred Stock at $2.701 per share. The
warrants are exercisable over ten years.

During 1995, the Company granted three employees warrants to purchase 21,805
shares of common stock at $.01 per share. The warrants, which are immediately
exercisable and expire at various times between June 30, 2000 and August 31,
2000, were granted in lieu of cash compensation.

                                      F-12
EBENX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Employee Benefit Plans

The Company has a 401(k) plan covering substantially all employees. Under the
terms of the plan, participants may contribute 2% to 20% of their salary to the
plan. Employees are eligible after one day of service and upon attainment of
age 21. The Company may make matching contributions based on a discretionary
formula or may contribute a discretionary amount. The Company did not make any
contributions in 1996, 1997 or 1998.

10. Subsequent Event (Unaudited)

In May and June 1999, the Company sold a total of 1,075,820 shares of Series C
preferred stock resulting in net proceeds to the Company of $10,471,005. The
Series C shareholders have liquidation preference of $9.76 per share, plus
accumulated dividends. Annual preferential cumulative dividends of $.49 per
share are payable only if declared by the Board. The Series C preferred
shareholders are able to elect two members on the Company's Board of Directors.
The Series C preferred shares have voting rights similar to common
shareholders. The Series C preferred shares are convertible into common shares
at a conversion rate of $9.76 per share.

                                      F-13
[Inside Back Cover]
Until [   ], 1999 25 days after the date of this prospectus, all dealers that
buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

                                  [eBenX Logo]
PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

  Except as set forth below the following fees and expenses will be paid by
eBenX in connection with the issuance and distribution of the securities
registered hereby and do not include underwriting commissions and discounts.
All such expenses, except for the SEC registration, NASD filing and Nasdaq
listing fees, are estimated.
SEC registration fee................................................  $19,182
   NASD filing fee.....................................................  $ 7,400
   Nasdaq National Market listing fee..................................  $
   Legal fees and expenses.............................................  $
   Accounting fees and expenses........................................  $
   Transfer Agent's and Registrar's fees...............................  $
   Printing and engraving expenses.....................................  $
   Miscellaneous.......................................................  $
                                                                         -------
     Total.............................................................  $
                                                                         =======
Item 14. Indemnification of Directors and Officers

  Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.

  Provisions regarding indemnification of officers and directors of eBenX to
the extent permitted by Section 302A.521 are contained in eBenX's Bylaws.

  In addition, the employment agreements with officers of eBenX that are
described in this prospectus require eBenX, to the extent permitted by law, to
indemnify each of these officers and to obtain directors' and officers'
liability insurance coverage in such amount as the board of directors of eBenX
determines to be appropriate.

Item 15. Recent Sales of Unregistered Securities

  During the three years prior to the date of this Registration Statement, we
have sold and issued the following securities:

      (1) In December 1997, pursuant to Rule 701 of the Securities Act, we
  issued and sold 38,100 shares of common stock to employees for aggregate
  consideration of $18,670 upon the exercise of stock options issued
  pursuant to our 1993 Stock Option Plan.

                                      II-1
(2) From May until August 1998, pursuant to Rule 701 of the Securities
  Act, we issued and sold 11,100 shares of common stock to employees for
  aggregate consideration of $8,415 upon the exercise of stock options
  issued pursuant to our 1993 Stock Option Plan.

      (3) From March until September 1999, pursuant to Rule 701 of the
  Securities Act, we issued and sold 19,450 shares of common stock to
  employees for aggregate consideration of $16,200 upon the exercise of
  stock options issued pursuant to our 1993 Stock Option Plan.

      (4) In May and June 1999, we issued and sold 1,075,820 shares of
  Series C Convertible Preferred Stock to certain accredited investors for
  aggregate consideration of $10,500,003.20 pursuant to Rule 506 of
  Regulation D of the Securities Act.

  The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with us, to
information about us. No placement agents were used in any of the foregoing
transactions.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits
Number  Description
 ------  -----------
1.1*  Underwriting Agreement.
   3.1   Fifth Amended and Restated Articles of Incorporation of the Company
         (proposed to be effective immediately prior to the offering).
   3.2   Amended and Restated Bylaws of the Company (proposed to be effective
         immediately prior to the offering).
   4.1*  Form of Certificate of Common Stock of the Company.
   5.1*  Opinion of Dorsey & Whitney LLP.
  10.1   1993 Stock Option Plan.
  10.2   1999 Stock Incentive Plan.
  10.3   1999 Employee Stock Purchase Plan.
  10.4*  Services Agreement by and between the Company and PepsiCo, Inc., dated
         June 1, 1997.
  10.5*  Services Agreement by and between the Company and Bell Atlantic
         Corporation, dated July 1, 1998.
  10.6*  Services Agreement by and between the Company and The Blue Cross Blue
         Shield Association, dated August 29, 1997.
  10.7*  Services Agreement by and between the Company and GE Capital Services
         Corporation, dated January 1, 1996.
  10.8*  Services Agreement by and between the Company and General Electric
         Company, dated January 1, 1997.
  10.9   Employment Agreement by and between the Company and Mark Tierney,
         dated as of April 22, 1999 and amended and restated on September 28,
         1999.
  10.10  Employment Agreement by and between the Company and John Davis, dated
         as of April 12, 1999.
  10.11  Employment Agreement by and between the Company and Scott Halstead,
         dated as of April 22, 1999.
  10.12* Office Lease by and between Minnesota CC Properties, Inc. and The
         Prudential Insurance Company of America, dated December 31, 1993.
  10.13* Office Sublease by and between the Company and The Prudential
         Insurance Company of America, dated March 9, 1997.
  10.14* First Amendment to Office Sublease by and between the Company and The
         Prudential Insurance Company of America, dated August 10, 1999.
  10.15* Consent of Landlord to Office Sublease by and between the Company,
         Teachers Insurance and Annuity Association (successor to Minnesota CC
         Properties, Inc.), The Prudential Insurance Company of America, dated
         August 30, 1999.
  10.16* Office Lease by and between the Company and ND Properties, Inc., dated
         March 12, 1997.
II-2
(a) Exhibits (continued)
Number  Description
 ------  -----------
10.17* Amendment No. 1 to Office Lease by and between the Company and ND
         Properties, Inc., dated October 1, 1997.
  10.18* Amendment No. 2 to Office Lease by and between the Company and ND
         Properties, Inc., dated December 23, 1997.
  10.19* Amendment No. 3 to Office Lease by and between the Company and
         Teachers Insurance and Annuity Association of America (successor to ND
         Properties, Inc.), dated January 19, 1999.
  23.1   Consent of Ernst & Young LLP.
  23.2*  Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
  24.1   Powers of Attorney (included on signature page).
  27.1   Financial Data Schedule.
--------
*To be filed by amendment.

  (b) Financial Statement Schedules

  Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

Item 17. Undertakings

  The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

  The undersigned registrant hereby undertakes that:

      (1) For purposes of determining any liability under the Securities Act
  of 1933, the information omitted from the form of prospectus filed as part
  of this registration statement in reliance upon Rule 430A and contained in
  a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
  (4) or 497(h) under the Securities Act shall be deemed to be part of this
  registration statement as of the time it was declared effective.

      (2) For the purpose of determining any liability under the Securities
  Act of 1933, each post-effective amendment that contains a form of
  prospectus shall be deemed to be a new registration statement relating to
  the securities offered therein, and the offering of such securities at
  that time shall be deemed to be the initial bona fide offering thereof.

                                      II-3
SIGNATURES

  Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all if the
requirements for filing on Form S-1 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, State of Minnesota, on September
28, 1999.

                                          EBENX, INC.

                                                      /s/ John J. Davis
                                          By: _________________________________
                                                       John J. Davis,
                                                President and Chief Executive
                                                           Officer

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark Tierney, John Davis and Scott
Halstead, and each of them, his true and lawful attorney-in-fact and agents,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all (i) amendments
(including post-effective amendments) and additions to this Registration
Statement and (ii) Registration Statements, and any and all amendments thereto
(including post-effective amendments), relating to the offering contemplated
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

  Pursuant to the requirements of the Securities Act of 1933, this registration
statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated.
Signature                           Title                    Date
             ---------                           -----                    ----
/s/ Mark W. Tierney          Chairman and Director         September 28, 1999
____________________________________  (principal executive
          Mark W. Tierney             officer)

         /s/ John J. Davis           President, Chief Executive    September 28, 1999
____________________________________  Officer and Director
           John J. Davis              (principal executive
                                      officer)

       /s/ Scott P. Halstead         Chief Financial Officer and   September 28, 1999
____________________________________  Secretary (principal
         Scott P. Halstead            financial officer and
                                      principal accounting
                                      officer)

       /s/ Michael C. Bingham        Senior Vice President,        September 28, 1999
____________________________________  Business Development and
         Michael C. Bingham           Director

         /s/ Paul V. Barber          Director                      September 28, 1999
____________________________________
           Paul V. Barber

        /s/ James P. Bradley         Director                      September 28, 1999
____________________________________
          James P. Bradley
II-4
Signature                           Title                    Date
             ---------                           -----                    ----
/s/ Daniel M. Cain          Director                      September 28, 1999
____________________________________
           Daniel M. Cain

        /s/ William J. Geary         Director                      September 28, 1999
____________________________________
          William J. Geary

           /s/ John Nehra            Director                      September 28, 1999
____________________________________
             John Nehra
II-5
EXHIBIT INDEX
Number  Description
 ------  -----------
1.1*  Underwriting Agreement.
   3.1   Fifth Amended and Restated Articles of Incorporation of the Company
         (proposed to be effective immediately prior to the offering).
   3.2   Amended and Restated Bylaws of the Company (proposed to be effective
         immediately prior to the offering).
   4.1*  Form of Certificate of Common Stock of the Company.
   5.1*  Opinion of Dorsey & Whitney LLP.
  10.1   1993 Stock Option Plan.
  10.2   1999 Stock Incentive Plan.
  10.3   1999 Employee Stock Purchase Plan.
  10.4*  Services Agreement by and between the Company and PepsiCo, Inc., dated
         June 1, 1997.
  10.5*  Services Agreement by and between the Company and Bell Atlantic
         Corporation, dated July 1, 1998.
  10.6*  Services Agreement by and between the Company and The Blue Cross Blue
         Shield Association, dated August 29, 1997.
  10.7*  Services Agreement by and between the Company and GE Capital Services
         Corporation, dated January 1, 1996.
  10.8*  Services Agreement by and between the Company and General Electric
         Company, dated January 1, 1997.
  10.9   Employment Agreement by and between the Company and Mark Tierney,
         dated as of April 22, 1999, and amended and restated on September 28,
         1999.
  10.10  Employment Agreement by and between the Company and John Davis, dated
         as of April 12, 1999.
  10.11  Employment Agreement by and between the Company and Scott Halstead,
         dated as of April 22, 1999.
  10.12* Office Lease by and between Minnesota CC Properties, Inc. and The
         Prudential Insurance Company of America, dated December 31, 1993.
  10.13* Office Sublease by and between the Company and The Prudential
         Insurance Company of America, dated March 9, 1997.
  10.14* First Amendment to Office Sublease by and between the Company and The
         Prudential Insurance Company of America, dated August 10, 1999.
  10.15* Consent of Landlord to Office Sublease by and between the Company,
         Teachers Insurance and Annuity Association (successor to Minnesota CC
         Properties, Inc.), The Prudential Insurance Company of America, dated
         August 30, 1999.
  10.16* Office Lease by and between the Company and ND Properties, Inc., dated
         March 12, 1997.
  10.17* Amendment No. 1 to Office Lease by and between the Company and ND
         Properties, Inc., dated October 1, 1997.
  10.18* Amendment No. 2 to Office Lease by and between the Company and ND
         Properties, Inc., dated December 23, 1997.
  10.19* Amendment No. 3 to Office Lease by and between the Company and
         Teachers Insurance and Annuity Association of America (successor to ND
         Properties, Inc.), dated January 19, 1999.
  23.1   Consent of Ernst & Young LLP.
  23.2*  Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
  24.1   Powers of Attorney (included on signature page).
  27.1   Financial Data Schedule.
--------
*To be filed by amendment.