James P. Whitmer - Page 4

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          procure applications for life and health insurance and annuities            
          on behalf of ITT.                                                           
               Petitioner subsequently changed Whitco’s name to Midwest               
          Agencies, Inc. (Midwest).  On or about July 29, 1982, petitioner,           
          in his capacity as Midwest’s president, entered into a “General             
          Agent’s Contract” and an “Advance Commission and Loan Agreement             
          for General Agent” with ITT.  This contract and agreement were              
          identical to the Agent’s Contract and the Agreement, and                    
          hereinafter will be referred to as such.  Petitioner personally             
          guaranteed Midwest’s performance under the Agent’s Contract and             
          the Agreement.                                                              
               Whitco and Midwest engaged agents, including petitioner, to            
          sell insurance products on a commission basis.  ITT’s insurance             
          products (e.g., life insurance policies) were among these                   
          products.  Under the Agreement, ITT paid commissions to Midwest             
          (and its predecessor Whitco) and its agents.  When an agent sold            
          a policy, he or she received from ITT a commission that                     
          approximated the total commissions that would be earned over the            
          life of the policy (including renewals).  The unearned portions             
          of the commissions were considered loans.  If the policy was                
          later renewed, the commission on the renewal that would otherwise           
          have gone to the agent was applied to reduce the advance (or                
          unearned) commissions that were previously paid to the agent.               
          If the policy lapsed or was canceled, the portion of the                    
          commissions remaining unearned on the policy was treated as a               




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