[afren] Fwd: Internet2-National LambdaRail Merger: Discussions Terminated (fwd)

[Boubakar Barry]

An update on Internet2-NLR merger received from Steve Huter.

Background information can be found at
http://www.internet2-nlr.org/faqs/today.shtml

____________________

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.
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