Kenneth J. Nissley and Terri C. Connor Nissley - Page 6

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          theoretical break-even point for a distributorship, assuming that           
          the distributor and each “downline” distributor within the                  
          distributor’s organization purchases $200 of Amway products per             
          month, and that the distributor does not have expenses exceeding            
          $2,000 per month.  At least in theory, the potential for profit             
          is enhanced as each of the 78 “downline” distributors in the                
          distributor’s network successfully implements the “6-4-2 plan”.             
               The Amway “6-4-2 plan” does not provide meaningful guidance            
          to distributors regarding how expenses incurred in pursuing an              
          Amway activity might be reduced.                                            
               The structure of the Amway “pyramid” incentive system                  
          effectively serves to discourage distributors from spending their           
          time personally trying to sell Amway products.  In contrast, the            
          system effectively serves to encourage distributors to spend                
          their time trying to recruit an ever-increasing number of                   
          “downline” distributors.  Petitioners themselves spent little               
          time personally trying to sell Amway products and concentrated              
          instead on trying to recruit (and retain) “downline”                        
          distributors.4  Gross income received by petitioners consisted              
          principally of bonuses earned from the sale (or personal                    
          consumption) of Amway products by “downline” distributors.                  

          4  At the end of 1994, 1995, and 1996, petitioners had a                    
          total of 75, 77, and 79 “downline” distributors, respectively, in           
          their organization.                                                         

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