To: NLR Members and the Research and Education Community
From: Erv Blythe, NLR Board Chair
Yesterday the NLR Board of Directors considered a motion to approve the proposed Definitive Agreement relative to the proposed merger with Internet2. For the second time the motion failed to pass, ending eight months of discussion.
On August 30 the NLR Board failed to pass the motion to approve the proposed Definitive Agreement. Its vote was based on at least three issues it felt needed to be resolved, namely, the transfer of NLR assets to the merged organization, the merged organization's commitment to research, and the role of the regional network organizations in the merged organization.
At that same meeting the NLR Board nevertheless voted unanimously to continue to pursue a merger with Internet2.
With the anticipation of being able to negotiate and agree on changes to the Definitive Agreement, NLR sent Internet2 a Memorandum on October 4 that articulated these three issues and offered draft solutions. The Internet2 Board responded by indicating the NLR Board needed to approve the Definitive Agreement "as is".
In one final attempt to move the merger forward the NLR Board passed a second resolution on October 21 focused solely on the issue of the transfer of NLR's assets. Again, the Internet2 Board indicated that Internet2 would only accept NLR?s approval of the Definitive Agreement "as is".
Left without the opportunity to obtain, what it considered, the absolute minimum but necessary changes to the Definitive Agreement the NLR Board did not approve the unmodified Definitive Agreement.One factor in the decision-making process was the unique nature of the NLR.
NLR is not a typical 501(c)(3) organization.
The typical 501(c)(3) organization has corporate documents that do not provide a member with any rights to its contributions to the organization. Instead, a member's contributions are used for the mission of the organization without any right by the member to its contributions. For instance, the typical 501(c)(3) organization has corporate documents which provide that, upon liquidation and dissolution, the assets remaining after payment of liabilities are not distributed to its members but shall, instead, be distributed to other exempt organizations as the board of directors may determine in its discretion.
The bylaws of NLR require the establishment of "Contribution Accounts" comprised of members' initial "Contributions" that are increased by additional Contributions and decreased by distributions (NLR bylaws). The bylaws also require NLR to calculate "Contribution Percentages," which are the ratios of each member's Contributions to the total of all member Contributions.
Based on these concepts the NLR's bylaws specifically includes payment of consideration for a membership equal to the aggregate Contributions of the member (NLR bylaw Section 6.4(c)) and liquidating distributions to members payable in accordance with the Contribution Percentages of those members (NLR bylaw Section 8.2(c).)
Therefore, even though NLR's bylaws permit the board of NLR to cause a merger into another entity, the provisions in NLR's bylaws pertaining to the Contributions of NLR's members had to be considered by the NLR board when evaluating a merger. For instance NLR was informed by counsel for at least one NLR member that due to the character of member contributions to NLR, the member would need to obtain adequate consideration for its contributions if NLR merged with another entity. Otherwise, the merger could be considered a gift in violation of state law.
Absent the ability to change the Definitive Agreement the NLR Board could not adopt the Agreement.