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Background on Referral-Based Marketing (RBM) law September 01, 2005 10:30 AM

During historic litigation from 1974 – 1979, Amway Corporation prevailed against the FTC and established the Referral-based Marketing, Referral-Based Marketing and Direct Sales industry as a legitimate channel of distribution. The decision produced the “Amway Safeguards Rule”, which details a comprehensive set of legal standards to determine the legitimacy of a RBM (see list below). Krystal Planet has met and/or exceeded every item on this list: 1)Referral-Based Marketing companies must be real sales organizations that market real products to consumers: Krystal Planet Corporation (KP) markets tradable renewable certificates (TRCs) and future TRCs that are certified by a 3rd party independent auditing firm. Additionally, there are many competing companies offering similar products to consumers which have passed FTC inspection. 2)Products sold must have a “real world” marketplace and realistic and intrinsic value measured by the price-quality relationship: KP sells products that are competitively priced with other sellers of TRCs. In addition to competitive pricing, KP offers consumers more value with the gift program and a tax deduction may be available (if the customer elects to donate TRCs to a non-profit). 3)Product prices should be competitive and not inflated: KP’s TRCs are actually priced lower than most competitors after taking into account the value of the gift program and option to receive a charitable tax deduction. 4)Sign up costs should be low, requiring no substantial cash investment. Sales kits should be sold near company cost to distributors: KP has no initial enrollment fee that is required. Many other RBM companies charge $100 to $1,000 or more for initial start-up costs. 5)Distributors who are “business builders” are responsible for providing supervision, sales support, and product training to the downline sales organization: KP offers brochures and selling tools which Distributors can purchase for a low cost. Distributors are responsible for providing all sales support, supervision and product training for their downline sales organization. 6)Companies should not make any earnings representations unless those claims are based on a track record of sales performance: KP does not make earnings representations as a part of any official sales literature. Occasionally, earnings ranges will be provided on conference calls based on actual compensation averages of KP Energy Consultants (Ecos). 7)Companies should provide an official “Buy Back” policy for unsold, unopened restockable product (can include a restocking fee): All products are shipped as ordered. There is no need for distributors to hold a product inventory. 8)Compensation plans must not pay commissions to distributors for headhunting or recruiting: Commissions and bonuses are based on product sales, not recruiting other distributors. There are no ‘pyramiding’ bonuses available in the KP Compensation Plan. 9)Compensation plans must not encourage or require mandatory purchases of peripheral/accessory products and services: There is only one mandatory purchase of an accessory products or service: the Global Business Center. However, KP has been advised by its RBM attorneys that a) the website cost of $20 per month is minimal, b) Ecos can pay for the global business center from commissions by making a few retail sales and/or recruit a few Ecos, and c) providing a fullservice website to Ecos with streaming audio & video, regular updates, real time sales tracking, etc. for only $20 per month is a reasonable business expense. 10)Distributors must personally use or sell a minimum of 70% of their previously purchased product inventory before placing an order: All products are shipped as ordered. There is no need for distributors to hold a product inventory. 11)Commissions are paid solely on products/services purchased or sold by the distributors or for sales to other distributors: Commissions are paid solely on products/services purchased or sold by the distributors or for sales to other distributors. There are no ‘recruitment bonuses.’ 12)Distributors should emphasize retail sales to nonparticipant consumers outside the Referral-Based marketing organization: We encourage distributors to market our products and services to retail customers outside the Referral-Based marketing organization. Some Ecos and Planet Partners may enroll retail customers who want to help their communities build renewable energy projects in their areas. 13)Distributors must engage in retail selling and qualify under the “ten retail customer policy” in order to receive commissions and bonuses: KP’s compensation plan pays $100 in commissions for every thirty (30) retail customers who subscribe to the FutureWind service at $30 per month (every 300 Eco Points pays $100 in commissions in a 1/3, 2/3 split). Krystal Planet has numerous retail (non-distributor) customers on FutureWind, Krystal Wind, Krystal Clean Power and other services. Additionally Krystal Planet has several customers that purchase products.  [ send green star]
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