<PAGE>
[LOGO]
DEAR SHAREHOLDER:
You are cordially invited to attend the Quality Food Centers, Inc. Annual
Meeting of Shareholders to be held at 9:00 a.m. on Tuesday, April 25, 1995, at
the Red Lion Hotel/Bellevue, 300 112th Avenue SE, Bellevue, Washington.
Information concerning the business to be conducted at the meeting is
included in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement. At the meeting, we also will report on the operations of QFC and
respond to any questions you may have.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
it is important that your shares be represented. Therefore, we urge you to sign,
date and promptly return the enclosed proxy in the enclosed postage paid
envelope. If you attend the meeting, you will, of course, have the right to vote
in person.
I look forward to greeting you personally, and on behalf of the Board of
Directors and management, I would like to express our appreciation for your
interest in QFC.
Sincerely,
QUALITY FOOD CENTERS, INC.
[SIGNATURE]
Stuart M. Sloan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
March 31, 1995
<PAGE>
[LOGO]
10112 NE 10TH STREET
BELLEVUE, WASHINGTON 98004
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, APRIL 25, 1995
------------------------
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Quality Food Centers, Inc. ("QFC" or
the "Company") will be held at 9:00 a.m. local time on Tuesday, April 25, 1995,
at the Red Lion Hotel/Bellevue, 300 112th Avenue SE, Bellevue, Washington, for
the following purposes:
1. To elect one Class I director, two Class II directors, and one Class III
director;
2. To ratify the selection of Deloitte & Touche as the Company's
independent auditors for the fiscal year ending December 30, 1995; and
3. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 30, 1995 are
entitled to notice of, and to vote at, the meeting.
By Order of the Board of Directors
[SIGNATURE]
Marc W. Evanger
SECRETARY
Bellevue, Washington
March 31, 1995
EACH SHAREHOLDER IS URGED TO SIGN AND RETURN PROMPTLY THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE
UNITED STATES.
<PAGE>
QUALITY FOOD CENTERS, INC.
10112 NE 10TH STREET
BELLEVUE, WASHINGTON 98004
------------------------
PROXY STATEMENT
------------------------
INFORMATION REGARDING PROXIES
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Quality
Food Centers, Inc. ("QFC" or the "Company") for use at the Annual Meeting of
Shareholders to be held at 9:00 a.m. on Tuesday, April 25, 1995, and at any
adjournment thereof. Only shareholders of record on the books of the Company at
the close of business on March 30, 1995 (the "Record Date") will be entitled to
notice of, and to vote at, the meeting.
It is anticipated that these proxy solicitation materials and a copy of the
Company's 1994 Annual Report to Shareholders will be sent to shareholders on or
about April 5, 1995.
If the accompanying form of proxy is properly executed and returned, the
shares represented thereby will be voted in accordance with the instructions
specified therein. In the absence of instructions to the contrary, such shares
will be voted for the proposals set forth therein. Any shareholder executing a
proxy has the power to revoke it at any time prior to the voting thereof on any
matter (without, however, affecting any vote taken prior to such revocation) by
delivering written notice to Marc W. Evanger, Secretary of the Company, by
executing another proxy dated as of a later date or by voting in person at the
meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only voting securities of the Company are shares of common stock, $.001
par value (the "Common Stock"), each of which is entitled to one vote. At March
30, 1995, the Record Date, there were issued and outstanding 14,333,512 shares
of Common Stock. The presence in person or by proxy of holders of record of a
majority of the outstanding shares of Common Stock is required to constitute a
quorum for the transaction of business at the meeting.
The following table sets forth information, as of the Record Date, with
respect to all shareholders known by the Company to be the beneficial owners of
more than five percent of its outstanding shares of Common Stock. It also shows
beneficial ownership for each director and nominee and for the executive
officers. Except as noted below, each person has sole voting and investment
power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL SHARES
NAME AND ADDRESS (1) OWNERSHIP (2) OUTSTANDING
- ---------------------------------------- ----------------- -----------
<S> <C> <C>
Stuart M. Sloan (3)(5)(6)............... 4,703,982 32.8%
Marsha Sloan Glazer (3)................. 1,166,122 8.1
Norma Croco............................. 50,337 *
Ronald A. Weinstein (3)................. 291,559 2.0
Maurice F. Olson........................ 592,941 4.1
Zell/Chilmark Fund L.P. (4)(5)(7)....... 3,975,000 27.7
Samuel Zell (4)(5)(7)................... 3,975,000 27.7
Joel S. Friedland (4)(5)(7)............. 3,975,000 27.7
Dan Kourkoumelis........................ 53,323 *
Fred B. McLaren......................... 11,133 *
John W. Creighton, Jr................... 10,408 *
Marc W. Evanger......................... 28,651 *
All executive officers and directors as
a group (10 persons)................... 6,742,335 47.0%
<FN>
- ------------------------
(1) The business address of each shareholder identified as the beneficial owner
of more than five percent of the Common Stock other than Mrs. Glazer,
Zell/Chilmark Fund L.P. and Messrs. Zell and Friedland is 10112 N.E. 10th
Street, Bellevue, Washington 98004. The business address of
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Mrs. Glazer is 1420 5th Avenue, Suite 3000, Seattle, Washington 98101. The
business address of Zell/Chilmark Fund L.P. and Messrs. Zell and Friedland
is Two North Riverside Plaza, Suite 1500, Chicago, Illinois 60606.
(2) Includes shares that may be acquired within 60 days through the exercise of
stock options, as follows: Mr. Sloan, 30,000 shares; Norma Croco, 10,333
shares; Mr. Weinstein, 7,000 shares; Mr. Kourkoumelis, 48,385 shares; Mr.
Creighton, 8,408 shares; Mr. Evanger, 25,094 shares; and all executive
officers and directors as a group, 139,543 shares.
(3) Certain of these shares were subject to a Voting Trust Agreement dated
March 6, 1987, as supplemented, pursuant to which Mr. Sloan had sole voting
power as voting trustee. On March 1, 1995, such voting trust was
terminated.
(4) Pursuant to a Recapitalization and Stock Purchase and Sale Agreement dated
as of January 14, 1995 (the "Recapitalization Agreement") among the
Company, Stuart M. Sloan and Zell/ Chilmark Fund L.P. ("Zell Chilmark"),
the Company agreed to (i) issue to Zell Chilmark 1,000,000 newly issued
shares of Common Stock at $25 per share (the "Zell Chilmark New Issuance"),
(ii) commence a tender offer to purchase up to 7,000,000 shares of its
Common Stock at $25 per share payable in cash (the "Offer") and (iii) enter
into a credit facility to finance the Offer. The Offer expired on March 17,
1995. On March 29, 1995, the closing of the Zell Chilmark New Issuance was
completed, and the Company entered into the credit facility and purchased
7,000,000 shares of the 11,179,838 shares of its Common Stock tendered
pursuant to the Offer. The calculation of the amount of beneficial
ownership and percent of shares outstanding reflects the Zell Chilmark New
Issuance and such purchase by the Company pursuant to the Offer. By virture
of their positions with the entities that indirectly control the general
partner of Zell Chilmark, Messrs. Zell and Friedland may be deemed to
beneficially own the shares of Common Stock beneficially owned by Zell
Chilmark. Messrs. Zell and Friedland disclaim beneficial ownership of such
shares.
(5) In connection with the Recapitalization Agreement, Mr. Sloan and Zell
Chilmark entered into a Stock Purchase and Sale Agreement dated as of
January 14, 1995 (the "Stock Sale Agreement") pursuant to which Mr. Sloan
agreed to sell to Zell Chilmark on January 15, 1996, and Zell Chilmark
agreed to purchase from Mr. Sloan on that date, 2,975,000 shares of Common
Stock currently owned by Sloan at $25 per share plus an additional amount
equal to a 5% annual return on that base price calculated from the
expiration date of the Offer through the date of Zell Chilmark's share
purchase from Mr. Sloan (the "Sloan Stock Sale"). Under regulations promul-
gated by the Securities and Exchange Commission, both Zell Chilmark and Mr.
Sloan are deemed to be beneficial owners of the 2,975,000 shares as of the
Record Date. Mr. Sloan has the sole right to vote these shares. Upon
consummation of the Sloan Stock Sale, Mr. Sloan will own 1,728,982 shares,
representing 12.1% of the shares currently expected to be then outstanding,
and Zell Chilmark will own 3,975,000 shares, representing 27.7% of the
shares currently expected to be then outstanding.
(6) In connection with the Recapitalization Agreement, Mr. Sloan and the
Company entered into a Standstill Agreement dated as of January 14, 1995
(the "Sloan Standstill Agreement") pursuant to which Mr. Sloan agreed that
he will not take any of the following actions without the approval of a
majority of the Company's disinterested directors, subject to specified
limited exceptions: (a) sell or otherwise dispose of any Common Stock prior
to two years after the Zell Chilmark New Issuance (except for the Sloan
Stock Sale and certain family related transactions); (b) form, join or
participate in any other way in a partnership, voting trust or other
"group" (as such term is defined under Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), or enter into any
agreement or arrangement or otherwise act in concert with any other person,
for the purpose of acquiring, holding, voting or disposing of Common Stock;
(c) engage in certain specified takeover actions or take any other actions,
alone or in concert with any other person, to seek control of the Company
or otherwise seek to circumvent any of the foregoing limitations; or (d)
engage in any material transaction with the Company.
(7) In connection with the Recapitalization Agreement, Zell Chilmark and the
Company entered into a Standstill Agreement dated as of January 14, 1995
(the "Zell Chilmark Standstill Agreement")
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
pursuant to which Zell Chilmark has agreed that Zell Chilmark and certain
of its affiliates will not take any of the following actions without the
approval of a majority of the Company's disinterested directors, subject to
specified limited exceptions: (a) increase their ownership of Common Stock
(or securities convertible into or exchangeable for Common Stock or other
options or rights to acquire Common Stock) prior to June 30, 2000 beyond
30%; (b) sell or otherwise dispose of any Common Stock during the two-year
period following the Zell Chilmark New Issuance; (c) sell or otherwise
dispose of any Common Stock during the two-year period following expiration
of the two-year period specified in clause (b) to any person or group that
would own (to Zell Chilmark's knowledge) more than 5% of the outstanding
Common Stock after such transfer; (d) form, join or participate in any
other way in a partnership, voting trust or other "group" (as such term is
defined under Section 13(d) of the Exchange Act), or enter into any
agreement or arrangement or otherwise act in concert with any other person,
for the purpose of acquiring, holding, voting or disposing of Common Stock;
(e) engage in certain specified takeover actions or take any other actions,
alone or in concert with any other person, to seek control of the Company
or otherwise seek to circumvent any of the foregoing limitations; or (f)
engage in any material transaction with the Company.
* Denotes less than one percent.
</TABLE>
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board is divided
into three classes: Class I, Class II and Class III. Each Class is as nearly
equal in number as possible. Unless a director has been appointed to fill a
vacancy or to fill a position that was created by increasing the number of
directors, each director serves for a term ending at the third annual
shareholders' meeting following the annual meeting at which elected. Each
director serves until such director's successor is elected and qualified or
until such director's earlier death, resignation or removal. One Class I
director, two Class II directors and one Class III director are to be elected at
the Annual Meeting.
Information as to the nominees and as to each other director whose term will
continue after the 1995 Annual Meeting of Shareholders is provided below. The
candidates elected will be those receiving the largest numbers of votes cast by
the shares entitled to vote in the election, up to the number of directors to be
elected by such shares. Shares held by persons who abstain from voting on the
election and broker "non-votes" will not be counted in the election. Unless
otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for the nominees of the Board of Directors named below. Although the
Board of Directors anticipates that the nominees will be available to serve as
directors of the Company, should any of them not accept the nomination, or
otherwise be unwilling or unable to serve, it is intended that the proxies will
be voted for the election of a substitute nominee or nominees designated by the
Board of Directors.
The terms of the Recapitalization Agreement provide that upon consummation
of the Zell Chilmark New Issuance, Samuel Zell and a second representative of
Zell Chilmark will join the Company's Board of Directors. The Zell Chilmark
Standstill Agreement provides that (i) Zell Chilmark will continue to have two
representatives on the Company's Board as long as Zell Chilmark owns at least
10% of the outstanding Common Stock; (ii) the Company will not increase the size
of its Board beyond nine members as long as Zell Chilmark is entitled to two
Board representatives; and (iii) Zell Chilmark will vote its Common Stock for
the election or removal of directors of the Company either (A) in accordance
with the recommendations of a majority of the Company's independent directors or
(B) in the same proportion as the other shareholders vote on such matter. The
Zell Chilmark Standstill Agreement also imposes some limitations on how Zell
Chilmark may vote its Common Stock with respect to any matter that would relate
to a possible change in control of the Company.
3
<PAGE>
In connection with the merger of Olson's Food Stores, Inc. into the Company,
the Company agreed to appoint Maurice F. Olson to the Board and to make
reasonable efforts to cause him to be elected to a three-year term at the 1995
Annual Meeting of Shareholders.
NOMINEE FOR ELECTION -- CLASS I DIRECTOR (TERM TO EXPIRE IN 1997)
Samuel Zell, 53, became a director of the Company on March 29, 1995. Mr.
Zell is, and since 1981 has been, Chairman of the Board of Equity Financial and
Management Company and, since 1986 has been, Chairman of the Board of Equity
Group Investments, Inc., two privately owned affiliated investment and
management companies; is, and since mid-1990 has been, one of two individuals
who act as general partners of the general partner of Zell/Chilmark Fund L.P.;
is, and since 1985 has been, Chairman of the Board of Itel Corporation, a
company engaged in the distribution of wiring systems products; is, and since
1983 has been, Chairman of the Board, and from 1990 through 1993 was Chief
Executive Officer and President, of Great American Management and Investment,
Inc., a diversified company with interests in manufacturing, agriculture,
chemicals and fertilizers and financial services; from 1987 has served as
Chairman of the Board of Capsure Holdings Corp. (formerly called Nucorp Inc.), a
company engaged in the business of speciality property and casualty insurance;
is, and since 1992 has been, Co-Chairman of Revco D.S., Inc., a company that
operates a chain of retail drug stores; is, and since 1993 has been, Chairman of
the Board of Equity Residential Properties Trust, a self-administered,
self-managed equity real estate investment trust; is, and since 1993 has been,
Chairman of the Board of Broadway Stores, Inc., a retail organization in
California and the Southwestern United States; and from 1993 to January 1994 was
Co-Chairman, and from January 1994 to the present has been, Chairman of the
Board of Manufactured Home Communities, Inc., a self-administered and
self-managed equity real estate investment trust which owns and operates
properties in 16 states. Mr. Zell is a member of the board of directors of
American Classic Voyages Co., Jacor Communications, Inc., Falcon Building
Products, Inc., Sealy Corporation and Vigoro Corporation. Prior to October 4,
1991, Mr. Zell was President of Madison Management Group, Inc., which filed a
petition under Chapter 11 of the Bankruptcy Code on November 8, 1991.
NOMINEES FOR ELECTION -- CLASS II DIRECTORS (TERMS TO EXPIRE IN 1998)
Maurice F. Olson, 51, became a director of the Company on March 2, 1995. Mr.
Olson was formerly Chairman and Chief Executive Officer of Olson's Food Stores,
Inc. Mr. Olson is a member of the Board of Directors of Associated Grocers.
Stuart M. Sloan, 51, became a director of the Company in 1985 and has been
Chairman since June 1986. Mr. Sloan served as Chief Executive Officer of the
Company from June 1986 to February 1987 and has been Chief Executive Officer
since April 1991. Mr. Sloan is the founder and a principal of Sloan Capital
Companies, a private investment company. See "Certain Relationships and Related
Transactions." Mr. Sloan served as President of Egghead, Inc., a reseller of
microcomputer software, from February 1989 until July 1990, as Chief Executive
Officer from February 1989 until April 1991 and as Chairman from January 1990 to
September 1992. Mr. Sloan serves as a director of Itel Corporation, Cucina!
Cucina!, Inc., SeaFirst Corporation and SeaFirst Bank.
NOMINEE FOR ELECTION -- CLASS III DIRECTOR (TERM TO EXPIRE IN 1996)
Joel S. Friedland, 40, became a director of the Company on March 29, 1995.
Mr. Friedland is, and since mid-1990 has been, an affiliate of the general
partner of Zell/Chilmark Fund L.P. Since 1984, Mr. Friedland has been associated
with, and since 1987 has been a partner of, Chilmark Partners, L.P. Mr.
Friedland is also a director of Sealy Corporation.
CONTINUING -- CLASS I DIRECTORS (TERMS TO EXPIRE IN 1997)
John W. Creighton, Jr., 62, became a director of the Company in December
1989. He has served since 1988 as President and a director, and since August
1991 as Chief Executive Officer, of Weyerhaeuser Company, a forest products
company. Mr. Creighton joined Weyerhaeuser Company in 1970
4
<PAGE>
and was appointed Corporate Vice President in 1970 and Executive Vice President
in 1985. Mr. Creighton serves as a director of MIP Properties, Inc., Washington
Energy Company and Portland General Corporation.
Fred B. McLaren, 60, became a director of the Company in 1988. Since 1974 he
has been the President and, since 1972, a director, of Hughes Markets Inc., a
privately-held chain of 51 supermarkets headquartered in Los Angeles,
California, and since 1987 has been Chairman and Chief Executive Officer of
Santee Dairies, Inc. Mr. McLaren is past President of the Western Association of
Food Chains and a former director of Certified Grocers of California. He
currently is a director of the Food Marketing Institute and a member of the Food
Employers Council Executive Committee.
CONTINUING -- CLASS III DIRECTORS (TERMS TO EXPIRE IN 1996)
Dan Kourkoumelis, 44, became a director of the Company in April 1991. He
joined the Company as a boxboy in 1967 and his experience includes several ranks
of store management and executive positions. Mr. Kourkoumelis was appointed
Executive Vice President in 1983, Chief Operating Officer in 1987 and President
in 1989. Mr. Kourkoumelis is a member of the Board of Directors of the Western
Association of Food Chains and Washington State Food Dealers Association and
serves as a director of Expeditors International of Washington, Inc. and
Shurgard Storage Centers, Inc.
Ronald A. Weinstein, 54, served as a director of the Company from June 1986
to March 1987 and became a director again in February 1988. He was a principal
of Sloan Capital Companies from 1984 to July 1991. From February 1989 until
April 1991, Mr. Weinstein served as Executive Vice President of Merchandising at
Egghead, Inc. Mr. Weinstein serves as Chairman of B & B Auto Parts, Inc. and is
a director of Molbak's, Inc. and Coinstar, Inc.
Norma Croco, who served as a director of QFC until 1986 and again became a
Class II director in April 1991, has decided not to stand for re-election.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held eight meetings during the fiscal
year ended December 31, 1994. In addition, as allowed by Washington law, the
Board of Directors took certain actions without formal meetings two times during
the last fiscal year.
The Company has an Audit Committee consisting of Messrs. Creighton, McLaren
and Weinstein and Ms. Croco. Two meetings of the Audit Committee were held
during the last fiscal year. The functions of the Audit Committee include: (i)
reviewing the plan, scope and results of the independent audit and reporting to
the full Board whether financial information is fairly presented and whether
generally accepted accounting principles are followed; (ii) monitoring the
internal accounting and financial functions of the Company to assure quality of
staff and proper internal controls; and (iii) investigating conflicts of
interest, ethics and compliance with laws and regulations.
The Company has a Compensation Committee consisting of Messrs. Creighton,
McLaren and Weinstein and Ms. Croco. Three meetings of the Compensation
Committee were held during the last fiscal year and, as allowed by Washington
law, the Compensation Committee took certain action without formal meetings five
times during the last fiscal year. The functions of the Compensation Committee
include: (i) setting the compensation of the Company's executive officers; and
(ii) administering certain of the Company's stock option plans.
The Board of Directors does not have a nominating committee.
DIRECTORS' FEES
Directors who are not employees of the Company, and excluding Mr. Sloan, are
paid an annual retainer fee of $10,000 plus $1,000 for each Board of Directors
meeting attended in person and $250 for each teleconference, are reimbursed for
their expenses incurred in attending such meetings, and are granted stock
options under the Directors' Nonqualified Stock Option Plan (the "Directors'
Plan"). Under the Directors' Plan, each non-employee (non-affiliated) director
of the Company is granted a non-qualified option to purchase 10,000 shares of
Common Stock upon becoming a director.
5
<PAGE>
Each director also is granted a non-qualified option to purchase 1,000 shares of
common stock on an annual basis. Options vest in equal annual installments over
three years and terminate, with certain exceptions, ten years after the date of
grant. The exercise price for the options is the fair market value of the Common
Stock on the date of grant. Options may be exercised for a period of one month
following termination as a director, except that under certain circumstances
options expire at the time of termination. Upon exercise, the exercise price may
be paid in cash, by certified or cashier's check or in shares of stock of the
Company owned by a director. Options to purchase up to 100,000 shares of Common
Stock are authorized under the Directors' Plan. At the end of fiscal year 1994
options to acquire an aggregate of 46,200 shares were held by four directors at
an average exercise price of $22.53 per share. Options to purchase 1,000 shares
were granted under the Directors' Plan to Messrs. Creighton, McLaren and
Weinstein and Ms. Croco during fiscal year 1994 at an option price of $22.50.
EXECUTIVE COMPENSATION
The following table shows the compensation for services rendered during
fiscal years 1994, 1993 and 1992 for the Chief Executive Officer and the other
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
FISCAL -------------------------- ------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(2)
- ---------------------------------------------- --------- --------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Stuart M. Sloan............................... 1994 1,151,757(1) 0 50,000 0
Chairman, Chief 1993 1,036,520(1) 0 100,000 0
Executive Officer 1992 920,214(1) 0 0 0
Dan Kourkoumelis.............................. 1994 233,528 143,000 30,000 20,862
President, Chief 1993 228,013 120,626 15,000 17,127
Operating Officer 1992 113,485 225,000 15,000 16,935
Marc Evanger.................................. 1994 121,093 73,000 20,000 12,929
Vice President, Chief 1993 117,866 61,873 10,000 15,640
Financial Officer 1992 74,504 100,000 10,000 11,516
<FN>
- ------------------------
(1) Mr. Sloan does not receive a salary or bonus from the Company. Since 1986,
Sloan Capital Companies, which is controlled by Mr. Sloan, has received
from the Company a management fee of 0.2% of the Company's total sales
pursuant to a management agreement dated August 17, 1986. The management
fee is not subject to adjustment without the agreement of the parties and
has not been adjusted or amended during the covered periods. See "Certain
Relationships and Related Transactions."
(2) These amounts represent the accrued Company contributions to the Quality
Food Centers, Inc. Defined Contribution Profit Sharing Plan. The amounts
for 1994 include cash compensation of $10,578 and $2,645 payable to Mr.
Kourkoumelis and Mr. Evanger, respectively, representing the shortfall in
contributions that would otherwise have been made had a $150,000 salary
limit on compensation to be considered for profit sharing contributions not
been imposed by the Internal Revenue Code.
</TABLE>
The Company has stock option plans pursuant to which options to purchase
Common Stock are granted to officers and key employees of the Company. The
following tables show stock option grants and exercises in fiscal year 1994 to
or by the executive officers of the Company, and the year-end value of
unexercised options.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL
SECURITIES % OF RATES OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM (1)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (#)(2) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------------- ----------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart M. Sloan....................... 50,000 25.0% 22.50(3) 07/04/2004 $ 707,506 $ 1,792,960
Dan Kourkoumelis...................... 30,000 15.0% 22.50(3) 07/04/2004 424,504 1,075,776
Marc Evanger.......................... 20,000 10.0% 22.50(3) 07/04/2004 283,002 717,184
<FN>
- ------------------------
(1) Potential realizable value is based on the assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price performance.
(2) The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which determines to whom the options
are granted, the number of shares subject to each option, the vesting
schedule and the exercise price. Stock options granted to Mr. Sloan were
granted pursuant to the 1993 Executive Stock Option Plan. Stock options
granted to Messrs. Kourkoumelis and Evanger were granted pursuant to the
1987 Incentive Stock Option Plan, as amended. The options vest in equal
annual installments over five years, and expire after 10 years.
(3) The options were granted on July 5, 1994, at fair market value.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END (#) YEAR END ($)(1)
SHARES ------------------ -------------------
ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------- ------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Stuart M. Sloan.............................. 0 0 20,000/130,000 $ 0/81,250
Dan Kourkoumelis............................. 2,925 0 80,179/ 58,600 950,914/73,500
Marc Evanger................................. 0 0 51,015/ 38,400 648,163/46,250
<FN>
- ------------------------
(1) Potential unrealized value is (i) the fair market value at fiscal 1994 year
end ($24.125 per share) less the option exercise price times (ii) the
number of shares.
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is determined by the
Compensation Committee, which is comprised solely of outside directors.
The policy of the Compensation Committee in determining executive
compensation is that such compensation should (i) reflect Company performance,
(ii) reward individual performance, (iii) align the interests of the executives
with the long-term interests of the shareholders and (iv) assist the Company in
attracting and retaining key executives critical to the long-term success of the
Company.
Executive compensation, other than for the Company's Chairman and Chief
Executive Officer, consists primarily of (i) base salary, (ii) a bonus and (iii)
the grant of stock options. Base salary is determined at or about the beginning
of a fiscal year while bonuses and stock option grants are
7
<PAGE>
determined at the end of the fiscal year, thereby allowing the Compensation
Committee to take into account Company and individual performance in determining
a significant portion of an executive's compensation.
The base salary for such executive officers is fixed at levels the
Compensation Committee believes are at the low range of the salaries paid to
executive officers having similar positions at public companies in the retail
food chain industry based upon reports, salary surveys and input from
compensation consultants. These other public retail food chain companies
considered relevant for salary comparison purposes include some that are in the
S&P Retail Stores -- Food Chains Index which is plotted in the performance graph
following this report and some that are not. A relatively low base salary
permits the Compensation Committee to rely significantly on bonuses to reflect
Company and executive performance. Prior to 1993, the majority of each executive
officer's cash compensation was paid in the form of a bonus. The Compensation
Committee did not feel this relationship was in the best long-term interests of
the Company's shareholders or executives. Accordingly, this ratio was changed in
1993 so that a larger portion of cash compensation is salary while cash bonuses
remain a significant portion of cash compensation. The Compensation Committee
believes that total cash compensation paid to such executive officers in 1994
was in the medium range of the compensation paid by the relevant other public
retail food chain companies.
Bonuses are discretionary and are determined subjectively, with the
Compensation Committee taking into account Company and individual performance.
Both financial and non-financial factors are considered but no predetermined
goals are set that need to be met before bonuses are paid.
The Compensation Committee grants stock options to its executive officers
pursuant to the Company's 1993 Executive Stock Option Plan and 1987 Incentive
Stock Option Plan. Such awards are designed to align a significant portion of
executive compensation with shareholder interests as well as provide long-term
incentives to the executive. The Compensation Committee considers the amount of
options granted to the executive officer in prior years as well as his position.
The Compensation Committee believes Mr. Sloan should receive stock options
to provide additional incentive to improve long-term performance of the
Company's stock from current levels. A grant of 50,000 shares was made to Mr.
Sloan in July 1994, at the same time grants were made to the other officers and
employees of the Company.
The policy of the Compensation Committee regarding executive compensation
also generally applies to the compensation of the Company's employees. In fiscal
year 1994 the Company awarded bonuses in the aggregate amount of $3,121,539 to
378 employees other than the executive officers and granted options to purchase
100,200 shares of Common Stock to 463 of such employees.
For fiscal year 1994, Mr. Sloan, through Sloan Capital Companies, was paid a
management fee of 0.2% of the Company's total sales pursuant to a management
agreement that was entered into in 1986. This fee was negotiated between Mr.
Sloan and the Company in connection with Mr. Sloan's acquisition of the Company
in 1986. The management agreement expires in 1996.
COMPENSATION COMMITTEE
Fred B. McLaren, Chairman
John W. Creighton, Jr.
Norma Croco
Ronald A. Weinstein
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Creighton, McLaren and
Weinstein and Ms. Croco. Ms. Croco served as an officer of the Company until
1986.
PERFORMANCE GRAPH
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG QUALITY FOOD CENTERS, INC.
S&P 500 INDEX AND S&P RETAIL STORES -- FOOD CHAINS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
QUALITY FOOD CENTERS,
S&P 500 INDEX INC. RETAIL (FOOD CHAINS)
<S> <C> <C> <C>
Dec-89 100.00 100.00 100.00
Dec-90 96.90 130.58 105.67
Dec-91 126.42 213.22 111.49
Dec-92 136.05 242.98 145.78
Dec-93 149.76 164.46 141.42
Dec-94 151.74 161.77 151.36
</TABLE>
The above comparison assumes $100 invested in the Company's Common Stock, the
S&P 500 Index and the S&P Retail Stores -- Food Chains Index on December 31,
1989.
PROPOSAL II
SELECTION OF INDEPENDENT AUDITORS
The Company has selected Deloitte & Touche to continue as its independent
auditors for the fiscal year ending December 30, 1995. Representatives of
Deloitte & Touche are expected to be present at the Annual Meeting of
Shareholders and to have the opportunity to make a statement if they so desire
and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT AUDITORS OF
THE COMPANY.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a management agreement dated August 17, 1986 with Sloan Capital
Companies (the "Management Agreement"), the Company pays Sloan Capital Companies
a management fee in an amount not greater than 0.2% of QFC's total sales in
exchange for general advisory and policy-making
9
<PAGE>
services. Pursuant to the Management Agreement, $1,151,757 was paid for fiscal
year 1994. The Management Agreement expires June 18, 1996. Stuart M. Sloan, the
Company's Chairman and Chief Executive Officer, controls Sloan Capital
Companies.
In August 1993, two partnerships which include Mr. Sloan acquired the
24-acre University Village Shopping Center, where one of the Company's stores is
located and which is adjacent to an 8.8 acre parcel of land the Company acquired
in 1991. In connection with the transaction the Company negotiated with the
partnerships for certain property rights and lease modifications, which among
other rights provide the Company with the right to be the exclusive grocery
store in the center, the right to relocate its store and a lease term extension
of 15 years. The Company paid $4,960,000 for these rights, which is included in
Leasehold Interest and is being amortized over the life of the lease. Rentals
and common area and real estate tax reimbursements paid to the partnerships were
at the same rates paid to the previous owner of the center and totaled
approximately $715,000 for the fiscal year ended December 31, 1994.
The Company entered into certain agreements with Mr. Sloan and Zell Chilmark
in connection with the recapitalization of the Company, as described in
footnotes (4) through (7) to the beneficial ownership table under "Voting
Securities and Principal Holders."
In connection with the merger of Olson's Food Stores, Inc. into the Company,
Maurice F. Olson, a director of the Company, received 592,941 shares of the
Commpany's Common Stock and $18,000,000 in cash and members of his immediate
family received an aggregate of 160,000 shares of such stock on March 1, 1995.
Pursuant to the merger, Mr. Olson entered into a noncompetition agreement with
the Company.
Commencing March 2, 1995 the Company leases one of the former Olson's stores
included in the merger from Mr. Olson. Annual minimum lease payments to be paid
to Mr. Olson under the lease will be $128,400.
The Company expects to purchase wholesale bakery goods from Signature
Bakery, L.L.C., which is owned by members of Mr. Olson's immediate family,
during fiscal year 1995.
OTHER BUSINESS
Management knows of no other business that will be presented for action at
the meeting. If other business requiring a vote of the shareholders should come
before the meeting, the persons designated as your proxies will vote or refrain
from voting in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR THE
1996 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals to be presented at the 1996 Annual Meeting of
Shareholders must be received at the Company's executive offices by December 1,
1995, in order to be included in the Company's proxy statement and form of proxy
relating to that meeting.
The Company's charter provides that advance notice of nominations for the
election of directors or the proposal of business at an annual meeting must be
submitted in writing and delivered to or mailed and received by the Secretary of
the Company not less than 30 days nor more than 60 days prior to the meeting;
provided, however, that if less than 40 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholders to be timely must be so received not later than the close of
business on the tenth day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made. The notice must
contain, among other things: (i) a brief description of the business desired to
be brought before the annual meeting; (ii) the name and address of the
shareholder who intends to make the nomination or proposal; (iii) the class and
number of shares of stock of the Company which are beneficially owned by such
shareholder; (iv) a disclosure of any material interest of such shareholder in
such business; and (v) such other information regarding each nominee or proposal
as would be required to be included in
10
<PAGE>
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission. The chairman of the meeting may in his discretion determine
and declare to the meeting that a proposal was not made in accordance with the
foregoing procedures, and if he should so determine, he shall so declare to the
meeting and the proposal shall be disregarded.
SOLICITATION OF PROXIES
This solicitation is made on behalf of the Board of Directors of the
Company. Proxies may be solicited by officers, directors and employees of the
Company, none of whom will receive any additional compensation for their
services. Solicitations of proxies may be made personally, or by mail,
telephone, telegraph, facsimile or messenger.
The Company will pay persons holding shares of Common Stock in their names
or in the names of nominees, but not owning such shares beneficially, such as
brokerage houses, banks and other fiduciaries, for the expense of forwarding
soliciting materials to their principals. All of the costs of solicitation of
proxies will be paid by the Company.
By Order of the Board of Directors
[SIGNATURE]
Marc W. Evanger
SECRETARY
Bellevue, Washington
March 31, 1995
11
<PAGE>
QUALITY FOOD CENTERS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stuart M. Sloan and Marc Evanger, and each
of them, as proxies, each with full power of substitution, to represent and vote
for and on behalf of the undersigned the number of shares of common stock of
Quality Food Centers, Inc. that the undersigned would be entitled to vote if
personally present at the annual meeting of shareholders to be held on April 25,
1995, or at any adjournment thereof. The undersigned directs that this Proxy be
voted as follows:
<TABLE>
<S> <C> <C> <C>
1. Election of Directors: FOR all Nominees WITHHOLD AUTHORITY
(EXCEPT AS INDICATED TO THE CONTRARY (TO VOTE FOR ALL NOMINEES LISTED
BELOW) / / BELOW) / /
</TABLE>
Joel S. Friedland, Maurice F. Olson, Stuart M. Sloan and Samuel Zell
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME IN THE FOLLOWING SPACE:
- --------------------------------------------------------------------------------
2. Ratification of the selection of Deloitte & Touche as the independent
auditors of the Company.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. This Proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL
NOMINEES" IN ITEM 1 AND "FOR" ITEM 2.
Please sign exactly as your name appears below. When shares are held
jointly, each person should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. An
authorized person should sign on behalf of corporations, partnerships and
associations and give his or her title.
Dated: _______________ , 1995
_____________________________
Signature
_____________________________
Signature if held jointly
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THIS PROXY CARD PROMPTLY.
