- 32 -
approximately 50 percent and fired virtually all of petitioner's
top management personnel. Instead of replacing those management
employees, Mr. Ruf himself assumed their responsibilities and
performed their functions. As petitioner's CEO and president, he
was responsible for its management and operations, including its
day-to-day operations, marketing, human resources, merchandising,
advertising, check writing, accounts receivables, relations with
suppliers and noteholders, and real estate negotiations. During
at least the first two or three years after he became peti-
tioner's CEO, Mr. Ruf worked 12 to 15 hours a day, six to seven
days a week. With the exception of one employee who was made an
officer for the sole purpose of acting on petitioner's behalf in
small claims court and Mr. Lyons who became petitioner's CFO in
either March 1989 or March 1990, Mr. Ruf was petitioner's only
officer during the years at issue.
After he became petitioner's CEO, Mr. Ruf was responsible
for changing petitioner's retail marketing strategy so that it
could compete effectively with the large discount home centers
that had entered its market. Rather than trying to compete with
those companies on price, Mr. Ruf decided that petitioner needed
to provide better customer service. In that respect, he
(1) changed petitioner's tradename to Lumber City, The City of
Home Improvement, (2) changed the interior design of petitioner's
stores to resemble stores within a city, and (3) made peti-
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