<PAGE>   1
                               EXHIBIT (10)(viii)

                   Material Contracts -- Employment Agreement
                 between Richman Gordman 1/2 Price Stores, Inc.
                     and Don DeGraeve dated February 1, 1997




                                       36
<PAGE>   2
                              EMPLOYMENT AGREEMENT

     This Agreement is made as of the 1st day of February, 1997 between Richman
Gordman 1/2 Price Stores, Inc., a Delaware corporation with its principal office
located at 12100 West Center Road, Omaha, Nebraska, 68144 ("Employer"), and
Donald L. DeGraeve ("Employee"), who resides at 12952 Seward Street, Omaha,
Nebraska 68154.

     WHEREAS Employer has extended an offer of employment to Employee to serve
as the Vice President, General Merchandise Manager for Employer, subject to the
terms and provisions set forth in this Agreement; and

     WHEREAS Employee accepts employment on the terms and provisions set forth
in this Agreement;

     NOW, THEREFORE, in consideration of the mutual promises set forth in this
Agreement, the Employer and Employee agree as follows:

     1. EMPLOYMENT. Employer hereby employs, engages, and hires Employee to
serve as the Vice President, General Merchandise Manager for Employer, and
Employee hereby accepts and agrees to such hiring, engagement, and employment,
subject to the general supervision and pursuant to the orders, advice, and
direction of Employer. Employee shall perform such other duties as are
customarily performed by one holding such position in other, same, or similar
businesses or enterprises as that engaged in by Employer, and shall also
additionally render such other and unrelated services and duties as may be
assigned to Employee from time to time by Employer.

     2. TERM OF EMPLOYMENT. This Agreement is effective for three (3) of
Employer's consecutive fiscal years, beginning February 1, 1997, subject to the
other terms and provisions herein. Upon the expiration of the three-year period,
this Agreement shall terminate without any further action on the part of either
Employer or Employee, and there shall be no implied renewal or extension of this
Agreement under any circumstance, nor any obligation of Employer to negotiate
regarding any such renewal or extension.

     Not less than one year before the expiration of this Agreement, Employer
and Employee shall meet to discuss a new agreement with terms and provisions
similar to those herein, or with terms and provisions that are mutually
acceptable to Employer and Employee. Alternatively, Employer has the option, at
any time, to renew this Agreement for similar periods after its expiration, so
long as such renewal is in writing and is signed by both Employer and Employee,
or to permit this Agreement to terminate.

     3. COMPENSATION AND BENEFITS. During the term of this Agreement, Employer
shall pay Employee an annual salary for services performed on Employer's behalf
as follows:


                                       37
<PAGE>   3
<TABLE>
<CAPTION>
              FISCAL YEAR                   ANNUAL SALARY
              -----------                   -------------
<S>                                         <C>
                 1997                         $180,000
                 1998 and 1999                To be set by Company's Chief Executive
                                              Officer and approved by Compensation
                                              Committee and Board of Directors at a
                                              level not less than the 1997 fiscal year
                                              salary
</TABLE>

     Employee's salary shall be paid to Employee on a biweekly basis while this
Agreement shall be in force. Employer shall have the right to deduct from the
compensation and benefits payable to Employee under the provisions of this
Agreement all Social Security, federal and state taxes and charges as may now be
in effect or that may be enacted or required after the effective date of this
Agreement.

     Employee shall also be entitled to and shall receive all other benefits and
conditions of employment available generally to other employees of Employer
employed at the same level and responsibility of Employee, provided that
eligibility requirements for each benefit program are satisfied. By way of
illustration, but not by way of limitation or guarantee, a description of such
benefits is set forth in Exhibits "A" and "B" which are attached hereto and are
incorporated herein by this reference.

     4. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this Agreement, to the reasonable
satisfaction of the Employer. Such duties shall be rendered at Employer's
principal office and at such other places as Employer shall in good faith
require or as the interest, needs, business or opportunity of Employer shall
require.

     5. OTHER EMPLOYMENT. Employee shall devote all of his time, attention,
knowledge and skills solely to the business and interest of Employer, and
Employer shall be entitled to all of the benefits, profits or other issues
arising from or incident to all work, services and advice of Employee. Employee
shall not, during the term of this Agreement, be interested directly or
indirectly, in any manner, as a partner, officer, director, shareholder,
advisor, employee or in any other capacity in any other business similar to
Employer's business or any allied trade; provided, however, that nothing
contained in this provision shall be deemed to prevent or to limit the right of
Employee to invest any of his money in the capital stock or other securities of
any corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange.

     6. CONFIDENTIAL INFORMATION. Employee shall not at any time or in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person, firm, corporation or other entity in any manner whatsoever any
information concerning any matters affecting or relating to the business of
Employer, including without limitation, the prices it has paid or obtained for
its merchandise or any other information concerning the business of Employer,
its manner of operation, its plans, processes or other data, without regard to
whether all of the above-stated matters are generally deemed to be confidential,


                                       38
<PAGE>   4
material or important. Employer and Employee specifically and expressly agree
that such matters are important, material, confidential and gravely affect the
effective and successful conduct of the business of Employer and Employer's
goodwill, and that any breach of the terms of this provision shall be a material
breach of this Agreement. This provision shall survive termination of this
Agreement.

     7. EMPLOYMENT POLICIES AND PROCEDURES. Employee agrees to abide by all of
Employer's employment polices and procedures that apply generally to other
employees at the same level and responsibility of Employee, as such policies and
procedures may be revised from time to time.

     8. PERFORMANCE EVALUATION. Employee's performance shall be evaluated on an
annual basis. The results of the evaluations shall be discussed with Employee.

     9. TERMINATION OF EMPLOYMENT. Employee may terminate his employment
pursuant to this Agreement after having provided Employer with thirty days'
written notice of his intention to terminate. Employer may terminate Employee's
employment at any time during the term of this Agreement for good cause. For
purposes of this Agreement, "good cause" for termination of employment is that
which a reasonable employer, acting in good faith, would regard as good and
sufficient reason for terminating the services of an employee, as distinguished
from an arbitrary whim or caprice. This definition includes, without limitation,
termination of employment due to Employee's poor performance or misconduct,
discontinuance of Employer's business or any significant portion thereof, or
Employee's violation of any provision of this Agreement. The employment of
Employee shall also cease upon the expiration of the term of this Agreement
unless Employer has, in writing, renewed this Agreement or Employer and Employee
have entered into a new agreement.

     10. EMPLOYER'S OBLIGATION ON ITS TERMINATING EMPLOYEE'S EMPLOYMENT. If,
during the term of this Agreement, Employer terminates Employee's employment for
any reason other than Employee's misconduct or Employee's violation of any
provision of this Agreement, Employee will receive the Employee's then current
salary at the time the notice of termination is given for either six months
after termination or for the remainder of the fiscal year during which the
notice of termination is given, whichever is greater. The payments shall be paid
on a biweekly basis, pursuant to the provisions of Paragraph 3 above, and shall
be deemed an obligation of Employer regardless of whether Employee has begun new
employment elsewhere.

     If Employer terminates Employee's employment due to Employee's misconduct
or Employee's violation of any provision of this agreement, Employee shall not
be entitled to any compensation whatsoever from Employer beyond the last day
Employee worked. "Misconduct" for the purpose of this Agreement is defined as
behavior which evidences (a) wanton or willful disregard of Employer's
interests, (b) deliberate violation of Employer's rules, policies or procedures,
(c) disregard of standards of behavior which Employer can rightfully expect from
Employee, or (d) negligence which manifests culpability, wrongful


                                       39
<PAGE>   5
intent, evil design or intentional and substantial disregard or Employer's
interests or of Employee's duties and obligations.

     Employee shall not be entitled to any severance or payment beyond his last
day worked if Employee terminates his employment with Employer or if this
Agreement terminates upon the expiration on its three-year term.

     Notwithstanding anything in this Agreement to the contrary, in the event
Employee breaches his obligations under this Agreement, including without
limitation Employee's obligations under Sections 6, 11 or 12, Employer shall
have no obligation to pay any severance benefits under this Section 10 and shall
be entitled to recover any severance benefits previously paid to Employee.

     11. COOPERATION WITH EMPLOYER AFTER TERMINATION OF EMPLOYMENT. Following
the termination of Employee's employment, by either Employee or Employer,
Employee shall fully cooperate with Employer in all matters relating to the
continuation or completion of Employee's pending work on behalf of Employer and
the orderly transfer of any such pending work to other employees as may be
designated by Employer. Employer shall be entitled to such full-time or
part-time services of Employee as Employer may reasonably require during all or
any part of the 30-day period following any notice of termination of employment
by Employee.

     12. EMPLOYER'S RELATIONSHIP WITH OTHER EMPLOYEES. Employer and Employee
agrees that any attempt on the part of Employee to induce others to leave the
employ of Employer, or any effort by Employee to interfere with Employer's
relationship with other employees, will be harmful and damaging to Employer.
Employee therefore expressly agrees that during the term of this Agreement and
for a period of two years thereafter, he will not in any way, directly or
indirectly (a) induce or attempt to induce any employee to quit employment with
Employer, (b) interfere with or disrupt Employer's relationship with other
employees, or (c) employ or attempt to employ any person employed by Employer.

     13. TERMINATION BY DEATH OR INCAPACITY OF EMPLOYEE. In spite of anything in
this Agreement to the contrary, this Agreement shall terminate prior to the
expiration of the term specified above if Employee dies or becomes permanently
disabled. As used in this paragraph, "permanently disabled" is defined as the
inability of Employee to perform the essential functions of his position, either
with or without reasonable accommodation, for a period extending beyond six
months.

     14. ASSUMPTION AND MERGER. The rights and duties of Employer and Employee
under this Agreement shall not be assignable by either party, except that this
Agreement and all of the rights hereunder may be assigned by Employer to any
corporation or other business entity that succeeds to the business of Employer
through merger, consolidation, corporate re-organization or by acquisition of
all or substantially all of the assets of Employer, and which assumes Employer's
obligations under this Agreement.


                                       40
<PAGE>   6
     15. AGREEMENT OUTSIDE OF CONTRACT. This Agreement contains the complete
agreement concerning the employment arrangement between Employer and Employee
and shall, as of the effective date hereof, supersede all other agreements
between Employer and Employee. Employer and Employee agree that neither of them
has made any representation with respect to the subject matter of this Agreement
except such representations as are specifically set forth in this Agreement.
Employer and Employee acknowledge that each of them have relied on their own
judgment in entering into this Agreement. Employer and Employee further
acknowledge that any payments or representations that may have been made by
either of them to the other prior to the date of executing this Agreement are of
no effect and that neither of them has relied thereon in connection with their
dealings with the other.

     16. MODIFICATION OF AGREEMENT. Any modification of this Agreement or
additional obligations assumed by either Employer or Employee in connection with
this Agreement shall be binding only if evidenced in writing signed by both
Employer and Employee or their authorized representatives.

     17. EFFECT OF PARTIAL INVALIDITY. The invalidity of any portion of this
Agreement shall not be deemed to affect the validity of any other provision of
this Agreement. In the event that any provision of this Agreement is held to be
invalid, Employer and Employee agree that the remaining provisions shall be
deemed to be in full force and effect as if they had been executed by both
parties subsequent to the expungement of the invalid provision.

     18. CHOICE OF LAW AND FORUM. It is the intention of Employer and Employee
that this Agreement and any actions and special proceedings brought in
connection with this Agreement be construed in accordance with and pursuant to
the laws of the State of Nebraska, which shall govern to the exclusion of the
law of any other forum. Employer and Employee further agree that any action or
special proceeding that may be brought in connection with this Agreement shall
be brought in the State of Nebraska.

     19. ARBITRATION. Any differences, claims or matters in dispute between
Employer and Employee in connection with this Agreement shall be submitted by
them to arbitration by the American Arbitration Association or its successor,
and the determination of the arbitrator or its successor shall be final and
absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association or its successor, and the
pertinent provisions of the laws of the State of Nebraska, relating to
arbitration. The decision of the arbitrator may be entered as a judgment in any
court of the State of Nebraska or elsewhere.

     20. NO WAIVER. The failure of either Employer or Employee to insist upon
the performance of any of the terms and provisions of this Agreement, or the
waiver of any breach of any of the terms or provisions of this Agreement, shall
not be construed as thereafter waiving any such terms and provisions, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.


                                       41
<PAGE>   7
     IN WITNESS WHEREOF, Employer and Employee have executed this Agreement on
the day and year first above written.


RICHMAN GORDMAN                             EMPLOYEE:
  1/2 PRICE STORES, INC.


/s/ Jeffrey J. Gordman                      /s/ Donald L. DeGraeve
----------------------------------          --------------------------------
Jeffrey J. Gordman                          Donald L. DeGraeve
President and CE0                           Employee


                                       42