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This week, NLR board chair Erv Blythe announced that the NLR board of directors had voted down a motion to approve a proposed merger with Internet2 for the second time this year and that the company had terminated merger discussions with Internet2.
Blythe said that the “unique nature” of NLR’s bylaws was a major factor in the NLR board’s decision to nix the merger. The bylaws state that if NLR merges with another company, then members must receive payments of consideration directly proportional to their aggregate contributions to NLR. In other words, NLR members would be entitled to a portion of any assets that were liquidated during the merger. Most 501(c)(3) organizations, by contrast, do not give their members the rights to any assets left over after a merger or acquisition.
“Even though NLR’s bylaws permit the board of NLR to cause a merger with another entity, the provisions in NLR’s bylaws pertaining to the contributions of NLR’s members had to be considered when evaluation a merger,” Blythe said. “For instance, NLR was informed by counsel for at least one NLR member that . . . the member would need to obtain adequate consideration for their contributions if NLR merged with another entity. Otherwise, the merger could be considered a gift in violation of state law.”