Joe Guadagno and Susan Beth Rishel Guadagno - Page 4

                                        - 3 -                                         
          issue.  In September 1999, petitioners ceased their Amway                   
          activity and became involved in Quixtar, Inc., an Amway                     
               Amway is widely known as a marketer and supplier of various            
          personal and household products.  Amway relies on distributors to           
          purchase such products for personal consumption and for resale              
          primarily to “downline”1 distributors and customers.2  In                   
          general, a distributor’s gross income is based on profit from               
          retail sales, plus a “performance bonus” that is controlled by              
          Amway and is influenced by the type and quantity of products the            
          distributor purchases from Amway.                                           
               Profit from retail sales is determined by the difference               
          between the wholesale price, which is set by Amway, and the                 
          retail price, which is set by the distributor.  On average,                 
          Amway’s suggested retail price for its products is approximately            
          25-30 percent above wholesale, but distributors are entitled to             
          sell a product at whatever price they choose, even if a sale at             
          that price produces a loss.                                                 

               1 The term “downline” simply refers to one’s relative                  
          position in a particular distribution chain of Amway products.              
          One becomes an “upline” distributor after successfully recruiting           
          one or more downline distributors.                                          
               2 A customer purchases Amway products for personal                     
          consumption, but a distributor purchases Amway products intending           
          to resell them to customers or other distributors.                          

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