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After becoming petitioner's CEO in March 1986, Mr. Ruf
improved petitioner's relationship with its suppliers. At the
time Mr. Ruf became petitioner's CEO, petitioner was not paying
its suppliers and other creditors because it did not have enough
cash, and its creditors were discussing the possibility of form-
ing a creditors' committee to force petitioner into bankruptcy.
Shortly after becoming petitioner's CEO in March 1986, Mr. Ruf
negotiated with petitioner's suppliers to extend its credit for
an additional 30 days even though petitioner had not paid them
for previously shipped items. Those suppliers agreed to extend
petitioner's credit at least in part due to Mr. Ruf's reputation
in the industry for turning around troubled home centers. In
addition, Mr. Ruf increased the communication between petitioner
and its suppliers.
In an attempt to improve employee morale, Mr. Ruf started a
policy of having 7 a.m. meetings with petitioner's store employ-
ees. The meetings were known as "donuts with Jess". In addi-
tion, during petitioner's fiscal year ended February 29, 1988,
Mr. Ruf authorized on behalf of petitioner an $800,000 contribu-
tion to petitioner's employee profit-sharing plan. Mr. Ruf also
changed petitioner's hiring policies and started to require
preemployment physicals and drug tests. As employee morale im-
proved, petitioner suffered fewer workmen's compensation claims
and less inventory shrinkage.
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