Interpretive Opinion No. 71 / 4F

State of California Department of Corporations

Anthony R. Pierno, Commissioner
In reply refer to: File No. _____

This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

Mr. Chester Heyman
Arnold Palmer Enterprises
14 West Mulberry Avenue
Pleasantville, NJ, 08232

Dear Mr. Heyman:

The request for recognition of an exemption from the registration requirement of the California Franchise Investment Law, contained in your letter dated January 28, 1971, which we accept as a request for an interpretive opinion, has been considered by the Commissioner. In your letter, you seek this exemption for the offer and sale by Arnold Palmer Enterprises ("Enterprises") of certain franchises in the State of California. On the basis of the factual representations contained in your letter, and upon the assumptions which will be stated below, it is our opinion that the exemption provided by Section 31101 of the Law is available.

You have represented that Enterprises is an operational division of the National Broadcasting Co., Inc. ( "National" ); that National is a wholly-owned subsidiary of Radio Corporation of America. ("R.C.A." ); and that R.C.A. has assets of over 5 million dollars. we also understand you to represent that Enterprises has been engaged in the sale of the franchises since 1962, and presently has over 100 franchised installations in operation throughout the United States, of which at least 25 have been in business during the past five years.

Enterprises will furnish prospective franchisees all information required by items 1 through 14 of Section 3110l(c) immediately upon receipt of an initial inquiry and at least 48 hours prior to the execution of any agreement.

Section 31101 of the Franchise Investment Law provides that there shall be exempted from the provisions of Chapter 2 of Part 2 of the Law (which include the registration requirement of Section 31110) the offer and sale of a franchise if the standard as to financial condition set forth in Subdivision (a) and the standard as to scope of operations Bet forth in Subdivision (b) of the Section are met, and provided further that the franchisor complies with the disclosure requirements specified in Subdivision (c) of the Section.

In our opinion, the franchising operations of National conducted through Enterprises as above described, meet the standard as to scope of operations set forth in subdivision (b) of Section 31101 of the Law. Therefore if, as you have stated, the disclosure requirements of subdivision. (c) of the Section are satisfied, and if National meets the standard as to financial condition set forth in subdivision {a), the exemption is available.

According to subdivision (a) the standard as to financial condition requires in the case of a franchisor which is at least 80% owned by a corporation having a net worth on a consolidated basis according to its most recent audited financial statement of not less than $5,000,000, that the franchisor itself have a net worth according to its most recent audited financial statement, of not less than $1,000,000. You have represented that R.C.A. has assets of over $5,000,000. Assuming that the disclosure requirements of subdivision (c) are satisfied, the exemption provided in Section 31101, in our opinion would be available, if according to their respective most recent audited financial statements, R.C.A. has a net worth on a consolidated basis of not less than $5,000,000 and National has a net worth of not less than $1,000,000.

Dated: San Francisco, California
March 2, 1971

By order of
ANTHONY R. PIERNO
Commissioner of Corporations