- 14 -
Within one year of becoming petitioner's CEO, Mr. Ruf nego-
tiated releases from the leases for three of petitioner's stores
that were adversely affecting its profits and closed those
stores. Mr. Ruf also renegotiated the leases for petitioner's
remaining stores, most of which were with the former sharehold-
ers. Those leases were changed from percentage leases, where the
amount of the rent increased as the sales volume increased, to
fixed-rent leases. Mr. Ruf purchased an interest in at least one
of the stores leased by petitioner.
In addition to renegotiating petitioner's leases, within two
years after becoming petitioner's CEO, Mr. Ruf also negotiated a
$250,000 reduction in the amount owed by petitioner under the UBM
note. The UBM note was subsequently purchased by the former
shareholders and Mr. Ruf.11
As petitioner's CEO, Mr. Ruf changed petitioner's retail
marketing strategy. In order to compete with the large discount
home centers that had entered petitioner's market, Mr. Ruf de-
cided that petitioner needed to provide better customer service
and make its stores more convenient to the customers. He at-
tempted to make petitioner's stores attractive and clean places
in which to shop. He changed petitioner's tradename to Lumber
City, The City of Home Improvement. Along with the change in
11 The precise portion of the UBM note owned by each of the
former shareholders and Mr. Ruf is unclear, although Mr. Ruf
purchased only a "small piece" of it.
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