CLASS-ACTION SUIT FILED AGAINST QFC AND ITS THREE TOP OFFICERS

ELLIOT ZWIEBACH

SEATTLE -- A class-action suit has been filed against Quality Food Centers, Bellevue, Wash., and its three top officers in U.S. District Court here, alleging violations of securities laws in the company's recapitalization earlier this year.

The plaintiff -- William A. Browning, owner of 500 QFC shares -- is demanding a jury trial. Named as defendants are QFC; Stuart Sloan, chairman and chief executive officer; Dan Kourkoumelis, president, and Marc Evanger, vice president, chief financial officer and secretary-treasurer.

According to Kourkoumelis, "This is a totally spurious suit. Because our board of directors specifically structured this [recapitalization] to be fair to all shareholders in every respect, the suit's allegations are completely baseless and we intend to vigorously defend against them."

Evanger told SN a special committee of QFC's board reviewed the transaction and Smith Barney, New York, had deemed the transaction fair to shareholders.

The allegations in the suit stem from QFC's recapitalization last January, in which the chain offered to purchase up to 7 million shares of its common stock at $25 per share at the same time Zell/Chilmark, a Chicago-based investment partnership, became QFC's largest single shareholder with the purchase of 1 million shares of new common stock and the acquisition of 2.975 million shares of stock owned by Sloan.

According to the suit, Sloan received preferential treatment over other shareholders, since he was able to sell "a substantial portion of his holdings" in QFC while other shareholders were allowed to sell a more limited portion of their holdings.

The suit also claims QFC had to borrow $180 million to finance the tender offer and "has admitted that this new debt will constrain earnings and erase future dividends."

It also stated, "QFC admitted that as a result of the purchase of 7 million shares, a substantial portion of the company's funds from operations will be required for principal and interest payments due . . . [which] could constrain cash available for store remodelings, new store openings and store acquisitions."