2005 Texas Code - Business Corporation Act ARTICLE 13.08. SEVERABILITY

Business Corporation Act

Part 13. 






Art. 13.01. Short Title                                                       

A. This part may be cited as the Business Combination Law.                    

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          






Art. 13.02. Definitions                                                       

A. In this part:                                                              

(1) "Affiliate" means a person who directly or indirectly through 
one or more intermediaries controls, is controlled by, or is under 
common control with a specified person.

(2) "Affiliated shareholder" means a person, other than the issuing 
public corporation or a wholly owned subsidiary of the issuing 
public corporation, that is the beneficial owner of 20 percent or 
more of the outstanding voting shares of the issuing public 
corporation or that, within the preceding three-year period, was 
the beneficial owner of 20 percent or more of the then outstanding 
voting shares of the issuing public corporation.  For the purpose of 
determining whether a person is an affiliated shareholder, the 
number of voting shares of the issuing public corporation 
considered outstanding includes shares considered beneficially 
owned by that person under Subdivision (3) of this Article, but does 
not include other unissued voting shares of the issuing public 
corporation that may be issuable pursuant to an agreement, 
arrangement, or understanding, or on exercise of conversion rights, 
warrants, or options, or otherwise.

(3) "Beneficial owner" means a person who:                                    

(a) individually, or with or through an affiliate or associate, 
beneficially owns shares or similar securities, directly or 
indirectly;

(b) individually, or with or through an affiliate or associate, has 
the right to:

(i) acquire shares or similar securities, whether the right may be 
exercised immediately or only after the passage of time, pursuant 
to an agreement, arrangement, or understanding, whether or not in 
writing, or on the exercise of conversion rights, exchange rights, 
warrants, or options, or otherwise, except that a person is not 
considered the beneficial owner of shares or similar securities (A) 
tendered pursuant to a tender or exchange offer made by the person 
or an affiliate or associate until the tendered shares or similar 
securities are accepted for purchase or exchange, or (B) that may be 
subject to an agreement, arrangement, or understanding that 
expressly conditions the acquisition or purchase on the approval of 
the acquisition or purchase pursuant to Article 13.03 of this Act as 
long as such person has no direct or indirect rights of ownership or 
voting with respect to such shares until such time that such 
approval is obtained, at which time such person shall be considered 
the beneficial owner of such shares;  or

(ii) vote the shares or similar securities pursuant to an 
agreement, arrangement, or understanding, whether or not in 
writing, except that a person is not considered the beneficial 
owner of shares or similar securities for purposes of this 
subparagraph if the agreement, arrangement, or understanding to 
vote the shares:  (A) arises solely from an immediately revocable 
proxy that authorizes the person named in the proxy to vote at a 
meeting of shareholders that has been called when the proxy is 
delivered or at any adjournment of the meeting, and (B) is not then 
reportable on a Schedule 13D under the Securities Exchange Act of 
1934 (15 U.S.C. Section 78a et seq.) or a comparable or successor 
report;  or

(c) has an agreement, arrangement, or understanding, whether or not 
in writing, to acquire, hold, or dispose (except pursuant to an 
agreement, arrangement, or understanding permitted by Paragraph 
(b)(i) of this subdivision) or to vote (except under an immediately 
revocable proxy under Paragraph (b)(ii) of this subdivision) shares 
or similar securities with another person who beneficially owns, or 
whose affiliate or associate beneficially owns, directly or 
indirectly, the shares or similar securities.

(4) "Business combination" means:                                             

(a) any merger, share exchange, or conversion of an issuing public 
corporation or a subsidiary with:

(i) an affiliated shareholder;                                                

(ii) a foreign or domestic corporation or other entity that is, or 
after the merger, share exchange, or conversion would be, an 
affiliate or associate of the affiliated shareholder;  or

(iii) another domestic or foreign corporation or other entity, if 
the merger, share exchange, or conversion is caused by an 
affiliated shareholder, or an affiliate or associate of an 
affiliated shareholder, and as a result of the merger, share 
exchange, or conversion this part does not apply to the surviving 
corporation or other entity;

(b) a sale, lease, exchange, mortgage, pledge, transfer, or other 
disposition, in one transaction or a series of transactions, 
including an allocation of assets pursuant to a merger, to or with 
the affiliated shareholder, or an affiliate or associate of the 
affiliated shareholder, of assets of the issuing public corporation 
or any subsidiary that:

(i) have an aggregate market value equal to 10 percent or more of 
the aggregate market value of all the assets, determined on a 
consolidated basis, of the issuing public corporation;

(ii) have an aggregate market value equal to 10 percent or more of 
the aggregate market value of all the outstanding voting shares of 
the issuing public corporation;  or

(iii) represent 10 percent or more of the earning power or net 
income, determined on a consolidated basis, of the issuing public 
corporation;

(c) the issuance or transfer by an issuing public corporation or a 
subsidiary to an affiliated shareholder or an affiliate or 
associate of the affiliated shareholder, in one transaction or a 
series of transactions, of shares of the issuing public corporation 
or a subsidiary, except by the exercise of warrants or rights to 
purchase shares of the issuing public corporation offered, or a 
share dividend paid, pro rata to all shareholders of the issuing 
public corporation after the affiliated shareholder's share 
acquisition date;

(d) the adoption of a plan or proposal for the liquidation or 
dissolution of an issuing public corporation proposed by, or 
pursuant to any agreement, arrangement, or understanding, whether 
or not in writing, with an affiliated shareholder or an affiliate or 
associate of the affiliated shareholder;

(e) a reclassification of securities, including a reverse share 
split or a share split-up, share dividend, or other distribution of 
shares, a recapitalization of the issuing public corporation, a 
merger of the issuing public corporation with a subsidiary or 
pursuant to which the assets and liabilities of the issuing public 
corporation are allocated among two or more surviving or new 
domestic or foreign corporations or other entities, or any other 
transaction, whether or not with, into, or otherwise involving the 
affiliated shareholder, proposed by, or pursuant to an agreement, 
arrangement, or understanding, whether or not in writing, with an 
affiliated shareholder or an affiliate or associate of the 
affiliated shareholder that has the effect, directly or indirectly, 
of increasing the proportionate ownership percentage of the 
outstanding shares of a class or series of voting shares or 
securities convertible into voting shares of the issuing public 
corporation that is beneficially owned by the affiliated 
shareholder or an affiliate or associate of the affiliated 
shareholder, except as a result of immaterial changes due to 
fractional share adjustments;  or

(f) the direct or indirect receipt by an affiliated shareholder or 
an affiliate or associate of the affiliated shareholder of the 
benefit of a loan, advance, guarantee, pledge, or other financial 
assistance or a tax credit or other tax advantage provided by or 
through the issuing public corporation, except proportionately as a 
shareholder of the issuing public corporation.

(5) "Control" means the possession, directly or indirectly, of the 
power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of equity 
securities, by contract, or otherwise.  A person's beneficial 
ownership of 10 percent or more of a person's outstanding voting 
shares or similar interests creates a presumption that the person 
has control of such other person, but a person is not considered to 
have control of another person if the person holds such voting 
shares or similar interests in good faith and not for the purpose of 
circumventing this part, as an agent, bank, broker, nominee, 
custodian, or trustee for one or more beneficial owners who do not 
individually or as a group have control of the person.

(6) "Issuing public corporation" means a domestic corporation that 
has:  (a) 100 or more shareholders, (b) any class or series of its 
voting shares registered under the Securities Exchange Act of 1934, 
as amended, or similar or successor statute, or (c) any class or 
series of its voting shares qualified for trading in a national 
market system.  For the purposes of this definition of issuing 
public corporation, a shareholder is a shareholder of record as 
shown by the share transfer records of the corporation.

(7) "Person" means an individual, trust, domestic or foreign 
corporation or other entity, or a government, or a political 
subdivision, agency, or instrumentality of a government.  If two or 
more persons act as a partnership, limited partnership, syndicate, 
or other group under an agreement, arrangement, or other 
understanding, whether or not in writing, to acquire, hold, vote, 
or dispose of shares of a corporation, all members of the 
partnership, limited partnership, syndicate, or other group are 
considered to be a person.

(8) "Share acquisition date" means the date that a person first 
becomes an affiliated shareholder of an issuing public corporation.

(9) "Subsidiary" means a domestic or foreign corporation or other 
entity of which a majority of the outstanding voting shares are 
owned, directly or indirectly, by an issuing public corporation.

(10) "Voting share" means a share of capital stock of a corporation 
entitled to vote generally in the election of directors.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          

Sec. A(4) amended by Acts 2003, 78th Leg., ch. 238, Sec. 40, eff. 
Sept. 1, 2003.






Art. 13.03. Three-Year Moratorium on Certain Business Combinations            

A. An issuing public corporation shall not, directly or indirectly, 
enter into or engage in a business combination with an affiliated 
shareholder, or any affiliate or associate of the affiliated 
shareholder, during the three-year period immediately following 
the affiliated shareholder's share acquisition date unless:

(1) the business combination or the purchase or acquisition of 
shares made by the affiliated shareholder on the affiliated 
shareholder's share acquisition date is approved by the board of 
directors of the issuing public corporation before the affiliated 
shareholder's share acquisition date;  or

(2) the business combination is approved, by the affirmative vote 
of the holders of at least two-thirds of the outstanding voting 
shares of the issuing public corporation not beneficially owned by 
the affiliated shareholder or an affiliate or associate of the 
affiliated shareholder, at a meeting of shareholders and not by 
written consent, duly called for that purpose not less than six 
months after the affiliated shareholder's share acquisition date.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          






Art. 13.04. Application                                                       

A. Article 13.03 of this Act does not apply to:                               

(1) a business combination of an issuing public corporation:                  

(a) the original articles of incorporation or original bylaws of 
which contain a provision expressly electing not to be governed by 
this part;

(b) that adopts an amendment to its articles of incorporation or 
bylaws before December 31, 1997, expressly electing not to be 
governed by this part;  or

(c) that after December 31, 1997, adopts an amendment to its 
articles of incorporation or bylaws, approved by the affirmative 
vote of the shareholders, other than affiliated shareholders and 
their affiliates and associates, of at least two-thirds of the 
outstanding voting shares of the issuing public corporation, 
expressly electing not to be governed by this part, except that the 
amendment to the articles of incorporation or bylaws takes effect 
18 months after the date of the vote and does not apply to a business 
combination of the issuing public corporation with an affiliated 
shareholder whose share acquisition date is on or before the 
effective date of the amendment;

(2) a business combination of an issuing public corporation with an 
affiliated shareholder that became an affiliated shareholder 
inadvertently, if the affiliated shareholder:

(a) as soon as practicable divests itself of a sufficient number of 
the voting shares of the issuing public corporation so that it no 
longer is the beneficial owner, directly or indirectly, of 20 
percent or more of the outstanding voting shares of the issuing 
public corporation;  and

(b) would not at any time within the three-year period preceding the 
announcement date of the business combination have been an 
affiliated shareholder but for the inadvertent acquisition;

(3) a business combination with an affiliated shareholder that was 
the beneficial owner of 20 percent or more of the outstanding voting 
shares of the issuing public corporation on December 31, 1996, and 
continuously until the announcement date of the business 
combination;

(4) a business combination with an affiliated shareholder who 
became an affiliated shareholder through a transfer of shares of 
the issuing public corporation by will or intestate succession and 
continuously was such an affiliated shareholder until the 
announcement date of the business combination;  or

(5) a business combination of an issuing public corporation with a 
domestic wholly owned subsidiary if the domestic subsidiary is not 
an affiliate or associate of the affiliated shareholder other than 
by reason of the affiliated shareholder's beneficial ownership of 
voting shares in the issuing public corporation.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          






Art. 13.05. No Effect on Other Actions                                        

A. This part does not affect, directly or indirectly, the validity 
of another action by the board of directors of an issuing public 
corporation, nor does it preclude the board of directors from 
taking other action in accordance with law, nor does the board of 
directors incur liability for elections made or not made under this 
part.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          






Art. 13.06. Duties of Director                                                

A. In discharging the duties of director under this Act or 
otherwise, a director, in considering the best interests of the 
corporation, may consider the long-term as well as the short-term 
interests of the corporation and its shareholders, including the 
possibility that those interests may be best served by the 
continued independence of the corporation.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          






Art. 13.07. Relationship With Other Parts of Act                              

A. If a provision of this part conflicts with another provision of 
this Act, the provision of this part controls.

B. The affirmative vote or concurrence of shareholders required for 
approval of an action required or permitted to be submitted for 
shareholder vote under Part 13 of this Act may be increased, but not 
decreased, under Article 2.28 of this Act.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.          

Sec. B amended by Acts 2003, 78th Leg., ch. 238, Sec. 41, eff. Sept. 
1, 2003.






Art. 13.08. Severability                                                      

A. If any provision or clause of this part or application thereof to 
any person or circumstance is held invalid, such invalidity shall 
not affect other provisions or applications of this part that can be 
given effect without the invalid provision or application and 
without being inconsistent with the intent of this part, and to this 
end the provisions of this part are declared to be severable.

Added by Acts 1997, 75th Leg., ch. 375, Sec. 47, eff. Sept. 1, 1997.