PROPOSED RULES
Before an agency may permanently adopt a new or amended section or repeal an 
existing section, a proposal detailing the action must be published in the Texas 
Register at least 30 days before action is taken. The 30-day time period gives 
interested persons an opportunity to review and make oral or written comments on 
the section. Also, in the case of substantive action, a public hearing must be 
granted if requested by at least 25 persons, a governmental subdivision or 
agency, or an association having at least 25 members.
Symbology in proposed amendments. New language added to an existing section is 
indicated by the use of bold text. [Brackets] indicate deletion of existing 
material within a section.

TITLE 7. BANKING AND SECURITIES
PART II. Texas Department of Banking
CHAPTER 15.Corporate Activities
SUBCHAPTER E.Application for Merger, Conversion, or Sale of Assests
7 TAC sec.15.101, sec.15.116
The Finance Commission of Texas (the commission) proposes new Subchapter E, 
sec.sec.15.101-15.116, concerning applications for mergers, conversions, share 
exchange transactions, and purchases and sales of assets by or involving state 
banks and bank holding companies subject to regulation by the Banking 
Commissioner of Texas (the commissioner). 
The sections as proposed set out when an application is necessary and the 
information which must be included in the application, set publications 
standards, establish parameters for required opinions of counsel, define 
confidentiality provisions, and clarify the role of the commissioner in the 
approval process.
The proposed new subchapter is necessary as a result of the enactment of Texas 
Civil Statutes, Articles 342-1.001 et seq (the Texas Banking Act, sec.sec.1.001 
et seq) (Act), particularly Chapter 3, Subchapter D, Merger (sec.sec.3.301 
through 3.303), Subchapter E, Purchase or Sale of Assets (sec.sec.3.401 through 
3.405), and Subchapter F, State Bank Regulatory System: Exit of State Bank or 
Entry of Another Financial Institution (sec.sec.3.501 through 3.502). In 
addition, new sec.sec.15.101 to 15.117 are proposed to reduce regulatory burden 
and to make the Act, sec.sec.3.301-3.303, 3.401-3.405 and 3.501-3.502, 
compatible with federal regulations to the extent possible.
Sammie K. Glasco, Assistant General Counsel, Texas Department of Banking, has 
determined that for the first five-year period the sections are in effect, there 
will be no fiscal implications for state or local government as a result of 
enforcing or administering the sections. 
Ms. Glasco also has determined that, for each year of the first five years the 
new sections are in effect the public benefit anticipated as a result of 
enforcing the new sections is the clarification of statutory requirements to aid 
the industry in compliance. No net economic cost will result to persons required 
to comply with the proposed sections. No difference will exist between the cost 
of compliance for small businesses and the cost of compliance for the largest 
businesses affected by the sect ions. 
Comments on the proposed sections may be submitted in writing to Sammie K. 
Glasco, Assistant General Counsel, Texas Department of Banking, 2601 North Lamar 
Boulevard, Austin, Texas 78705-4294. While all comments are welcome, comment is 
specifically requested regarding the impact of proposed sections on publicly 
traded banks. 
The new sections are proposed under the Act, sec.1.012, which authorizes the 
commission to adopt rules to accomplish the purposes of the Act, to implement 
and clarify the Act, to preserve the safety and soundness of state banks, and to 
grant the same rights and privilege to state banks that are or may be granted to 
national banks domiciled in Texas. As required by the Act, sec.1.012(b), the 
commission considered the need to promote a stable banking environment, provide 
the public with convenient, safe, and competitive banking services, preserve and 
promote the competitive parity of state banks with national banks and other 
depository institutions in this state consistent with the safety and soundness 
of state banks and the state bank system, and allow for economic development 
within this state. 
The Act, sec.sec.3.301-3.303, 3.401-3.405,and 3.501, and 3.502, is affected by 
the proposed new sections.

sec.15.101. Definitions.
Words and terms used in this subchapter that are defined in Texas Civil 
Statutes, Article 342-1.001 et seq (The Texas Banking Act, sec.1.001 et seq) 
(the Act), have the same meanings as defined in the Act. The following words an 
d terms, when used in this subchapter, shall have the following meanings unless 
the context clearly indicates the contrary. 
Chartering agency --a government authority that has chartering jurisdiction over 
an entity involved in a transaction under this subchapter.
Conversion --a merger, or conversion of a state bank into a successor form of 
financial institution pursuant to the Act, sec.3.501 or the conversion of a 
financial institution into a state bank pursuant to the Act, sec.3.502. 
Corporation or domestic corporation --a corporation for profit subject to the 
provisions of the Texas Business Corporation Act, except a foreign corporation. 
Current financial statements --audited financial statements dated as of a date 
not more than 180 days prior to the date of submission of an application or, 
unaudited financial statements, dated as of a date not more than within 90 days 
prior to the d ate of submission of an application.
Eligible applicant --a financial institution qualified to apply for expedited 
processing under 15.103 of this title (relating to Expedited Filings), that: 
(A) is well capitalized or is operating in compliance with a capital plan 
approved in writing by the banking commissioner; 
(B) received a composite rating of either 1 or 2, as defined by the Uniform 
Financial Institutions Rating System, at the most recent examination by the 
banking commissioner or by a federal banking regulatory agency, and is seeking 
to acquire a target which similarly received a composite rating of either 1 or 
2; 
(C) received a CRA rating of either outstanding or satisfactory at its most 
recent inspection by the appropriate federal banking regulatory agency; 
(D) is not presently operating in violation of a regulatory condition or 
commitment letter imposed by a state or federal banking regulatory agency; and 
(E) is not presently operating under a memorandum of understanding; 
determination letter or other notice of determination; order to cease and 
desist, or other state or federal administrative enforcement order issued by a 
state or federal banking regulatory agency. 
Financial institution --a bank, savings association, savings bank, or credit 
union. 
Foreign corporation --a corporation for profit organized under laws other than 
the laws of this state. 
Material administrative proceeding --a past or pending proceeding by a state, 
federal, or foreign regulatory agency against the applicant or other person 
involved in a transaction under this subchapter which resulted in or could 
result in the issuance of a cease and desist, removal, enforcement action, 
determination letter or other order, including an order of supervision or 
conservatorship. 
Material legal proceeding --a past or pending: 
(A) criminal proceeding against the applicant or other person involved in a 
transaction under this subchapter which resulted or could result in conviction 
of the applicant or other person of a crime under a state or federal law or the 
law of a foreign c country relating to banking or other financial institutions 
or securities or financial instrument reporting or another crime involving moral 
turpitude under the laws of a state, the United States, or another country; or 
(B) a proceeding that resulted in a judgment against the applicant or other 
person or entity involved in a transaction under this subchapter or which may 
result in a judgment and the loss contingency must be disclosed in the financial 
statements of the entity under generally accepted accounting principles, or is 
otherwise material. 
Merger --a transaction that is: 
(A) the division of a financial institution into two or more new financial 
institutions or into a surviving financial institution or one or more new 
financial institutions, domestic or foreign corporations, or other entities, at 
least one of which is a state bank or is not a financial institution; or 
(B) the combination of one or more financial institutions with one or more 
financial institutions, domestic or foreign corporations, or other entities, at 
least one of which is a state bank, resulting in: 
(i)<ol> one or more surviving financial institutions, domestic or foreign 
corporations, or other entities; 
(ii)<ol> the creation of one or more new financial institutions, domestic or 
foreign corporations, or other entities; or 
(iii)<ol> one or more surviving financial institutions, domestic or foreign 
corporations, or other entities and the creation of one or more new financial 
institutions, domestic or foreign corporations, or other entities; or 
(C) another transaction involving a financial institution or other entity, at 
least one of which is a state bank, which is considered a merger under the Texas 
Business Corporation Act, Article 1.02(12)g. 
Other entity --an entity, whether or not organized for profit, other than a 
financial institution or a domestic or foreign corporation, that is a not-for-
profit corporation, limited or general partnership, joint venture, joint stock 
company, cooperative, association, insurance company, trust company, or other 
legal entity organized pursuant to the laws of this state or another state or 
country to the extent such laws or the constituent documents of that entity, not 
inconsistent with such laws, perm it that entity to enter into a merger or share 
exchange subject to this subchapter. 
Purchase of assets --the purchase other than in the regular course of business, 
of all, substantially all or a part of the assets of a state bank or another 
entity. 
Resulting state bank --a state bank subject to the provisions of this subchapter 
that is a surviving entity in a merger. 
Sale of assets --the sale, lease, exchange or other disposition of substantially 
all of the assets of a state bank, other than in the usual course of business, 
in a transaction that requires shareholder or participant approval or approval 
of the ban king commissioner. 
Share exchange --a transaction whereby one or more financial institutions, 
domestic or foreign corporations, or other entities acquires all of the 
outstanding shares of one or more classes or series of one or more state banks 
under the authority of the Act sec.3.007, and the Texas Business Corporation 
Act, Article 5.02. 
Substantially all of the assets --more than 50% of the assets or assets 
sufficient to materially impact the net earnings of a state bank involved in a 
transaction under this subchapter. 
Verified --documents submitted by the applicant that have been attested to as 
being true and correct. Attested documents filed pursuant to this subchapter 
will be considered verified even if they are not notarized.
Watch list --assets specifically identified by management or by a state or 
federal banking regulatory agency as warranting special attention for a variety 
of reasons based on ultimate collectibility. 
Well capitalized --a financial institution that: 
(A) has a total risk-based capital ratio of 10% or greater; and 
(B) has a Tier 1 risk-based capital ratio of 6.0% or greater; and 
(C) has a leverage ratio of 5.0% or greater; and 
(D) is not subject to a written agreement, order, or capital directive, issued 
by a state or federal banking regulatory agency, to meet and maintain a specific 
capital level or a capital measure. 

sec.15.102. General.
Without the prior written consent of the banking commissioner, a state bank may 
not consummate a merger, conversion, sale of assets, or share exchange. Except 
as otherwise provided in the Act, Chapter 3, Subchapters D, E, and F, or in this 
subchapter, an application must be filed with the banking commissioner for 
review and consideration of the proposed transaction. 

sec.15.103. Expedited Filings.
(a) An eligible applicant may file an expedited filing in lieu of an application 
required under sec.sec.15.104 (relating to Application for Merger or Share 
Exchange), 15.105 (relating to Application for Authority to Purchase Assets of 
Another Financial Institution or to Sell Assets), or 15.107 of this title 
(relating to Conversion of a Financial Institution into a State Bank). 
(b) An expedited filing shall consist of a letter application containing the 
following items: 
(1) a summary of the transaction; 
(2) a current pro forma balance sheet and income statement, with adjustments, 
for all parties to the transaction for the most recent quarter ended immediately 
prior to the filing of the application, demonstrating that each resulting state 
bank is well capitalized; 
(3) an executed opinion of counsel conforming to the requirements of the section 
of this subchapter that would apply had the applicant not filed an expedited 
filing; 
(4) copies of all other required regulatory notices or filings submitted in 
connection with the transaction; and 
(5) a copy of the public notice published in conformity with the section of this 
subchapter that would apply had the applicant not filed an expedited filing. 
(c) The banking commissioner shall notify the applicant on or before a date that 
is 15 days after receipt of the application if expedited filing treatment is not 
available under this section for any reason. Such notification must be in 
writing and must indicate the reason why expedited treatment is not available. 
Notification is effective when mailed by the banking commissioner and is not 
subject to appeal. 
(d) The banking commissioner may deny expedited filing treatment to an eligible 
applicant, in the exercise of discretion, if the banking commissioner finds that 
the application involves one or more of the following: 
(1) the proposed transaction involves significant policy, supervisory, or legal 
issues; 
(2) approval of the proposed transaction is contingent on additional statutory 
or regulatory approval by the banking commissioner or another state or federal 
regulatory agency; 
(3) the proposed transaction contemplates a resulting entity that is not a 
financial institution; 
(4) the proposed transaction involves a financial institution or other entity 
that is not domiciled in Texas; 
(5) the proposed transaction would cause a resulting state bank's assets to 
increase more than: 
(A) 100% if it had total assets of one billion dollars or less prior to the 
transaction; or 
(B) 35% if it had total assets of more than one billion dollars prior to the 
proposed transaction. 
(6) the proposed transaction involves a state bank which has experienced, since 
the last commercial examination by a state or federal regulatory agency, asset 
growth, through acquisition or otherwise, greater than: 
(A) 100% if it had total assets of one billion dollars or less at the last 
examination; or 
(B) 35% if it had total assets of more than one billion dollars at the last 
examination. 
(e) The banking commissioner shall approve or deny an expedited filing on or 
before a date that is 30 days after the date the expedited filing is accepted 
for filing pursuant to sec.15.4 of this title (relating to required Information 
and Abandoned Filings). The banking commissioner may, in the exercise of 
discretion, before the expiration of the period for decision, give the applicant 
written notice that the banking commissioner will convene a hearing for the 
purpose of obtaining evidence related to t he application, and the decision will 
thereafter be made in accordance with sec.15.112 of this title (relating to 
Approval; Conditional Approval; Denial of Application; Hearings). 
(f) The applicant bears the burden to supply all material information necessary 
to enable the banking commissioner to make a fully informed decision regarding 
the expedited filing. 

sec.15.104. Application for Merger or Share Exchange. 
(a) Scope. This section governs a merger or share exchange pursuant to the Act, 
sec.sec.3.301-3.303 and 3.007. This section does not apply to a merger or 
conversion of a state bank into another form of financial institution pursuant 
to the Act, sec.3.501. 
(b) Form of application. The applicant shall submit a fully completed, verified 
application on a form prescribed by the banking commissioner and simultaneously 
tender the required filing fee pursuant to sec.15.2 of this title (relating to 
Filing Fees an d Cost Deposits). The application must, except to the extent 
waived by the banking commissioner, disclose the following information: 
(1) a summary of the proposed transaction; 
(2) a copy of the agreement related to the proposed transaction executed by an 
authorized officer or other representative of each party to the merger or share 
exchange; 
(3) articles and plan of merger or share exchange in accordance with the Texas 
Business Corporation Act, Part V, which must include the following:
(A) a current draft of the articles of merger or share exchange, and such number 
of additional copies equal to the number of surviving, new, or acquired 
entities, executed and acknowledged by an authorized officer for each party to 
the merger or share exchange; 
(B) the plan of merger or share exchange; 
(C) the restated articles of association of each resulting state bank; 
(D) the restated articles of incorporation or association, or other constitutive 
documents, of each surviving entity other than the resulting state bank; 
(E) the articles of incorporation or association, or other constitutive 
documents, of each new resulting entity; 
(F) if a party to a merger is an entity required to file documents with the 
Texas secretary of state before the transaction can be legally consummated, a 
provision in the articles of merger conditioning the merger upon the approval of 
the banking commissioner, containing wording substantially as follows, as 
applicable: This merger shall become effective upon the final approval and 
filing of the articles of merger by the Secretary of State of Texas and with the 
Banking Commissioner of Texas which shall be on or before _________ (date), 
which is the 90th day after the date of filing of such articles of merger with 
the Secretary of State; 
(4) a statement regarding each resulting state bank or other entity detailing 
future prospects and business plans, proposed officers and directors, and 
proposed branches and other locations; 
(5) an assessment of the current regulatory and financial condition of each 
party to the transaction; 
(6) if a merger or share exchange involving a resulting state bank will change 
the existing Community Reinvestment Act (CRA) statement, a copy of the proposed 
CRA statement and a map depicting the delineated community of the resulting 
state bank; 
(7) a copy of current financial statements for each entity involved in the 
proposed transaction, accompanied by an affidavit of no material change dated no 
earlier than 30 days prior to the date of submission of the application; 
(8) a copy of the latest annual report for each financial institution and bank 
holding company involved in the proposed transaction;
(9) a copy of the most recent watch list for each financial institution involved 
in the proposed transaction; 
(10) a description of the due diligence review conducted by or on behalf of a 
state bank that is a party to the transaction and a summary of findings; 
(11) a description of all material, legal or administrative proceedings 
involving any party to the merger or share exchange; 
(12) an opinion of legal counsel that conforms with sec.15.108 of this title 
(relating to Opinion of Legal Counsel), concluding the following:
(A) upon approval of the merger or share exchange by the banking commissioner, 
each resulting state bank will have in all material respects complied with the 
laws of this state relative to the organization and operation of state banks; 
(B) upon consummation of the merger or share exchange, all deposit and other 
liabilities of every state bank that is a party to the merger or share exchange 
shall have been properly discharged or otherwise assumed or retained by a 
financial institution that is authorized by law to do so; 
(C) upon consummation of the merger, each surviving, new, or acquiring entity 
that is not a financial institution authorized to accept deposits will not be 
engaged in the unauthorized business of banking, and each resulting state bank 
will not be engage d in a business other than banking or a business incidental 
to banking; and 
(D) all conditions with respect to the merger or share exchange that have been 
imposed by the banking commissioner have been satisfied or otherwise resolved 
or, to the best knowledge of legal counsel, no conditions have been imposed by 
the banking commissioner; 
(13) a complete copy of each filing or application regarding or related to the 
proposed merger or share exchange that has been or is to be made with the 
chartering agency or with another state, federal, or foreign banking regulatory 
agency or authority, with all related attachments, exhibits, and correspondence; 
(14) a current pro forma balance sheet and income statement, with adjustments, 
for each party to the transaction for the most recent quarter ended immediately 
prior to the filing of the application; 
(15) projections of the balance sheet and income statement of each resulting 
state bank as of the quarter ending one year from the date of the pro forma 
financial statement required by paragraph (14) of this subsection;
(16) evidence of compliance with the provisions of governing law relating to 
rights of dissenters to the merger or share exchange; 
(17) copies of all securities offering documents, proxy statements, or other 
disclosure materials delivered or to be delivered to shareholders of a party in 
connection with the proposed transaction; 
(18) regarding a merger transaction, a written explanation of the manner and 
basis of converting any of the shares or other evidences of ownership of an 
entity that is a party to the merger into shares, obligations, evidences of 
ownership, rights to purchase securities, or other securities of one or more of 
the surviving or new entities, into cash or other property, including shares, 
obligations, evidences of ownership, rights to purchase securities, or other 
securities of another person or entity, or into a combination of the foregoing; 
(19) regarding a share exchange transaction, a written explanation of the manner 
and basis of exchanging the shares to be acquired for shares, obligations, 
evidences or ownership, rights to purchase securities or other securities of one 
or more acquiring entities or for cash or other property, including shares, 
obligations, evidences of ownership, rights to purchase securities or other 
securities of another person or entity, or for a combination of the foregoing; 
(20) for antitrust purposes, an analysis of the anticipated competitive effect 
of the proposed transaction in the affected markets; and
(21) such other information that the banking commissioner requires to be 
included in the particular application as considered necessary to an informed 
decision to approve or reject the proposed merger or share exchange. 
(c) Applicant's duty to disclose. The applicant bears the burden to supply all 
material information necessary to enable the banking commissioner to make a 
fully informed decision regarding the application. 
(d) Public notice. Within 14 days prior to or after submission of the initial 
application, the applicant shall publish notice in accordance with the 
requirements of sec.15.5 of this title (relating to Public Notice) in the 
specified communities where the home offices of the applicant, the target, and 
the resulting bank are or will be located. 
(e) Approval by the banking commissioner and filings with a chartering agency. 
(1) The banking commissioner shall approve a merger or share exchange only if 
the application indicates substantial compliance with all conditions of the Act, 
sec.3.302(b). 
(2) If a party is required to file with its chartering agency after acceptance 
for filing pursuant to sec.15.4(b) of this title (relating to Required 
Information and Abandoned Filings), an applicant for merger shall file the 
original articles of merger a s certified by the chartering agency with the 
banking commissioner. 
(3) After approval of an application under this section by the banking 
commissioner, the articles of merger previously filed with the chartering 
agency, if applicable, will be accepted and a certificate of merger will be 
issued by the banking commissioner who shall perform the duties required by the 
Act, sec.3.302(c). With respect to a transaction that requires filing with the 
Texas secretary of state, in the event that the banking commissioner does not 
approve the articles of merger, on or before the 90th day after the filing of 
the articles of merger with the Texas secretary of state, the applicant must 
refile the articles of merger with both the Texas secretary of state and with 
the banking commissioner. 
(4) After issuance of the certificate of merger by the banking commissioner, the 
applicant shall file a statement with the chartering authority, if applicable, 
certifying that each future event upon which the effectiveness of the merger was 
conditioned, has been satisfied and the date upon which the condition was 
satisfied. 
(5) The date of issuance of the certificate of merger by the banking 
commissioner constitutes the date of approval pursuant to the Act, sec.3.302(d), 
unless the merger agreement provides for a later effective date which has been 
approved by the banking commissioner. 

sec.15.105. Application for Authority to Purchase Assets of Another Financial 
Institution or to Sell Assets. 
(a) Scope. This section governs the purchase or sale of assets pursuant to the 
Act, Subchapter A, sec.3.001(b), and Subchapter E, sec.sec.3.401-3.405.
(b) Form of application. The applicant shall submit a fully completed, verified 
application on a form prescribed by the banking commissioner and simultaneously 
tender the required filing fee pursuant to sec.15.2 of this title (relating to 
Filing Fees an d Cost Deposits). The application must, except to the extent 
waived by the banking commissioner, disclose the following information: 
(1) a summary of the proposed purchase or sale of assets; 
(2) for purchase of assets, a copy of the agreement to purchase assets executed 
by an authorized officer or other representative of each party involved in the 
transaction; 
(3) for sale of assets, a copy of the agreement to sell assets executed by an 
authorized officer or other representative of each party involved in the 
transaction, including an assumption and promise of buyer pursuant to the Act, 
sec.3.405(b); 
(4) a statement detailing the future prospects and business plans, proposed 
officers and directors, proposed branches and locations of each state bank in 
the transaction; 
(5) an assessment of the current regulatory and financial condition of each 
party to the transaction; 
(6) if the proposal changes the existing Community Reinvestment Act (CRA) 
statement of the applicant, a copy of the proposed CRA statement and a map 
depicting the delineated community of the applicant; 
(7) a copy of current financial statements for each party to the transaction 
accompanied by an affidavit of no material change dated no earlier than 30 days 
prior to the date of submission of the application;
(8) a copy of the latest annual report for each financial institution and bank 
holding company involved in the proposed transaction;
(9) a copy of the most recent watch list for the applicant and that portion of 
the watch list related to assets being acquired or liabilities being assumed; 
(10) a description of the due diligence review conducted by or on behalf of a 
state bank that is a party to the transaction and a summary of findings; 
(11) a description of all material, legal or administrative proceedings 
involving any party to the transaction; 
(12) an opinion of legal counsel that conforms with sec.15.108 of this title 
(relating to Opinion of Legal Counsel), concluding the following:
(A) upon approval of the transaction by the banking commissioner, each state 
bank involved in the transaction will have in all material respects complied 
with the laws of this state relative to the organization and operation of state 
banks; 
(B) with regard to the purchase of assets of any party to the transaction, the 
purchase agreement limits the liabilities and obligations of the purchasing bank 
to liabilities and obligations expressly assumed, unless otherwise required by 
law; 
(C) with regard to the purchase of assets or assumption of liabilities, the 
types and total dollar amounts of liabilities and obligations expressly assumed; 
(D) with regard to the sale of all or substantially all of the assets of a state 
bank without the approval of shareholders and participants pursuant to the Act, 
sec.3.405, the sales agreement includes an assumption and promise by the buyer 
to pay or otherwise discharge the items detailed in the Act, sec.3.405(b); 
(E) all conditions with respect to the transaction that have been imposed by the 
banking commissioner have been satisfied or otherwise resolved or, to the best 
knowledge of legal counsel, no conditions have been imposed by the banking 
commissioner; 
(13) a complete copy of each filing regarding or related to the proposed 
transaction that has been or is to be made with another state or federal banking 
regulatory agency or authority, with all related attachments, exhibits, and 
correspondence; 
(14) a current pro forma balance sheet and income statement, with adjustments, 
for each party to the transaction for the most recent quarter ended immediately 
prior to the filing of the application; 
(15) projections of the balance sheet and income statement of each resulting 
state bank as of the quarter ending one year from the date of current pro forma 
financial statement required in accordance with paragraph (14) of this 
subsection; 
(16) evidence of compliance with the provisions of governing law relating to the 
rights of dissenting shareholders, if applicable; 
(17) a written explanation of the manner and basis of valuing any of the shares 
or other evidences of ownership of an entity that is a party to the purchase or 
sale of assets into shares, obligations, evidences of ownership, rights to 
purchase securities or other securities; 
(18) for each new branch of the purchasing state bank an application for 
approval to establish such branch; 
(19) for antitrust purposes, an analysis of the anticipated competitive effect 
of the proposed transaction in the affected markets; and
(20) such other information that the banking commissioner requires to be 
included in the particular application as considered necessary to an informed 
decision to approve or reject the proposed transaction. 
(c) Applicant's duty to disclose. The applicant bears the burden to supply all 
material information necessary to enable the banking commissioner to make a 
fully informed decision regarding the application. 
(d) Public notice. Within 14 days prior to or after submission of the initial 
application, the applicant shall publish notice in accordance with the 
requirements of sec.15.5 of this title (relating to Public Notice) in the 
specified communities where the home offices of the applicant and other 
financial institutions involved in the transaction are located.

sec.15.106. Notice of Merger or Conversion of a State Bank Into a National Bank, 
a Savings Bank, or a Savings Association.
(a) Scope. This section governs the merger into or conversion of a state bank to 
another form of financial institution pursuant to the Act, sec.3.501. 
(b) Form of notice. A state bank does not cease to be subject to the 
jurisdiction of the banking commissioner until the banking commissioner is given 
written notice of intent to merge, or convert before the 31st day preceding the 
date of the proposed transaction. The notice must, except to the extent waived 
by the banking commissioner, disclose the following information:
(1) a summary of the proposed transaction; 
(2) a complete copy of each filing or application regarding or related to the 
proposed merger or conversion transaction that has been or is to be filed with 
another state, federal, or foreign banking regulatory agency or authority, with 
all related attachments, exhibits, and correspondence;
(3) a certified copy of those portions of the minutes of board meetings and 
shareholder or participant meetings at which action was taken regarding the 
merger or conversion or, in the alternative, a certificate of an officer 
attesting to the action take n at board meeting and shareholder or participant 
meeting regarding the conversion or merger; 
(4) Opinion of legal counsel. An opinion of legal counsel that conforms with the 
requirements of sec.15.108 of this title (relating to Opinion of Legal Counsel), 
concluding the following: 
(A) the merger or conversion of the state bank was made with the approval of its 
board, shareholders, or participants in accordance with the Texas Business 
Corporation Act and as required by the Act, sec.3.501(b);
(B) upon consummation of the merger or conversion, all deposit and other 
liabilities of the state bank shall have been fully discharged or otherwise 
retained by the successor financial institution; and 
(C) all conditions with respect to the merger or conversion that have been 
imposed by the banking commissioner have been satisfied or, to the best 
knowledge of legal counsel, no conditions have been imposed by the banking 
commissioner; 
(5) a publisher's certificate showing publication of notice as required by 
subsection (c) of this section; and 
(6) evidence of compliance with the provisions of the Texas Business Corporation 
Act relating to rights of dissenters to the conversion.
(c) Notices; publication and certificate of authority. 
(1) The applicant shall submit a copy of the publication notice of the 
transaction required by the successor regulatory authority or shall publish 
notice as required by sec.15.5 of this title (relating to Public Notice). 
Submission of such notice, together with a publisher's certificate showing 
notice of publication, pursuant to subsection (b)(5) of this section, is 
considered notice of the transaction in accordance with the Act, 
sec.3.501(c)(2). The banking commissioner may require, upon written notice to 
applicant, such other publication requirements at such times and places and in 
such manner as considered appropriate. 
(2) Within 14 days after receipt of the certificate of authority to do business, 
the successor financial institution shall provide written notice to the banking 
commissioner of the effective date of the certificate of authority, and further 
shall provide a copy of the certificate of authority.
(d) Filing fees. A filing fee is not required in connection with notice under 
this section. 

sec.15.107. Conversion of a Financial Institution into a State Bank. 
(a) Scope. This section governs the conversion of a financial institution into a 
state bank pursuant to the Act, sec.3.502. 
(b) Form of application. The applicant shall submit a fully completed, verified 
application on a form prescribed by the banking commissioner and simultaneously 
tender a filing fee in the amount required for the filing of an application for 
a new bank charter pursuant to sec.15.2 of this title (relating to Filing Fees 
and Cost Deposits). The application must, except to the extent waived by the 
banking commissioner, disclose the following information: 
(1) a summary of the proposed transaction; 
(2) a statement explaining how the proposed state bank will be in compliance 
with each of the standards detailed in the Act, sec.3.502(b), certified by the 
principal executive officer of the applicant and the proposed state bank; 
(3) a copy of the plan to convert executed by an authorized officer or other 
representative of the applicant; 
(4) articles of conversion, including the following: 
(A) the plan of conversion; 
(B) the articles of association of the proposed bank; 
(C) a provision conditioning the conversion upon the approval of the banking 
commissioner; 
(5) a statement regarding the proposed state bank detailing future prospects, 
proposed officers and directors, proposed branches and other locations; 
(6) an assessment of the current regulatory and financial condition of the 
applicant; 
(7) if the conversion changes the existing Community Reinvestment Act (CRA) 
statement, a copy of the proposed CRA statement and a map depicting the 
delineated community of the resulting state bank; 
(8) a copy of the latest annual report for the applicant and its holding 
company, if any; 
(9) a copy of the most recent watch list for the applicant;
(10) a description of all material, legal or administrative proceedings 
involving the applicant or an officer, director, or principal shareholder of the 
applicant; 
(11) an opinion of legal counsel that conforms with sec.15.108 of this title 
(relating to Opinion of Legal Counsel), concluding the following:
(A) upon approval of the conversion by the banking commissioner, the proposed 
state bank will have in all material respects complied with the laws of this 
state relative to the organization and operation of state banks; 
(B) upon consummation of the conversion, the proposed state bank will not be 
engaged in a business other than banking or a business incidental to banking; 
(C) to the best knowledge of legal counsel, the parties to the conversion have 
in all material respects complied with the procedures prescribed by the laws of 
the United States or this state governing the exit of the applicant institution 
from its current regulatory system; and 
(D) all conditions with respect to the conversion that have been imposed by the 
banking commissioner have been satisfied or otherwise resolved or, to the best 
knowledge of legal counsel, no conditions have been imposed by the banking 
commissioner; 
(12) a complete copy of each filing regarding or related to the proposed 
conversion transaction that has been or is to be made with another state, 
federal, or foreign financial institution regulatory agency or authority, with 
all related attachments, exhibits and related correspondence;
(13) a current pro forma balance sheet and income statement, with adjustments, 
for the most recent quarter ended immediately prior to the filing of the 
application; 
(14) projections of the balance sheet and income statement of the resulting 
state bank as of the quarter ending one year from the date of the pro forma 
financial statement required by paragraph (13) of this subsection;
(15) evidence of compliance with the provisions of governing law relating to 
rights of dissenters to the conversion; 
(16) copies of all securities offering documents, proxy statements or other 
disclosure materials delivered or to be delivered to shareholders in connection 
with the proposed conversion; 
(17) a written explanation of the manner and basis of converting any shares or 
other evidences of ownership of the applicant into shares, obligations, 
evidences of ownership, rights to purchase securities or other securities of the 
proposed state bank, into cash or other property, including shares, obligations, 
evidences of ownership, rights to purchase securities or other securities of 
another person or entity, or into any combination of the foregoing; and 
(18) such other information that the banking commissioner requires to be 
included in the particular application as considered necessary to an informed 
decision to approve or reject the proposed conversion. 
(c) Applicant's duty to disclose. The applicant bears the burden to supply all 
material information necessary to enable the banking commissioner to make a 
fully informed decision regarding the application. 
(d) Public notice. Within 14 days prior to or after submission of an initial 
application under this section, the applicant shall publish notice in accordance 
with sec.15.5 of this title (relating to Public Notice) in the specified 
communities where the home office of the applicant is located, and where the 
home office of the proposed state bank will be located, if different. 
(e) Approval by the banking commissioner. The banking commissioner shall approve 
a conversion only if the application indicates substantial compliance with all 
conditions of the Act, sec.3.502(b).

sec.15.108. Opinion of Legal Counsel. 
(a) An opinion of legal counsel required by this subchapter must be addressed to 
the banking commissioner and state the opinions expressed, the documents 
reviewed and the matters considered of both law and fact, as legal counsel has 
considered necessary or appropriate in the exercise of professional judgment for 
the opinions expressed, and the assumptions, qualifications, limitations, and 
exceptions made or taken with respect to the opinions expressed.
(b) In rendering the expressed opinions, legal counsel may assume only the 
following: 
(1) in the absence of contradictory information obtained by counsel after 
reasonable inquiry, the genuineness of all signatures on all documents not 
signed in the presence of counsel, the proper delivery of all referenced 
documents, the authenticity of all documents submitted to counsel as originals 
and the conformity with the originals of all documents submitted to counsel as 
copies; 
(2) as to matters of fact, in the absence of contradictory information obtained 
by counsel after reasonable inquiry, the truthfulness of certifications made to 
counsel by the applicant and others and representations made by the applicant 
and others in t he application and other operative documents; 
(3) without independent investigation, the truthfulness of certificates issued 
by appropriate governmental officials and agencies, provided that no facts have 
come to counsel's attention that would indicate that such reliance is 
inappropriate; 
(4) any assumption contained in Section 4 of Third Party Legal Opinion Report, 
Including the Legal Opinion Accord, of the Section of Business Law (American Bar 
Association, 1991), available in pamphlet form as reprinted from the November 
1991 issue of The Business Lawyer (Volume 47, Number 1, Page 167), or a 
successor document officially promulgated by an appropriate authority; and 
(5) in the absence of contradictory information obtained by counsel after 
reasonable inquiry, the parties to the transaction have engaged only in the 
activities provided in their respective articles of association, and all 
resulting banks will engage only in the activities provided in their respective 
articles of association. 
(c) The legal opinion expressed may only be based upon and subject to the 
following qualifications, limitations and exceptions: 
(1) counsel does not express an opinion as to the laws of the United States or 
the laws of a state jurisdiction other than this state;
(2) the opinions expressed are limited to the matters stated and no opinion may 
be implied or inferred beyond the matters expressly stated; 
(3) counsel's engagement is limited to matters about which counsel has been 
consulted and consequently, there may exist matters of a legal or factual nature 
involving the parties in connection with which counsel has not been consulted or 
has not represented a party; 
(4) the opinions expressed are as of a certain date, and counsel assumes no 
obligation to update or supplement such opinions to reflect facts or 
circumstances that may thereafter come to counsel's attention or any changes in 
the law that may thereafter occur; and 
(5) the opinions expressed are solely for the benefit of the department and may 
not be quoted in whole or in part or otherwise referred to in another document 
or report, and may not be furnished to a person or entity other than the 
department and its representatives without the written consent of counsel, 
except as may be required by law or regulation, including the Government Code, 
Chapter 552. 
(d) Legal counsel shall specifically notify the banking commissioner of any 
deviation in a required legal opinion from the assumptions, qualifications, 
limitations and exceptions detailed in this section or from the opinion 
requirements of the section o f this subchapter governing a particular 
application. Any deviation could result in a processing delay of the 
application. 
(e) Legal counsel rendering an opinion under this subchapter must be an attorney 
in good standing admitted to practice before the highest court of a state, 
territory or district of the United States. However, legal counsel must be well 
versed in and professionally competent in applicable Texas law, or should seek 
the advice and opinion of an attorney in good standing admitted to practice 
before the highest courts in this state if legal counsel may not properly and 
ethically render opinions regarding applicable Texas law. The opinion of local 
legal counsel shall be disclosed, if relied on by legal counsel. 
(f) Legal counsel rendering an opinion under this subchapter must be independent 
of the applicant, the notice provider, or another person or entity required to 
submit an opinion of counsel pursuant to this section. Legal counsel is 
considered independent if able to exercise independent professional judgment and 
render candid advice. 

sec.15.109. Rights of Dissenting Shareholders. 
The rights of dissenting shareholders to a merger, share exchange, or conversion 
under this subchapter are governed by the Act, sec.3.303, and the Texas Business 
Corporation Act or other applicable law relating to the rights of dissenters to 
mergers or conversions. Applicants shall provide evidence of compliance with the 
provisions of this subchapter, the Texas Business Corporation Act or other 
applicable law. 

sec.15.110. Investigation of Application. 
(a) Authority. An application under this subchapter is subject to such 
investigation as considered necessary, in the banking commissioner's sole 
discretion, in order to make an informed decision regarding an application.
(b) Costs and fees. An applicant under this subchapter shall pay reasonable 
costs incurred in the investigation including the cost of a required 
examination, as provided by sec.3.36(h) of this title (relating to Annual 
Assessments and Speciality Examination Fees) and sec.15.2(e) of this title 
(relating to Filing Fees and Cost Deposits). 
(c) Examinations. The banking commissioner may consider the following factors in 
determining whether to require an examination of one or more of the entities to 
the transaction: 
(1) a question exists regarding the solvency or potential solvency of the 
applicant or one or more of the financial institutions or other entities 
involved in the transaction; 
(2) a financial institution involved in the transaction has not been examined by 
a state, federal, or foreign regulatory agency within one year immediately 
preceding the date of submission of the application;
(3) a financial institution involved in the transaction has numerous substantive 
violations cited in its last examination report, or has a less than satisfactory 
regulatory rating; 
(4) a question exists regarding the experience, ability, standing, 
trustworthiness, or integrity of the existing or proposed officers, directors, 
managers or managing participants of a party involved in the transaction;
(5) a question exists whether a resulting state bank will operate in compliance 
with the law; 
(6) a question exists whether a resulting state bank will be free from improper 
or unlawful influence or interference from its principal shareholders with 
respect to operation in compliance with the law; 
(7) a question exists whether a resulting state bank will have adequate 
capitalization; 
(8) one or more of the parties to the transaction is under regulatory 
restriction; or 
(9) such other factors as determined in the sole discretion of the banking 
commissioner.

sec.15.111. Waiver of Requirements. 
The banking commissioner, in the exercise of sole discretion, reserves the right 
to waive a requirement in this subchapter, unless specifically required by the 
Act or other applicable provision of federal or state law. 

sec.15.112. Approval; Conditional Approval; Denial of Application; Hearings. 
(a) Approval, conditional approval, or denial. Except for expedited filings 
governed by sec.15.103 of this title, the banking commissioner shall approve or 
deny an application filed under this subchapter on or before a date that is 60 
days after the date the application is accepted for filing pursuant to sec.15.4 
of this title (relating to Required Information and Abandoned Filings). 
(b) Pre-decision hearing. The banking commissioner may, in the exercise of 
discretion, before the expiration of the initial period for decision provided by 
subsection (a) of this section, give the applicant written notice that the 
banking commissioner will convene a hearing for the purpose of obtaining 
evidence related to the application. Such notice by the banking commissioner 
suspends the specified period for approval or denial of an application, and the 
banking commissioner shall approve or deny t he application on or before a date 
that is 30 days after the date the final proposal for decision resulting from 
the hearing is provided to the banking commissioner and the applicant. 
(c) Acceptance of conditional approval. The banking commissioner may, before the 
expiration of the initial period for decision provided by subsection (a) of this 
section, give the applicant written notice that the application has been 
approved subject to certain conditions. The applicant shall provide the banking 
commissioner with written confirmation of acceptance of the conditions on or 
before a date that is 10 days after the date of notification to the applicant of 
the conditional approval. An agreement entered into by the applicant and the 
banking commissioner concerning conditional approval is enforceable against the 
applicant and the bank. In the event an applicant who has received conditional 
approval does not provide the banking commissioner with written confirmation as 
required by this subsection, consummation of the transaction constitutes 
confirmation of commitment to the conditions imposed by the banking commissioner 
and is considered for all purposes an agreement enforceable against the 
applicant and the bank. 
(d) Requests for hearing. An applicant may request a hearing on or before a date 
that is 30 days after the effective date of notice of denial or conditional 
approval of an application under this subchapter by the banking commissioner. 
The request for hearing must be in writing and state with specificity the 
reasons the applicant alleges that the decision of the banking commissioner is 
in error. The applicant has the burden of proof for each issue specified in the 
request for hearing. The request for hearing and the banking commissioner's 
decision to deny or condition the application will be made a part of the record. 
(e) Hearings on denial of applications. Requests for hearing under this 
subchapter will be forwarded to the administrative law judge who shall enter 
appropriate orders and conduct the hearing on or before a date that is 60 days 
after the date the request for hearing was received, or as soon thereafter as is 
reasonably possible, under Chapter 9 of this title (relating to Rules of 
Procedure for Contested Case Hearings, Appeals, and Rulemaking) and the 
Government Code, Chapter 2001. A proposal for decision, exceptions and replies 
to such proposal for decision, the final decision of the banking commissioner, 
and motions for rehearing are governed by Chapter 9 of this title (relating to 
Rules of Procedure for Contested Case Hearings, Appeals, and Rulemaking). An 
applicant may not appeal denial of an application or conditional approval of an 
application until a final order is issued. After a hearing and final order, the 
applicant may appeal the final order as provided in the Act, sec.3.009. 

sec.15.113. Consummation of a Transaction. 
A transaction under this subchapter must be consummated as proposed in the 
application, in the agreement concerning conditional approval, or as provided in 
a final order. An approved transaction under this subchapter must be consummated 
within 12 months after the date of approval by the banking commissioner unless 
an extension is granted in writing. Until a transaction is consummated, the 
banking commissioner may alter, suspend, or withdraw approval should an interim 
development warrant such action.

sec.15.114. Notification.
A notification by the banking commissioner under this subchapter may be by 
registered or certified mail, return receipt requested, and is complete when the 
notification is deposited in the United States mail postage prepaid, return 
receipt requested, mailed to the address furnished in the application. 
Notification may also be made in person to the applicant, or to another person, 
financial institution, foreign corporation or domestic corporation, or other 
entity subject to this subchapter, by agent-receipted delivery or by courier-
receipted delivery to the address furnished in the application, or by telephonic 
document transfer to the applicant's telecopier number as furnished in the 
application. Notice by telephonic document transfer served after 6: 00 p.m. 
local time of recipient is considered as notice served on the following day. 

sec.15.115. Abandoned Filing.
The banking commissioner may determine an application under this subchapter to 
be abandoned pursuant to sec.15.4 of this title (relating to Required 
Information and Abandoned Filings).

sec.15.116. Confidentiality.
Information obtained by the banking commissioner under this subchapter is 
presumed to be public information unless such information is confidential under 
the Act, sec.2.101 et seq, and sec.3.111 of this title (relating to Confidential 
Information), or under exceptions contained in Government Code, Chapter 552. The 
applicant has the burden to request confidential treatment for specified 
information, to segregate and mark documents claimed to be confidential, and to 
specifically reference the provision of law that allows confidential treatment. 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's authority to adopt.
Issued in Austin, Texas, on January 24, 1997.
TRD-9701116
Everette D. Jobe
General Counsel
Texas Department of Banking
Proposed date of adoption: March 27, 1997
For further information, please call: (512) 475-1300

SUBCHAPTER G.Charter Amendments and Certain Changes in Outstanding Stock
7 TAC sec.15.121
The Finance Commission of Texas (the commission) re-proposes new sec.15.121, 
concerning acquisition by a state bank of its own shares to be held as treasury 
stock. The section is proposed to be in new Subchapter G entitled Charter 
Amendments and Certa in Changes in Outstanding Stock. The original proposal, as 
published in the September 3, 1996, issue of the Texas Register (21 TexReg 
8359), is withdrawn in this issue of the Texas Register. 
Under Texas Civil Statutes, Article 342-5.102 (Banking Act, sec.5.102), a state 
bank may acquire its own shares to be held as treasury stock only (i) if 
necessary to avoid or minimize a loss on a loan or investment previously made in 
good faith, (ii) with the consent of the banking commissioner, or as permitted 
by rules adopted under the Banking Act. Further, treasury stock may not be held 
by the bank for more than one year except with the prior written approval of the 
banking commissioner. Historic ally, treasury stock has been permitted solely 
for the purpose of satisfying a state bank's obligations under employee benefit 
plans. 
National banks were recently granted the authority to acquire and hold treasury 
stock, see 12 Code of Federal Regulations (CFR), sec.7.2020, through a revised 
interpretation of the interaction between 12 United States Code (USC), sec.59 
and sec.83, and may hold treasury stock indefinitely, so long as the business 
purpose underlying the original acquisition remains valid. However, under 12 
USC, sec.59, a national bank must obtain the approval of the Office of the 
Comptroller of the Currency (OCC) and two -thirds of the outstanding shares of 
every class to acquire treasury stock, and the acquisition is accounted for 
under the par value method (see Accounting Research Bulletin Number 43) to 
simulate a constructive retirement of the stock. The commission does not believe 
these additional restrictions are necessary from a safety and soundness 
perspective and are driven solely by historic peculiarities in the National Bank 
Act. 
In determining that a state bank can acquire and hold treasury stock beyond the 
limitations in the Banking Act, the commission is mindful of considerations of 
competitive parity with national banks as well as limitations on state bank 
powers imposed b y federal law, see 12 USC, sec.1831a, and 12 CFR, Part 362. 
The commission received two comments on the earlier proposal, one from the Texas 
Bankers Association (TBA) and one from the Independent Bankers Association of 
Texas (IBAT). Both TBA and IBAT expressed support for the effort to expand the 
ability of state banks to hold treasury stock. TBA and IBAT were both concerned 
that the application requirements suggested the banking commissioner would be 
reviewing price, contrary to a statement made in the preamble. The application 
provisions have been rewritten to diminish this perception. IBAT pointed to a 
lack of detail in what was meant by the term book value. The term has been 
deleted. 
TBA also was concerned that the required disclosure implied that no other 
disclosures were required, an implication contrary to applicable securities law. 
The disclosure provision has been rewritten to reference generally applicable 
securities law requirements. 
Finally, TBA notes that the OCC has not issued comparable rules or placed any 
specific requirements on national banks acquiring treasury stock other than 
safety and soundness and applicable securities law considerations. The agency 
disagrees with the premise of the comment. A national bank will encounter 
considerably more difficulty in acquiring treasury stock than would a state bank 
under the proposal. As emphasized by Interpretive Letter 747 published by the 
OCC (September 11, 1996), a share repurchase by a national bank must be 
accomplished as a reduction in capital under 12 USC, sec.59, which requires OCC 
and shareholder approval by a two-thirds majority, and the holding of treasury 
stock must be for a legitimate corporate purpose, including holding shares in 
connection with an officer or employee stock option or bonus plan, holding stock 
for sale as qualifying shares to a potential director, or purchasing director 
qualifying shares upon the death or resignation of a director if there is no 
ready market for the shares. Repurchasing bank shares simply to accommodate the 
estate planning or cash flow needs of a bank shareholder would not qualify for 
an exception to 12 USC, sec.83. 
A state bank will not need shareholder approval to acquire treasury stock under 
the proposed section. Further, the agency believes the "legitimate corporate 
purpose" test of the OCC is unduly restrictive, driven by the need of the OCC to 
circumvent a clear statutory prohibition. Safety and soundness considerations 
require only that the bank be adequately capitalized. 
The proposed section will authorize a state bank, with the prior approval of the 
banking commissioner, to acquire and hold treasury stock if the bank has 
adequate liquidity and equity capital both before and after the acquisition and 
if the acquisition is not made for speculation or as a means of evading a 
requirement or obligation under federal or state banking laws. Approval may be 
sought for an isolated transaction or for a continuing plan of acquisition.
A bank must comply with federal and state securities law in consummating the 
transaction, including a disclosure of certain information regarding recent 
transactions to the person from whom shares are being acquired. In that a sale 
of shares to the bank by a shareholder in this context is a voluntary 
transaction, the banking commissioner will make no determination regarding the 
fairness of the price offered or accepted. Pricing information will be required 
in the application solely for the purpose of evaluating the potential impact on 
a ban k's liquidity and equity capital. Finally, the commissioner's approval 
will not constitute a determination that the bank has complied with applicable 
securities law. 
The proposed section also permits treasury stock to be held indefinitely so long 
as regulatory concerns do not arise. Banks may use the par value method or the 
cost method of accounting for treasury stock, as permitted by generally accepted 
accounting principles (see Accounting Research Bulletin Number 43), although use 
of the cost method may avoid the reduction in capital and certified surplus that 
would be required under the par value method. Finally, banks are reminded that 
treasury stock may no t be voted, directly or indirectly, at any meeting of 
shareholders, and may not be counted in determining the total number of 
outstanding shares at any given time. Treasury stock remains issued but not 
outstanding. 
Everette D. Jobe, General Counsel, Texas Department of Banking, has determined 
that for the first five-year period the section is in effect, there will be no 
fiscal implication for state or local government as a result of enforcing or 
administering the section. 
Mr. Jobe also has determined that for each year of the first five years the 
section is in effect, the public benefit anticipated as a result of enforcing 
this section is increased flexibility for state banks with regard to internal 
corporate governance, employee benefits, and capital formation, without risk to 
safety and soundness. No net economic cost will result to persons required to 
comply with the proposed section, and there will be no effect on small 
businesses. 
Comments on the proposed section may be submitted in writing to Everette D. 
Jobe, General Counsel, Texas Department of Banking, 2601 North Lamar Boulevard, 
Austin, Texas 78705-4294. While all comments are welcome, comment is 
specifically requested regarding the impact of the proposal on publicly traded 
banks.
The new section is proposed under the Banking Act, sec.1.012(a)(1) and (2), 
which authorize the commission to adopt rules necessary or reasonable to 
implement and clarify the Act and to preserve or protect the safety and 
soundness of state banks. As required by the Banking Act, sec.1.012(b), the 
commission considered the need to promote a stable banking environment, provide 
the public with convenient, safe, and competitive banking services, preserve and 
promote the competitive parity of state banks with national banks and other 
depository institutions in this state consistent with the safety and soundness 
of state banks and the state bank system, and allow for economic development 
within this state. 
Texas Civil Statutes, Article 342-3.103 and Article 342-5.102, are affected by 
this proposed new section.

sec.15.121. Acquisition and Retention of Shares as Treasury Stock.
(a) Permitted acquisition of treasury stock. Pursuant to Texas Civil Statutes, 
Article 342-5.102, a state bank may acquire its own shares to be held as 
treasury stock if the acquisition is necessary to avoid or minimize a loss on a 
loan or investment previously made in good faith or is made in compliance with 
this section. An acquisition under the authority of this section may constitute 
an isolated transaction or a continuing plan of acquisition and may not be made 
for speculation or as a means of evading a requirement or obligation under 
federal or state banking laws. 
(b) Application. A state bank that desires to acquire its own shares to be held 
as treasury stock under the authority of this section shall file an application 
regarding its plan of acquisition with the banking commissioner, setting forth 
or including as exhibits the following: 
(1) consistent with subsection (f) of this section, the pro forma effects of the 
plan of acquisition on the bank's liquidity and equity capital, and disclosure 
of the basis for calculations, including: 
(A) the price or price range per share at which the shares will be acquired; 
(B) the number of shares sought to be acquired, expressed as a maximum; and 
(C) the source of funds for the acquisition; 
(2) the date by which the plan of acquisition will be completed; 
(3) a certified copy of a resolution duly adopted by the board of directors, 
approving the plan of acquisition; and 
(4) a current draft of the securities offering document or other disclosure 
materials proposed to be delivered to shareholders considering the sale of bank 
shares to the bank. 
(c) Action on application. The banking commissioner shall approve or deny the 
application not later than the 30th day after the application is complete and 
accepted for filing pursuant to sec.15.4(b) of this title (Relating to Required 
Information and Abandoned Filings), and may impose conditions on an approved 
plan of acquisition, including limitations on the number of shares to be 
acquired or a condition that the approval expire as of a specified date. The 
banking commissioner may deny the application if the banking commissioner 
concludes that the bank's plan of acquisition: 
(1) will result in acquisition of treasury stock at an aggregate cost in excess 
of its undivided profits, or may otherwise threaten the adequacy of the bank's 
equity capital or its liquidity; 
(2) appears to be for speculation or a means of evading a requirement or 
obligation under federal or state banking laws; or 
(3) could otherwise place the bank in an unsafe or unsound condition. 
(d) Compliance with securities law. 
(1) An issuer's purchase of its own shares is a transaction subject to the 
antifraud provisions of federal securities law, see 15 United States Code, 
sec.78j, 17 Code of Federal Regulations, sec.240.10b-5, and Spector v. L Q Motor 
Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). 
Such a transaction is also subject to the antifraud provisions of state 
securities law, see Texas Civil Statutes, Article 581-33(B). Potential liability 
of the state bank to the selling shareholder can therefore arise if the state 
bank withholds or misrepresents material facts that the seller would have 
considered important in making the decision to sell. 
(2) Approval of an application under this section by the commissioner does not 
constitute a determination that the bank has complied with applicable securities 
law. 
(e) Retention of treasury stock. Notwithstanding Texas Civil Statutes, Article 
342-5.102(c), treasury stock acquired by a state bank, whether to avoid or 
minimize a loss on a loan or investment previously made in good faith or under 
an approved plan of acquisition, may be held indefinitely as treasury stock; 
provided that the banking commissioner may require a state bank to cancel and 
retire all or part of shares held as treasury stock to the status of authorized 
and unissued shares if the banking commissioner concludes that holding treasury 
stock in the amount held by the bank creates safety and soundness or other 
regulatory concerns. 
(f) Accounting for treasury stock. A state bank shall account for the 
acquisition and retention of treasury stock in accordance with generally 
accepted accounting principles under either the cost method or the par value 
method (see Accounting Research Bulletin Number 43), although use of the cost 
method may avoid the reduction in capital and certified surplus that would be 
required under the par value method. The method used for accounting for treasury 
stock must be clearly reflected in the bank's ac counting records.
(g) Status of treasury stock. Shares held by a state bank as treasury stock may 
not be voted, directly or indirectly, at any meeting of shareholders, and may 
not be counted in determining the total number of outstanding shares at any 
given time. 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's authority to adopt.
Issued in Austin, Texas, on January 24, 1997.
TRD-9701114
Everette D. Jobe
General Counsel
Texas Department of Banking
Proposed date of adoption: March 27, 1997
For further information, please call: (512) 475-1300

7 TAC sec.15.122
The Finance Commission of Texas (the commission) re-proposes new sec.15.122, 
concerning parameters and requirements for approval of a reverse stock split 
transaction by a state bank, to be administered by the banking commissioner and 
the department of banking (collectively, the agency). The original proposal, as 
published in the September 3, 1996, issue of the Texas Register (21 TexReg 
8361), is withdrawn in this issue of the Texas Register. 
In a reverse stock split, some number of issued shares are amalgamated into a 
single share by means of an amendment to the articles of association, and a 
shareholder who holds fewer than the number designated to become one share will, 
after the reverse split, hold a fraction of a share. A common condition of such 
a transaction is that a fractional shareholder must accept cash for the 
fractional share at its fair value. Consequently, the device is favored by 
business corporations as a means of forcing minority shareholders to sell their 
shares to the corporation, thereby consolidating control in the hands of the 
majority shareholders. In some states, such transactions give rise to appraisal 
rights for dissenting shareholders in order to obtain a judicial determination 
of fair value, but not in Texas. 
If appraisal rights apply to a transaction, such remedies are generally 
exclusive in the absence of fraud, see Texas Business Corporation Act, Article 
5.12(G). In the absence of appraisal rights, courts are generally more 
protective of the affected minority, and will require a business purpose 
independent of the mere desire to eliminate the minority in order to sanction 
the corporation's termination of the interest of minority shareholders, see 
Zauber v. Murray Savings Association, 591 S.W.2d 932, 937-938 (Tex. Civ. App.--
Dallas 1979), writ ref'd n.r.e. per curiam, 601 S.W.2d 940 (Tex.1980). An 
unfairly low price or unfair dealing with the minority shareholders tends to 
indicate that a true corporate purpose is absent from a transact ion primarily 
designed to benefit the majority shareholders. 
The law thus appears to encourage a fair price and fair dealing for the minority 
but to discourage interference with the valid business purposes of the 
corporation itself, viewed as an entity distinct from the majority. Fair price 
must be determined by assessing all relevant factors to the corporation's 
economic and financial prospects, including its assets, market value, earnings, 
future prospects, and other elements that could affect the intrinsic or inherent 
value of a corporation's stock, exclusive of any element of value arising from 
the accomplishment or expectation of the proposed transaction. Fair dealing 
embraces questions of when the transaction was timed, how it was initiated, 
structured, negotiated, disclosed to the directors, and how the approvals of the 
directors and shareholders were obtained. The test for fairness is not that 
clearly bifurcated between fair dealing and fair price; a fair price as the 
predominant factor appears to often be sufficient for finding fairness, 
regardless of some technical or minor failures with regard to fair dealing. 
A Texas business corporation can engage in a reverse stock split. Texas Business 
Corporation Act (TBCA), Article 4.01, provides that a corporation can amend its 
articles of incorporation in any respect provided its articles of incorporation 
as amended contain only lawful provisions. If a change in shares is to be made, 
the articles should also contain provisions necessary to effect the change. A 
reverse stock split constitutes such a change. Subject to the equitable 
considerations discussed in previous paragraphs, TBCA, Article 2.20, allows the 
corporation considerable leeway in dealing with fractional shares once the 
reverse split has been accomplished. A corporation may, for example, pay the 
fair value of fractional shares in lieu of distributing fractional shares. It 
may also issue scrip entitling the holder to receive a full share when the 
holder tenders enough scrip to equal a full share. Scrip may also be issued 
subject to conditions, including (i) that the scrip will become void if no t 
exchanged for a certificate representing a full share before a specified date; 
(ii) that the corporation may sell the shares for which the scrip is 
exchangeable and distribute the proceeds to the holders of the scrip; or (iii) 
any other conditions the board of directors determines advisable. 
Texas Civil Statutes, Article 342-3.007(a) (Banking Act, sec.3.007(a)), states 
that the TBCA applies to state banks to the extent not inconsistent with the 
Banking Act or with the proper business of a state bank. Under the Banking Act, 
sec.3.101(a), a state bank may amend its articles of association for any lawful 
purpose. TBCA, Article 4.01 and Article 2.20, when considered in light of 
judicially imposed, equitable restrictions, do not appear to be inconsistent 
with the Banking Act. However, the agency believes that questions of business 
purpose, fair pricing, and fair dealing must be addressed in the application 
context. Litigation arising out of perceived unfairness to the minority has the 
potential to adversely affect the safety and soundness of the bank. 
In determining that the proper business of a state bank could include the 
ability to engage in a reverse stock split, the agency is mindful of 
considerations of competitive parity with national banks as well as limitations 
on state bank powers imposed by federal law, see 12 United States Code (USC), 
sec.1831a. The ability of a national bank to engage in a reverse stock split 
appears to be comparable to general corporate law as discussed in the preceding 
paragraphs, see Bloomington National Bank v . Telfer, 916 F.2d 1305 (7th Cir. 
1990) (12 USC, sec.83, prohibits a reverse stock split designed solely to merge 
out minority shareholders, notwithstanding availability of 12 USC, sec.59). The 
Office of the Comptroller of the Currency (OCC) approved m any reverse stock 
splits for the sole purpose of eliminating the minority before the Bloomington 
National Bank decision and now appears to have a general policy prohibiting 
reverse stock splits, subject to exceptions. A national bank seeking to 
implement a reverse stock split must demonstrate to the OCC that the transaction 
is not for the purpose of forcing minority shareholders to relinquish their 
interests in the bank. If a national bank purchases fractional shares in 
connection with a reverse stock split, it is required to do so at the market 
(not book) value of the stock provided an established and active market in the 
bank's stock exists or, in the absence of such a market, on a reliable and 
disinterested determination as to the fair mark et value of the stock if such 
stock is available. According to the OCC, if an independent appraisal is 
required, it should form the exclusive basis for the amount of compensation paid 
for fractional interests, see 7 CFR, sec.7.2023. 
The proposed section requires a state bank to submit a detailed application with 
accompanying documents to the banking commissioner. Under proposed subsection 
(d), the commissioner will require that the reverse stock split be for valid 
business purposes of the bank itself, viewed as an entity distinct from its 
affiliates, and be accomplished through fair dealing with and a fair price to 
unaffiliated shareholders. As proposed, the banking commissioner may impose 
conditions on approval, including a condition that an independent appraisal 
report be obtained regarding the value of the unaffiliated shareholders' shares, 
exclusive of any element of value arising from the accomplishment or expectation 
of the proposed transaction, and without minority discount. 
Proposed sec.15.122(e) exempts from the scope of the rule any reverse stock 
split that will not result in fractional shares, that can reasonably be 
characterized as voluntary on the part of all shareholders, as specified in that 
subsection, or that is exempted by the banking commissioner on written 
application. 
Everette D. Jobe, General Counsel, Texas Department of Banking, has determined 
that for the first five-year period the section is in effect, there will be no 
fiscal implication for state or local government as a result of enforcing or 
administering the section. 
Mr. Jobe also has determined that for each year of the first five years the 
section is in effect, the public benefit anticipated as a result of enforcing 
this section is the clarification of highly complex statutory standards to aid 
the industry in compliance. No net economic cost will result to persons required 
to comply with the proposed section, and there will be no effect on small 
businesses. 
Comments on the proposed section may be submitted in writing to Everette D. 
Jobe, General Counsel, Texas Department of Banking, 2601 North Lamar Boulevard, 
Austin, Texas 78705-4294. While all comments are welcome, comment is 
specifically requested regarding the impact of the proposal on publicly traded 
banks.
The new section is proposed under the Banking Act, sec.1.012(a)(1) and (2), 
which authorize the commission to adopt rules necessary or reasonable to 
implement and clarify the Act and to preserve or protect the safety and 
soundness of state banks. As required by the Banking Act, sec.1.012(b), the 
commission considered the need to promote a stable banking environment, provide 
the public with convenient, safe, and competitive banking services, preserve and 
promote the competitive parity of state banks with national banks and other 
depository institutions in this state consistent with the safety and soundness 
of state banks and the state bank system, and allow for economic development 
within this state. 
Texas Civil Statutes, Articles 342-3.103 and Article 342-4.101, are affected by 
this proposed new section.

sec.15.122. Amendment of Articles to Effect a Reverse Stock Split.
(a) Definitions. The following words and terms when used in this section shall 
have the following meanings, unless the context clearly indicates otherwise. 
(1) Act--The Texas Banking Act, Texas Civil Statutes, Articles 342-1.001 et seq. 
(2) Affiliate--For purposes of this section only, a person that directly or 
indirectly through one or more intermediaries controls, is controlled by, or is 
under common control with a state bank seeking to effect a reverse stock split. 
A person who is not an affiliate of the state bank at the commencement of its 
reverse stock split will not be considered an affiliate of the bank prior to the 
completion of the reverse stock split. 
(3) Appraisal report--A report, opinion (other than an opinion of counsel), or 
appraisal from an outside party which is materially related to the reverse stock 
split, including a report, opinion, or appraisal relating to the consideration 
or the fairness of the consideration to be offered to shareholders in connection 
with the reverse stock split or the fairness of such transaction to the state 
bank or to unaffiliated shareholders. 
(4) Reverse stock split--An amendment to the articles of association of a state 
bank that achieves a reduction in the number of issued shares of such bank by 
requiring exchange of all issued shares in a particular class for a 
proportionately smaller number of shares, generally with a proportionately 
increased par or stated value. The equity capital of the state bank remains 
substantially the same. 
(5) Share--A unit representing ownership of at least part of the proprietary 
interests of a state bank, whether or not divided or subdivided by means of 
classes, series, relative rights, or preferences; and includes a stock or 
similar security; or a security convertible, with or without consideration, into 
such a security, or carrying a warrant or right to subscribe to or purchase such 
a security; or such warrant or right; or another security determined by the 
banking commissioner to be an equity security pursuant to the Act, 
sec.1.002(a)(9)(B). 
(6) Unaffiliated shareholder--A shareholder of a share subject to a reverse 
stock split who is not an affiliate of the state bank that issued the share. 
(b) Procedure. Pursuant to the Act, sec.3.101, to effectuate a reverse stock 
split in compliance with this section, a state bank shall:
(1) obtain the approval of its shareholders as required by law; and 
(2) obtain the approval of the banking commissioner pursuant to subsection (d) 
of this section, by filing an application setting forth the information and 
documents required by subsection (c) of this section and the filing fee required 
by sec.15.2 of this title (relating to Filing Fees and Cost Deposits). 
(c) Application. A state bank proposing a reverse stock split transaction shall 
file with the banking commissioner a written application seeking approval of the 
proposed amendment to its articles of association, stating the results of the 
vote of share holders regarding the proposed reverse stock split and stating the 
percentage of shares of unaffiliated shareholders that were voted in favor of 
the proposed reverse stock split, or undertaking to supplement the application 
after conditional approval is obtained to provide shareholder approval 
information, setting forth or including as exhibits the following: 
(1) the original and one copy of the proposed amendment to the articles of 
association, to be processed in the manner required by the Act, sec.3.101(d), 
and a description of the material terms of the proposed reverse stock split, 
including terms or arrangements relating to any shareholder of the state bank 
which are not identical to those relating to other shareholders of the same 
class; 
(2) any plan or proposal of the state bank, regarding activities or transactions 
which are to occur after the reverse stock split which relate to or would result 
in: 
(A) an extraordinary corporate transaction, such as a merger, reorganization, or 
liquidation, involving the state bank or any of its subsidiaries;
(B) a sale or transfer of a material amount of assets of the state bank or any 
of its subsidiaries; 
(C) a change in the present board of directors or management of the state bank, 
including a plan or proposal to change the number or term of directors, to fill 
an existing vacancy on the board or to change a material term of the employment 
contract of a n executive officer; 
(D) a material change in the present dividend rate or policy or indebtedness or 
capitalization of the state bank; 
(E) any other material change in the state bank's corporate structure or 
business; 
(3) the corporate purpose or purposes of the state bank for the reverse stock 
split, and alternative means, if any, considered by the state bank to accomplish 
such purposes and the reasons for their rejection, and the reason for choosing 
the structure o f a reverse stock split and for undertaking such transaction at 
this time; 
(4) a certified resolution of the board of directors of the state bank approving 
the proposed amendment to the articles of association, accompanied by a 
statement whether or not the board of directors of the state bank reasonably 
believes that the reverse stock split is fair or unfair to unaffiliated 
shareholders that: 
(A) identifies each director, if any, that dissented to or abstained from voting 
on the merits of the reverse stock split, and describes, if known to the state 
bank after making reasonable inquiry, the reasons for each dissent or 
abstention, and 
(B) states the number and percentage of disinterested directors that voted in 
favor of the proposed reverse stock split; 
(5) whether or not the state bank obtained an appraisal report and, if an 
appraisal report was obtained, a copy of the appraisal report. To the extent not 
addressed in the appraisal report, the state bank shall disclose: 
(A) the identity, qualifications, and method of selection of the outside party 
that prepared the appraisal report, any material relationship between the 
outside party or its affiliates and the state bank or its affiliates which 
existed during the past two years or is mutually understood to be contemplated, 
and any compensation received or to be received as a result of such 
relationship;
(B) a summary of the performance of such appraisal report, including the 
procedures followed, the findings and recommendations, the bases for and methods 
of arriving at such findings and recommendations, instructions received from the 
state bank, and an y limitation imposed by the state bank on the scope of the 
investigation; and 
(C) whether such appraisal report will be made available for inspection and 
copying at the home office of the state bank during its regular business hours 
by any shareholder of the state bank or such shareholder's representative who 
has been so designated in writing; 
(6) with respect to the class of shares to which the reverse stock split 
relates, the aggregate amount and percentage of shares beneficially owned by any 
pension, profit sharing, or similar plan of the state bank, and by each officer, 
director, principal shareholder, and subsidiary of the state bank; 
(7) with respect to any purchases of such shares made by the state bank since 
the commencement of the bank's second full fiscal year preceding the date of the 
application, the amount of such shares purchased, the range of prices paid for 
such shares, an d the average purchase price for each quarterly period of the 
bank during such period; 
(8) to the extent known to the state bank after reasonable inquiry, any 
transaction in the class of shares subject to the proposed reverse stock split 
that was effected during the past 60 days by the state bank or by an officer, 
director, principal shareholder, or subsidiary of the state bank, including the 
identity of the person who effected the transaction, the date of the 
transaction, the amount of shares involved, the price per share, and where and 
how the transaction was effected; 
(9) to the extent known to the state bank after reasonable inquiry, a 
description and/or a copy of any contract, arrangement, understanding, or 
relationship (whether or not legally enforceable) in connection with the reverse 
stock split between the state bank (or an officer, director, principal 
shareholder, or subsidiary of the state bank) and any person with respect to any 
shares of the state bank (including a contract, arrangement, understanding, or 
relationship concerning the transfer or the voting of any such shares, joint 
ventures, loan, or option arrangements, puts or calls, guaranties of loans, 
guaranties against loss or the giving or withholding of proxies, consents, or 
authorizations), naming the persons with whom such contracts, arrangement s, 
understandings, or relationships have been entered into and giving the material 
provisions thereof, including such information for any of such shares that are 
pledged or otherwise subject to a contingency, the occurrence of which would 
give another person the power to direct the voting or disposition of such 
shares, except that disclosure of standard default and similar provisions 
contained in loan agreements need not be included; 
(10) to the extent known to the state bank after reasonable inquiry, whether or 
not any officer, director, principal shareholder, or subsidiary of the state 
bank has made a recommendation in support of or opposed to the reverse stock 
split and, if so, the reasons for such recommendation; 
(11) whether or not appraisal rights are being voluntarily accorded by the state 
bank to shareholders in connection with the reverse stock split and whether or 
not any provision has been or will be made to allow unaffiliated shareholders to 
obtain counsel or appraisal services at the expense of the state bank and, if 
so, a detailed description of such appraisal rights or counsel or appraisal 
services; 
(12) a reasonably itemized statement of all expenses incurred or estimated to be 
incurred in connection with the reverse stock split, including filing fees, 
legal, accounting, and appraisal fees, solicitation expenses, and printing 
costs, and disclosure of the person who has paid or will be responsible for 
paying such expenses; 
(13) the proxy statement furnished to shareholders of the state bank in 
connection with obtaining shareholder approval for the reverse stock split, or a 
draft of the proxy statement to be furnished to shareholders in the event 
approval of the banking commissioner is sought prior to a shareholder vote; and 
(14) such other information that the banking commissioner requires to be 
included in the particular application as considered necessary to an informed 
decision to approve or reject the proposed amendment effectuating a reverse 
stock split. 
(d) Standards for approval. 
(1) The banking commissioner shall process the proposed reverse stock split in 
accordance with the Act, sec.3.101(d). The banking commissioner shall require 
that the reverse stock split be for valid business purposes of the bank itself, 
viewed as an entity distinct from its affiliates, and be accomplished through 
fair dealing with and a fair price to unaffiliated shareholders. The banking 
commissioner may impose conditions on approval, including a condition that an 
independent appraisal report be obtained regarding the value of the unaffiliated 
shareholders' shares, exclusive of any element of value arising from the 
accomplishment or expectation of the proposed transaction, and without minority 
discount. Share value determined by an independent and properly prepared 
appraisal report that is fully disclosed to bank shareholders will be presumed 
to be a fair value unless extenuating circumstances to the contrary are 
specifically noted. 
(2) In the event approval of the banking commissioner is obtained prior to 
approval by shareholders, the state bank shall file a statement with the banking 
commissioner certifying that any future event or condition upon which the 
approval of the transaction was conditioned has been satisfied and the date that 
each such condition was satisfied. Upon receipt of such statement, the banking 
commissioner shall file the approved amendment to the articles of association in 
accordance with the Act, sec.3.101(d (3) An issuer's purchase of its own shares 
is a transaction subject to the antifraud provisions of federal securities law, 
see 15 United States Code, sec.78j, 17 Code of Federal Regulations, sec.240.10b-
5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. 
denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the 
antifraud provisions of state securities law, see Texas Civil Statutes, Article 
581-33(B). Potential liability of the state bank to the selling shareholder can 
therefore arise if the state bank withholds or misrepresents material facts that 
the seller would have considered important in making the decision to sell. 
Consequently, a state bank must disclose to the shareholders in writing, prior 
to or simultaneously with the written notice of the shareholders meeting, all 
material information necessary to an informed decision regarding the proposed 
reverse stock split. If the reverse stock split involves publicly traded shares 
and is subject to 15 Code of Federal Regulations, sec.240.13e-3, the 
registration statement required by federal law is considered to satisfy this 
disclosure obligation. Approval of an application under this section by the 
banking commissioner does not constitute a de termination that the bank has 
complied with applicable securities law. 
(e) Exemptions. 
(1) This section does not apply to a reverse stock split that:
(A) will not result in fractional shares; 
(B) permits each shareholder to choose to cash in the resulting fractional share 
by selling it to the state bank or to round up to the next highest whole share 
by purchasing fractional interests, provided that: 
(i) the specified sale and purchase prices are equivalent and reasonable; and 
(ii) no fractional share resulting from the reverse stock split is less than 10% 
of a full share; 
(C) is adopted by means of a unanimous written consent of shareholders; or 
(D) the banking commissioner expressly exempts after written application as not 
within the purposes of this section. 
(2) The availability of an exemption from the requirements of this section does 
not relieve a state bank from its obligation to comply with applicable 
securities law. 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's authority to adopt.
Issued in Austin, Texas, on January 24, 1997.
TRD-9701112
Everette D. Jobe
General Counsel
Texas Department of Banking
Proposed date of adoption: March 27, 1997
For further information, please call: (512) 475-1300

CHAPTER 29.Sale of Checks Act
7 TAC sec.29.2
The Finance Commission of Texas (the "commission") proposes an amendment to 
sec.29.2, concerning fees and assessments under the Sale of Checks Act, Texas 
Civil Statutes, Article 489d (the Act). 
New sec.29.2 was recently adopted and published in the September 3, 1996, issue 
of the Texas Register (21 TexReg 8457). The agency at the time rejected numerous 
comments to the effect that large licensees were being forced to overly 
subsidize s maller licensees. After further review, the agency believes an 
adjustment is necessary to diminish the disproportionate impact of the fee 
structure. In assessing the fiscal impact of the original proposal, ultimately 
adopted, the agency concluded that the cost of compliance would not increase for 
a small licensee but would increase approximately $4,600 per year for a large 
licensee. 
Section 29.2 establishes fees and assessments in amounts sufficient for 
administering the Act and provides for recovery of the full cost of the 
financial audit from the sale-of-checks licensee. Under the Act, sec.9B(b), 
financial audits are funded at the sole cost and expense of the licensee. 
As adopted, sec.29.2 permits the department to collect an annual financial audit 
fee from each licensee, with limited exception, in an amount not less than 
$2,000 or more than $10,000 in a fiscal year, assessed at a rate not greater 
than $0.018 per $1,000 of money orders, travelers checks and other payment 
instruments sold and transmission money received by the licensee within Texas. 
The proposed amendment will permit the department to collect an annual financial 
audit fee from each licensee, with li mited exception, in an amount not less 
than $2,500 or more than $8,000 in a fiscal year, assessed at a rate not greater 
than $0.02 per $1,000 of money orders, travelers checks and other payment 
instruments sold and transmission money received by the licensee within Texas. 
Stephanie Newberg, Director of Special Audits, Texas Department of Banking, has 
determined that for the first five-year period these changes are in effect, 
there is no fiscal implication for state or local government as a result of 
enforcing or admini stering the changes. 
Ms. Newberg also has determined that, for each year of the first five years the 
amended section is in effect, the public benefit anticipated as a result of its 
adoption will be that the cost of regulating the sale-of-checks industry under 
the Act will be more proportionately borne by all licensees under the Act. For 
the first five-year period these changes are in effect, the average cost of 
compliance will increase by $500 per year, or $13 per employee, for a small 
business over the cost under exist ing sec.29.2, and decrease by $2,000 per 
year, or $7.00 per employee, for a large business. As compared to the fee 
structure in place prior to the adoption of sec.29.2 in August of 1996, the 
average annual cost of compliance by a small business will increa se by $13 per 
employee and the cost of compliance by a large business increased by $16 per 
employee. An overall increase in aggregate fees was required to fully fund the 
cost of administering the Act. 
Comments on the proposed amendment may be submitted in writing to Stephanie 
Newberg, Director of Special Audits, Texas Department of Banking, 2601 North 
Lamar Boulevard, Austin, Texas 78705-4294. 
The amendment is proposed under Texas Civil Statutes, Article 489d, sec.9E, 
which authorize the commission to adopt rules necessary for the enforcement and 
orderly administration of the Act. 
Texas Civil Statutes, Article 489d, are affected by the proposed amendment to 
sec.29.2.

sec.29.2. Fees and Assessments.
(a)-(c) (No change.) 
(d) Financial audit fees. The department shall annually assess each licensee a 
financial audit fee for one financial audit, not to exceed <nl>$8,000<ol> 
[$10,000] in a fiscal year, at a rate of not more than <nl>$0.02<ol> [$0.018] 
per $1,000 of the a mount of money orders, travelers checks, and other payment 
instruments sold and transmission money received by the licensee within the 
state of Texas, based on the total dollar amount of transactions reflected in 
the examination report or annual renewal filing, whichever is more recent. The 
department may levy this fee in quarterly or fewer installments in such 
periodically adjusted amounts as reasonably appear necessary to defray the costs 
of financial audit and the administration of the Act. If the financial audit fee 
computed in this manner is less than <nl>$2,500<ol> [$2,000], a minimum 
financial audit fee of <nl>$2,500<ol> [$2,000] will be levied and collected. In 
addition to the financial audit fee, each licensee shall reimburse the departme 
nt for all travel costs related to the financial audit. If more than one 
financial audit of a license is required in the same fiscal year as a result of 
the licensee's failure to comply with the Act or this chapter or as a result of 
its failure to comply with departmental requests in furtherance of the 
department's regulatory responsibilities under the Act or this chapter, an 
additional fee of $500 per day, plus associated travel costs, will be assessed 
against the licensee for each examiner assigned to an additional financial 
audit. Financial audit fees may be decreased if the commissioner determines that 
a lesser sum than otherwise would be collected is required to administer the 
Act. 
(e) (No change.) 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's authority to adopt.
Issued in Austin, Texas, on January 24, 1997.
TRD-9701111
Everette D. Jobe
General Counsel
Texas Department of Banking
Proposed date of adoption: March 27, 1997
For further information, please call: (512) 475-1300

TITLE 25. HEALTH SERVICES
PART I. Texas Department of Health
CHAPTER 3.Memorandums of Understanding With Other State Agencies 
25 TAC sec.3.41
The Texas Department of Health (department) proposes new sec.3.41, concerning 
its activities with the Texas Health Care Information Council (council). 
Specifically, the section defines terms commonly used in working with the 
council, specifies contracting requirements between the department and the 
council, sets forth parameters for data submission and collection by the 
department on behalf of the council, establishes the authority of the department 
to inspect records of data sources, defines confidential data, and sets 
penalties for release of confidential data. House Bill 1048, 74th Legislature, 
1995, created the council (Texas Health and Safety Code, Chapter 108) and 
authorizes the Texas Board of Health (board) to adopt rules regarding its 
activities with the council. 
Dora A. McDonald, Chief, Bureau of State Health Data and Policy Analysis, has 
determined that for the first five-year period the section is in effect, there 
will be no fiscal implications to state or local government as a result of 
enforcing or administering the section as proposed. 
Ms. McDonald has also determined that for each year of the first five years the 
section is in effect, the public benefit anticipated as a result of 
administering the section will be to avoid unnecessary duplication of data 
collection and administrative duties. There is no effect on small businesses. 
There is no additional economic cost to persons who may be required to comply 
with the section as proposed. The economic costs to hospitals and other health 
care providers required to provide data have been identified in council rules. 
There is no anticipated impact on local employment. 
Comments on the proposal may be submitted to Dora A. McDonald, Chief, Bureau of 
State Health Data and Policy Analysis, Texas Department of Health, 1100 West 
49th Street, Austin, Texas 78756, (512) 458-7261; fax (512) 458-7344. Comments 
will be accepted for 30 days following publication of this proposal in the Texas 
Register. 
The new section is proposed under the Health and Safety Code, Chapter 108, which 
requires that the board adopt rules concerning the inspection of documents, and 
its contract with the Texas Health Care Information Council; and sec.12.001, 
which provides the board with the authority to adopt rules for the performance 
of every duty imposed by law on the board, the department, and the commissioner 
of health. 
The new section affects the Health and Safety Code, Chapter 108.

sec.3.41.Contract with the Texas Health Care Information Council.
(a) Definitions. The following words and terms, when used in this section, shall 
have the following meanings unless the context clearly indicates otherwise. 
(1) Council - Texas Health Care Information Council. 
(2) Data - Information collected under the Health and Safety Code, Chapter 108, 
relating to the Texas Health Care Information Council.
(3) Department - Texas Department of Health. 
(b) Contract with the Texas Health Care Information Council.
(1) The department shall enter into a contract(s) with the council. 
(2) The contract(s) will specify the duties of, and the reimbursement to be 
received by, the department for: 
(A) performing data collection specified in the Health and Safety Code, Chapter 
108, and rules of the council authorized by that chapter;
(B) providing administrative and legal support to the council, as described in 
subsection (e) of this section; 
(C) assisting in the preparation of, and submitting the council's budget request 
to the legislature; and 
(D) performing other services negotiated by the parties. 
(3) The contract(s) shall coordinate administrative responsibilities with the 
council to avoid unnecessary duplication of the collection of data and other 
duties. 
(4) The contract(s) shall be governed by the Interagency Cooperation Act, Texas 
Government Code, Chapter 771. 
(c) Data submission and collection. 
(1) The department, or an entity it shall select, is established as the single 
collection point for receipt of data from providers. With the approval of the 
council and the commissioner, the department may transfer collection of any data 
required to be collected by the department under any law to the statewide health 
care data collection system. 
(2) The department shall work with the council and the Texas Department of 
Information Resources to develop and implement the statewide health care data 
collection system and maintain consistency with the standards of the Texas 
Department of Information Resources. 
(3) The department shall give the council access to data collected by the 
department on written request of the council. 
(d) Review powers of the department. 
(1) The department may inspect documents and records used by data sources that 
are required to provide data and reports required by the Health and Safety Code, 
Chapter 108, subject to the following. 
(A) All data collected and used by the department and the council under Chapter 
108 are subject to the confidentiality provisions and criminal penalties of : 
(i) the Health and Safety Code, sec.311.037, relating to confidential data 
submitted to the department under the hospital data reporting and data system; 
(ii) the Health and Safety Code, sec.81.103, relating to the confidentiality of 
information relating to acquired immune deficiency syndrome and related 
disorders; and 
(iii) the Medical Practice Act, Texas Civil Statutes, Article 4495b, sec.5.08, 
relating to physician-patient communication. 
(B) A person who knowingly or negligently releases data in violation of the 
Health and Safety Code, Chapter 108, is liable for a civil penalty of not more 
than $10,000. 
(2) The department may compel providers to produce accurate documents and 
records of data. 
(e) Administrative support. 
(1) The department shall process the necessary paperwork including, but not 
limited to, staff leave documentation, travel reimbursement processing for 
council members and staff, and payroll processing for staff. Payroll will be 
approved in writing by council. Travel vouchers will be completed by council 
staff and forwarded to the department. 
(2) The department shall process all purchase requests upon written approval by 
the council and subsequent written notification to the department. Purchases 
will be in the name of the council. 
(3) The department shall post all vacant council positions and accept all 
applications from applicants. The department shall provide other administrative 
human resources assistance to accomplish the council's hiring of its staff; 
however; the council shall screen, interview and select its staff. The 
department shall advise the council on relevant state personnel policies and 
procedures, as requested. 
(4) The department shall process budget revisions and perform other budget 
management activities upon written request from the council. 
(5) The department shall provide computer systems support and technical 
assistance upon written request from the council. 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's legal authority to adopt.
Issued in Austin, Texas, on January 22, 1997.
TRD-9701018
Susan K. Steeg
General Counsel
Texas Department of Health
Earliest possible date of adoption: March 7, 1997
For further information, please call: (512) 458-7236

CHAPTER 127.Registry for Providers of Health-Related Services 
25 TAC sec.127.2, sec.127.4
The Texas Department of Health proposes amendments to sec.127.2 and sec.127.4, 
concerning the registry for providers of health-related services. The amendments 
approve the orthotist and prosthetist occupations for inclusion on the registry 
and establish the fee for application by an individual for placement on the 
registry. 
Bernie Underwood, C.P.A., Chief of Staff, Associateship for Health Care Quality 
and Standards, has determined that for the first five-year period the sections 
are in effect, there will be minimal fiscal implications for state government as 
a result of enforcing or administering the sections as proposed. The cost to 
state government of administering the registry with additional orthotist and 
prosthetist occupations will be recovered by revenues from fees. There will be 
no fiscal implications for local government. 
Ms. Underwood also has determined that for each year of the first five years the 
sections are in effect, the public benefit anticipated as a result of enforcing 
the sections will be to identify health-related service individuals who should 
be listed on the registry. There is no anticipated cost or effect on small 
businesses. The anticipated economic costs to persons who voluntarily register 
according to the sections as proposed will be the fees as set out in the rules. 
There will be no anticipated effect in local employment. 
Comments on the proposal may be submitted to Debbie Bradford, Director of 
Programs, 1100 West 49th Street, Austin, Texas 78756-3183, telephone number 
512/834-6661. Public comments will be accepted for 30 days after publication of 
the sections in the Texas Register. 
The amendments are proposed under Health and Safety Code, sec.12.014, which 
provides the Texas Board of Health with the authority to adopt rules 
establishing a registry, setting fees, and administering the registry; and the 
Health and Safety Code, sec.12.001, which provides the Texas Board of Health 
with the authority to adopt rules for the performance of every duty imposed by 
law on the Texas Board of Health, the Texas Department of Health, and the 
Commissioner of Health. 
The amendments will affect the Health and Safety Code, sec.12.014. 

sec.127.2.Approved Occupations <nl> and Eligibility<ol>.
(a) <nl>Approved occupations.<ol>
<nl>(1)<ol> The occupation of medical laboratory practitioner is approved for 
inclustion on the registry. 
<nl>(2)<ol> <nl> The occupation of orthotist is approved for inclusion on the 
registry. <ol>
<nl>(3)<ol> <nl> The occupation of prosthetist is approved for inclusion on the 
registry. <ol>
(b) <nl>Regulatory disclaimer.<ol>
<nl>(1)<ol> Inclusion of an occupation of providers of a specific health-related 
service on a registry does not constitute an evaluation of a provider's training 
or competency or a regulation of the scope of the practice of the provider, and 
is not a requirement that a provider within the included occupation actually 
register. [Placement on the registry is voluntary.] 
<nl>(2)<ol> [(c)] A person placed on the registry may not represent in any 
manner that the person is licensed, certified, inspected or otherwise regulated 
by the Texas Department of Health (department). A person in violation of this 
subsection may be referred to the appropriate governmental agency for action 
under the Deceptive Trade Practices Act, Business and Commerce Code, Chapter 17, 
or other applicable law. 
<nl>(3)<ol> <nl> Placement on the registry is voluntary. <ol>
<nl>(c)<ol> <nl>Eligibility for approved occupations set out in subsection (a) 
of this section. <ol>
<nl>(1)<ol> [(d)] A medical laboratory practitioner is eligible for placement on 
the registry if the person is a clinical laboratory director, a clinical 
laboratory supervisor, a medical technologist (clinical laboratory scientist), a 
medical laboratory technician (clinical technician), or any other individual who 
performs technical procedures in a clinical laboratory. 
<nl>(2)<ol> <nl> An orthotist is eligible for placement on the registry if the 
person provides care to patients with congenital and/or traumatic disabling 
conditions of the musculoskeletal structure of the body by evaluating, 
designing, fabricating, fitting and aligning orthopedic braces. <ol>
<nl>(3)<ol> <nl> A prosthetist is eligible for placement on the registry if the 
person provides care to patients with partial or total absence of a limb by 
evaluating, designing, fabricating, fitting and aligning artificial limbs. <ol>

sec.127.4.Fees.
(a) The schedule of fees shall be as follows: 
(1) medical laboratory practitioner (initial application) - $30; [and] 
(2) annual reapplication (any category) - $30<nl>;<ol>[.] 
<nl>(3)<ol> <nl> orthotist (initial application) - $30; and <ol>
<nl>(4)<ol> <nl> prosthetist (initial application) - $30. <ol>
(b) - (c) (No change.) 
This agency hereby certifies that the proposal has been reviewed by legal 
counsel and found to be within the agency's legal authority to adopt. 
Issued in Austin, Texas, on January 22, 1997.
TRD-9701020
Susan K. Steeg
General Counsel
Texas Department of Health
Earliest possible date of adoption: March 7, 1997
For further information, please call: (512) 458-7236

TITLE 37. PUBLIC SAFETY AND CORRECTIONS
PART I. Texas Department of Public Safety
CHAPTER 31.Standards for an Approved Motorcycle Operator Training Course
37 TAC sec.sec.31.1-31.10
The Texas Department of Public Safety proposes amendments to sec.sec.31.1 - 
31.10, concerning standards for an approved motorcycle operator training course. 
Amendment to sec.31.1 changes the definition for the mobile site sponsor to 
indicate that they are contracted by the department to perform whereas they used 
to fall under a letter of agreement and adds "safety" to the motorcycle operator 
training program as per the legal name of the program. Section 31.2 amends 
program sponsor wording per the Texas Transportation Code. Section 31.3 is 
amended reflecting the program sponsor wording and changes the Texas Education 
Agency to the Department of Public Safety as the agency that establishes driving 
record standards for school bus drivers. Amendment to sec.31.4 changes the pre-
course educational requirement for minors from 32 hours to 6 hours and 
identifies those documents which are allowed as proof of the pre-course 
educational requirements. The title of sec.31.5 is amended and the section is 
changed to allow either the instructor or chief school official to sign the MSB-
8. Section 31.6 is amended by removing the requirement for the Motorcycle 
RiderCourse: Riding and Street Skills, Module 18, from the department-approved 
basic motorcycle operator training course. Section 31.7 is amended to allow the 
use of student-owned mopeds, motor-driven cycles, or motorcycles without the 
capability to shift gears in the basic course if needed for a physically 
challenged student in order to comply with the Americans With Disability Act. 
Section 31.8 is amended to reflect the proper legal references. Section 31.9 is 
amended to parallel the codified law. Amendment to Section 31.10 changes the 
section title and removes all references to program director. 
Tom Haas, Chief of Finance, has determined that for each year of the first five-
year period the rules are in effect there will be no fiscal implications as a 
result of enforcing or administering the rules. There will be no fiscal 
implications for state or local government as a result of enforcing or 
administering the rules. 
Mr. Haas also has determined that for each year of the first five years the 
rules are in effect the public benefit anticipated as a result of enforcing the 
rules will be an upgrading of standards to ensure the public of quality 
motorcycle operator training. There is no anticipated cost to persons who are 
required to comply with the sections as proposed. There are no anticipated 
economic costs to small or large businesses. 
Comments on the proposal may be submitted to John C. West, Jr., Chief of Legal 
Services, Texas Department of Public Safety, Box 4087, Austin, Texas 78773-0001, 
(512) 424-2890. 
The amendments are proposed pursuant to Texas Government Code, sec.411.006(4), 
which authorizes the director of the Department of Public Safety to adopt rules, 
subject to commission approval, considered necessary for the control of the 
department; and Texas Transportation Code, sec.662.009. Texas Government Code, 
sec.411.006(4) and Texas Transportation Code, sec.662.009 are affected by these 
proposed amendments.

sec.31.1.Definitions.
The following words and terms when used in this chapter have the following 
meanings unless the context indicates otherwise. 
Mobile site sponsor - A public or private entity bound by <nl>contract<ol>[a 
letter of agreement] to <nl> locally administer the motorcycle operator training 
program in locations serviced by the department's mobile training 
unit.<ol>[advertise for and enroll students, pay for insurance, and provide a 
facility for the riding portion of the course.] The department provides the <nl> 
course <ol>[remaining] equipment, material, and instructional staff [for the 
course]. In its role as a mobile site sponsor, this entity is not an agent, 
servant, or employee of the department or the state of Texas. 
Motorcycle operator training <nl>and safety<ol> program - The motorcycle 
operator training and safety program provides information and courses in 
knowledge, skills, and safety relating to the operation of motorcycles to all 
motorcyclists in this state. It also provides information to the general public 
on sharing the roadway with motorcycles.

sec.31.2.Program Sponsor.
(a) <nl>A person may not offer training in motorcycle operation for a 
consideration unless the person is licensed by, or contracts with the 
department.<ol>[No individual, association, partnership, corporation, or 
educational or governmental agency may sponsor or offer training in motorcycle 
operation to the public for tuition, consideration, or fee without authorization 
from the department. To qualify for authorization, a sponsor must be approved by 
the department through a current contract for a permanent site sponsor or letter 
of agreement for a mobile site sponsor.] Approval <nl>for a license or 
contract<ol> will be denied unless a sponsor applicant meets the following 
requirements. The applicant must demonstrate the capacity to register students, 
collect and account for tuition and state reimbursements as appropriate, arrange 
public notice of courses, provide required insurance coverage and make all 
necessary insurance premium payments, submit and maintain all required records, 
and contract with, schedule, and compensate <nl>approved<ol>[authorized] 
instructors as appropriate. All applicants: 
(1) (No change.) 
(2) for permanent <nl>sites<ol>[site contract] must also have access to: 
(A)-(D) (No change.) 
(b) <nl>The department may deny or suspend its approval for a program sponsor to 
conduct a course offered under this section if the applicant, sponsor, or 
instructor under contract to a sponsor: <ol>[Approval as a sponsor may be 
suspended if the sponsor, an instructor under contract with the sponsor, or a 
member of the sponsoring organization with supervisory or executive duties 
involving the training program:] 
(1) <nl>does not satisfy<ol>[fails to continue to meet] the requirements of 
subsection (a) of this section; 
(2) has been convicted or placed on probation for: 
(A) any felony<nl>of this state or any other jurisdiction<ol>; 
(B) (No change.) 
(C) any offense involving tampering with a government record, or <nl>driving 
while intoxicated where the offense occurred <ol>[any of the following offenses 
involving the operation of a motor vehicle] within the previous five 
years<nl>;<ol>[:] 
[(i) criminally negligent homicide; 
[(ii) driving while intoxicated; or 
[(iii) driving under the influence of drugs.] 
(3)-(6) (No change.) 
(7) knowingly allows an instructor to give, or a student to receive, classroom 
or riding instruction if either exhibits any evidence of or effects from an 
alcoholic beverage, controlled substance, or drug as defined in Texas Penal 
Code, sec.49.01<nl>et seq.<ol>
(c) No change.) 
(d) <nl>The department may cancel its approval <ol>[Approval may be canceled] 
if: 
(1) (No change.)
(2) if the discrepancy causing the suspension under these administrative rules 
has not been corrected within the time limit prescribed by a suspension<nl>, 
or;<ol>[.] 
<nl>(3)<ol> <nl> any offense involving tampering with a government record or 
driving while intoxicated where the offense occurred within the previous five 
years. <ol>
(e)-(g) (No change.) 
(h) When control of the sponsor has changed, as outlined in subsection (g) of 
this section, the <nl>sponsor must notify the department.<ol> <nl>The<ol> 
contract will <nl>then<ol> be canceled and renegotiated through the appropriate 
rules and regulations.

sec.31.3.Motorcycle Instructor.
(a) <nl>A person may not<ol>[No individual may] instruct or offer instruction in 
motorcycle operation to the public for <nl>a<ol>[tuition,] consideration[, or 
fee] without authorization from the department. To qualify for authorization, an 
instructor must be approved by the department. <nl>The department may deny 
approval <ol>[Approval will be denied] unless an instructor applicant meets the 
following requirements. The applicant must agree to teach the training courses 
in accordance with the department's rules, policies, procedures, and approved 
curricula and must: 
(1)-(4) (No change.) 
(5) meet the current driving record evaluation standards established by the 
Texas <nl>Department of Public Safety <ol>[Education Agency] for school bus 
drivers pursuant to Texas Transportation Code, sec.521.022; 
(6)-(7) (No change.) 
(b) (No change.) 
(c) <nl>The department may suspend its approval <ol>[Approval as an instructor 
may be suspended] if the instructor fails to continue to meet the requirements 
of subsections (a) and (b) of this section or if the instructor, as an 
individual, fails to meet or continue to meet the requirements of sec.31.2(b) of 
this title (relating to Program Sponsor).
(d) <nl>The department may cancel its approval <ol>[Approval may be canceled] 
if: 
(1) (No change.)
(2) the discrepancy causing the suspension under sec.31.2 of this title 
(relating to Program Sponsor), sec.31.3 of this title (relating to Motorcycle 
Instructor), sec.31.4 of this title (relating to Student Admission 
Requirements), sec.31.5 of this title (relating to Verification of Course 
Completion [by a Minor]), sec.31.6 of this title (relating to Approved 
Motorcycle Training Courses), and sec.31.7 of this title (relating to Motorcycle 
Requirements) has not been corrected within the time limit prescribed by a 
suspension. 
(e) (No change.) 
(f) Motorcycle instructors approved by the department may not:
(1) give instructions or allow a student to receive instruction in motorcycle 
safety if either the instructor or student is using or exhibits any evidence of 
effect from an alcoholic beverage, controlled substance, or drug as defined in 
Texas Penal Code, sec.49.01<nl> et seq.<ol>; or 
(2) (No change.)

sec.31.4.Student Admission Requirements.
(a) (No change.) 
(b) A person who is 15 years old but less than 18 years old may not be admitted 
to a basic motorcycle operator training course before <nl>providing proof of<ol> 
successful completion of the <nl>first six hours<ol>[32-hour classroom phase] of 
the driver education course as required by the Texas Education Agency. <nl> 
Proof of successful completion of the classroom driver education requirement is 
a properly annotated Texas Driver Education Certificate, form DE-964(E). An 
instruction permit for a Class C, or higher, driver license or an unrestricted 
Class C, or higher, driver license is considered proof of completion of the 
driver education requirement.<ol> 
(c) (No change.)

sec.31.5.Verification of Course Completion [by a Minor].
(a) The sponsor will issue a Motorcycle Operator Training Program Certificate of 
Completion MSB-8 to all students who have successfully completed the Department-
Approved Basic <nl>or Advanced<ol> Motorcycle Operator Training Course. [The 
MSB-8 is issued to verify that a student age 15 or over, has met the educational 
and training requirements for a motorcycle driver's license. The MSB-8 is also 
issued to verify that a student has successfully completed the training 
requirements to qualify for a motorcycle driver's license skills test waiver, 
providing the student already has an unrestricted Class A, B, or C driver's 
license. A Department of Public Safety serialized completion card will be issued 
by the course sponsor to every student completing the approved advanced 
motorcycle operator training course.] 
<nl>(1)<ol> <nl>The MSB-8 indicating completion of the Basic Motorcycle Operator 
Training Course, is issued to verify: <ol>
<nl>(A)<ol> <nl> that a student age 15 or over, has met the educational training 
requirements for a motorcycle driver's license. <ol>
<nl>(B)<ol> <nl> that a student has successfully completed the training 
requirements to qualify for a motorcycle driver's license skills test waiver, 
providing the student already has an unrestricted Class A, B, or C driver's 
license. <ol>
<nl>(2)<ol> <nl> A MSB-8, indicating completion of the Advanced Motorcycle 
Operator Training Course, will be issued by the course sponsor to every student 
completing the approved advanced motorcycle operator training course. <ol>
(b) The department will accept an original signature [or the written, stamped, 
or typed name or signature] of the <nl> instructor or<ol> chief school official 
on form MSB-8. [The signature of the instructor on the form must be an original 
signature. If the chief school official is also the instructor, that person must 
sign both spaces on the form.]

sec.31.6.Approved Motorcycle Training Courses.
(a) Except as modified by subsection (c) of this section, the department adopts 
the educational, safety, and instructor standards, by reference, of the most 
current versions of the following Motorcycle Safety Foundation (MSF) courses: 
(1) the approved basic motorcycle operator training course is the Motorcycle 
RiderCourse: Riding and Street Skills (MRC:RSS), Modules 1 through 15<nl> 
and<ol>[,] Exercise 22[, and Module 18]; 
(2) (No change.) 
(3) the approved instructor preparation course is <nl>the<ol> MSF instructor 
preparation course curriculum.
(b) (No change.) 
(c) In addition to these curricula requirements, the minimum standards for 
motorcycle operator training courses include the following:
(1) (No change.) 
(2) The student to instructor ratio for on-cycle instruction may not exceed six 
students per instructor until the instructor has taught more than six courses. 
Once this has occurred and the instructor has requested <nl>in writing<ol> and 
received written permission from the department, they may teach up to eight 
students<nl> alone <ol>. In no case will there be more than 12 students on the 
range at any given time. 
(3)-(4) (No change.)
(d) (No change.)

sec.31.7.Motorcycle Requirements.
(a) (No change.) 
(b) Any student-owned motorcycle must: 
(1)-(2) (No change.) 
(3) meet <nl>all other<ol> requirements of this section. 
(c) (No change.) 
(d) A moped, <nl>motor-driven cycle<ol>[no-ped, motor scooter, motor-assisted 
bicycle], or a motorcycle with <nl> a power drive system that does not require 
the operator to, or have the capability to, shift gears<ol>[an engine 
displacement of over 350cc]: 
(1) may not be used in the basic <nl>motorcycle operator training<ol> course<nl> 
unless necessary as a reasonable accommodation for a physically challenged 
student so to comply with the Americans with Disabilities Act<ol>; and 
(2) may be used in the advanced <nl> motorcycle operator training<ol> course 
only if it meets all other requirements of this section. 
<nl>(e)<ol> <nl>A motorcycle with an engine displacement of over 350cc: <ol>
<nl>(1)<ol> <nl>may not be used in the basic motorcycle operator training 
course; and <ol>
<nl>(2)<ol> <nl> may only be used in the advanced motorcycle operator training 
course if it meets all other requirements of this section. <ol>
<nl>(f)<ol> [(e)] No sponsor may provide a motorcycle <nl>, loaned or owned for 
use in the basic motorcycle operator training course,<ol> to a student for use 
in the advanced <nl>motorcycle operator training<ol> course. If a sponsor
provides a motorcycle to a student for use in the basic <nl> motorcycle operator 
training<ol> course, the motorcycle: 
(1) must meet the safety requirements of sub