Document:

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                            THE 2002 RESTATEMENT OF
                    THE SAFEWAY 401(k) SAVINGS PLAN AND TRUST

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                                TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS ..............................................................................................   2

  Section 1.1    General ............................................................................................   2
  Section 1.2    Accounts ...........................................................................................   2
  Section 1.3    Active Participant .................................................................................   3
  Section 1.4    Administrator ......................................................................................   3
  Section 1.5    Annual Addition ....................................................................................   3
  Section 1.6    Annuity Eligible Balance ...........................................................................   4
  Section 1.7    Annuity Starting Date ..............................................................................   4
  Section 1.8    Beneficiary ........................................................................................   4
  Section 1.9    Board ..............................................................................................   5
  Section 1.10   Break in Service ...................................................................................   5
  Section 1.11   Code ...............................................................................................   5
  Section 1.12   Committee ..........................................................................................   5
  Section 1.13   Company ............................................................................................   5
  Section 1.14   Company Affiliate ..................................................................................   5
  Section 1.15   Compensation .......................................................................................   6
  Section 1.16   Deferral Percentage ................................................................................   6
  Section 1.17   Direct Rollover ....................................................................................   6
  Section 1.18   Disability Retirement ..............................................................................   6
  Section 1.19   Disability Retirement Date .........................................................................   7
  Section 1.20   Distributee ........................................................................................   7
  Section 1.21   Effective Date .....................................................................................   7
  Section 1.22   Election Period ....................................................................................   7
  Section 1.23   Eligible Employee ..................................................................................   7
  Section 1.24   Eligible Retirement Plan ...........................................................................   8
  Section 1.25   Eligible Rollover Distribution .....................................................................   8
  Section 1.26   Employee ...........................................................................................   9
  Section 1.27   Employer ...........................................................................................   9
  Section 1.28   ERISA ..............................................................................................   9
  Section 1.29   401(k) Contribution ................................................................................   9
  Section 1.30   Five Percent Owner .................................................................................   9
  Section 1.31   Forfeiting Break in Service ........................................................................   9
  Section 1.32   Forfeiture .........................................................................................   9
  Section 1.33   Former Participant .................................................................................  10
  Section 1.34   Highly Compensated Employee ........................................................................  10
  Section 1.35   Hour of Service ....................................................................................  10
  Section 1.36   Inactive Participant ...............................................................................  13
  Section 1.37   Investment Fund ....................................................................................  13
  Section 1.38   Jerseymaid Plan ....................................................................................  13
  Section 1.39   Joint and 50% Survivor Annuity .....................................................................  13
  Section 1.40   Joint and 100% Survivor Annuity ....................................................................  13
  Section 1.41   Leased Employee ....................................................................................  13
  Section 1.42   Leveling Method ....................................................................................  13
  Section 1.43   Military Leave .....................................................................................  14
  Section 1.44   Nonhighly Compensated Employee .....................................................................  14
  Section 1.45   Normal Retirement ..................................................................................  14
  Section 1.46   Normal Retirement Date .............................................................................  14
  Section 1.47   Participant ........................................................................................  14
  Section 1.48   Payday .............................................................................................  14
  Section 1.49   Plan ...............................................................................................  14
  Section 1.50   Plan Representative ................................................................................  14
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  Section 1.51   Plan Year ..........................................................................................  14
  Section 1.52   Project Employee ...................................................................................  14
  Section 1.53   QDRO ...............................................................................................  14
  Section 1.54   Qualified Election .................................................................................  14
  Section 1.55   Rules of the Plan ..................................................................................  15
  Section 1.56   Safeway Stock ......................................................................................  15
  Section 1.57   Separation from the Service ........................................................................  15
  Section 1.58   Spousal Consent ....................................................................................  15
  Section 1.59   Spouse; Surviving Spouse ...........................................................................  15
  Section 1.60   Statutory Compensation .............................................................................  16
  Section 1.61   Trust Fund .........................................................................................  16
  Section 1.62   Trustee ............................................................................................  16
  Section 1.63   Valuation Date .....................................................................................  16
  Section 1.64   Year of Service ....................................................................................  16

ARTICLE II. ELIGIBILITY .............................................................................................  17

  Section 2.1    Requirements for Participation .....................................................................  17
  Section 2.2    Inactive Status ....................................................................................  17
  Section 2.3    Former Participants ................................................................................  17
  Section 2.4    Safeway Participants' Accounts .....................................................................  17

ARTICLE III. CONTRIBUTIONS ..........................................................................................  18

  Section 3.1    Contributions in General ...........................................................................  18
  Section 3.2    Maximum Annual Contribution ........................................................................  18
  Section 3.3    401(k) Contributions ...............................................................................  18
  Section 3.4    Limitation on 401(k) Contributions .................................................................  19
  Section 3.5    Limitation on Annual Additions; Treatment of Otherwise Excessive Allocations .......................  20
  Section 3.6    Reemployment Rights after Qualified Military Service ...............................................  21

ARTICLE IV. ROLLOVERS AND TRANSFERS .................................................................................  23

  Section 4.1    Rollovers and Transfers ............................................................................  23

ARTICLE V. INVESTMENT OF ACCOUNTS ...................................................................................  25

  Section 5.1    Investment Options .................................................................................  25
  Section 5.2    Default Investment Fund ............................................................................  25

ARTICLE VI. VALUATION OF THE TRUST FUND AND ACCOUNTS ................................................................  26

  Section 6.1    Individual Participant Accounting ..................................................................  26
  Section 6.2    Valuation Date Accounting and Investment Cycle .....................................................  26
  Section 6.3    Accounting for Investment Funds ....................................................................  26
  Section 6.4    Payment of Fees and Expenses .......................................................................  26
  Section 6.5    Participant Statements .............................................................................  27
  Section 6.6    Accounts for Alternate Payees ......................................................................  27
  Section 6.7    Determination of Values ............................................................................  27
  Section 6.8    Allocation of Values ...............................................................................  28
  Section 6.9    Applicability of Account Values ....................................................................  28

ARTICLE VII. VESTING ................................................................................................  29

  Section 7.1    Fully Vested Accounts ..............................................................................  29
  Section 7.2    Full Vesting Upon Certain Events ...................................................................  29
  Section 7.3    Vesting Schedule ...................................................................................  29
  Section 7.4    Forfeitures of Non-Vested Account Balances Upon Certain Events .....................................  29
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  Section 7.5    Use of Forfeitures .................................................................................  30

ARTICLE VIII. IN-SERVICE WITHDRAWALS ................................................................................  31

  Section 8.1    In-Service Withdrawal Approval .....................................................................  31
  Section 8.2    Payment Form and Medium ............................................................................  31
  Section 8.3    Source and Timing of In-Service Withdrawal Funding .................................................  31
  Section 8.4    Types of In-Service Withdrawals ....................................................................  31
  Section 8.5    Fees ...............................................................................................  32
  Section 8.6    Spousal Consent ....................................................................................  32

ARTICLE IX. LOANS ...................................................................................................  33

  Section 9.1    Participant Loans Permitted ........................................................................  33
  Section 9.2    Loan Application, Note and Security ................................................................  33
  Section 9.3    Loan Approval ......................................................................................  33
  Section 9.4    Loan Funding Limits ................................................................................  33
  Section 9.5    Maximum Number of Loans ............................................................................  33
  Section 9.6    Source and Timing of Loan Funding ..................................................................  33
  Section 9.7    Interest Rate ......................................................................................  34
  Section 9.8    Repayment ..........................................................................................  34
  Section 9.9    Repayment Hierarchy ................................................................................  34
  Section 9.10   Repayment Suspension ...............................................................................  34
  Section 9.11   Loan Default .......................................................................................  34
  Section 9.12   Call Feature .......................................................................................  35
  Section 9.13   Loan Administration ................................................................................  35
  Section 9.14   Spousal Consent ....................................................................................  35

ARTICLE X. EMPLOYMENT AFTER NORMAL RETIREMENT DATE ..................................................................  36

  Section 10.1   Continuation of Employment .........................................................................  36
  Section 10.2   Continuation of Participation ......................................................................  36
  Section 10.3   Required Minimum Distributions .....................................................................  36

ARTICLE XI. DISTRIBUTIONS ...........................................................................................  38

  Section 11.1   Rights Upon Normal or Disability Retirement or Separation from the Service .........................  38
  Section 11.2   Distribution of Accounts ...........................................................................  38
  Section 11.3   Annuity Eligible Balance ...........................................................................  39
  Section 11.4   Small Accounts .....................................................................................  41
  Section 11.5   Timing .............................................................................................  41
  Section 11.6   Distribution Notices ...............................................................................  42
  Section 11.7   Distribution upon Death ............................................................................  42
  Section 11.8   Determination of Value of Accounts .................................................................  43

ARTICLE XII. TOP HEAVY PROVISIONS ...................................................................................  44

  Section 12.1   Top Heavy Determination ............................................................................  44
  Section 12.2   Minimum Benefits ...................................................................................  47
  Section 12.3   Top Heavy Vesting ..................................................................................  47

ARTICLE XIII. ADMINISTRATIVE PROVISIONS .............................................................................  49

  Section 13.1   Duties and Powers of the Administrator .............................................................  49
  Section 13.2   Committee ..........................................................................................  50
  Section 13.3   Committee Operating Rules ..........................................................................  50
  Section 13.4   Claims Procedure ...................................................................................  50
  Section 13.5   Conflicting Claims .................................................................................  52
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  Section 13.6   Payments ...........................................................................................  52
  Section 13.7   Effect of Delay or Failure to Ascertain Amount Distributable or to Locate Distributee...............  52
  Section 13.8   Service of Process .................................................................................  52
  Section 13.9   Limitations Upon Powers of the Administrator .......................................................  53
  Section 13.10  Assignments, etc., Prohibited; Distributions Pursuant to Qualified Domestic Relations
                 Orders; Certain Offsets of Accounts ................................................................  53
  Section 13.11  Corrective of Administrative Error; Special Contribution ...........................................  54

ARTICLE XIV. TERMINATION, DISCONTINUANCE, AMENDMENT, MERGER, ADOPTION OF PLAN .......................................  55

  Section 14.1   Termination of Plan; Discontinuance of Contributions ...............................................  55
  Section 14.2   Amendment of Plan ..................................................................................  55
  Section 14.3   Retroactive Effect of Plan Amendment ...............................................................  55
  Section 14.4   Consolidation or Merger ............................................................................  56
  Section 14.5   Adoption of Plan by Company Affiliates .............................................................  56

ARTICLE XV. MANAGEMENT OF INVESTMENTS ...............................................................................  57

  Section 15.1   Trust Agreement ....................................................................................  57
  Section 15.2   Investment Funds ...................................................................................  57
  Section 15.3   Authority to Hold Cash .............................................................................  57
  Section 15.4   Trustee to Act Upon Instructions ...................................................................  58
  Section 15.5   Administrator Has Right to Vote Registered Investment Company Shares ...............................  58
  Section 15.6   Custom Fund Investment Management ..................................................................  58
  Section 15.7   Authority to Segregate Assets ......................................................................  58
  Section 15.8   Maximum Permitted Investment in Safeway Stock ......................................................  59
  Section 15.9   Participants Have Right to Vote and Tender Safeway Stock ...........................................  59
  Section 15.10  Registration and Disclosure for Safeway Stock ......................................................  59

ARTICLE XVI. TRUST ADMINISTRATION ...................................................................................  60

  Section 16.1   Trustee to Construe Trust ..........................................................................  60
  Section 16.2   Trustee To Act As Owner of Trust Assets ............................................................  60
  Section 16.3   United States Indicia of Ownership .................................................................  61
  Section 16.4   Tax Withholding and Payment ........................................................................  61
  Section 16.5   Trustee Duties and Limitations .....................................................................  61
  Section 16.6   Trust Accounting ...................................................................................  62
  Section 16.7   Valuation of Certain Assets ........................................................................  62
  Section 16.8   Legal Counsel ......................................................................................  62
  Section 16.9   Fees and Expenses ..................................................................................  62
  Section 16.10  Indemnification by the Company .....................................................................  62
  Section 16.11  Replacement of the Trustee .........................................................................  63
  Section 16.12  Final Settlement and Accounting of Trustee .........................................................  63
  Section 16.13  Final Accounting ...................................................................................  63
  Section 16.14  Administrator Approval .............................................................................  63

ARTICLE XVII. MISCELLANEOUS PROVISIONS ..............................................................................  64

  Section 17.1   Identification of Fiduciaries ......................................................................  64
  Section 17.2   Allocation of Fiduciary Responsibilities ...........................................................  64
  Section 17.3   Limitation on Rights of Employees ..................................................................  65
  Section 17.4   Governing Law ......................................................................................  65
  Section 17.5   Gender and Plurals .................................................................................  65
  Section 17.6   Titles .............................................................................................  65
  Section 17.7   References .........................................................................................  65
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  Section 17.8   Use of Trust Funds .................................................................................  65
  Appendix A --  Investment Funds ................................................................................... A-1
  Appendix B --  Loan Interest Rate.................................................................................. B-1
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                             THE 2002 RESTATEMENT OF
                    THE SAFEWAY 401(k) SAVINGS PLAN AND TRUST

            The Vons Companies, Inc. (the "Company"), a Michigan corporation, is
a wholly-owned subsidiary of Safeway Inc. The Company established the Vons
Grocery Co. Profit Sharing Plan (the "Plan"), effective January 1, 1962. The
Plan was subsequently renamed The Vons Personal Choice Profit Sharing Plan,
effective January 1, 1987, The Vons Companies, Inc. 401(k) Savings Plan,
effective January 1, 1995, and the Safeway 401(k) Savings Plan, effective July
1, 1997. The Profit-Sharing and Retirement Plan for Employees of Jerseymaid Milk
Products Co., a qualified profit sharing plan, was merged into the Plan
effective December 1, 1990. The Plan was amended and restated in 1997 and again
effective January 1, 2000. The Plan was amended twice thereafter. The Plan is
now amended and restated in its entirety.

            In order to comply with amendments to the Internal Revenue Code
mandated by the Uniformed Services Employment and Reemployment Rights Act of
1994, the Uruguay Round Agreements Act (GATT), the Small Business Job Protection
Act of 1996, the Taxpayer Relief Act of 1997, the IRS Restructuring and Reform
Act of 1998, the Community Renewal Tax Relief Act of 2000 and certain parts of
the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make
certain other changes, this amendment and restatement to the Plan is hereby
adopted. This amendment to the Plan constitutes a complete amendment,
restatement and continuation of the Plan.

            In general, the provisions of this restatement are effective as of
January 1, 2002, except as otherwise provided in the Plan or as required to
comply with applicable law.

            Except as otherwise specifically provided herein or required by law,
the provisions of this amended and restated Plan relating to eligibility for
participation, eligibility for benefits, amount of benefits, manner of benefit
payments and timing of benefit payments shall only apply to an Employee who
terminates employment on or after January 1, 2002. Any Employee who terminated
employment prior to January 1, 2002, shall have his eligibility for benefits and
the amount and form of benefits, if any, determined in accordance with the
provisions of the Plan or prior plans as in effect on the date his employment
terminated except as otherwise required by law.

            The Plan is a profit sharing plan with a cash or deferred
arrangement intended to comply with the provisions of Code Sections 401(a) and
401(k). The Trust is intended to be exempt under Code Section 501(a).

            The Plan is an "eligible individual account plan," as defined in
ERISA Section 407(d)(3), and provides for the acquisition and holding of
"qualifying employer securities," as defined in ERISA Section 407(d)(5).

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                                   ARTICLE I.
                                   DEFINITIONS

      Section 1.1 General. Whenever any of the following terms is used in the
Plan with the first letter or letters capitalized, it shall have the meaning
specified below unless the context clearly indicates to the contrary.

      Section 1.2 Accounts. "Accounts" means the following Accounts which may be
maintained under this Plan for a Participant:

            (a) 401(k) Account means the separate Account, if any, maintained
for each Participant to which shall be credited such Participant's 401(k)
Contributions made pursuant to Section 3.3, including any Participant pre-tax
contributions made prior to July 1, 1997, related investment earnings and loan
repayments and from which shall be debited allocable expenses, investment
losses, loans, withdrawals and distributions.

            (b) Rollover Account means the separate Account, if any, maintained
for each Participant to which shall be credited such Participant's Rollover
Contributions made pursuant to Section 4.1, related investment earnings and loan
repayments and from which shall be debited allocable expenses, investment
losses, loans, withdrawals and distributions.

            (c) Qualified Account means the separate Account, if any, maintained
for each Participant to which shall be credited such Participant's share of
Qualified Nonelective Contributions made pursuant to Section 3.4(b), related
investment earnings and loan repayments and from which shall be debited
allocable expenses, investment losses, loans, withdrawals and distributions.

            (d) After-Tax Account means the separate Account, if any, maintained
for each Participant to which shall be credited such Participant's employee
after-tax contributions, if any, made prior to January 1, 1987 or made to the
Jerseymaid Plan, related investment earnings and loan repayments and from which
shall be debited allocable expenses, investment losses, loans, withdrawals and
distributions.

            (e) Vons Post-94 Match Account means the separate Account, if any,
maintained for each Participant to which shall be credited certain amounts
designated under the Plan prior to July 1, 1997 as amounts from the "Matching
Contribution Account" (as such term was defined under the Plan as in effect
prior to July 1, 1997), limited to amounts attributable to "Matching
Contributions" (as such term was defined under the Plan as in effect prior to
July 1, 1997) for periods commencing on or after January 1, 1995, related
investment earnings and loan repayments and from which shall be debited
allocable expenses, investment losses, loans,withdrawals and distributions.

            (f) Vons Pre-95 Match Account means the separate Account, if any,
maintained for each Participant to which shall be credited certain amounts
designated under the Plan prior to July 1, 1997 as amounts from the "Matching
Contribution Account" (as such term was defined under the Plan as in effect
prior to July 1, 1997), limited to amounts attributable to "Matching
Contributions" (as such term was defined under the Plan as in effect prior to
July 1,

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1997) for periods prior to January 1, 1995, certain amounts designated under the
Plan prior to July 1, 1997 as "Profit Sharing Accounts" (as such term was
defined under the Plan as in effect prior to July 1, 1997) attributable to
Company contributions for periods prior to January 1, 1987, related investment
earnings and loan repayments and from which shall be debited allocable expenses,
investment losses, loans, withdrawals and distributions.

            (g) Vons Post-94 Company Account means the separate Account, if any,
maintained for each Participant to which shall be credited such Participant's
share of non-elective contributions made prior to July 1, 1997, related
investment earnings and loan repayments and from which shall be debited
allocable expenses, investment losses, loans, withdrawals and distributions.

            (h) Jerseymaid Profit Sharing Account means the separate Account, if
any, maintained for each Participant to which shall be credited such
Participant's share of profit sharing contributions made pursuant to the
provisions of the Jerseymaid Plan, related investment earnings and loan
repayments and from which shall be debited allocable expenses, investment
losses, loans, withdrawals and distributions.

In addition, such other Accounts may be established and maintained as the
Administrator may deem appropriate, such as, but not limited to, segregated
accounts, noninterest-bearing forfeiture accounts and the like.

      Section 1.3 Active Participant. "Active Participant" means a Participant
who is an Eligible Employee.

      Section 1.4 Administrator. "Administrator" means the Company, acting
through such individuals or committees whom are appointed by the Board.

      Section 1.5 Annual Addition. "Annual Addition" of a Participant for the
Plan Year in question means the sum of

            (a) 401(k) Contributions allocated to his 401(k) Account for that
Plan Year (excluding any excess amounts which are distributed to him pursuant to
Section 3.4),

            (b) Employer contributions, forfeitures and Participant
contributions allocated to his accounts under all other qualified defined
contribution plans, if any, of the Company and any Company Affiliate for that
Plan Year, and

            (c) Except for purposes of Section 3.5(a)(i)(B) and 3.5(a)(ii)(B),
the sum of any

                  (i) Employer contributions allocated to an individual medical
account (as defined in Code Section 415(l)(2)) which is maintained under a
qualified pension or annuity plan, and

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                  (ii) Employer contributions allocated to the separate account
of a Key Employee (as defined in Section 12.1(b)(iii)) for the purpose of
providing post-retirement medical benefits.

            If, in a particular Plan Year, an Employer contributes an amount to
a Participant's Accounts because of an erroneous forfeiture in a prior Plan Year
or because of an erroneous failure to allocate amounts in a prior Plan Year, the
contribution shall not be considered an Annual Addition with respect to the
Participant for that particular Plan Year but shall be considered an Annual
Addition for the Plan Year to which it relates. If the amount so contributed in
the particular Plan Year takes into account actual investment gains attributable
to the period subsequent to the Plan Year to which the contribution relates, the
portion of the total contribution which consists of such gains shall not be
considered as an Annual Addition for any Plan Year.

      Section 1.6 Annuity Eligible Balance. "Annuity Eligible Balance" means
the balance of a Participant's Jerseymaid Profit Sharing Account.

      Section 1.7 Annuity Starting Date. "Annuity Starting Date" shall mean the
first day of the first period for which an amount is payable as an annuity or,
in the case of an amount not payable as an annuity, the first day on which all
events have occurred which entitle the Participant to a distribution.

      Section 1.8 Beneficiary.

            (a) Definition. "Beneficiary" means any person or entity designated
by a Participant in the manner approved by the Administrator to receive benefits
payable as a result of the Participant's participation in the Plan after the
Participant's death.

            (b) Special Rule for Married Participants. Each married Participant
will be deemed to have selected his Spouse as his Beneficiary unless the
Participant's Spouse has given Spousal Consent in the form required by the
Administrator. The Administrator may, in its discretion, require a Participant
to state on the applicable form provided for that purpose by the Administrator
and notarized that:

                  (i) the Participant is able to establish to the satisfaction
of the Administrator that he has no Spouse; or

                  (ii) the Participant's Spouse cannot be located; or

                  (iii) there are other circumstances under which consent of the
Spouse is not required in accordance with applicable U.S. Treasury or Department
of Labor regulations.

            (c) Special Rule if No Designation in Effect. If no valid
designation is in effect upon the death of the Participant or if the designated
Beneficiary has predeceased the Participant, the Beneficiary shall be the person
or persons who shall survive the Participant in the first of the following
classes of preferences:

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                  (i) Participant's Surviving Spouse; if none, then

                  (ii) Participant's surviving children, including adopted
children, in equal shares, per stirpes (by right of representation); if none,
then

                  (iii) Participant's surviving parents; if none, then

                  (iv) Participant's surviving brothers and sisters; if none,
then

                  (v) the executor or administrator of the Participant's estate.

            (d) Dissolution of Marriage. Upon the dissolution of marriage of a
Participant, any designation of the Participant's former Spouse as a Beneficiary
shall be treated as though the Participant's former Spouse had predeceased the
Participant unless (i) the Participant executes another Beneficiary designation
that complies with this Section and clearly names such former Spouse as a
Beneficiary following such dissolution, or (ii) a QDRO presented to the
Administrator prior to distribution being made on behalf of the Participant
explicitly requires the Participant to maintain the former Spouse as the
Beneficiary. In any case in which the Participant's former Spouse is treated
under the Participant's Beneficiary designation as having predeceased the
Participant, no heirs or other beneficiaries of the former Spouse shall receive
benefits from the Plan as a Beneficiary of the Participant except as provided
otherwise in the Participant's Beneficiary designation.

      Section 1.9 Board. "Board" means the Board of Directors of the Company.

      Section 1.10 Break in Service. "Break in Service" of an Employee or former
Employee means the twelve consecutive month period beginning on the date of his
first Hour of Service or any Plan Year beginning thereafter during which he did
not have more than 500 Hours of Service.

      Section 1.11 Code. "Code" means the Internal Revenue Code of 1986, as
amended.

      Section 1.12 Committee. "Committee" means the person or persons designated
by the Administrator to function in accordance with the Rules of the Plan.

      Section 1.13 Company. "Company" means The Vons Companies, Inc. and any
successor company which continues the Plan.

      Section 1.14 Company Affiliate. "Company Affiliate" means any entity
which, at the time of reference, was, with the Company, a member of a controlled
group of corporations or trades or businesses under common control, or a member
of an affiliated service group, as determined under regulations issued by the
Secretary of the Treasury or his delegate under Code Sections 414(b), (c), (m)
and 415(h) and any other entity required to be aggregated with the Company
pursuant to regulations issued under Code Section 414(o).

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      Section 1.15 Compensation.

            (a) "Compensation" for any Plan Year means the base pay and overtime
pay to a Participant by an Employer during the Plan Year including amounts
excluded from taxable income by reason of Code Sections 125, 132(f)(4),
402(e)(3), 402(h) or 403(b).

            (b) Solely for the purposes of Section 1.15 (Deferral Percentage),
the Administrator may elect for any Plan Year to exclude from Compensation
amounts deferred under Section 3.3 and under Code Section 125 (cafeteria plans)
or to apply any alternate definition of Compensation that satisfies the
requirements of Code Section 414(s) and the regulations thereunder.

            (c) Effective January 1, 2002, for all purposes of the Plan,
Compensation and Statutory Compensation in excess of $200,000 (as adjusted for
cost-of-living increases in accordance with Code Section 401(a)(17)(B)) shall be
disregarded. For any Plan Year beginning on or after January 1, 1994 but before
January 1, 2002, for all purposes of the Plan, Compensation and Statutory
Compensation in excess of $150,000 (as adjusted for cost-of-living increases in
accordance with Code Section 401(a)(17)(B)) shall be disregarded.

      Section 1.16 Deferral Percentage. "Deferral Percentage" for a Plan Year
means, with respect to eligible Participants who are in the Highly Compensated
Group and eligible Participants who are in the Nonhighly Compensated Group, the
average of the individual percentages obtained as to each Participant in such
group by dividing:

            (a) the sum of (A) the amount, if any, credited to his 401(k)
Account for the Plan Year in question under this Plan and any other plans which
are aggregated with this Plan under Code Section 401(k)(3)(A) (including any
excess amounts described in Code Section 402(g) if he is a Highly Compensated
Employee but excluding any excess amounts distributed to him pursuant to Section
3.5(b)) and (B) to the extent elected by the Administrator under Section 3.4(b),
amounts credited to his Qualified Account for that Plan Year, by

            (b) his Statutory Compensation for that portion of the Plan Year
during which he was eligible to defer Compensation to his 401(k) Account.

            The Administrator may elect to expand the Statutory Compensation of
a Participant taken into account for purposes of subsection (b) to such amounts
received by him for that entire Plan Year provided that such determination is
applied uniformly to all Participants for the year in question.

      Section 1.17 Direct Rollover. "Direct Rollover" means a payment by the
Plan of an Eligible Rollover Distribution to an Eligible Retirement Plan
designated by a Distributee.

      Section 1.18 Disability Retirement. "Disability Retirement" of a
Participant means his Separation from the Service due to the Participant's total
and permanent incapacity to engage in any employment for the Employer for
physical or mental reasons, provided that a written application for such
treatment has been filed with the Employer on behalf of such Participant and
that the disability is certified to the Employer by a licensed physician of whom
it approves.

                                       6
<PAGE>

      Section 1.19 Disability Retirement Date. "Disability Retirement Date" of a
Participant means the date (prior to his Normal Retirement Date) fixed by the
Administrator for his Disability Retirement.

      Section 1.20 Distributee. "Distributee" means a Participant, an alternate
payee under a QDRO or a Beneficiary who is a Surviving Spouse.

      Section 1.21 Effective Date. "Effective Date" means January 1, 2002,
unless stated otherwise or required by law. In general, the provisions of this
document only apply to Participants who are Employees on or after the Effective
Date. However, investment and distribution provisions apply to all Participants
and Beneficiaries with Account balances to be invested or distributed after the
Effective Date.

      Section 1.22 Election Period. "Election Period" means:

            (a) in the case of an election to waive the Joint and 50% Survivor
Annuity and the Joint and 100% Survivor Annuity, the period beginning 90 days
before the Participant's Annuity Starting Date and ending on the later of

                  (i) the Participant's Annuity Starting Date, or

                  (ii) the 60th day after the mailing or personal delivery to
him of information he has requested under Section 11.3(b)(i).

            (b) in the case of an election to waive the qualified preretirement
survivor annuity

                  (i) by a former Participant who has had a Separation from the
Service, the period which begins on the date of his Separation from the Service
and ends on the date of his death, or

                  (ii) otherwise, the period which begins on the first day of
the Plan Year in which the Participant attains age 35 and ends on the date of
his death.

      Section 1.23 Eligible Employee. An "Eligible Employee" means an Employee
of an Employer except any Employee:

            (a) who actively participates in the Safeway 401(k) Plan or any
other qualified defined contribution plan maintained by the Company or a Company
Affiliate,

            (b) whose employment is governed by a collective bargaining
agreement that does not expressly provide for coverage under the Plan,

            (c) who is a Project Employee,

            (d) who is a Leased Employee, or

                                       7
<PAGE>

            (e) who is a non-resident alien with no U.S. source earned income
(within the meaning of Code Section 861(a)(3)).

            Notwithstanding anything to the contrary, only an Employee who met
the eligibility requirements to participate in the Plan prior to July 1, 1998
shall be an "Eligible Employee."

      Section 1.24 Eligible Retirement Plan. "Eligible Retirement Plan" means
(1) an individual retirement account (described in Code Section 408(a)), (2) an
individual retirement annuity (described in Code Section 408(b)), (3) an annuity
plan (described in Code Section 403(a)), (4) a qualified trust (described in
Code Section 402(c)(8)(A)), (5) an annuity contract (described in Code Section
403(b)) and (6) an eligible deferred compensation plan (described in Code
Section 457(b) which is maintained by a state, political subdivision of a state
or any agency or instrumentality of a state or political subsidiary of a state),
that will accept and separately account for a Distributee's Eligible Rollover
Distribution. Effective for Plan Years beginning before January 1, 2002, an
"Eligible Retirement Plan" means only an individual retirement account or an
individual retirement annuity for a Distributee who is a Surviving Spouse.

      Section 1.25 Eligible Rollover Distribution.

            (a) Except as provided in subsection (b), "Eligible Rollover
Distribution" means any distribution to a Distributee of all or any portion of
such Distributee's accounts under a qualified trust.

            (b) "Eligible Rollover Distribution" shall not mean any distribution

                  (i) that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's beneficiary,

                  (ii) that is paid for a specified period of ten years or more,

                  (iii) that is part of a series of distributions during a
calendar year to the extent that such distributions are expected to total less
than $200 or a total lump sum distribution which is equal to less than $200, as
described in Treas. Reg. Sec. 1.401(a)(31) -- 1, Q&A11,

                  (iv) (A) effective January 1, 2002, for any distribution that
is made upon hardship of the Employee, and (B) effective for each of the Plan
Years commencing on January 1, 1999, January 1, 2000 and January 1, 2001, that
is a hardship withdrawal (as defined in Code Section 401(k)(2)(B)(i)(IV))
consisting of elective deferrals under Code Section 401(k),

                  (v) to the extent such distribution is required under Code
Section 401(a)(9), or

                                       8
<PAGE>

                  (vi) except as provided in subsection (c), to the extent such
distribution is not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer securities).

            (c) A portion of a distribution shall not fail to be an "Eligible
Rollover Distribution" merely because the portion consists of after-tax employee
contributions which are not includible in gross income. However, such portion
may be transferred only to an individual retirement account or annuity described
in Code Section 408(a) or to a qualified defined contribution plan described in
Code Section 401(a) or 403(a) that agrees to separately account for amounts so
transferred, including separately accounting for the portion of such
distribution which is includible in gross income and the portion of such
distribution which is not so includible.

      Section 1.26 Employee. "Employee" means any person who renders services to
the Company or a Company Affiliate in the status of an employee as the term is
defined in Code Section 3121(d). However, the term does not include any person
whose services with the Company or Company Affiliate are performed pursuant to a
contract that purports to treat the individual as an independent contractor even
if such individual is later determined (by judicial action or otherwise) to have
been a common law employee of the Company or Company Affiliate rather than an
independent contractor. Except as provided in Section 1.31(b) (Highly
Compensated Employee), "Employee" shall not include any Leased Employees treated
as Employees of the Company or a Company Affiliate pursuant to Code Sections
414(n) and 414(o).

      Section 1.27 Employer. "Employer" means the Company and any Company
Affiliate that adopts the Plan as a whole or with respect to any one or more
divisions in accordance with Section 14.5.

      Section 1.28 ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.

      Section 1.29 401(k) Contribution. "401(k) Contribution" of a Participant
means an amount contributed by his Employer to the Plan for him under Section
3.3(a).

      Section 1.30 Five Percent Owner. "Five Percent Owner" means any person who
owns more than 5% of the Company or any Company Affiliate as defined in Code
Section 416.

      Section 1.31 Forfeiting Break in Service. "Forfeiting Break in Service"
means five consecutive one-year Breaks in Service, except that any Participant
who last had a Separation from the Service prior to July 1, 1997, the term
'Forfeiting Break in Service' means six consecutive one-year Breaks in Service.

      Section 1.32 Forfeiture. "Forfeiture" means the portion of a Participant's
Vons Pre-95 Match Account which is not vested in accordance with Section 7.1
based on his Years of Service as of the date of his Separation from the Service
provided that no such Forfeiture shall be deemed to occur before the earlier of

                                       9
<PAGE>

            (a) the date such Participant is deemed to receive a distribution of
the entire value of his vested Accounts or

            (b) the date such Participant incurs a Forfeiting Break in Service.

      Section 1.33 Former Participant. "Former Participant" means a former
Active Participant who is not employed by the Company or any Company Affiliate
but who retains a Plan Account.

      Section 1.34 Highly Compensated Employee.

            (a) Effective January 1, 1997, for any current Plan Year, a "Highly
Compensated Employee" means any Employee who

                  (i) in the previous Plan Year had Statutory Compensation in
excess of $80,000 (as adjusted) and was in the group consisting of the top
twenty percent of Employees when ranked by Statutory Compensation for the Plan
Year in question (determined after excluding the Employees described in Code
Sections 414(q)(5) and 414(q)(8)), or

                  (ii) was a Five Percent Owner at any time during the previous
Plan Year or the current Plan Year, or

                  (iii) is a former Employee who during the Plan Year in which
he separated from the service or during any Plan Year ending on or after his
fifty-fifth birthday, was a highly compensated employee, as defined in Code
Section 414(q)(6) and the regulations thereunder.

            (b) For purposes of this Section, "Statutory Compensation" shall
include Compensation deferral amounts and other amounts required to be taken
into account pursuant to Code Section 414(q)(4), and "Employee" shall include
Leased Employees.

            (c) Each Highly Compensated Employee is a member of the "Highly
Compensated Group."

            (d) Effective January 1, 1997, all references to family aggregation
are eliminated.

      Section 1.35 Hour of Service.

            (a) "Hour of Service" of an Employee (including a Leased Employee)
means the following:

                  (i) Each hour for which he is paid or entitled to payment by
the Company or a Company Affiliate for the performance of services.

                  (ii) Each hour in or attributable to a period of time during
which he performs no duties (irrespective of whether he has had a Separation
from the Service) due to a

                                       10
<PAGE>

vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or a leave of absence for which he is so paid or so entitled
to payment by the Company or a Company Affiliate, whether direct or indirect;
provided, however, that

                      (A) no more than 501 Hours of Service shall be credited
under this paragraph to an Employee on account of any such period; and

                      (B) no such hours shall be credited to an Employee if
attributable to payments made or due under a plan maintained solely for the
purpose of complying with applicable workers' compensation, unemployment
compensation or disability insurance laws or to a payment which solely
reimburses the Employee for medical or medically related expenses incurred by
him.

                  (iii) Each hour for which he is entitled to back pay,
irrespective of mitigation of damages, whether awarded or agreed to by the
Company or a Company Affiliate; provided, however, no more than 501 Hours of
Service shall be credited under this paragraph to an Employee on account of any
such period.

            (b) (i) Solely for the purposes of Section 1.10 (Break in Service),
an Hour of Service shall also include each hour in or attributable to a Plan
Year during which the Employee performs no duties for the Company or a Company
Affiliate (irrespective of whether he has had a Separation from the Service) due
to an absence from work

                      (A) by reason of pregnancy of the Employee,

                      (B) by reason of the birth of a child of the Employee,

                      (C) by reason of the placement of a child with the
Employee in connection with the adoption of such child by the Employee, or

                      (D) for purposes of caring for such child for a period
beginning immediately following such birth or placement, subject, however, to
the provisions of paragraphs (ii), (iii) and (iv) below.

                  (ii) The hours described in paragraph (i) are

                      (A) the Hours of Service which otherwise would normally
have been credited to the Employee but for such absence or

                      (B) in any case in which the Plan is unable to determine
such hours, eight Hours of Service per day of such absence,

provided, however, that the total number of hours treated as Hours of Service
under paragraph (i) by reason of any such pregnancy or placement shall not
exceed 501.

                                       11
<PAGE>

                  (iii) The hours described in paragraph (ii) shall be treated
as Hours of Service under paragraph (i)

                      (A) only in the Plan Year in which the absence from work
for such reason or purpose begins if the Employee would be prevented from
incurring a Break in Service in such Plan Year solely because of the provisions
of paragraphs (i) and (ii), or

                      (B) in any other case, in the immediately following Plan
Year.

                  (iv) No credit for hours referred to in paragraphs (i), (ii)
and (iii) shall be given unless the Employee furnishes to the Administrator such
timely information as the Administrator may reasonably require to establish

                      (A) that the absence from work is for a reason or purpose
referred to in paragraph (i), and

                      (B) the number of days for which there was such an
absence.

            (c) Hours of Service under subsections (a)(ii) and (a)(iii) shall be
calculated in accordance with 29 C.F.R. Section 2530.200b-2(b). Each Hour of
Service shall be attributed to the Plan Year or initial eligibility year in
which it occurs except to the extent that the Company, in accordance with 29
C.F.R. Section 2530.200b-2(c), credits such Hour of Service to another
computation period under a reasonable method consistently applied.

            (d) Actual hours shall be used whenever an accurate record of hours
are maintained for an Employee. Otherwise, an equivalent number of hours shall
be credited for each payroll period in which the Employee would be credited with
at least 1 Hour of Service. The following number of Hours of Service shall be
credits based on the appropriate payroll frequency:

<TABLE>
<CAPTION>
                   Units of time         Hours of Service
                   -------------         ----------------
                   <S>                   <C>
                   day                   10 hours
                   week                  45 hours
                   semi-monthly          95 hours
                   monthly               190 hours
</TABLE>

            (e) An Employee's service with a predecessor or acquired company
shall only be counted in the determination of his Hours of Service for
eligibility and/or vesting purposes if (1) the Company directs that credit for
such service be granted, or (2) a qualified plan of the predecessor or acquired
company is subsequently maintained by any Company Affiliate.

            (f) Notwithstanding any contrary Plan provision, an Employee's
service with the Vons Employees Federal Credit Union shall be counted in the
determination of his Hours of Service for all purposes of the Plan.

                                       12
<PAGE>

      Section 1.36 Inactive Participant. "Inactive Participant" means a former
Active Participant who (a) is employed by the Company or a Company Affiliate but
is no longer an Eligible Employee and (b) who retains a Plan Account.

      Section 1.37 Investment Fund. "Investment Fund" means one of the
investment funds of the Trust Fund, including the investment fund intended to
consist primarily of Safeway Stock, which is authorized by the Administrator at
the time of reference as provided in Article V. The Investment Funds to be
offered to Participants and Beneficiaries are set forth in Appendix A.

      Section 1.38 Jerseymaid Plan. "Jerseymaid Plan" means the Profit-Sharing
and Retirement Plan for Employees of Jerseymaid Milk Products Co., which was
merged into the Plan effective December 1, 1990.

      Section 1.39 Joint and 50% Survivor Annuity. "Joint and 50% Survivor
Annuity" means an immediate annuity for the life of the Participant with a
survivor annuity for the life of his Surviving Spouse which is 50% of the amount
payable during the joint lives of the Participant and his Spouse.

      Section 1.40 Joint and 100% Survivor Annuity. "Joint and 100% Survivor
Annuity" means an immediate annuity for the life of the Participant with a
survivor annuity for the life of his Surviving Spouse which is 100% of the
amount payable during the joint lives of the Participant and his Spouse.

      Section 1.41 Leased Employee. Effective January 1, 1997, "Leased Employee"
means any person (other than an employee of the recipient) who pursuant to an
agreement between the recipient and any other person ("leasing organization")
has performed services for the recipient (or for the recipient and related
persons determined in accordance with Code Section 414(n)(6)) on a substantially
full-time basis for a period of at least one year, and such services are
performed under the primary direction or control by the recipient employer.
Contributions or benefits provided a Leased Employee by the leasing organization
which are attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer.

      Section 1.42 Leveling Method. "Leveling Method" means the method of
allocating the dollar amount of the excess contributions (within the meaning of
Treas. Reg. Sec. 1.401(k)-1(g)(7)) under Section 3.4 as described in this
Section. Under this method, the total of excess contributions to be distributed
is allocated among the Highly Compensated Employees so that the allocations
described in Section 1.16(a) (Deferral Percentage) of the Highly Compensated
Employees with the highest dollar amount of such allocations are reduced. This
reduction will be accomplished so that either (a) the total of such reductions
(together with all prior reductions hereunder for the applicable Plan Year)
equals the total of such excess contributions or (b) such Highly Compensated
Employee's remaining such allocations equals the allocations of the Highly
Compensated Employee with the next highest dollar amount of such allocations.
This process is repeated with respect to the applicable Highly Compensated
Employees until the total of such reductions attributable to all such Highly
Compensated Employees is equal to the total of such excess contributions.

                                       13
<PAGE>

      Section 1.43 Military Leave. Any Employee who leaves the Company or a
Company Affiliate directly to perform service in the Armed Forces of the United
States or in the United States Public Health Service under conditions entitling
him to reemployment rights, as provided in the laws of the United States, shall,
solely for purposes of the Plan and irrespective of whether he is compensated by
the Company or a Company Affiliate during such period of service, be on Military
Leave. An Employee's Military Leave shall expire if such Employee voluntarily
resigns from the Company or such Company Affiliate during such period of service
or if he fails to make application for reemployment within the period specified
by such laws for the preservation of his reemployment rights.

      Section 1.44 Nonhighly Compensated Employee. "Nonhighly Compensated
Employee" means for a Plan Year each Employee of the Company or a Company
Affiliate who is not a Highly Compensated Employee as determined under Code
Section 414(q). Each Nonhighly Compensated Employee is a member of the
"Nonhighly Compensated Group."

      Section 1.45 Normal Retirement. "Normal Retirement" of an Active
Participant means his Separation from the Service (except by death) on or after
his Normal Retirement Date.

      Section 1.46 Normal Retirement Date. "Normal Retirement Date" means the
Participant's 65th birthday.

      Section 1.47 Participant. Participant means an Employee or former Employee
who is participating or has participated in the Plan and who has one or more
Accounts under the Plan.

      Section 1.48 Payday. "Payday" of a Participant means the regular and
recurring established day for payment of Compensation to Employees in his
classification or position.

      Section 1.49 Plan. "Plan" means the Safeway 401(k) Savings Plan.

      Section 1.50 Plan Representative. "Plan Representative" means any person
or persons designated by the Administrator to function in accordance with the
Rules of the Plan.

      Section 1.51 Plan Year. "Plan Year" means the calendar year.

      Section 1.52 Project Employee. "Project Employee" means any employee
classified as a project employee by his Employer in the administration of the
Employer's human resources policies.

      Section 1.53 QDRO. "QDRO" means a domestic relations order which the
Administrator or its designee has determined to be a qualified domestic
relations order within the meaning of Code Section 414(p).

      Section 1.54 Qualified Election. "Qualified Election" shall mean a written
waiver of a qualified Joint and 50% Survivor Annuity, a Joint and 100% Survivor
Annuity or a qualified pre-retirement survivor annuity with Spousal Consent. A
revocation of a prior waiver may be made by the Participant without Spousal
Consent at any time before the commencement of benefits. A

                                       14
<PAGE>
new waiver can be made thereafter, but a new Spousal Consent will be required.
The number of revocations and waivers shall not be limited.

      Section 1.55 Rules of the Plan. "Rules of the Plan" means the rules
adopted by the Administrator for the administration, interpretation or
application of the Plan.

      Section 1.56 Safeway Stock. "Safeway Stock" means shares of common stock
of Safeway Inc., par value $0.01 per share.

      Section 1.57 Separation from the Service.

            (a) "Separation from the Service" means an Employee's resignation
from or discharge by the Company or a Company Affiliate, death, Normal
Retirement or Disability Retirement but not his transfer of employment among the
Company and Company Affiliates.

            (b) A leave of absence or sick leave authorized by the Company or a
Company Affiliate in accordance with established policies, a vacation period, a
temporary layoff for lack of work or a Military Leave shall not constitute a
Separation from the Service; provided, however, that

                  (i) continuation upon a temporary layoff for lack of work for
a period in excess of twelve months shall be considered a discharge effective as
of the commencement of the twelfth month of such period, and

                  (ii) failure to return to work upon expiration of any leave of
absence, sick leave, or vacation or within three days after recall from a
temporary layoff for lack of work, or before expiration of a Military Leave
shall be considered a resignation effective as of the commencement of any such
leave of absence, sick leave, vacation, temporary layoff or Military Leave.

      Section 1.58 Spousal Consent. "Spousal Consent" to an election,
designation or other action of a Participant means the written consent of the
Spouse of the Participant, witnessed by a Plan Representative or a notary
public, which acknowledges the effect of such election on the rights of the
Spouse. In the case of consent to a Beneficiary designation, it also
acknowledges that such designation cannot be changed without further Spousal
Consent unless the Spousal Consent expressly permits such changes without the
necessity of additional Spousal Consent. Spousal Consent shall be deemed to have
been obtained if it is established to the satisfaction of the Plan
Representative that it cannot actually be obtained because there is no Spouse,
or because the Spouse could not be located, or because of such other
circumstances as the Secretary of the Treasury by regulation may prescribe. Any
Spousal Consent shall be effective only with respect to the Spouse who provided
it.

      Section 1.59 Spouse; Surviving Spouse. "Spouse" or "Surviving Spouse" of a
Participant means the spouse to whom he was married on the relevant date.
However, to the extent required by a QDRO, a Spouse or former Spouse shall be
treated as a Surviving Spouse.

                                       15
<PAGE>

      Section 1.60 Statutory Compensation. "Statutory Compensation" of a
Participant for any Plan Year means his wages as defined in Section 3401(a) and
all other payments of compensation to him by the Company or Company Affiliate
(in the course of its trade or business) for which the Company or Company
Affiliate is required to furnish the Participant a written statement under Code
Sections 6041(d) and 6051(a)(3). Compensation must be determined without regard
to any rules under Code Section 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or the services rendered
(such as the exception for agricultural labor in Code Section 3401(a)(2)).

      Section 1.61 Trust Fund. "Trust Fund" means the fund established under
this Trust Agreement by contributions made by the Employers and Participants,
pursuant to the Plan and from which any distributions under the Plan are to be
made.

      Section 1.62 Trustee. "Trustee" means Wells Fargo Bank, National
Association, and any successor trustee or trustees of the Trust Fund under this
Trust Agreement.

      Section 1.63 Valuation Date. "Valuation Date" means each day the
Investment Funds are valued.

      Section 1.64 Year of Service. "Year of Service" means a Plan Year during
which an Employee is credited with at least 1,000 Hours of Service. Service
credited through June 30, 1997 shall be determined under the terms of the Plan
as then in effect which terms measured service for vesting in the same manner as
set forth above and included service credited prior to January 1, 1962.

                                       16
<PAGE>

                                   ARTICLE II.
                                   ELIGIBILITY

      Section 2.1 Requirements for Participation.

            (a) Any individual who is a Plan participant as of December 31, 2001
shall continue to be eligible to participate in the Plan.

            (b) Notwithstanding anything to the contrary, no individual who has
not become a Participant as of July 1, 1998 shall become a Participant in the
Plan.

            (c) If an Active Participant becomes an Inactive Participant or a
Former Participant, he cannot become an Active Participant again.

      Section 2.2 Inactive Status.

            (a) An Active Participant who is transferred directly to a different
position or classification at the Company or a Company Affiliate and is no
longer an Eligible Employee shall immediately cease to be an Active Participant
and shall become an Inactive Participant.

            (b) All provisions of the Plan shall otherwise continue to apply to
an Inactive Participant except that he shall not make 401(k) Contributions or be
entitled to Qualified Nonelective Contributions under Section 3.4 while he is an
Inactive Participant.

      Section 2.3 Former Participants.

            (a) An Active or Inactive Participant who ceases to be an Employee
of the Company or a Company Affiliate shall, if he has a Plan Account,
immediately become a Former Participant.

            (b) All provisions of the Plan shall otherwise continue to apply to
a Former Participant except that he shall not make 401(k) Contributions or be
entitled to Qualified Nonelective Contributions under Section 3.4 while he is a
Former Participant.

      Section 2.4 Safeway Participants' Accounts. In the case of an individual
who ceases to participate in the Plan on or after July 1, 1998 because he is no
longer an Eligible Employee and who subsequently becomes a participant in the
Safeway 401(k) Plan, all undistributed Accounts of such individual shall
continue to be maintained under this Plan.

                                       17
<PAGE>

                                  ARTICLE III.
                                  CONTRIBUTIONS

      Section 3.1 Contributions in General. Contributions are to be made to the
Trust by the Employers on behalf of the Participants as provided in the Plan.
The Trustee shall have no duty to require any contributions to be made to it or
to determine whether contributions delivered to it hereunder comply with the
provisions of this Plan or any resolutions, rules, regulations or policies of
the Company providing for such contributions.

      Section 3.2 Maximum Annual Contribution. Except for contributions
described in Section 13.11, the Employer's contribution for any Plan Year shall
not exceed the maximum amount deductible by the Employer for any taxable year
ending with or within such Plan Year under Code Section 404(a)(3)(A).

      Section 3.3 401(k) Contributions.

            (a) Amount.

                  (i) Each Active Participant who enters into a payroll
reduction agreement may elect, in accordance with the Rules of the Plan, to
contribute a 401(k) Contribution by payroll reduction in an amount equal to a
designated whole percentage of his Compensation. Participants may designate from
1% to 25% of Compensation as 401(k) Contributions.

                  (ii) The Participant's payroll reduction agreement shall be in
any form acceptable to the Administrator (including internet, intranet,
telephonic or other methods). The amount designated as a 401(k) Contribution
shall be deducted for each Payday in such Plan Year in which it is in effect.
Deductions shall be effective on the first Payday on which it is
administratively feasible to commence such deductions. Participants' elections
will automatically apply to increases or decreases in Compensation.

                  (iii) In no event shall the aggregate of such deferrals under
this subsection (a) for any calendar year exceed the annual limit under Code
Section 402(g), as adjusted by the Secretary of the Treasury for that calendar
year.

                  (iv) The Administrator may authorize a suspension or reduction
of 401(k) Contributions as it deems necessary to satisfy Section 3.4.

            (b) Commencement, Resumption or Change of 401(k) Contributions. As
permitted under the Rules of the Plan:

                  (i) An Active Participant may increase, decrease or completely
discontinue his 401(k) Contributions made pursuant to this Section in the
frequency and manner determined by the Administrator (including internet,
intranet, telephonic or other methods).

                                       18
<PAGE>

                  (ii) An Active Participant who has discontinued his 401(k)
Contributions may recommence making them in the frequency and manner determined
by the Administrator (including internet, intranet, telephonic or other
methods).

                  (iii) Notwithstanding the foregoing, all 401(k) Contributions
shall automatically cease as of the date on which the Active Participant ceases
to be an Eligible Employee.

            (c) Deposit in Trust. Each Participant's 401(k) Contributions shall
be transmitted to the Trustee as soon as practicable after the end of each
Payday but in no event more than 15 business days after the end of the month in
which they were withheld.

            (d) Allocation of 401(k) Contributions. Each Participant's 401(k)
Contributions shall be credited to his 401(k) Account in accordance with Article
VI.

            (e) Vesting of 401(k) Account. A Participant shall always be 100%
vested in his 401(k) Account.

            (f) Return of Excess Deferred Compensation. If a Participant makes
deferrals to this Plan and any other cash or deferred arrangement for a calendar
year which exceed the limit under Code Section 402(g) for such year, the
Participant shall notify the Administrator of the amount of such excess
deferrals made under this Plan by the March 1 of the next calendar year. The
amount of such excess deferrals (and any income thereon earned to the earlier of
the date of distribution or the last day of the Plan Year in which such
contribution was made computed in a consistent and reasonable manner in
accordance with Code Section 401(a)(4)) shall be distributed to the Participant
by the April 15 of the next calendar year. If a Participant has made excess
deferrals to this Plan, the Participant shall be deemed to have given the notice
referred to above, and the excess contributions (and any income thereon) shall
be distributed to the Participant by such April 15. Any such distribution shall
not be subject to any Spousal Consent, nor shall it be treated as a withdrawal
or distribution subject to the provisions of Article VIII or XI.

      Section 3.4 Limitation on 401(k) Contributions. Effective January 1, 1997,
each Plan Year the Plan must satisfy the requirements of this Section. The
Administrator shall determine if these requirements are satisfied pursuant to
Treas. Reg. Sec. 1.401(k)-1 and subsequent Internal Revenue Service guidance
issued under the applicable provisions of the Code, the provisions of which are
incorporated by reference.

            (a) For each Plan Year, the Deferral Percentage of the Highly
Compensated Group shall be

                  (i) not more than 125 percent of, or

                  (ii) not more than two percentage points higher than, and not
more than twice,

                                       19
<PAGE>

the Deferral Percentage of the Nonhighly Compensated Group for the current Plan
Year (the "Current Year Testing Method").

      Instead of applying the Current Year Testing Method, the Administrator may
elect to apply the Deferral Percentage for the Nonhighly Compensated Group for
the preceding Plan Year ("Prior Year Testing Method") as permitted by Internal
Revenue Service Notice 98-1 (or any successor thereto subject to any required
Internal Revenue Service approval). If the Administrator makes this election,
the Prior Year Testing Method will apply for all subsequent Plan Years (until
changed by the Administrator) and will be set forth in an exhibit to the Plan.

            (b) In order to achieve the result described in subsection (a), the
following actions shall be taken, as provided under Code Section 401(k), the
regulations thereunder and the Rules of the Plan, in the order selected by the
Administrator and to the extent necessary:

                  (i) The Administrator shall make the election provided in
Section 1.15(b) (Compensation).

                  (ii) To the extent permitted by Code Section 401(a)(4) and
Treas. Reg. Sec. 1.401(k)-1(b)(5) (which are incorporated herein by this
reference), the Company may make an additional contribution (a "Qualified
Nonelective Contribution") to the Qualified Accounts of select Participants.
Such Qualified Nonelective Contribution shall be allocated to Participants in
inverse order of Compensation received in the Plan Year in question (so the
lowest compensated Participant receives the first allocation) with each
Participant who receives an allocation receiving the maximum allocation
permitted by Code Section 415 before any Participant with greater Compensation
receives any allocation, until such contribution is fully allocated.

                  (iii) Prior to the end of the following Plan Year, the amount
of excess contributions within the meaning of Treas. Reg. Sec. 1.401(k)-1(g)(7)
(and any income thereon earned to the earlier of the date of distribution or the
last day of the Plan Year in which such contribution was made computed in a
consistent and reasonable manner in accordance with Section 5.1 and Code Section
401(a)(4)) for Participants who were Highly Compensated Employees for the Plan
Year shall be allocated according to the Leveling Method and distributed to the
Highly Compensated Employees in question. Such distribution shall not be subject
to any Spousal Consent requirements or treated as a withdrawal or distribution
subject to Article VIII or XI.

            (c) The amount of any distributions under subsection (b) shall be
determined after the maximum deferrals under Section 3.3(a) and the distribution
of such deferrals pursuant to Section 3.3(f).

      Section 3.5 Limitation on Annual Additions; Treatment of Otherwise
Excessive Allocations.

            (a) Subject to subsection (b) below, in any Plan Year (which shall
be the Plan's "limitation year" within the meaning of Treas. Reg. Sec.
1.415-2(b)), the Annual Addition of a Participant shall not:

                                       20
<PAGE>

                  (i) effective for limitation years beginning on or after
January 1, 2002, exceed the lesser of

                      (A) $40,000 (as adjusted), or

                      (B) 100% of such Participant's Statutory Compensation for
such Plan Year.

                  (ii) effective for limitation years beginning prior to January
1, 2002, exceed the lesser of

                      (A) $30,000 (as adjusted), or

                      (B) 25% of such Participant's Statutory Compensation for
such Plan Year.

            (b) If the Annual Addition of a Participant would exceed the limits
of subsection (a) as a result of an allocation of forfeitures, a reasonable
error in estimating a Participant's Statutory Compensation, a reasonable error
in determining the amount of a Participant's elective deferrals or under other
limited facts and circumstances found justifiable by the Commissioner of
Internal Revenue, the Administrator shall, to the extent necessary to eliminate
such excess (and in the following order):

                  (i) refund or refuse to accept any part or all of the
Participant's 401(k) Contributions to be allocated to his 401(k) Account in the
Limitation Year; and/or

                  (ii) reduce his allocation of Employer contributions for such
Plan Year to his Qualified Account.

            (c) All references to the requirements of Code Section 415(e)
(combined plan limit) are eliminated effective January 1, 2000.

      Section 3.6 Reemployment Rights after Qualified Military Service.

            (a) Effective December 12, 1994 solely for purposes of this Section,
the following definitions shall apply:

                  (i) "Qualified Military Service" means any service in the
uniformed services (as defined in chapter 43 of title 38, United States Code) by
any individual if such individual is entitled to reemployment rights under such
chapter with respect to such service.

                  (ii) "Compensation" means

                      (A) Compensation the Employee would have received during
his period of Qualified Military Service if the Employee were not in Qualified
Military Service, determined based on the rate of pay the Employee would have
received from an Employer but for absence during his period of Qualified
Military Service, or

                                       21
<PAGE>

                      (B) if the Compensation the Employee would have received
during his period of Qualified Military Service was not reasonably certain, the
Employee's average Compensation from the Employer during the 12-month period
immediately preceding the Qualified Military Service (or, if the Employee had
fewer than 12 months of employment, during the period of employment immediately
preceding the Qualified Military Service).

            (b) A Participant who leaves his Employer as a result of Qualified
Military Service and returns to employment with an Employer may elect during the
period described in subsection (c) to make additional 401(k) Contributions under
the Plan in the amount determined under subsection (d) or such lesser amount, as
elected by the Participant.

            (c) The period determined under this subsection shall be the period
which begins on the date of the Employee's reemployment with an Employer after
his Qualified Military Service that extends until the lesser of

                  (i) the product of 3 multiplied by the period of Qualified
Military Service, and

                  (ii) 5 years.

            (d) The amount described in this subsection is the maximum amount of
401(k) Contributions that the Participant would have been permitted to make in
accordance with the limitations described in subsection (e)(i) during the
Participant's period of Qualified Military Service if the Participant had
continued to be employed by the Employer during such period and received
Compensation. Proper adjustment shall be made for any contributions actually
made during the Participant's period of Qualified Military Service.

            (e) If any deferral or contribution is made by a Participant or an
Employer pursuant to this Section,

                  (i) such deferral or contribution shall not be subject to any
otherwise applicable limitation contained in Code Section 402(g), 404(a) or 415
and shall not be taken into account in applying such limitations to other
deferrals or benefits under the Plan or any other plan, with respect to the Plan
Year in which the deferral is made,

                  (ii) such deferral or contribution shall be subject to the
limitations described in paragraph (i) with respect to the Plan Year to which
the deferral or contribution relates in accordance with the rules prescribed by
the Secretary of the Treasury,

                  (iii) the Plan shall not be treated as failing to meet the
requirements of Code Section 401(a)(4), 401(k)(3), 410(b) or 416 by reason of
the making of (or the right to make) such deferral or contribution.

            (f) The Company shall not credit earnings on any deferral or
contribution made under this Section before such deferral or contribution is
actually made.

                                       22
<PAGE>

                                   ARTICLE IV.
                             ROLLOVERS AND TRANSFERS

      Section 4.1 Rollovers and Transfers.

            (a) An Eligible Employee may make a contribution to his Rollover
Account if such contribution meets the requirements of this Section and is in
accordance with the Rules of the Plan. The Administrator may require the
Eligible Employee to supply information sufficient to determine if his
contribution meets the requirements of this Section. If the Administrator
determines that such contribution does not meet the requirements of this
Section, the contribution shall not be permitted.

            (b) To meet the requirements of this Section, such contribution must
be

                  (i) an Eligible Rollover Distribution from

                      (A) a qualified trust meeting the requirements of Code
Section 401(a),

                      (B) an employee annuity plan meeting the requirements of
Code Section 403(a)(1),

                      (C) an annuity contract (described in Code Section 403(b))
or

                      (D) an eligible deferred compensation plan (described in
Code Section 457(b) which is maintained by a state, political subdivision of a
state or any agency or instrumentality of a state or political subsidiary of a
state)

                  (ii) a tax-free rollover distribution from an individual
retirement account or an individual retirement annuity which in turn consisted
entirely of an Eligible Rollover Distribution paid from

                      (A) a qualified trust under Code Section 401(a),

                      (B) an annuity plan under Code Section 403(a),

                      (C) an annuity contract (described in Code Section 403(b))
or

                      (D) an eligible deferred compensation plan (described in
Code Section 457(b) which is maintained by a state, political subdivision of a
state or any agency or instrumentality of a state or political subsidiary of a
state)

in which the Eligible Employee was an employee within the meaning of Code
Section 401(c)(1) at the time contributions were made on his behalf under such
arrangement, together with any investment earnings, and which otherwise meets
the requirements of Code Section 408(d)(3); or

                                       23
<PAGE>

                  (iii) a direct rollover from an Eligible Retirement Plan that,
if paid to an Eligible Employee instead of the Plan, would have constituted an
Eligible Rollover Distribution.

            (c) In addition, to meet the requirements of this Section, such
contribution must

                  (i) be made within 60 days following the day on which the
Eligible Employee received the distribution from an Eligible Retirement Plan,
except as permitted by the Secretary of Treasury,

                  (ii) constitute an Eligible Rollover Distribution,

                  (iii) consist entirely of cash, and

                  (iv) not consist of any after-tax contributions.

            (d) Any amount contributed or transferred pursuant to Article IV
shall be credited to an Eligible Employee's Rollover Account. If required by
law, all or a portion of such contribution or transfer will be accounted for
separately.

            (e) The Administrator may, in its discretion, permit the Plan to
accept a direct transfer from a qualified trust (described in Code Section
401(a)) of an Eligible Employee's benefits under such trust. Benefits
transferred on behalf of an Eligible Employee to the Plan under this Section
shall be credited to the Eligible Employee's transfer account or such other
Accounts as are designated by the Administrator. The Administrator shall not
accept any plan-to-plan transfer under this Section if such transfer would
require the Plan to provide optional forms of benefit not otherwise provided by
the Plan as required by Code Section 411(d)(6).

            (f) If the Administrator accepts a contribution or transfer pursuant
to this Section and later determines that it was improper to do so, in whole or
in part, the Plan shall refund the necessary amount to the Eligible Employee.

            (g) An Eligible Employee who makes a contribution to his Rollover
Account pursuant to this Section prior to the date that he satisfies the
eligibility requirements described in Article II shall generally be treated as a
Participant for purposes of the Plan provisions relating to the maintenance,
valuation, investment and distribution of Accounts. However such Eligible
Employee shall not be treated as a Participant for purposes of eligibility to
make 401(k) Contributions.

                                       24
<PAGE>

                                   ARTICLE V.
                             INVESTMENT OF ACCOUNTS

      Section 5.1 Investment Options.

            (a) Investment Direction. As permitted under the Rules of the Plan,
a Participant and a Beneficiary of a deceased Participant may elect to have his
Accounts held and invested under any of the Investment Funds or to change any
prior investment election.

            (b) Investment Elections. Any investment election under subsection
(a) shall remain in effect until revoked or modified by the Participant or
Beneficiary. If Accounts are invested in more than one Investment Fund, changes
in proportions due to investment results shall not require any automatic
transfer of values between Investment Funds. Each Participant and Beneficiary is
responsible for transmitting his investment elections to the Trustee.

            (c) Available Investment Funds. A list of the Investment Funds
offered under the Plan is set forth in Appendix A and may be changed from time
to time without the necessity of amending this Plan and Trust document. The
Administrator may set a maximum percentage of the total election that a
Participant or Beneficiary may direct into any specific Investment Fund as set
forth in Appendix A.

            (d) Manner of Making Investment Elections. The Administrator will
establish the manner (writing, internet, intranet, telephonic, electronic or
other methods) and advance notice required for making investment elections under
Section 5.1.

            (e) Timing. Purchases and sales of assets in the Investment Funds as
required under this Section shall be made within a reasonable time after the
applicable investment election is made, and Accounts shall be adjusted to
reflect amounts actually realized or paid in such transactions.

            (f) ERISA Section 404(c). The Plan is a plan which is described in
ERISA Section 404(c) under which each Participant or Beneficiary shall exercise
control over the assets in his Accounts and shall be provided the opportunity to
choose, from a broad range of investments, the manner in which the assets in his
Accounts are invested. The Participant or Beneficiary shall not be deemed to be
a fiduciary by reason of his exercise of control, and no person who is otherwise
a fiduciary shall be liable for any loss or by reason of any breach which
results from such exercise of control, whether by the Participant's or
Beneficiary's affirmative direction or failure to direct an investment. In
addition, no account shall bear any loss or have any responsibility or liability
for any investment directed by any other Participant or Beneficiary with respect
to his Accounts.

      Section 5.2 Default Investment Fund. If a Participant or Beneficiary fails
or declines to make an effective investment election, the Participant's or
Beneficiary's Accounts shall be held in one or more default Investment Funds as
directed by the Administrator.

                                       25
<PAGE>

                                   ARTICLE VI.
                    VALUATION OF THE TRUST FUND AND ACCOUNTS

      Section 6.1 Individual Participant Accounting. The Administrator shall
maintain an individual set of Accounts for each Participant in order to reflect
transactions both by type of contribution and investment medium. Financial
transactions shall be accounted for at the individual Account level by posting
each transaction to the appropriate Account of each affected Participant.
Participant Account values shall be maintained in shares for the Investment
Funds. At any point in time, the Account value shall be determined using the
most recent Valuation Date values provided by the Trustee.

      Section 6.2 Valuation Date Accounting and Investment Cycle. Participant
Account values shall be determined as of each Valuation Date. For any
transaction to be processed as of a Valuation Date, the Trustee must receive
instructions for the transaction by the date specified by the Trustee, and such
instructions shall apply to amounts held in the Account on that date. Financial
transactions of the Investment Funds shall be posted to Participants' Accounts
as of the Valuation Date, based upon the Valuation Date values provided by the
Trustee, and settled on the Trustee's next business date.

      Section 6.3 Accounting for Investment Funds. Investments in each
Investment Fund (other than Safeway Stock) shall be accounted for in units or
other methods approved by the Administrator. Safeway Stock investments shall be
accounted for based on share accounting. The Trustee is responsible for
determining the share values of each Investment Fund as of each Valuation Date.
To the extent an Investment Fund is comprised of collective investment funds of
the Trustee, or any other fiduciary to the Plan, the share values shall be
determined in accordance with the rules governing such collective investment
funds, which are incorporated herein by reference. All other share values shall
be determined by the Trustee. The share value of each Investment Fund shall be
based on the fair market value of its underlying assets.

      Section 6.4 Payment of Fees and Expenses. Except to the extent Plan fees
and expenses related to Account maintenance, transaction and Investment Fund
management and maintenance are paid by the Company, such fees and expenses shall
be paid as set forth below. The Company may pay a lower portion of the fees and
expenses allocable to the Accounts of Participants who are no longer Employees
or who are not Beneficiaries unless doing so would result in impermissible
discrimination.

            (a) Account Maintenance. Account maintenance fees and expenses may
include, but are not limited to, administrative, Trustee, government annual
report preparation, audit, legal, nondiscrimination testing, and fees for any
other special services. Account maintenance fees may be charged at the
Investment Fund level in the manner described in (c) below or charged to
Participants on a per Participant basis provided that no fee shall reduce a
Participant's Account balance below zero.

            (b) Transaction. Transaction fees and expenses may include, but are
not limited to, withdrawal, distribution and loan fees. Transaction fees shall
be charged to the Participant's Account involved in the transaction provided
that no fee shall reduce a Participant's

                                       26
<PAGE>

Account balance below zero. There is no limit on the number of Investment Fund
election changes, and no fees are assessed on Investment Fund election changes
by a Participant or Beneficiary. However, a fee (determined by the
Administrator) may be charged with respect to each purchase and sale of Safeway
Stock.

            (c) Investment Fund Management and Maintenance. Management and
maintenance fees and expenses related to the Investment Funds shall be charged
at the Investment Fund level and reflected in the net gain or loss of each
Investment Fund. The Trustee shall have the authority to pay from the Trust any
such fees and expenses that remain unpaid by the Company for 60 days.

      Section 6.5 Participant Statements. The Administrator shall provide
Participants with statements of their Accounts as soon after the end of each
quarter of the Plan Year as is administratively feasible.

      Section 6.6 Accounts for Alternate Payees. A separate Account shall be
established for an alternate payee entitled to any portion of a Participant's
Account under a QDRO as of the date and in accordance with the directions
specified in the QDRO. In addition, a separate Account may be established during
the period of time the Administrator, a court of competent jurisdiction or other
appropriate person is determining whether a domestic relations order qualifies
as a QDRO. Such a separate Account shall be valued and accounted for in the same
manner as any other Account.

            (a) Distributions Pursuant to QDROs. If a QDRO so provides, the
portion of a Participant's Account payable to an alternate payee may be
distributed, in a form as permissible under Article XI, to the alternate payee
at the time specified in the QDRO, regardless of whether the Participant is
entitled to a distribution from the Plan at such time.

            (b) Investment Direction. Where a separate Account has been
established on behalf of an alternate payee and has not yet been distributed,
the alternate payee may direct the investment of such Account in the same manner
as if he were a Participant.

      Section 6.7 Determination of Values. As of each Valuation Date, the
Administrator shall determine the fair market value of each asset in each
Investment Fund in compliance with the principles of Section 3(26) of ERISA and
regulations issued pursuant thereto, based upon information reasonably available
to it including data from, but not limited to, newspapers and financial
publications of general circulation, statistical and valuation services, records
of securities exchanges, appraisals by qualified persons, transactions and bona
fide offers in assets of the type in question and other information customarily
used in the valuation of property for purposes of the Code. The value of any
real property held in the Trust Fund determined as of the end of any Plan Year
shall be considered to remain unchanged until the end of the following Plan
Year. With respect to securities for which there is a generally recognized
market, the published selling prices on or nearest to such valuation date shall
establish the fair market value of such security. Fair market value so
determined shall be conclusive for all purposes of the Plan and Trust.

                                       27
<PAGE>

      Section 6.8 Allocation of Values. As of each Valuation Date, the
Administrator shall allocate the gains or losses of each Investment Fund since
the last preceding Valuation Date to a Participant's Accounts in the same
proportion that the value of the Participant's Accounts invested in the
Investment Fund in question bears to the total value of all Participants'
Accounts invested in the Investment Fund. Such determinations shall be made
without taking into account deferrals of Compensation attributable to the last
Valuation Date.

      Section 6.9 Applicability of Account Values. The value of an Account, as
determined as of a given date under this Article, plus any amounts subsequently
credited thereto and less any amounts withdrawn, distributed or transferred to
suspense, shall remain the value thereof for all purposes of the Plan and Trust
until revalued hereunder.

                                       28
<PAGE>

                                  ARTICLE VII.
                                     VESTING

      Section 7.1 Fully Vested Accounts. A Participant shall be fully vested at
all times in his 401(k) Account, After-Tax Account, Rollover Account, Vons
Post-94 Match Account, Vons Post-94 Company Account and Jerseymaid
Profit-Sharing Account.

      Section 7.2 Full Vesting Upon Certain Events. A Participant's entire Vons'
Pre-95 Match Account shall become fully vested once he has attained his Normal
Retirement Date while an Employee or upon his terminating employment with all
Company Affiliates due to his Disability Retirement or death.

      Section 7.3 Vesting Schedule.

                  (a) Effective April 1, 2001, each Participant who is credited
      with at least one Hour of Service on or after April 1, 2001 shall become
      fully vested in his Vons' Pre-95 Match Account. Each Terminated
      Participant who has not, as of April 1, 2001, already forfeited his Vons'
      Pre-95 Match Account pursuant to Section 7.4 of the Plan and who again
      becomes an Employee shall become fully vested in his Vons' Pre-95 Match
      Account as of the first day he is credited with an Hour of Service.
      However, no Former Participant, including anyone who has previously
      forfeited his Vons' Pre-95 Match Account, shall not become vested in such
      previously forfeited amount.

                  (b) For an individual who became a Former Participant prior to
      April 1, 2001, in addition to the vesting schedule provided in Section
      7.2, such Participant's Vons Pre-95 Match Account shall become vested in
      accordance with the following schedule:

<TABLE>
<CAPTION>
                      Years of Service             Vested Percentage
                      ----------------             -----------------
                      <S>                          <C>
                      Less than 3                                0%
                      3 but less than 4                          20%
                      4 but less than 5                          40%
                      5 but less than 6                          60%
                      6 but less than 7                          80%
                      7 or more                                 100%.
</TABLE>

                  (c) If the Plan's vesting schedule is changed, the vested
      percentage for each Participant shall not be less than his vested
      percentage determined as of the last day prior to this change, and for any
      Participant with at least three Years of Service when the schedule is
      changed, his vested percentage shall be determined using the more
      favorable vesting schedule.

               Section 7.4 Forfeitures of Non-Vested Account Balances Upon
Certain Events. A Former Participant shall forfeit his non-vested Account
balance as soon as administratively feasible after the earliest of the date he:

                                       29
<PAGE>

            (a) is determined to be a Former Participant, if his vested Account
balance is zero;

            (b) receives a complete distribution of his vested Account balance;
or

            (c) incurs a Forfeiting Break in Service.

      Section 7.5 Use of Forfeitures. Any Forfeitures shall be used to restore
Accounts and to pay Plan fees and expenses as directed by the Administrator.

                                       30
<PAGE>

                                  ARTICLE VIII.
                             IN-SERVICE WITHDRAWALS

      Section 8.1 In-Service Withdrawal Approval. A Participant must apply for
an in-service withdrawal in such manner and with such advance notice as
prescribed by the Administrator. The Administrator is responsible for
determining that an in-service withdrawal request conforms to the requirements
described in this Article and granting such request. All in-service withdrawals
will be subject to the Rules of the Plan.

      Section 8.2 Payment Form and Medium. The form of payment for an in-service
withdrawal shall be a cash lump sum. However, if all or any portion of an
in-service withdrawal represents an Eligible Rollover Distribution, a
Participant may elect a Direct Rollover.

      Section 8.3 Source and Timing of In-Service Withdrawal Funding.

            (a) An in-service withdrawal to a Participant shall be made solely
from the vested assets of his own Accounts and will be based on the Account
values as of the Valuation Date on which the in-service withdrawal is processed.
The available assets shall be determined first by Account type and then by
investment type within each type of Account. Within each Account used for
funding an in-service withdrawal, amounts shall be taken by type of investment
in direct proportion to the market value of the Participant's interest in each
Investment Fund as of the Valuation Date on which the in-service withdrawal is
processed.

            (b) In-service withdrawals will be funded on the date following the
Valuation Date as of which the in-service withdrawal is processed. The Trustee
shall make payment as soon thereafter as administratively feasible.

      Section 8.4 Types of In-Service Withdrawals. The types of in-service
withdrawals that are available to Active and Inactive Participants are described
below.

            (a) After-Tax Account Withdrawal. An Active or Inactive Participant
may withdraw all or any portion of the contributions credited to his After-Tax
Account plus a pro-rata share of investment earnings at any time.

            (b) Age 59 1/2 Withdrawal. Effective January 1, 2000, an Active or
Inactive Participant may withdraw all or any portion of his vested Accounts when
he attains age 59 1/2. Any Age 59 1/2 withdrawal shall be debited from the
Participant's Accounts in the following order: (1) Rollover Account, (2)
After-Tax Account, (3) 401(k) Account, (4) Qualified Account, (5) Vons Pre-95
Match Account, (6) Vons Post-94 Match Account, (7) Vons Post-94 Company Account,
and (8) Jerseymaid Profit Sharing Account.

            (c) Age 70 1/2 Withdrawal. Effective from January 1, 1997 until
December 31, 1999, a Participant (other than a Five Percent Owner) who attains
age 70 1/2 may withdraw all or any portion of the balance of his vested
Accounts. Any Age 70 1/2 withdrawal shall be debited from the Participant's
Accounts in the following order: (1) Rollover Account, (2) After-Tax Account,
(3) 401(k) Account, (4) Qualified Account, (5) Vons Pre-95 Match Account, (6)
Vons

                                       31
<PAGE>

Post-94 Match Account, (7) Vons Post-94 Company Account, and (8) Jerseymaid
Profit Sharing Account.

      Section 8.5 Fees. The Participant's Accounts may be charged for actual
administrative fees charged by a third-party recordkeeper for any in-service
withdrawal.

      Section 8.6 Spousal Consent. A Participant who has an Annuity Eligible
Balance is required to obtain Spousal Consent in order to take an in-service
withdrawal.

                                       32
<PAGE>

                                   ARTICLE IX.
                                      LOANS

      Section 9.1 Participant Loans Permitted. Loans to Participants are
permitted pursuant to the terms and conditions set forth in this Article, the
Rules of the Plan and the loan policy established by the Administrator. Loans to
Project Employees are not permitted. At the discretion of the Administrator,
Participants may be charged a reasonable administrative fee in connection with
obtaining and/or maintaining a Plan loan.

      Section 9.2 Loan Application, Note and Security. A Participant shall apply
for any loan in such manner and with such advance notice as prescribed by the
Administrator. All loans shall be evidenced by a promissory note, secured only
by the portion of the Participant's Account from which the loan is made, and the
Plan shall have a lien on this portion of his Account.

      Section 9.3 Loan Approval. The Administrator is responsible for
determining that a loan request conforms to the requirements described in this
Article and granting such request.

      Section 9.4 Loan Funding Limits. The loan amount must meet all of the
following limits as determined as of the date the loan is processed:

            (a) Plan Minimum Limit. The minimum amount for any loan is $1,000.

            (b) Plan Maximum Limit. Subject to the legal limit described in (c)
below, the maximum a Participant may borrow, including the outstanding balance
of existing Plan loans, is 100% of the vested amount of his Accounts.

            (c) Legal Maximum Limit. The maximum a Participant may borrow,
including the outstanding balance of existing Plan loans, is 50% of the vested
balance of his Accounts, not to exceed $50,000. However, the $50,000 maximum is
reduced by the Participant's highest outstanding loan balance during the 12
month period ending on the day before the date as of which the loan is made. For
purposes of this paragraph, the qualified plans of all Company Affiliates shall
be treated as though they are part of this Plan to the extent it would decrease
the maximum loan amount.

      Section 9.5 Maximum Number of Loans. Participants may have only one loan
outstanding at any given time.

      Section 9.6 Source and Timing of Loan Funding.

            (a) A loan to a Participant shall be made solely from the assets of
his own Accounts. The available assets shall be determined first by Account type
and then by investment type within each type of Account. The hierarchy for loan
funding by type of Account shall be in the following order: (1) Rollover
Account, (2) After-Tax Account, (3) 401(k) Account, (4) Qualified Account, (5)
Vons Pre-95 Match Account, (6) Vons Post-94 Match Account, (7) Vons Post-94
Company Account and (8) Jerseymaid Profit Sharing Account. Within each Account
used for funding a loan, amounts shall taken by type of investment in direct
proportion

                                       33
<PAGE>

to the market value of the Participant's interest in each Investment Fund as of
the Valuation Date on which the loan is processed.

            (b) Loans will be funded on the Trustee's next business date
following the Valuation Date as of which the loan is processed. The Trustee
shall make payment to the Participant as soon thereafter as administratively
feasible.

      Section 9.7 Interest Rate. The interest rate charged on Participant loans
shall be a fixed reasonable rate of interest, determined from time to time by
the Administrator, which provides the Plan with a return commensurate with the
prevailing interest rate charged by persons in the business of lending money for
loans which would be made under similar circumstances. The interest rate is
determined as set forth in Appendix B and may be changed from time to time
without the necessity of amending this Plan and Trust document.

      Section 9.8 Repayment. Substantially level amortization shall be required
of each loan with payments made at least monthly, generally through payroll
deduction. Loans may be prepaid in full or in part at any time without penalty.
The Participant may choose the loan repayment period, not to exceed four years.
However, the loan repayment period may be for any period not to exceed 15 years
if the purpose of the loan is to acquire the Participant's principal residence.

      Section 9.9 Repayment Hierarchy. Loan principal payments shall be credited
to the Participant's Accounts in the same order, on a pro rata basis, used to
fund the loan. Loan interest shall be credited to the Participant's Accounts in
direct proportion to the principal payment. Loan payments are credited by
investment type based upon the Participant's current investment election for new
contributions.

      Section 9.10 Repayment Suspension. The Administrator may agree to a
suspension of loan payments for up to three months for a Participant who is on a
Company-authorized leave of absence without pay (other than a Military Leave) or
for a longer period for a Participant on a Military Leave. During the suspension
period interest shall continue to accrue on the outstanding loan balance. At the
expiration of the suspension period all outstanding loan payments and accrued
interest thereon shall be due unless otherwise agreed upon by the Administrator.

      Section 9.11 Loan Default.

            (a) A loan is treated as in default if a scheduled loan payment is
not made at the time required. A Participant shall then have a grace period to
cure the default before it becomes final. Such grace period shall be for a
period that does not extend beyond the last day of the calendar quarter
following the calendar quarter in which the scheduled loan payment was due or
such lesser or greater maximum period as may later be authorized by Code Section
72(p).

            (b) In the event a default is not cured within the grace period, the
Administrator may direct the Trustee to report the outstanding principal balance
of the loan and accrued interest thereon to the Internal Revenue Service as a
taxable distribution to the Participant. As soon as a Plan withdrawal or
distribution to such Participant would otherwise be

                                       34
<PAGE>

permitted, the Administrator may instruct the Trustee to execute upon its
security interest in the Participant's Accounts by distributing the note to the
Participant.

      Section 9.12 Call Feature. The Administrator shall provide a reasonable
time period for a Participant to repay his loan in full after his employment
with the Company and all Company Affiliates has terminated or if the Plan is
terminated. After the expiration of the reasonable time period, the
Administrator shall have the right to call the Participant's loan and treat the
event as a distribution.

      Section 9.13 Loan Administration.

            (a) The Administrator shall direct and administer loans made to
Participants pursuant to the Plan and shall have responsibility for such loans
including, without limitation, responsibility for the following: the development
of procedures and documentation for the loans; the acceptance of loan
applications; the preparation and execution of loan documentation; the
disclosure of interest rate information as required by Regulation Z of the
Federal Reserve Board promulgated pursuant to the Truth in Lending Act, 15
U.S.C. Sec. 1601 et seq.; the enforcement of promissory note terms, including,
but not limited to, directing the Trustee to take specified actions; and the
maintenance of accounts and records regarding interest and principal payments on
promissory notes. The Trustee shall not be responsible for reviewing such
documents, records, and procedures, but the Trustee may from time to time
examine such documents, records, and procedures as it deems appropriate.

            (b) The Trustee appoints the Administrator custodian for the
physical custody and safekeeping of the promissory notes and other documents
evidencing Participant loans.

            (c) The Trustee shall account for Participant loans in aggregate, as
a single asset of the Trust. Within 30 days of the close of each fiscal year of
the Trust, and within 30 days of the termination of this Agreement, the
Administrator shall file with the Trustee a written account setting forth in the
aggregate all investments, receipts, disbursements, and other transactions
effected by it with respect to Participant loans during such fiscal year or the
period from the close of the last fiscal year to the date of such termination.
The Trustee may rely on such accounting by the Administrator in valuing and
accounting for Trust assets as required by this Trust and shall be under no
liability for accounting for Participant loans or transactions relating to
Participant loans.

            (d) The Administrator shall direct the Trustee with respect to all
returns and filings required by the Code or applicable state law, as a result of
any Participant loan, including, but not limited to, returns and filings
required by reason of failure by the borrower to make any payments. The Trustee
shall be under no liability for failure to file such returns or reports, unless
as a result of failure to follow the Administrator's direction.

      Section 9.14 Spousal Consent. A Participant who has an Annuity Eligible
Balance is required to obtain Spousal Consent in order to borrow from his
Account under the Plan.

                                       35
<PAGE>

                                   ARTICLE X.
                     EMPLOYMENT AFTER NORMAL RETIREMENT DATE

      Section 10.1 Continuation of Employment.

            (a) A Participant may, subject to subsection (b) and Section 17.3,
remain in the employ of the Company or a Company Affiliate after attaining his
Normal Retirement Date.

            (b) Notwithstanding subsection (a), the Company reserves the right
to require a Participant to retire in accordance with Section 12(c) of the Age
Discrimination in Employment Act of 1967, as amended and applicable state law.

      Section 10.2 Continuation of Participation. A Participant retained as an
Eligible Employee of his Employer after his Normal Retirement Date shall
continue as an Active Participant of the Plan.

      Section 10.3 Required Minimum Distributions.

            (a) Not a Five Percent Owner. Effective January 1, 2000 a
Participant who is not a Five Percent Owner in the calendar year in which he
attains age 70 1/2 shall receive or commence the receipt of the entire amount
credited to his Accounts in accordance with Article XI not later than the later
of (i) the April 1 following the calendar year in which his Separation from the
Service occurs, or (ii) the April 1 following the calendar year in which he
attains age 70 1/2.

            (b) Five Percent Owner. Effective January 1, 1997 a Participant who
is a Five Percent Owner in the calendar year in which he attains age 70 1/2
shall receive or commence the receipt of the entire amount credited to his
Accounts in accordance with Article XI by the April 1 following the end of the
calendar year in which he attains age 70 1/2.

            (c) Suspending Payments. With regard to a Participant who is an
Employee and who commenced benefit payments in accordance with Code Section
401(a)(9) as in effect prior to January 1, 1997, and who is not a Five Percent
Owner, he may, but is not required to, discontinue such benefit payments until
he is otherwise required to again commence benefit payments in accordance with
Code Section 401(a)(9) as in effect for calendar years commencing after December
31, 1996. A Participant who elects to discontinue such benefit payments in
accordance with the preceding sentence shall thereby render his existing payment
election and, if applicable, any Spousal Consent to such election, as void and a
new election including, if applicable, Spousal Consent to such new election,
shall be required subject to the provisions of Article XI at the time he is
required to again commence benefit payments in accordance with Code Section
401(a)(9) as in effect for calendar years commencing after December 31, 1996.

            (d) Deferring Payments. A Participant who is not a Five Percent
Owner and who attains age 70 1/2 in a Plan Year commencing on January 1, 1997,
January 1, 1998 or January 1, 1999 shall receive or commence the receipt of the
entire amount credited to his Accounts in accordance with Article XI not later
than April 1 following the calendar year in which he attains age 70 1/2 unless
he elects to defer such payments until the April 1 next following

                                       36
<PAGE>

the calendar year in which his Separation from the Service occurs. This deferral
election must be made prior to the April 1 following the calendar year in which
the Participant attains age 70 1/2.

            (e) Notwithstanding the above, all distributions shall satisfy the
minimum distribution incidental death benefit requirements of Proposed Treas.
Reg. Sec. 1.401(a)(9)-2 (or any successor thereto).

                                       37
<PAGE>

                                   ARTICLE XI.
                                  DISTRIBUTIONS

      Section 11.1 Rights Upon Normal or Disability Retirement or Separation
from the Service. Upon a Participant's Normal or Disability Retirement or
Separation from the Service, he shall be entitled to receive the vested amount
credited to his Accounts in accordance with Section 11.2.

      Section 11.2 Distribution of Accounts. Except as provided in Section 11.3
or Section 11.4, distribution of the vested Accounts of a Participant or a
Beneficiary of a deceased Participant shall be made in one of the following
forms as elected by the Participant or Beneficiary:

            (a) in either (1) a single lump sum or (2) a portion paid in a lump
sum immediately and the remainder paid in a lump sum at a later date, as
follows:

                  (i) if all of the Accounts are invested in Investment Funds
other than Safeway Stock, such lump sum payments shall be in cash;

                  (ii) if all or any portion of such Accounts are invested in
Safeway Stock, then, at the election of such Participant or Beneficiary:

                      (A) payments shall be entirely in cash, or

                      (B) payments shall be made:

                          (I)   for the portion of the Accounts that is not
                                invested in Safeway Stock, in cash; and

                          (II)  for the portion of the Accounts that is invested
                                in Safeway Stock, in cash or, if elected, in the
                                form of whole shares of Safeway Stock and cash
                                in an amount equal to the value of any
                                fractional share of Safeway Stock, determined
                                based on its fair market value as of the date of
                                distribution.

            (b) in cash installments paid over a period not to exceed the joint
life expectancy of the Participant and his Beneficiary.

            (c) in a Direct Rollover to the extent that the payment is an
Eligible Rollover Distribution and the recipient is a Distributee.

Notwithstanding the above, a Participant may elect to take an immediate
distribution of a portion of his Accounts under one of the available forms and
take a subsequent distribution of the remaining balance of his Accounts in one
of the available forms.

                                       38
<PAGE>

      Section 11.3 Annuity Eligible Balance. Notwithstanding anything to the
contrary, the following provisions shall apply to any Participant whose Account
includes a vested Annuity Eligible Balance but only with respect to such
Participant's Annuity Eligible Balance:

            (a) Annuity. Subject to subsections (e) and Section 11.4, a
Participant with an Annuity Eligible Balance who is entitled to a distribution
under Section 11.1 may elect to have his benefit attributable to his Annuity
Eligible Balance paid in the form of

                  (i) a Joint and 50% Survivor Annuity, for married
Participants,

                  (ii) a Joint and 100% Survivor Annuity, for married
Participants

                  (iii) a life annuity, for single Participants, or

                  (iv) a 5-, 10- or 15-year term certain annuity, for both
married and single Participants.

Distribution of a Participant's Accounts in the form of a 50% Joint and Survivor
Annuity or a 100% Joint and Survivor Annuity shall require the Participant's
consent if such distribution commences prior to his Normal Retirement Date.

            (b) Joint and Survivor Annuity Notice. Not less than 30 days, and
not more than 90 days, prior to his Annuity Starting Date, each Participant who
may be affected by this Section shall be furnished, by mail or personal delivery
(and consistent with such regulations as the Secretary may prescribe), with

                  (i) a written explanation of the terms and conditions of the
Joint and 50% Survivor Annuity and the Joint and 100% Survivor Annuity,
including

                      (A) the right of the Participant to make, and the effect
of, an election under subsection (e) to waive the Joint and 50% Survivor Annuity
and the Joint and 100% Survivor Annuity,

                      (B) the relative financial effect on his Accounts of an
election under subsection (e),

                      (C) the right of the Participant's Spouse under subsection
(e), and

                      (D) the right of the Participant under subsection (e) to
revoke an election made under subsection (e) and the effect thereof, and

                  (ii) a statement that the Administrator will furnish the
Participant upon his first written request within 60 days after the mailing or
personal delivery to him of the notice required under this subsection, a
detailed statement as to the financial effect upon his Accounts of making an
election under subsection (e).

                                       39
<PAGE>

            (c) Waiver of the Notice Period. Notwithstanding subsection (b), if
the Participant, after having received the written explanation described in
paragraph (b)(i), affirmatively elects a form of distribution under subsection
(e) with Spousal Consent (if necessary), the distribution under subsection (e)
may commence less than 30 days after the written explanation described in
paragraph (b)(i) was provided to the Participant, provided the following
requirements are met:

                  (i) the Administrator provides information to the Participant
clearly indicating that the Participant has the right to at least 30 days to
consider whether to waive the automatic form of distribution under subsection
(a) and consent to a form of distribution other than the automatic form of
distribution,

                  (ii) the Participant is permitted to revoke an affirmative
distribution election at least until the date of commencement of the
distribution, or, if later, at any time prior to the expiration of the 7-day
period that begins the day after the explanation described in paragraph (b)(i)
is provided to the Participant,

                  (iii) the date of commencement of the distribution of the
Participant's Accounts is after the date the explanation described in paragraph
(b)(i) is provided to the Participant, and

                  (iv) the distribution of the Participant's Accounts in
accordance with the affirmative election does not commence before the expiration
of the 7-day period that begins after the explanation described in paragraph
(b)(i) is provided to the Participant.

            (d) The items furnished under subsection (b) shall be written in
non-technical language with the financial effects referred to being given in
terms of dollars per monthly payment. Such information shall be delivered
personally to the Participant or mailed to him (first class mail, postage
prepaid) within 30 days after the Administrator receives the written request.

            (e) Optional Forms. Notwithstanding subsection (a) and subject to
Section 11.4, if a Participant elects during the applicable Election Period,
with Spousal Consent, to waive such annuity, such Participant may elect to
receive the amount credited to his vested Accounts, including the Annuity
Eligible Balance, in one of the distribution forms set forth in Section 11.2.
Any such election may be revoked or made again at any time during the applicable
Election Period.

            (f) Qualified Preretirement Survivor Annuity.

                  (i) Subject to paragraph (ii), if a Participant dies before
any distribution of his Accounts has been made or commenced and was married on
the date of his death, all of the amount credited to his Accounts shall be
applied to purchase a qualified preretirement survivor annuity for the life of
his Surviving Spouse which shall commence on a date specified by the Spouse
which is not later than the later of

                      (A) the first anniversary of the Participant's death, or

                                       40
<PAGE>

                      (B) the date on which the Participant would have attained
age 70 1/2.

                  (ii) Notwithstanding paragraph (i),

                      (A) if a Former Participant or a Participant who is more
than 35 years old elected to waive such qualified preretirement survivor annuity
during the applicable Election Period and obtained Spousal Consent, or

                      (B) if such Surviving Spouse, after the Participant's
death, elects in accordance with the Rules of the Plan to waive the qualified
preretirement survivor annuity to which such Surviving Spouse is otherwise
entitled,

                      the amount credited to the Participant's Accounts shall be
                      paid to the Surviving Spouse in one of the methods
                      permitted under Section 11.2. Any election under paragraph
                      (ii) may be revoked or made again at any time during the
                      applicable Election Period.

            (g) Explanation of Qualified Preretirement Survivor Annuity. The
Administrator shall provide a written explanation of the qualified preretirement
survivor annuity (as defined in Code Section 417(c)):

                  (i) to a Participant who is a Participant on his 32nd
birthday, within the three Plan Year period commencing with the Plan Year in
which his 32nd birthday occurs;

                  (ii) to a Participant who becomes a Participant after his
thirty-second birthday, within the three Plan Year period commencing with the
Plan Year in which he becomes a Participant; and

                  (iii) to a Former Participant who has a Separation from the
Service prior to his 32nd birthday, within one year of his Separation from the
Service,

or such longer period as is allowed under Code Section 417(a)(3).

      Section 11.4 Small Accounts. The Participant shall select the method by
which his Accounts will be distributed to him. Notwithstanding the foregoing,
effective January 1, 1998, if the distributable balance of the Participant's
Accounts is $5,000 or less and the Participant fails to elect a form of
distribution when payable, then the Trustee shall distribute the Participant's
vested Accounts in a lump sum. Additionally, if the distributable balance of the
Participant's Accounts is $200 or less, then the Trustee shall distribute the
Participant's vested Accounts in a lump sum, and the Participant shall have no
right to elect a Direct Rollover.

      Section 11.5 Timing.

            (a) Distribution of a Participant's vested Accounts will normally be
made or commenced as soon as practicable following the Participant's date of
Separation from the Service, but not later than the 60th day after the latest of
(i) the close of the Plan Year during

                                       41
<PAGE>

which the Participant attains age 65, (ii) the close of the Plan Year in which
occurs the tenth anniversary of the year in which the Participant commenced
participating in the Plan or, (iii) the close of the Plan Year during which his
date of Separation from the Service occurs, except as otherwise permitted under
circumstances described in Treas. Reg. Sec. 1.401(a)-14(d). If the value of the
Participant's Accounts is over $5,000, the Participant (but not his Beneficiary
in the event of the Participant's death) must consent in writing to receive the
distribution, but no Participant may elect to defer distribution beyond the date
described above.

            (b) Distributions must commence as required under Section 10.3, Code
Section 401(a)(9) and the regulations thereunder including the minimum
incidental death benefit rules under Prop. Treas. Reg. Sec. 1.401(a)(9)-2.

      Section 11.6 Distribution Notices.

            (a) A Participant, or his Beneficiary in case of death, shall be
provided with information explaining all optional forms of distribution
available and any notice required by Code Sections 402(f) and 411(a)(11).

            (b) If a distribution is one to which Code Sections 401(a)(11) and
417 do not apply, distribution of a Participant's Accounts may commence less
than 30 days after the notice required under Treas. Reg. Sec. 1.411(a)-11(c) is
given, provided that

                  (i) the Administrator clearly informs the Participant that he
has a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and

                  (ii) the Participant, after receiving the notice,
affirmatively elects a distribution.

      Section 11.7 Distribution upon Death.

            (a) If a Participant dies before any distribution of his Accounts
commences, then the balance of his Accounts shall be paid to his Beneficiary in
one of the available forms, as elected by the Beneficiary. If a Participant dies
after distribution of only a portion of his Accounts in accordance with his
election, then the remaining balance of his Accounts shall be paid to his
Beneficiary in one of the available forms, as elected by the Beneficiary. If a
Participant dies after a complete distribution of his Accounts has commenced in
the form of installments, then the balance of his Accounts will be paid to his
Beneficiary at least as quickly as provided in his original election.

            (b) Payment to a Beneficiary who is not a Surviving Spouse must
either: (1) be completed by the end of the calendar year that contains the fifth
anniversary of the Participant's death or (2) begin by the end of the calendar
year that contains the first anniversary of the Participant's death and be
completed within the period of the Beneficiary's life or life expectancy.

                                       42
<PAGE>
            (c) (i) If the surviving Spouse is the Beneficiary, payments need
not begin until the later of (A) the end of the calendar year that includes the
first anniversary of the Participant's death or (B) the end of the calendar year
in which the Participant would have been required to commence payments under
Section 10.3, and must be completed within the Spouse's life or life expectancy;
and

                (ii) If the Participant and the surviving Spouse who is the
Beneficiary die (A) before the date on which the Participant would have been
required to begin payments under Section 10.3 and (B) before payments have begun
to the Spouse, the Spouse shall be treated as the Participant in applying these
rules.

      Section 11.8 Determination of Value of Accounts. When a distribution under
the Plan is made, the value of a Participant's Accounts shall be determined as
of the Valuation Date coinciding with or next preceding the Participant's
distribution date (after all adjustments then required or permitted under the
Plan have been made). When determining whether the value of the distributable
balance of the Participant's Accounts exceeds $5,000, the balance of his
Rollover Account will be disregarded unless his Account is subject to an Annuity
Eligible Balance.

                                       43
<PAGE>

                                  ARTICLE XII.
                              TOP HEAVY PROVISIONS

      Section 12.1 Top Heavy Determination.

            (a) Solely in the event that this Plan ever becomes Top Heavy, as
defined herein, the provisions of this Article shall apply.

            (b) Solely for the purposes of this Article, the following
definitions shall be used:

                  (i) "Aggregation Group" means

                      (A) each plan of the Company or a Company Affiliate in
which a Key Employee is a Participant (including any such plan which has been
terminated if such plan was maintained by the Company or Company Affiliate
within the last five years ending on the Determination Date for the Plan Year in
question) but excluding a plan meeting the requirements of Code Section
401(k)(11); provided, however, that such plan allows only contributions required
under Code Section 401(k)(11)), and

                      (B) each other plan of the Company or a Company Affiliate
which enables any plan described in subsection (a) to meet the requirements of
Code Section 401(a)(4) or 410.

                  (ii) "Determination Date" means, with respect to any Plan
Year, the last day of the preceding Plan Year, or in the case of the first Plan
Year, the last day of such Plan Year.

                  (iii) (A) Effective for Plan Years commencing on or after
January 1, 2002, "Key Employee" means

                          (I)   any Employee or former Employee (including any
                                deceased Employee) who at any time during the
                                Plan Year that includes the Determination Date
                                was an officer of the Company or a Company
                                Affiliate having Statutory Compensation greater
                                than $130,000 (as adjusted under Code Section
                                416(i)(1) for Plan Years beginning after
                                December 31, 2002);

                          (II)  a Five Percent Owner of the Company or a Company
                                Affiliate; or

                          (III) a one percent owner (within the meaning of Code
                                Section 416(i)(1)(B) and (C) of the Company or a
                                Company Affiliate having Statutory Compensation
                                of more than $150,000.

                                       44
<PAGE>

                      (B) Effective for Plan Years commencing prior to January
1, 2002, "Key Employee" means an Employee, a former Employee or the Beneficiary
of a former Employee, if, in the Plan Year containing the Determination Date or
in any of the four preceding Plan Years, such Employee or former Employee is or
was

                          (I)   an officer of the Company or a Company Affiliate
                                whose Statutory Compensation for the Plan Year
                                in question exceeds fifty percent of the amount
                                in effect under Code Section 415(b)(1)(A) (not
                                more than fifty Employees or, if less, the
                                greater of three Employees or ten percent of the
                                Employees shall be treated as officers),

                          (II)  one of the ten Employees owning (or considered
                                as owning within the meaning of Code Section
                                318) both the largest interest in the Company or
                                a Company Affiliate and more than one-half of
                                one percent interest therein and whose Statutory
                                Compensation for the Plan Year in question
                                equals or exceeds the amount in effect under
                                Code Section 415(c)(1)(A); provided, however, if
                                two Employees have the same interest in the
                                Company or a Company Affiliate, the Employee
                                with the greater Statutory Compensation for such
                                Plan Year shall be treated as having the larger
                                interest,

                          (III) a Five Percent Owner or a one percent owner
                                (within the meaning of Code Section 416(i)(1)(B)
                                and (C)) of the Company or a Company Affiliate
                                whose Statutory Compensation for the Plan Year
                                in question exceeds $150,000.

                      (C) The determination of who is a "Key Employee" shall be
made in accordance with Code Section 416(i)(1) and the applicable regulations
and other guidance of general applicability issued thereunder.

                  (iv) "Non-Key Employee" means any Employee who is not a Key
Employee.

                  (v) The Plan shall be Top Heavy if, as of any Determination
Date, the aggregate of the Accounts of Key Employees under all plans in the
Aggregation Group (or under this Plan and such other plans as the Company elects
to take into account under Code Section 416(g)(2)(A)(ii)) exceeds sixty percent
of the aggregate of the Accounts for all Key Employees and Non-Key Employees. In
making this calculation as of a Determination Date,

                                       45
<PAGE>

                      (A) each Account balance as of the most recent valuation
date occurring within the Plan Year which includes the Determination Date shall
be determined,

                      (B) an adjustment for contributions due as of the
Determination Date shall be determined,

                      (C) the Account balance of any Employee or former Employee
shall be increased by the aggregate distributions made during, effective January
1, 2002, the one-year period ending on the Determination Date (or, prior to
January 1, 2002, the five-year period ending on the Determination Date) with
respect to such Employee or former Employee and, effective January 1, 2002, the
aggregate distributions made for a reason other than Separation from the
Service, death or Disability during the one-year period ending on the
Determination Date,

                      (D) the Account balance of

                          (I)   any Non-Key Employee who was a Key Employee for
                                any prior Plan Year, and

                          (II)  any former Employee who performed no services
                                for the Company or a Company Affiliate during,
                                effective January 1, 2002, the one-year period
                                ending on the Determination Date (or, prior to
                                January 1, 2002, the five-year period ending on
                                the Determination Date) shall be ignored, and

                      (E) if there have been any rollovers to or from any
Account, the balance of such Account shall be adjusted, as required by Code
Section 416(g)(4)(A).

Notwithstanding the foregoing, this Plan shall be Top Heavy if, as of any
Determination Date, it is required by Code Section 416(g) to be included in an
Aggregation Group which is determined to be a Top Heavy Group.

                  (vi) "Top Heavy Group" means any Aggregation Group if, as of
the Determination Date, the sum of

                      (A) the present value of the cumulative accrued benefits
for all Key Employees under all defined benefit plans in such Aggregation Group,
and

                      (B) the aggregate of the accounts of all Key Employees
under all defined contribution plans in such Aggregation Group

      exceeds sixty percent of a similar sum determined for all Key Employees
      and Non-Key Employees.

                                       46
<PAGE>

      Section 12.2 Minimum Benefits.

            (a) Except as provided in subsection (c), for any Plan Year in which
the Plan is Top Heavy, the total allocation to the Qualified Account of any
Employee who is a Non-Key Employee at the end of such Plan Year and is entitled
to an allocation to such Account under Section 3.4 shall not be less than that
determined under subsection (b).

            (b) The allocation determined under this subsection shall be a
percentage of the Statutory Compensation of such Non-Key Employee which is not
less than the lesser of

                  (i) three percent, or

                  (ii) that percentage reflecting the ratio of

                      (A) the allocations under Section 3.4 to

                      (B) Statutory Compensation

for the Key Employee with respect to whom such ratio is highest for such Plan
Year.

            (c) For any Plan Year in which the Plan is Top Heavy and the defined
benefit plan, if any, maintained by the Company or a Company Affiliate is also
top heavy (within the meaning of Code Section 416), the amount of the allocation
determined under subsection (b) for any Non-Key Employee who is covered under
both the Plan and the relevant defined benefit plan will be determined by
substituting "five percent" for the phrase "three percent" at subsection (b)(i).

            (d) This Section shall not apply to any Participant to the extent
the Participant is covered under any other plan sponsored by the Company or a
Company Affiliate provided the minimum allocation or benefit requirement
applicable to Top Heavy Plans will be met in the other plan or plans. For the
purposes of determining whether or not the provisions of this Section have been
satisfied, both contributions or benefits under Chapter 2 of the Code (relating
to tax on self-employment income), Chapter 21 of the Code (relating to Federal
Insurance Contributions Act), Title 11 of the Social Security Act, or any other
Federal or state laws and Company contributions made under any salary reduction
or similar arrangement shall be disregarded.

      Section 12.3 Top Heavy Vesting.

            (a) For any Plan Year in which the Plan is Top Heavy, the vested
percentage of the Vons Pre-95 Match Account of each Participant who completes an
Hour of Service in such Plan Year shall be the percentage of such Account shown
on the following table:

                                       47
<PAGE>
<TABLE>
<CAPTION>
         Years of Service                  Vested Percentage
         ----------------                  -----------------
<S>                                        <C>
           Less than 2                            0%
                2                                20%
                3                                40%
                4                                60%
                5                                80%
           6 (or more)                          100%
</TABLE>

However, the vested percentage of a Participant's Vons Pre-95 Match Account
shall be not less than the vested percentage determined as of the last day of
the last Plan Year in which the Plan was not Top Heavy.

            (b) For any Plan Year in which the Plan is not Top Heavy which
follows one or more Plan Years for which the Plan has been Top Heavy, Article
VII shall again become applicable as an amendment to the Plan. Therefore, each
Participant who has had his vested percentage computed under subsection (a) and
who has completed at least three Years of Service shall be permitted to elect to
have his vested percentage computed in accordance with subsection (a) for such
Plan Year and any subsequent Plan Year in which the Plan is no longer Top Heavy.
Such Participant may make such election within an election period beginning no
later than the first day of the first Plan Year in which the Plan is no longer
Top Heavy and ending no later than the later of

                  (i) the 60th day of such Plan Year, or

                  (ii) a date which is 60 days after the day the Participant is
issued written notice of his right to make such election by the Administrator.

                                       48
<PAGE>

                                  ARTICLE XIII.
                            ADMINISTRATIVE PROVISIONS

      Section 13.1 Duties and Powers of the Administrator.

            (a) The Administrator shall administer the Plan in accordance with
the Plan and ERISA and, in addition to the duties specifically set forth in the
Plan, shall have full discretionary power and authority:

                  (i) To engage actuaries, attorneys, accountants, appraisers,
brokers, consultants, administrators, recordkeepers, custodians, physicians or
other firms or persons and (with its officers, directors and employees) to rely
upon the reports, advice, opinions or valuations of any such persons except as
required by law;

                  (ii) To adopt Rules of the Plan that are not inconsistent with
the Plan or applicable law and to amend or revoke any such rules;

                  (iii) To construe and interpret the Plan and the Rules of the
Plan and to remedy any ambiguities and inconsistencies therein;

                  (iv) To determine questions of eligibility and vesting of
Participants;

                  (v) To determine entitlement to allocations of contributions
and forfeitures and to distributions of Participants, former Participants,
Beneficiaries, and all other persons;

                  (vi) To make findings of fact as necessary to make any
determinations and decisions in the exercise of such discretionary power and
authority;

                  (vii) To appoint claims and review officials to conduct claims
procedures as provided in Section 13.4;

                  (viii) To compute, certify to and direct the Trustee with
regard to the amount and kind of benefits payable to Participants and their
Beneficiaries;

                  (ix) To authorize all disbursements by the Trustee from the
Trust;

                  (x) To maintain all records that may be necessary for the
administration of the Plan other than those maintained by the Trustee;

                  (xi) To delegate any power or duty to any firm or person
engaged under paragraph (i) or to any other person or persons; and

                  (xii) To select or eliminate Investment Funds.

            (b) Every finding, decision, and determination made by the
Administrator shall, to the full extent permitted by law, be final and binding
upon all parties, except as provided

                                       49
<PAGE>

in Section 13.4 or to the extent found by a court of competent jurisdiction to
constitute an abuse of discretion.

            (c) Notwithstanding anything contained in the Plan to the contrary,
all actions taken by the Administrator shall cause the Plan or the Trust to be
treated as a "domestic trust" under Treas. Reg. Sec. 301.7701, and no action
will be taken by the Administrator, or, if taken, will be valid, which would
cause the Plan or the Trust not to be considered as a domestic trust.

      Section 13.2 Committee. The Company, as Administrator of the Plan, has
appointed a Committee to administer the Plan on its behalf. The Company shall
provide the Trustee with the names and specimen signatures of any persons
authorized to serve as Committee members and act as or on its behalf. Any
Committee member appointed by the Company shall serve at the pleasure of the
Company but may resign by written notice to the Company. Committee members shall
serve without compensation from the Plan for such services. Except to the extent
that the Company otherwise provides, any delegation of duties to the Committee
shall carry with it the full discretionary authority of the Administrator to
complete such duties.

      Section 13.3 Committee Operating Rules.

            (a) Actions of Majority. Any act delegated by the Company to the
Committee may be accomplished with the approval of a majority of its members.
The majority may be expressed by a vote at a meeting or in writing without a
meeting, and a majority action shall be equivalent to an action of all Committee
members.

            (b) Meetings. The Committee shall hold meetings upon such notice,
place and times as it determines necessary to conduct its functions properly,

            (c) Reliance by Trustee. The Committee may authorize one or more of
its members to execute documents on its behalf and may authorize one or more of
its members or other individuals who are not members to give written direction
to the Trustee in the performance of its duties. The Committee shall provide
such authorization in writing to the Trustee with the name and specimen
signatures of any person authorized to act on its behalf. The Trustee shall
accept such direction and rely upon it until notified in writing that the
Committee has revoked the authorization to give such direction. The Trustee
shall bear no liability for acting upon such direction and relying upon it until
notified in writing that the Committee has revoked the authorization to give
such direction. The Trustee shall be under no duty to make any investigation or
inquiry about the correctness of such direction or written notice.

      Section 13.4 Claims Procedure.

            (a) A claim by a Participant, Beneficiary or any other person shall
be presented in writing to the individual appointed by the Administrator to
review the claim (the "claim reviewer") within the maximum time permitted by law
or under the regulations promulgated by the Secretary of Labor or his delegate
pertaining to claims procedures.

                                       50
<PAGE>

            (b) The claim reviewer shall, within a reasonable time, consider the
claim and shall issue his determination thereon in writing.

            (c) If the claim is granted, the appropriate distribution or payment
shall be made from the Trust Fund or by the Company.

            (d) If the claim is wholly or partially denied, the claim reviewer
shall, within 90 days (or such longer period as may be reasonably necessary),
provide the claimant with written notice of such denial, setting forth, in a
manner calculated to be understood by the claimant

                  (i) the specific reason or reasons for such denial,

                  (ii) specific references to pertinent Plan provisions on which
the denial is based,

                  (iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary, and

                  (iv) an explanation of the Plan's claim review procedure.

            (e) The Administrator shall provide each claimant with a reasonable
opportunity to appeal the claim reviewer's denial of a claim to a review
official (appointed by the Administrator in writing) for a full and fair review.
The claimant or his duly authorized representative

                  (i) may request a review upon written application to the
review official (which shall be filed with it),

                  (ii) may review pertinent documents, and

                  (iii) may submit issues and comments in writing.

            (f) The review official may establish such time limits within which
a claimant may request review of a denied claim as are reasonable in relation to
the nature of the benefit which is the subject of the claim and to other
attendant circumstances but which, in no event, shall be less than 60 days after
receipt by the claimant of written notice of denial of his claim.

            (g) The decision by the review official upon review of a claim shall
be made not later than 60 days after his receipt of the request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but not later than
120 days after receipt of such request for review.

            (h) The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific references to the pertinent Plan
provisions on which the decision is based.

                                       51
<PAGE>

            (i) The claim reviewer and the review official shall have full
discretionary power and authority to construe the Plan and the Rules of the
Plan, to determine questions of eligibility, vesting and entitlements and to
make findings of fact as under Section 13.1 and, to the extent permitted by law,
the decision of the claim reviewer (if no review is properly requested) or the
decision of the review official on review, as the case may be, shall be final
and binding on all parties except to the extent found by a court of competent
jurisdiction to constitute an abuse of discretion.

            (j) Except as otherwise decided by the Administrator, the Committee
will be the claim reviewer and reviewing official for purposes of this Section.

      Section 13.5 Conflicting Claims. If the Administrator is confronted with
conflicting claims concerning a Participant's Accounts, the Administrator may
interplead the claimants in an action at law, or in an arbitration conducted in
accordance with the rules of the American Arbitration Association, as the
Administrator shall elect in its sole discretion. In either case, the attorneys'
fees, expenses and costs reasonably incurred by the Administrator in such
proceeding shall be paid from the Participant's Accounts.

      Section 13.6 Payments. In the event any amount becomes payable under the
Plan to a minor or a person who, in the sole judgment of the Administrator, is
considered by reason of physical or mental condition to be unable to give a
valid receipt therefor, the Administrator may direct that such payment be made
to any person found by the Administrator, in its sole judgment, to have assumed
the care of such minor or other person. Any payment made pursuant to such
determination shall constitute a full release and discharge of the Trustee, the
Administrator and the Company and their officers, directors, employees, owners,
agents and representatives.

      Section 13.7 Effect of Delay or Failure to Ascertain Amount Distributable
or to Locate Distributee.

            (a) If an amount payable under the Plan cannot be ascertained or the
person to whom it is payable has not been ascertained or located within the
stated time limits and reasonable efforts to do so have been made, then
distribution shall be made not later than 60 days after such amount is
determined or such person is ascertained or located, or as prescribed in
subsection (b).

            (b) If, within one year after a Participant has a Separation from
the Service, the Administrator, in the exercise of due diligence, has failed to
locate him (or if such Separation from the Service is by reason of his death,
has failed to locate the Participant's Beneficiary), his entire distributable
interest in the Plan shall be forfeited and applied to pay expenses of the Plan;
provided, however, that if the Participant (or in the case of his death, the
Participant's Beneficiary) makes proper claim therefor under Section 13.4, the
amount so forfeited shall be restored to the Participant's Account, applying
forfeitures pending application, Company contributions and unallocated earnings
and gains of the Trust Fund, in that order, as necessary.

      Section 13.8 Service of Process. The General Counsel of the Company is
hereby designated as agent of the Plan for the service of legal process.

                                       52
<PAGE>

      Section 13.9 Limitations Upon Powers of the Administrator. The Plan shall
not be operated so as to discriminate in favor of Highly Compensated Employees.
The Plan shall be uniformly and consistently interpreted and applied with regard
to all Participants in similar circumstances. The Plan shall be administered,
interpreted and applied fairly and equitably and in accordance with the
specified purposes of the Plan.

      Section 13.10 Assignments, etc., Prohibited; Distributions Pursuant to
Qualified Domestic Relations Orders; Certain Offsets of Accounts.

            (a) Except as provided in subsections (b) and (c), no part of the
Trust Fund shall be liable for the debts, contracts or engagements of any
Participant, his Beneficiaries or successors in interest, or be taken in
execution by levy, attachment or garnishment or by any other legal or equitable
proceeding, while in the hands of the Trustee, nor shall any such person have
any right to alienate, anticipate, commute, pledge, encumber or assign any
benefits or payments hereunder in any manner whatsoever, except to designate a
Beneficiary as provided in the Plan.

            (b) Notwithstanding subsection (a) or any other provision of the
Plan to the contrary, when the Administrator receives a domestic relations
order, as defined in Code Section 414(p), that, but for the time of required
payment to the alternate payee, would be a QDRO, the amount awarded to the
alternate payee shall promptly be paid in the manner specified in such order.
However, no such distribution shall be made prior to the Participant's
Separation from the Service if such distribution could adversely affect the
qualified status of the Plan.

            (c) (i) Notwithstanding subsection (a) or any other provision of the
Plan to the contrary, effective August 5, 1997, upon receipt by the
Administrator of a judgment, order, decree or settlement agreement described in
paragraph (ii) which expressly provides for an offset against all or part of an
amount ordered or required to be paid to the Plan against a Participant's
Accounts under the Plan, such Participant's Accounts shall be reduced or offset
by the amount specified in such judgment, order, decree or settlement agreement
and such amount shall promptly be paid to the Plan.

                  (ii) The judgment, order, decree or settlement agreement
described in paragraph (i) must arise from

                      (A) a judgment of conviction for a crime involving the
Plan,

                      (B) a civil judgment (including a consent order or decree)
entered by a court in an action brought in connection with a violation (or
alleged violation) of Part 4 of ERISA, or

                      (C) a settlement agreement between the Secretary of Labor
or the Pension Benefit Guaranty Corporation and the Participant in connection
with a violation (or alleged violation) of Part 4 of ERISA by a fiduciary or any
other person.

                                       53
<PAGE>

      Section 13.11.Corrective of Administrative Error; Special Contribution.
Notwithstanding any other provision of the Plan to the contrary, the
Administrator shall take any and all appropriate actions to correct errors in
the administration of the Plan, including, without limitation, errors in the
allocation of contributions, forfeitures, and income, expenses, gains and losses
to the Accounts of the Participants or Beneficiaries under the Plan. Such
corrective actions may include debiting or crediting a Participant's or
Beneficiary's Accounts or allocating special contributions made by the Employer
to the Plan for purposes of correcting any failure to make contributions on a
timely basis or properly allocate contributions, forfeitures, or income,
expenses, gains and losses. The Administrator shall determine the amount of any
such special contributions required to be made by the Employer, which may be
made in such approximate amounts as the Administrator, acting in its sole
discretion, shall determine. In no event shall any corrective action taken by
the Administrator under this Section reduce any Participant's or Beneficiary's
accrued benefit in violation of Section 411(d)(6) of the Code and the Treasury
regulations thereunder.

                                       54
<PAGE>

                                  ARTICLE XIV.
                          TERMINATION, DISCONTINUANCE,
                       AMENDMENT, MERGER, ADOPTION OF PLAN

      Section 14.1 Termination of Plan; Discontinuance of Contributions. The
Plan is intended as a permanent program but the Company shall have the right at
any time to declare the Plan terminated completely as to the Company, any
Employer or as to any division, facility or other operational unit thereof with
or without notice to the applicable Participants. Discharge or layoff of
Employees of the Company or any unit thereof without such a declaration shall
not result in a termination or partial termination of the Plan except to the
extent required by law. In the event of any termination or partial termination:

            (a) the Administrator shall direct the Trustee to liquidate the
necessary portion of the Trust Fund and distribute it, less, to the extent
permitted by law, the proportionate share of the expenses of termination, to the
persons entitled thereto in proportion to their Accounts.

            (b) provided that the Company or a Company Affiliate does not
maintain another defined contribution plan other than an employee stock
ownership plan (as defined in Code Section 4975(e)(7)), distributions of
Participants' Accounts shall be made in one lump sum payment.

      Section 14.2 Amendment of Plan.

            (a) As limited in Section 14.3 of the Plan, complete or partial
amendments or modifications to the Plan (including retroactive amendments to
meet governmental requirements or prerequisites for tax qualification) may be
made from time to time by the Company. However, no amendment shall decrease the
vested percentage any Participant has in his Accounts or his accrued benefit.

            (b) Amendments shall be adopted by resolution of the Board of the
Company. Additionally, the General Counsel or Vice President, Human Resources of
the Company shall have the authority to adopt amendments that are necessary (i)
to bring the Plan into conformity with legal requirements or to improve Plan
administration, provided that no such amendments involve an increase in cost of
benefits provided by this Plan, (ii) to comply with the terms of a collective
bargaining agreement or (iii) to provide for mergers of plans of Company
Affiliates into the Plan.

      Section 14.3 Retroactive Effect of Plan Amendment.

            (a) No Plan amendment, unless it expressly provides otherwise, shall
be applied retroactively to increase the vested percentage of a Participant
whose Separation from the Service preceded the date such amendment became
effective unless and until he again becomes a Participant and additional
contributions are allocated to him.

            (b) No Plan amendment, unless it expressly provides otherwise, shall
be applied retroactively to increase the amount of service credited to any
person for purposes of

                                       55
<PAGE>

Plan participation, vesting or any other Plan purpose with respect to his
participation or employment before the date such amendment became effective.

            (c) Except as provided in subsections (a) and (b), all rights under
the Plan shall be determined under the terms of the Plan as in effect at the
time the determination is made.

      Section 14.4 Consolidation or Merger.

            (a) In the event of the consolidation or merger of the Company with
or into any other business entity, or the sale by the Company or its owner of
its assets, the successor will be deemed to continue the Plan. If deemed
appropriate, the successor will execute a proper supplemental agreement to the
Trust Agreement with the Trustee.

            (b) The Plan shall not be merged or consolidated with any other
plan, nor shall its assets or liabilities be transferred to any other plan,
unless each Participant in this Plan would have immediately after the merger,
consolidation or transfer (if the plan in question were then terminated)
accounts which are equal to or greater in amount than his corresponding Accounts
under this Plan had the Plan been terminated immediately before the merger,
consolidation or transfer in accordance with Code Section 414(l) and ERISA
Section 208.

      Section 14.5 Adoption of Plan by Company Affiliates. Any Company Affiliate
may, with the approval of the Board or the Administrator, adopt the Plan as a
whole company or as to any one or more divisions by resolution of its own board
of directors or agreement of its partners or members. Such Company Affiliate
shall give written notice of such adoption to the Administrator and to the
Trustee by its duly authorized officers. By its adoption of the Plan, a Company
Affiliate shall be deemed to appoint the Company, Administrator and Trustee its
exclusive agents to exercise on its behalf all of the power and authority
conferred by this Plan upon an Employer until the Plan is terminated with
respect to the Employer and relevant Trust Fund assets have been distributed.

                                       56
<PAGE>

                                   ARTICLE XV.
                            MANAGEMENT OF INVESTMENTS

      Section 15.1 Trust Agreement. All Plan assets shall be held by the Trustee
in trust, in accordance with those provisions of this Plan and Trust which
relate to the Trustee, for use in providing Plan benefits and paying reasonable
Plan administrative expenses not paid directly by the Company. Plan benefits
will be drawn solely from the Trust and paid by the Trustee as directed by the
Administrator. Notwithstanding the above, the Company may, with the approval of
the Trustee, appoint another trustee to hold and administer Plan assets which do
not meet the requirements of Section 15.2.

      Section 15.2 Investment Funds. The Administrator is hereby granted
authority to direct the Trustee to invest Trust assets in one or more Investment
Funds. The number and composition of Investment Funds may be changed from time
to time, without the necessity of amending this Plan and Trust document. The
Trustee may establish reasonable limits on the number of Investment Funds as
well as the acceptable assets for any such Investment Fund. Each of the
Investment Funds may be comprised of any of the following:

            (a) shares of a registered investment company, whether or not the
Trustee or any of its affiliates is an advisor to, or other service provider to,
such company;

            (b) collective investment funds maintained by the Trustee or
qualified investment manager or any other fiduciary to the Plan, which are
available for investment by trusts which are qualified under Code Sections
401(a) and 501(a);

            (c) individual equity and fixed income securities which are readily
tradable on the open market;

            (d) guaranteed investment contracts issued by a bank or insurance
company;

            (e) interest bearing deposits of the Trustee; and

            (f) Safeway Stock.

            Any Investment Fund assets invested in a collective investment fund
shall be subject to all the provisions of the instruments establishing and
governing such fund. These instruments, including any subsequent amendments, are
incorporated herein by reference.

      Section 15.3 Authority to Hold Cash. The Trustee is authorized to hold
that portion of the Trust Fund as it may deem necessary for ordinary
administration and for the disbursement of funds in cash, without liability for
interest, by depositing the same in any bank (including deposits which bear a
reasonable rate of interest in a bank or similar financial institution
supervised by the United States or a state, even where a bank or financial
institution is the Trustee, or otherwise is a fiduciary of the Plan, including
Wells Fargo Bank, National Association), subject to the rules and regulations
governing such deposits, and without regard to the amount of any such deposit.

                                       57
<PAGE>

      Section 15.4 Trustee to Act Upon Instructions. The Trustee shall carry out
instructions to invest assets in the Investment Funds as soon as practicable
after such instructions are received from Participants or Beneficiaries. Such
instructions shall remain in effect until changed by the Participants or
Beneficiaries.

      Section 15.5 Administrator Has Right to Vote Registered Investment Company
Shares. The Administrator shall be entitled to vote proxies or exercise any
shareholder rights relating to shares held on behalf of the Plan in a registered
investment company. Notwithstanding, the authority to vote proxies and exercise
shareholder rights related to such shares held in a Custom Fund is vested as
provided otherwise in Section 15.6.

      Section 15.6 Custom Fund Investment Management. The Administrator may
designate an investment manager for any Investment Fund established as a Custom
Fund (a "Custom Fund"). The investment manager may be the Administrator, Trustee
or an investment manager pursuant to section 3(38) of ERISA. The Administrator
shall advise the Trustee in writing of the appointment of an investment manager
and shall cause the investment manager to acknowledge to the Trustee in writing
that the investment manager is a fiduciary to the Plan.

            A Custom Fund shall be subject to the following:

            (a) Guidelines. Written guidelines shall be established for a Custom
Fund. If a Custom Fund consists solely of collective investment funds or shares
of a registered investment company (and sufficient deposit or money market type
assets to handle the Fund's liquidity and disbursement needs), its underlying
instruments shall constitute the guidelines.

            (b) Authority of Investment Manager. The investment manager of a
Custom Fund shall have the authority to vote or execute proxies, exercise
shareholder rights, manage, acquire, and dispose of Trust assets.
Notwithstanding, if the Company provides for investment in Safeway Stock, the
authority to vote proxies and exercise shareholder rights related to shares of
Safeway Stock held under the Plan and Trust is vested as provided in Section
15.9.

            (c) Custody and Trade Settlement. Unless otherwise expressly agreed
to by the Trustee, the Trustee shall maintain custody of all Custom Fund assets
and be responsible for the settlement of all Custom Fund trades. For purposes of
this Section, shares of a collective investment fund, shares of a registered
investment company and guaranteed investment contracts issued by a bank or
insurance company shall be regarded as the Custom Fund assets instead of the
underlying assets of such instruments.

            (d) Limited Liability of Co-Fiduciaries. Neither the Administrator
nor the Trustee shall be obligated to invest or otherwise manage any Custom Fund
assets for which the Trustee or Administrator is not the investment manager, nor
shall the Administrator or Trustee be liable for acts or omissions with regard
to the investment of such assets except to the extent required by ERISA.

      Section 15.7 Authority to Segregate Assets. The Company may direct the
Trustee to split an Investment Fund into two or more funds in the event any
assets in the Fund are illiquid or the value is not readily determinable. In the
event of such segregation, the Company shall give

                                       58
<PAGE>

instructions to the Trustee on what value to use for the split-off assets, and
the Trustee shall not be responsible for confirming such value.

      Section 15.8 Maximum Permitted Investment in Safeway Stock. If the Company
provides for investment in Safeway Stock, such investment option shall be
comprised primarily of Safeway Stock.

      Section 15.9 Participants Have Right to Vote and Tender Safeway Stock.
Each Participant or Beneficiary shall be entitled to instruct the Trustee as to
the voting or tendering of any full or partial shares of Safeway Stock held on
his behalf under the Plan. Prior to such voting or tendering of Safeway Stock,
each Participant or Beneficiary shall receive a copy of the proxy solicitation
or other material relating to such vote or tender decision and a blank form for
the Participant or Beneficiary to complete which confidentially instructs the
Trustee to vote or tender such shares in the manner indicated by the
Participants or Beneficiaries. Upon receipt of such instructions, the Trustee
shall act with respect to such shares as instructed. The Administrator shall
instruct the Trustee with respect to how to vote or tender any shares for which
instructions are not received from Participants or Beneficiaries.

      Section 15.10.Registration and Disclosure for Safeway Stock. The
Administrator shall be responsible for determining the applicability (and, if
applicable, complying with) the requirements of the Securities Act of 1933, as
amended, the California Corporate Securities Law of 1968, as amended, and any
other applicable blue sky law. The Administrator shall also specify what
restrictive legend or transfer restriction, if any, is required to be set forth
on the certificates for the securities and the procedure to be followed by the
Trustee to effectuate a resale of such securities.

                                       59
<PAGE>

                                  ARTICLE XVI.
                              TRUST ADMINISTRATION

      Section 16.1 Trustee to Construe Trust.

            (a) The Trustee shall have the discretionary authority to construe
those provisions of the Plan and Trust which relate to the Trustee and to do all
things necessary or convenient to the administration of the Trust, whether or
not such powers are specifically set forth in the Plan and Trust, provided that
the exercise of such authority or power is not otherwise limited by the Plan and
Trust. Actions taken in good faith by the Trustee shall be conclusive and
binding on all interested parties and shall be given the maximum possible
deference allowed by law.

            (b) The Administrator shall have all power over and responsibility
for the management, disposition, and investment of the Trust assets, and the
Trustee shall comply with proper written directions of the Administrator
concerning those assets. The Administrator shall not issue directions in
violation of the terms of the Plan and Trust or prohibited by the fiduciary
responsibility rules of ERISA. Except to any extent required by ERISA or
otherwise provided in this Trust, the Trustee shall have no duty or
responsibility to review, initiate action, or make recommendations regarding
Trust assets and shall retain assets until directed in writing by the
Administrator to dispose of them.

            (c) Notwithstanding the foregoing, the Administrator may appoint an
investment manager or managers to direct, control, or manage the investment of
the Trust assets, as provided in sections 3(38) and 403(a)(2) of ERISA. The
Administrator shall notify the Trustee in writing of the appointment of each
investment manager and cause such investment manager to acknowledge to the
Trustee in writing that the investment manager is a fiduciary with respect to
the Plan. If the foregoing conditions are met, the investment manager shall have
the power to manage, acquire, or dispose of any Trust assets, and the Trustee
shall not be liable for acts or omissions of the investment manager or be under
an obligation to invest or otherwise manage any asset of the Trust which is
subject to the management of such investment manager.

            (d) The Administrator may also delegate all its investment authority
to the Trustee for that part of the Trust under its investment control. Upon
written acceptance of that delegation, the Trustee shall have full power and
authority to invest and reinvest the Trust Fund in investments of any kind. The
Trustee shall be responsible for proper diversification of the assets of the
portion of the Trust Fund subject to its management; however, the Trustee's
responsibility for diversification of such assets shall be subject to and is
limited by the funding policy and investment guidelines issued to it by the
Administrator. In making such investments, the Trustee shall comply with the
funding policy and investment guidelines and with the fiduciary standards of
ERISA, as supplemented, modified, interpreted, and construed by regulations and
rulings of the United States administrative agencies and by decisions of courts
of competent jurisdiction.

      Section 16.2 Trustee To Act As Owner of Trust Assets. Subject to the
specific conditions and limitations set forth in this Plan and Trust, the
Trustee shall have all the power,

                                       60
<PAGE>

authority, rights and privileges of an absolute owner of the Trust assets and,
not in limitation but in amplification of the foregoing, may:

            (a) receive, hold, manage, invest and reinvest, sell, tender,
exchange, dispose of, encumber, hypothecate, pledge, mortgage, lease, grant
options respecting, repair, alter, insure, or distribute any and all property in
the Trust;

            (b) borrow money, participate in reorganizations, pay calls and
assessments, vote or execute proxies, exercise subscription or conversion
privileges, exercise options and register any securities in the Trust in the
name of the nominee, in federal book entry form or in any other form as will
permit title thereto to pass by delivery;

            (c) renew, extend the due date, compromise, arbitrate, adjust,
settle, enforce or foreclose, by judicial proceedings or otherwise, or defend
against the same, any obligations or claims in favor of or against the Trust;
and

            (d) lend, through a collective investment fund, any securities held
in such collective investment fund to brokers, dealers or other borrowers and to
permit such securities to be transferred into the name and custody and be voted
by the borrower or others.

      Section 16.3 United States Indicia of Ownership. The Trustee shall not
maintain the indicia of ownership of any Trust assets outside the jurisdiction
of the United States except as authorized by ERISA section 404(b).

      Section 16.4 Tax Withholding and Payment.

            (a) Withholding. The Trustee shall calculate and withhold federal
(and, if applicable, state) income taxes with regard to any Eligible Rollover
Distribution that is not paid as a Direct Rollover in accordance with a
Participant's withholding election or as required by law if no election is made
or the election is less than the amount required by law. With regard to any
taxable distribution that is not an Eligible Rollover Distribution, the Trustee
shall calculate and withhold federal (and, if applicable, state) income taxes in
accordance with the Participant's withholding election or as required by law if
no election is made. The Trustee shall have no liability for making any
distribution or transfer pursuant to the direction of the Administrator, or its
designee, (including amounts withheld pursuant to the previous sentence). The
Administrator or its designee, shall furnish to the Trustee all information
necessary to carry out such withholding, or, if such information is not provided
to the Trustee, the Administrator shall hold the Trustee harmless from and
indemnify it for any liability and related expenses from improper withholding.

            (b) Taxes Due From Investment Funds. The Trustee shall pay from the
Investment Fund any taxes or assessments imposed by any taxing or governmental
authority on such Fund or its income, including related interest and penalties.

      Section 16.5 Trustee Duties and Limitations. Unless otherwise agreed to by
the Trustee, the Trustee's duties shall be confined to construing the terms of
the Plan and Trust as they relate to the Trustee, receiving funds on behalf of
and making payments from the Trust,

                                       61
<PAGE>

safeguarding and valuing Trust assets, and investing and reinvesting Trust
assets in the Investment Funds as directed by the Administrator, Participants or
Beneficiaries. The Trustee shall have no duty or authority to ascertain whether
contributions are in compliance with the Plan, to enforce collection or to
compute or verify the accuracy or adequacy of any amount to be paid to it by the
Employers. The Trustee shall not be liable for the proper application of any
part of the Trust with respect to any disbursement made at the direction of the
Administrator.

      Section 16.6 Trust Accounting.

            (a) Annual Report. Within 90 days (or other reasonable period)
following the close of the Plan Year, the Trustee shall provide the
Administrator with an annual accounting of Trust assets and information to
assist the Administrator in meeting ERISA's annual reporting and audit
requirements.

            (b) Periodic Reports. The Trustee shall maintain records and provide
sufficient reporting to allow the Administrator to monitor properly the Trust's
assets and activity.

            (c) Administrator Approval. Approval of any Trustee accounting will
automatically occur 90 days after such accounting has been received by the
Administrator unless the Administrator files a written objection with the
Trustee within such time period. Such approval shall be final as to all matters
and transactions stated or shown therein and binding upon the Administrator.

      Section 16.7 Valuation of Certain Assets. If the Trustee determines the
Trust holds any asset which is not readily tradable and listed on a national
securities exchange registered under the Securities Exchange Act of 1934, as
amended, the Trustee may engage a qualified independent appraiser to determine
the fair market value of such property, and the appraisal fees shall be paid
from the Investment Fund containing the asset.

      Section 16.8 Legal Counsel. The Trustee may consult with legal counsel of
its choice, including counsel for the Company or counsel of the Trustee, upon
any question or matter arising under this Plan and Trust. When relied upon by
the Trustee, the opinion of such counsel shall be evidence that the Trustee has
acted in good faith.

      Section 16.9 Fees and Expenses. The Trustee's fees for its services as
Trustee shall be such as may be mutually agreed upon by the Company and the
Trustee. Trustee fees and all reasonable expenses of counsel and advisors
retained by the Trustee shall be paid in accordance with Section 6.4.

      Section 16.10.Indemnification by the Company.

            (a) The Company hereby agrees to indemnify all Plan fiduciaries
against any and all liabilities resulting from any action or inaction,
(including a Plan termination in which the Company fails to apply for a
favorable determination from the Internal Revenue Service with respect to the
qualification of the Plan upon its termination), in relation to the Plan or
Trust including (without limitation) expenses reasonably incurred in the defense
of any claim relating to the Plan or its assets, and amounts paid in any
settlement relating to the Plan or its assets, but

                                       62
<PAGE>

excluding liability resulting from actions or in actions made in bad faith, or
resulting from the negligence or willful misconduct of the Trustee. The Company
shall have the right, but not the obligation, to conduct the defense of any
action to which this Section applies. The Plan fiduciaries are not entitled to
indemnity from the Plan assets relating to any such action.

            (b) To the extent permitted under ERISA, the Company shall indemnify
and hold harmless the Trustee, its officers, employees, and agents from and
against all liabilities, losses, expenses, and claims (including reasonable
attorneys' fees and costs of defense) arising out of the (1) acts or omissions
to act with respect to the Plan by persons unrelated to the Trustee ("unrelated
persons"), (2) the Trustee's action or inaction with respect to the Plan
resulting from reasonable reliance on the action or inaction of unrelated
persons, including directions to invest or otherwise deal with Plan assets, or
(3) any violation by any unrelated person of the provisions of ERISA. The
Trustee shall not be entitled to indemnification for any liability arising from
the Trustee's negligence or willful misconduct. Expenses incurred by the Trustee
which it believes to be the subject of indemnification under this Trust shall be
paid by the Company upon the Trustee's request if the Company agrees. However,
if the Company does not agree that such expenses are eligible for
indemnification under this Trust, then only in the event of the final judgment
of a court of competent jurisdiction that the expenses are subject to
indemnification will the Company pay such amounts plus interest thereon at the
legal rate from the date of request to the Trustee.

      Section 16.11 Replacement of the Trustee. The Trustee may resign as
Trustee under this Plan and Trust or may be removed by the Company at any time
upon at least 90 days written notice (or less if agreed to by both parties). In
such event, the Company shall appoint a successor trustee by the end of the
notice period. The successor trustee shall then succeed to all the powers and
duties of the Trustee under this Plan and Trust. If no successor trustee has
been named by the end of the notice period, the Company's chief executive
officer shall become the trustee, or if he declines, the Trustee may petition
the court for the appointment of a successor trustee.

      Section 16.12 Final Settlement and Accounting of Trustee. As soon as is
administratively feasible after its resignation or removal as Trustee, the
Trustee shall transfer to the successor trustee all property currently held by
the Trust. However, the Trustee is authorized to reserve such sum of money as it
may deem advisable for payment of its accounts and expenses in connection with
the settlement of its accounts or other fees or expenses payable by the Trust.
Any balance remaining after payment of such fees and expenses shall be paid to
the successor trustee.

      Section 16.13 Final Accounting. The Trustee shall provide a final
accounting to the Administrator within 90 days of the date Trust assets are
transferred to the successor trustee.

      Section 16.14 Administrator Approval. Approval of the final accounting
will automatically occur 90 days after such accounting has been received by the
Administrator unless the Administrator files a written objection with the
Trustee within such time period. Such approval shall be final as to all matters
and transactions stated or shown therein and binding upon the Administrator.

                                       63
<PAGE>

                                  ARTICLE XVII.
                            MISCELLANEOUS PROVISIONS

      Section 17.1 Identification of Fiduciaries.

            (a) The Administrator (with respect to control and management of
Plan assets and in general), the Company and the Committee shall be named
fiduciaries within the meaning of ERISA and, as permitted or required by law,
shall have exclusive authority and discretion to control and manage the
operation and administration of the Plan within the limits set forth in the
Trust Agreement, subject to proper delegation.

            (b) Such named fiduciaries and every person who exercises any
discretionary authority or discretionary control respecting management of the
Trust Fund or Plan, or exercises any authority or control respecting the
management or disposition of the assets of the Trust Fund or Plan, or renders
investment advice for compensation, direct or indirect, with respect to any
moneys or other property of the Trust Fund or Plan or has authority or
responsibility to do so, or has any discretionary authority or discretionary
responsibility in the administration of the Plan, and any person designated by a
named fiduciary to carry out fiduciary responsibilities under the Plan, shall be
a fiduciary and, as such, shall be subject to provisions of the Plan, the Trust
Agreement, ERISA and other applicable laws governing fiduciaries. Any person may
act in more than one fiduciary capacity.

      Section 17.2 Allocation of Fiduciary Responsibilities.

            (a) Fiduciary responsibilities under the Plan are allocated as
follows:

                  (i) The sole power and discretion to manage and control the
Plan's assets including, but not limited to, the power to acquire and dispose of
Plan assets, is allocated to the Trustee, except to the extent that another
fiduciary is appointed in accordance with the Trust Agreement with the power to
control or manage (including the power to acquire and dispose of) assets of the
Plan.

                  (ii) The sole duties, responsibilities and powers allocated to
the Company shall be those expressly retained under the Plan or the Trust
Agreement.

                  (iii) All fiduciary responsibilities not allocated to the
Trustee, the Company or any investment manager are hereby allocated to the
Administrator, subject to delegation in accordance with Section 13.1(a)(xi).

            (b) Fiduciary responsibilities under the Plan (other than the power
to manage or control the Plan's assets) may be reallocated among those
fiduciaries identified as named fiduciaries in Section 17.1 by amending the
Plan, followed by such fiduciaries' acceptance of, or operation under, such
amended Plan.

            (c) No allocation of fiduciary responsibilities under the Plan or
Trust shall cause the Trust to cease being a domestic trust under Treas. Reg.
Sec. 301.7701.

                                       64
<PAGE>

      Section 17.3 Limitation on Rights of Employees. The Plan is strictly a
voluntary undertaking on the part of the Company and shall not constitute or be
construed as a contract between the Employers and any Employee or consideration
for, or an inducement or condition of, the employment of an Employee. Except as
otherwise required by law, nothing contained in the Plan shall give any Employee
the right to be retained in the service of any Employers or to interfere with or
restrict the right of the Employers, which is hereby expressly reserved, to
discharge or retire any Employee at any time, with or without notice and with or
without cause and with or without obligation as to any level of severance.
Except as otherwise required by law, inclusion under the Plan will not give any
Employee any right or claim to employment or any benefit hereunder except to the
extent such right has specifically become fixed or vested under the terms of the
Plan and there are funds available therefor in the hands of the Trustee.

      Section 17.4 Governing Law. The Plan and Trust shall be interpreted,
administered and enforced in accordance with the Code and ERISA, and the rights
of Participants, Beneficiaries and all other persons shall be determined in
accordance therewith. However, to the extent that state law is applicable, the
laws of the state of California shall apply.

      Section 17.5 Gender and Plurals. Where the context so indicates, the
masculine pronoun shall include the feminine, and the singular shall include the
plural.

      Section 17.6 Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan or
Trust Agreement.

      Section 17.7 References. Unless the context clearly indicates to the
contrary, a reference to a statute, regulation or document shall be construed as
referring to any subsequently amended, enacted, adopted or executed statute,
regulation or document.

      Section 17.8 Use of Trust Funds. Under no circumstances shall any
contributions to the Trust or any part of the Trust Fund be recoverable by the
Company from the Trustee or from any Participant, his Beneficiaries or any other
person, or be used for or diverted to purposes other than for the exclusive
purposes of providing benefits to Participants and their Beneficiaries;
provided, however, that

            (a) the contribution of the Company for any Plan Year is hereby
conditioned upon its being deductible by the Company for its fiscal year in
which such contribution was made and, to the extent disallowed as a deduction
under Code Section 404, such contribution shall be returned by the Trustee to
the Company within one year after the final disallowance of the deduction by the
Internal Revenue Service or the courts; and

            (b) a contribution by the Company or a Participant by a mistake of
fact shall be returned to the Company or to the Participant in question within
one year after payment of the contribution was made.

                                       65
<PAGE>

            IN WITNESS WHEREOF, this Plan and Trust is hereby executed by an
authorized officer as of this 21st day of February, 2002.

                                    THE VONS COMPANIES, INC.

                                    By:    /s/ Michael Boylan
                                       -----------------------------------------
                                    Its:   Vice President
                                        ----------------------------------------

                                    TRUSTEE:

                                    WELLS FARGO BANK, NATIONAL ASSOCIATION

                                    By:    /s/ Wells Fargo Bank
                                       -----------------------------------------
                                    Its:   Vice President
                                        ----------------------------------------

                                       66
<PAGE>

                             THE 2002 RESTATEMENT OF
                    THE SAFEWAY 401(K) SAVINGS PLAN AND TRUST

                          APPENDIX A - INVESTMENT FUNDS

                                 JANUARY 1, 2002

I.    Investment Funds Available

            The Investment Funds offered to Participants and Beneficiaries
include this set of funds:

      Safeway Interest Income Fund
      PIMCO Total Return Fund
      Alliance Growth and Income Fund
      Merrill Lynch S&P 500 Index Fund
      Alliance Premier Growth Fund
      State Street Research Aurora Fund
      TCW Galileo Small Cap Growth Fund
      Pilgrim International Value Fund
      Safeway Stock

II.   Default Investment Fund

            The default Investment Fund is the Safeway Interest Income Fund.

III.  Maximum Percentage Restrictions Applicable to Certain Investment Funds

            There are no maximum percentage restrictions applicable to any
Investment Funds.

                                       A-1
<PAGE>

                             THE 2002 RESTATEMENT OF
                    THE SAFEWAY 401(K) SAVINGS PLAN AND TRUST

                         APPENDIX B - LOAN INTEREST RATE

                                 JANUARY 1, 2002

            The interest rate charged on Participant loans will be equal to the
sum of 1% plus the prime rate published in The Wall Street Journal on the first
business day of each calendar week.

                                       B-1<PAGE>
                                                                   EXHIBIT 10.48

                               EXECUTIVE OFFICER
                              EMPLOYMENT AGREEMENT

        THIS EXECUTIVE OFFICER EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into this 14th day of May 2001 (the "Effective Date") by and between
UNIVERSAL ELECTRONICS INC. (the "Employer") and ROBERT P. LILLENESS
("Executive").

                                    RECITALS:

        WHEREAS, the Employer is presently headquartered in Cypress, California,
and is engaged in the business of developing and marketing easy to use,
pre-programmed universal remote control products primarily for home video and
audio entertainment equipment and home security and home automation devices; and

        WHEREAS, Employer wishes to retain Executive as one of its key
executives and avail itself of Executive's expertise, experience and capability
in Employer's business, and in this connection has offered employment to
Executive as its President and Chief Operating Officer to perform those duties
and assume those responsibilities as set forth in this Agreement and as
identified and outlined in Employer's Amended and Restated By-Laws, and to
undertake such other duties and to assume such other responsibilities
commensurate with Executive's designated position(s) as may be reasonably
assigned to Executive from time to time by the Chief Executive Officer of
Employer and/or the Board of Directors of Employer; and

        WHEREAS, Executive hereby accepts such offer of employment and desires
to be employed by the Employer subject to the terms and conditions of this
Agreement.

        NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:

        1. EMPLOYMENT

        Subject to all of the terms and conditions of this Agreement, on the
Effective Date of this Agreement, Employer hereby employs Executive and
Executive hereby accepts employment with Employer.

        2. TITLE, AUTHORITY AND DUTIES

                (a) TITLE(s) AND POSITION(s). On the Effective Date of this
        Agreement, Executive shall be employed in the position(s) of and shall
        have the title(s) of President and Chief Operating Officer of Employer.
        Until this Agreement is terminated as provided herein, Executive will
        continue to occupy such position(s) and hold such title(s) until
        Employer and Executive shall mutually agree in writing to change any
        such position(s) and title(s).

<PAGE>

                (b) AUTHORITY AND DUTIES. Executive will, during the term of
        this Agreement, and subject to Chief Executive Officer oversight,
        perform those duties and assume those responsibilities as set forth in
        this Agreement and as identified and outlined in Employer's Amended and
        Restated By-Laws, as amended as of the date of this Agreement, report to
        the Chief Executive Officer of Employer, and to undertake such other
        duties and to assume such other responsibilities commensurate with
        Executive's designated position(s) as may be reasonably assigned to
        Executive from time to time by the Chief Executive Officer of Employer
        and/or the Board of Directors of Employer.

                (c) EXCLUSIVE SERVICES AND EFFORTS OF EXECUTIVE. During the term
        of this Agreement, Executive shall serve the Employer, under the
        direction of Chief Executive Officer of Employer, and shall faithfully,
        diligently, competently and, to the best of his ability, exclusively
        devote his full time, energy and attention (unless otherwise agreed to
        by the parties) to the business of the Employer and to the promotion of
        its interest. Executive recognizes that Employer's organization,
        business and relationship with clients, prospective clients and others
        having business dealings with Employer are and will be the sole property
        of Employer and Executive shall have no separate interests or rights
        with respect thereto, except as an employee of Employer.

                (d) OTHER ACTIVITIES AND INTERESTS. Employer shall be entitled
        to all of the benefits, emoluments, profits, discoveries or other issues
        arising from, incident to and related to any and all work, services and
        advice of Executive to Employer in carrying out his duties and
        responsibilities hereunder. Executive shall not, without the written
        consent of Employer, directly or indirectly, render services to or for
        any person, firm, corporation or other entity or organization, whether
        or not in exchange for compensation, regardless of the form in which
        such compensation, if any, is paid and whether or not it is paid
        directly or indirectly to him if the rendering of such service would
        interfere with the performance of his duties and responsibilities to
        Employer hereunder. Notwithstanding the foregoing sentence, Executive
        may spend time and attention to personal investment and community
        activity matters and such other personal matters consistent with
        Employer's policies and procedures set forth within Employer's policy
        manual in effect from time to time which are equally applicable to all
        of Employer's executive employees, so long as the spending of such time
        and attention does not substantially interfere with the performance of
        his duties and responsibilities to Employer hereunder.

        3. TERM OF EMPLOYMENT AND TERMINATION

                                       2

<PAGE>

                (a) TERM. Unless earlier terminated as provided herein, the term
        of this Agreement shall commence at the start of business on the
        Effective Date of this Agreement and shall continue through the end of
        business on May 31, 2002 (the "Initial Term"). Unless terminated by
        either party by giving the other party written notice of an intent not
        to renew this Agreement at least one hundred twenty (120) days prior to
        the end of the Initial Term or any successive one (1) year term, this
        Agreement shall automatically extend for one (1) additional year after
        the Initial Term and then again for a one (1) year term after each
        successive year.

                (b) TERMINATION.

                        (i) BY EMPLOYER FOR JUST CAUSE. Employer may terminate
                the employment of Executive under this Agreement for Just Cause
                (as defined herein) at any time upon delivery of written notice
                to him setting forth, in reasonable specificity, such Just
                Cause. For purposes of this Agreement, and particularly this
                subsection 3(b)(i), "Just Cause" shall mean:

                            (1) The continued failure by or refusal of Executive
                to substantially perform his duties and responsibilities as set
                forth herein; or

                            (2) Executive's indictment for, conviction of or a
                guilty plea to a felony or of any crime involving moral
                turpitude, whether or not affecting the Employer; or

                            (3) The engagement by Executive of personal illegal
                conduct which, in the reasonable judgment of Employer, by
                association with him, is materially and demonstrably injurious
                to the property and/or business of Employer; or

                            (4) Any material breach by Executive of the terms
                and conditions contained herein, including without limitation,
                those certain confidentiality provisions set forth in Section
                16; or

                            (5) The commission of any act opposed to the best
                interests of Employer for which Executive would not be entitled
                to indemnification under Employer's Restated Certificate of
                Incorporation and Amended and Restated By-Laws, each as amended
                as of the date of this Agreement; or

                            (6) The failure by Executive to protect the best
                interests of Employer through Executive's gross neglect of duty.

                                       3

<PAGE>

                (ii) BY EXECUTIVE FOR GOOD REASON. Executive may terminate his
        employment with Employer under this Agreement for Good Reason (as
        defined herein) at any time upon delivery of written notice to Employer
        setting forth, in reasonable specificity, such Good Reason(s). For
        purposes of this Agreement, and particularly this subsection 3(b)(ii),
        "Good Reason" shall mean:

                            (1) The attempted discontinuance or reduction in
                Executive's "Base Cash Salary" (as defined herein);

                            (2) The attempted discontinuance or reduction in
                Executive's bonuses and/or incentive compensation award
                opportunities under plans or programs applicable to him, unless
                such discontinuance or reduction is a result of Employer's
                policy applied equally to all executive employees of Employer;
                or

                            (3) The attempted discontinuance or reduction in
                Executive's stock option and/or stock award opportunities under
                plans or programs applicable to him, unless such discontinuance
                or reduction is a result of Employer's policy applied equally to
                all executive employees of Employer; or

                            (4) The attempted discontinuance or reduction in
                Executive's perquisites from those historically provided him
                during his tenure with the Employer and generally applicable to
                executive employees of Employer; or

                            (5) The relocation of Executive to an office (other
                than Employer's headquarters) located more than fifty (50) miles
                from his then current office location; or

                            (6) The significant reduction in Executive's
                responsibilities and status within the Employer or change in his
                title(s) or position(s); or

                            (7) The attempted discontinuance of Executive's
                participation in any benefit plans maintained by Employer unless
                such plans are discontinued by reason of law or loss of tax
                deductibility to the Employer with respect to the contributions
                to or payments under such plans, or are discontinued as a matter
                of the Employer's policy applied equally to all participants; or

                            (8) The attempted reduction of Executive's paid
                vacation to less than that as provided in this Agreement; or

                                       4

<PAGE>

                            (9) The failure by Employer to obtain an assumption
                of Employer's obligations under this Agreement by any assignee
                of or successor to Employer, regardless of whether such entity
                becomes a successor to Employer as a result of merger,
                consolidation, sale of assets of Employer or other form of
                reorganization; or

                            (10) The occurrence of any of the items set forth in
                paragraphs (1) through (9) of this subsection 3(b)(ii), if, in
                the reasonable determination by the Executive, such occurrence
                happens as a result of and within the shorter of six (6) months
                or the remaining term of this Agreement following a "Change in
                Control" (as such term is defined below). For the purposes of
                this Agreement, a "Change in Control" shall be deemed to occur
                when and only when the first of the following events occurs:

                                   a. Any "person" or "group" (as such terms are
                            used in Sections 3(a), 3(d), and 14(d) of the
                            Securities Exchange Act of 1934, as amended, and the
                            rules and regulations promulgated thereunder (the
                            "1934 Act"), other than (i) a trustee or other
                            fiduciary holding securities under any employee
                            benefit plan of the Corporation or any of its
                            subsidiaries or (ii) a corporation owned directly or
                            indirectly by the stockholders of the Corporation in
                            substantially the same proportions as their
                            ownership of stock in the Corporation, is or becomes
                            the "beneficial owner" (as defined in Rule 13d-3
                            under the 1934 Act)), directly or indirectly, of
                            securities of the Corporation representing 20% or
                            more of the total voting power of the then
                            outstanding securities of the Corporation entitled
                            to vote generally in the election of directors (the
                            "Voting Stock"); or

                                   b. Individuals who are members of the
                            Incumbent Board, cease to constitute a majority of
                            the Board of Directors of the Corporation. The term
                            "Incumbent Board" shall mean (i) the members of the
                            Board of Directors on the effective date of this
                            Agreement, and (ii) any individual who becomes a
                            member of the Board of Directors after the effective
                            date of this Agreement, if his or her election or
                            nomination for election as a director was approved
                            by the affirmative vote of a majority of the then
                            Incumbent Board; or

                                   c. (i) The merger or consolidation of the
                            Corporation with any other corporation or entity,
                            other than a merger or consolidation which would
                            result in the Voting Stock outstanding immediately
                            prior thereto continuing to represent (either by
                            remaining

                                       5
<PAGE>

                            outstanding or by being converted into voting
                            securities of the surviving entity) at least 80% of
                            the total voting power represented by the Voting
                            Stock or the voting securities of such surviving
                            entity outstanding immediately after such merger or
                            consolidation, (ii) the sale, transfer or
                            disposition of all or substantially all of the
                            Corporation's assets to any other corporation or
                            entity, or (iii) the dissolution or liquidation of
                            the Corporation.

                        (iii) AUTOMATICALLY IN ACCORDANCE WITH SUBSECTION 3(a).
                In addition to the rights to terminate this Agreement as set
                forth in subsections 3(b)(i) and 3(b)(ii), this Agreement may
                also terminate automatically in accordance with subsection 3(a).

                        (iv) DISAGREEMENTS. Any disagreement concerning whether
                there has been Just Cause for termination by Employer or Good
                Reason for termination by Executive will be resolved by binding
                arbitration in accordance with the provisions of Section 18 of
                this Agreement.

                (c) EFFECT OF TERMINATION. Upon termination of Executive's
        employment with Employer:

                        (i) BY EMPLOYER FOR JUST CAUSE. Executive shall not be
                entitled to receive payment of any salary, bonus, expenses, or
                other benefits beyond the date of termination and, subject to
                this subsection 3(c)(i), Section 17, and Executive's agreement
                to repay, without set off, all amounts due Employer for monies
                loaned Executive as set forth in Section 19, this Agreement
                shall become null and void effective as of the date of
                termination and Employer and Executive shall have no further
                obligation hereunder toward the other except for the payment of
                salary, bonus, expenses and benefits, if any, which have accrued
                but remain unpaid prior to and as of the termination date.

                        (ii) BY EXECUTIVE FOR GOOD REASON.

                              (1) Executive shall be paid by Employer in a lump
                        sum within twenty (20) business days of such
                        termination, an amount that is equal to the sum of the
                        following:

                                    (A) The amount equivalent to salary payments
                              for twelve (12) months at that rate of pay which
                              is not less than Executive's rate of Base Cash
                              Salary in effect immediately prior to the
                              effective date of such termination (without regard
                              to any attempted reduction or discontinuance of
                              such salary); and

                                       6

<PAGE>

                                    (B) The amount equivalent to twelve (12)
                              months multiplied by the greater of (i) the
                              monthly rate of the bonus payment for the bonus
                              period in the year immediately prior to
                              Executive's termination date or (ii) the estimated
                              amount of the bonus for the period which includes
                              Executive's termination date (without regard to
                              any attempted reduction or discontinuance of such
                              bonus).

                              (2) In addition to such amount under subsection
                        3(c)(ii)(1) above, Executive shall also receive, (i) in
                        cash, the value of the incentive compensation
                        (including, but not limited to, employer contributions
                        to the Universal Electronics Inc. 401(K) and Profit
                        Sharing Plan) and (ii) the rights to receive grants of
                        stock options and stock awards to which he would have
                        been entitled under all incentive compensation and stock
                        option and stock award plans maintained by Employer if
                        Executive had remained in the employ of Employer for
                        twelve (12) months (without regard to any attempted
                        reduction or discontinuance of such incentive
                        compensation). The amount of such payment and/or grants
                        shall be determined as of the date of termination and
                        shall be paid and/or issued as promptly as practicable
                        and in no event later than 30 days after such
                        termination.

                              (3) Employer shall also maintain in full force and
                        effect for the Executive's continued benefit (and, to
                        the extent applicable, the continued benefit of her
                        dependents) all of the employee benefits (including, not
                        limited to, coverage under any medical and insurance
                        plans, programs or arrangements) to which he would have
                        been entitled under all employee benefit plans, programs
                        or arrangements maintained by Employer if Executive had
                        remained in the employ of Employer for twelve (12)
                        months (without regard to any attempted reduction or
                        discontinuance of such benefits), or if such
                        continuation is not possible under the terms and
                        provisions of such plans, programs or arrangements,
                        Employer shall arrange to provide benefits substantially
                        similar to those which Executive (and, to the extent
                        applicable, his dependents) would have been entitled to
                        receive if he had remained a participant in such plans,
                        programs or for such twelve (12) month period.

                              (4) Subject to this subsection 3(c)(ii), Section
                        17, and Executive's agreement to repay, without set off,
                        all amounts due Employer for monies loaned Executive as
                        set forth in Section 19, this Agreement shall become
                        null and void effective as of the date of termination
                        and Employer and Executive shall have no further
                        obligation hereunder toward the other.

                                       7
<PAGE>

                        (iii) PURSUANT TO SUBSECTION 3(b)(iii). Executive
                acknowledges and agrees that in the event that this Agreement
                terminates in accordance with subsection 3(b)(iii), that
                Employer and Executive shall have no further obligation
                hereunder toward the other except (1) for the payment of salary,
                bonus, expenses and benefits, if any, which have accrued but
                remain unpaid prior to and as of the termination date, (2) as
                set forth in Section 17, and (3) for Executive's agreement to
                repay, without set off, all amounts due Employer for monies
                loaned Executive as set forth in Section 19.

                        (iv) SUBMISSION OF RESIGNATIONS BY EXECUTIVE. Upon
                termination of this Agreement by either Employer or Executive as
                set forth herein and the receipt by Executive of (1) all cash
                amounts due him as set forth herein and (2) a written
                representation signed by an authorized representative of
                Employer that all non-cash obligations of Employer as set forth
                herein have been fulfilled or, as the case may be, have been
                commenced, Executive shall immediately submit Executive's
                resignation for any and all offices or directorships of Employer
                and/or any and all subsidiaries and affiliates of Employer which
                resignation shall have retroactive application and effect to
                such termination date; provided however that during such time
                period from the effective date of such termination to the date
                Executive submits his resignation, Executive acknowledges and
                agrees that he does not have authority to bind Employer to any
                contracts or commitments and agrees not to create any obligation
                for Employer or bind or attempt to bind Employer in any manner
                whatsoever. Executive also acknowledges that he shall have no
                supervisory or managerial responsibility or authority from and
                after the effective date of his termination, regardless of
                whether he submits the resignation or not, and agrees not to
                involve himself in any activities of Employer, except as may be
                requested by the an authorized officer of Employer.

        4. TOTAL COMPENSATION

        While employed under this Agreement and in consideration of the services
to be rendered by Executive pursuant hereto, Executive shall receive the
following amounts/benefits as the sole and total compensation for the
performance of his duties and obligations under this Agreement:

                (a) BASE CASH SALARY. A salary at the rate of Two Hundred and
        Fifty Thousand Dollars (US$250,000) per annum (the "Base Cash Salary"),
        which shall be deemed to accrue from day to day, payable in accordance
        with Employer's standard payroll practices and procedures;

                (b) BONUS. A bonus calculated in accordance with the plans or
        programs established by Employer from time to time payable in accordance
        with Employer's standard payroll practices and procedures; provided that
        any such bonuses whenever earned and paid

                                       8

<PAGE>

        shall be determined without regard to any material gains and losses
        which occur outside of the scope of Employer's ordinary operating
        business unless any such plans or programs explicitly include such
        material gains and losses within the determination of any such bonuses;

                (c) STOCK OPTIONS. Stock options grants or stock awards in
        accordance with the plans or programs established by Employer from time
        to time; provided that on the Effective Date of this Agreement,
        Executive shall be granted stock options in accordance with and as set
        forth in Exhibit A;

                (d) INCENTIVE COMPENSATION. Participation in Employer's
        incentive compensation plans and/or programs, including, but not limited
        to, receipt of employer contributions to the Universal Electronics Inc.
        401(K) and Profit Sharing Plan;

                (e) BENEFITS. The benefits provided by Employer to its executive
        employees generally, including without limitation, the benefits and
        perquisites included under the Universal Electronics Inc. group family
        health insurance program in effect from time to time, which includes
        comprehensive medical insurance, dental insurance, group disability,
        group life insurance, and executive bonus (supplemental life);

                (f) VACATION. Three (3) weeks (fifteen (15) working days)
        vacation with pay, determined and carried over in accordance with the
        policies and procedures set forth within Employer's policy manual in
        effect from time to time which are equally applicable to all of
        Employer's executive employees;

                (g) OTHER PERQUISITES. Such other employee benefits and
        perquisites that are provided by Employer to executives generally,
        provided that the other perquisites provided to Executive shall be no
        less extensive than the most extensive perquisites provided to any other
        executive employee of the Employer;

                (h) D&O INSURANCE. Director and Officer Liability insurance in a
        reasonably sufficient amount;

                (i) DISCRETIONARY BONUS. Such other amounts of compensation
        and/or bonus which is determined by Employer from time to time;

                (j) REVIEWS. The total amount of compensation to be paid and/or
        provided to Executive shall be reviewed by the Chief Executive Officer
        and the Board of Directors, or such committee thereof, of Employer as of
        the first day of each calendar year while this Agreement is in force and
        effect. In no event shall such review result in a reduction or
        discontinuance of the amount of compensation paid and/or provided to
        Executive hereunder except if such reduction or discontinuance occurs by
        reason of law or loss of tax deductibility

                                       9

<PAGE>

        to the Employer with respect to the contributions to such plans, or are
        discontinued as a matter of the Employer's policy applied equally to all
        participants.

        5. ADJUSTMENTS IN CASE OF EXCESS PARACHUTE PAYMENTS

        In the event that the aggregate present value (determined in accordance
with applicable federal, state and local income tax law, rules and regulations)
of all payments to be made and benefits to be provided to Executive under this
Agreement and/or under any other plan, program or arrangement maintained or
entered into by Employer or any of its subsidiaries shall result in "excess
parachute payments" to him within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), or any comparable provision of
successor legislation, which subject him to the Excise Tax under Section 4999 of
the Code or any comparable provision of successor legislation, Employer shall
pay to Executive an additional amount (the "gross-up payment") calculated so
that the net amount received by him after deduction of the Excise Tax and of all
federal, state and local income taxes upon the gross-up payment shall equal the
payments to be made and the benefits to be provided to him under this Agreement.
For purposes of determining the amount of the gross-up payment, Executive shall
be deemed to pay federal, state and local income taxes at the highest marginal
rates thereof in the calendar year in which the gross-up payment is to be made,
net of the maximum reduction in federal income taxes obtainable from deduction
of such state and local taxes. The computations required by this Section 5 shall
be made by the independent public accountants then regularly retained by
Employer, in consultation with tax counsel selected by and acceptable to
Executive. Employer shall pay all of its accountants' fees and the lesser of (i)
one-half of Executive's tax counsel's fees or (ii) $2,500.

        6. REIMBURSEMENT FOR BUSINESS RELATED EXPENSES

        Employer shall reimburse Executive for all reasonable expenses incurred
and paid by him in connection with Employer's business in accordance with
Employer's policy manual in effect from time to time.

        7. INTEREST

        In the event any payment to Executive under this Agreement is not paid
within five (5) business days after it is due, such payment shall thereafter
bear interest at the prime rate from time to time in effect at Bank of America,
Los Angeles, California; provided however, that this provision shall not excuse
the timely payment of such sums required by this Agreement.

        8. NOTICES

                                       10

<PAGE>

        Written notices to be given under this Agreement shall be personally
delivered or sent by overnight courier (such as Federal Express, DHL or UPS and
the like) or by registered or certified mail, return receipt requested, to the
addresses set forth below:

                  To Employer:
                  Universal Electronics Inc.
                  6101 Gateway Drive
                  Cypress, California 90630
                  Attn.: Corporate Secretary

                  With a required copy to:
                  Universal Electronics Inc.
                  6101 Gateway Drive
                  Cypress, California 90630
                  Attn: Chief Executive Officer

                  To Executive:
                  Mr. Robert P. Lilleness
                  At his last known address as reflected in Employer's records

        9. SEVERABILITY

        If any one or more of the provisions contained in this Agreement shall
be invalid, illegal or unenforceable in any respect under applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not, in any way, be ineffective or impaired thereby.

        10. GOVERNING LAW

        This Agreement shall be governed by the law of the state of California
without regard to the conflicts of laws provisions of the state of California.

        11. WAIVER

        The failure of either party to insist in any one or more instances on
strict performance of any of this Agreement's provisions, or to exercise or
enforce any right, remedy or obligation under this Agreement, shall not be
construed as a waiver or relinquishment of any right, remedy or obligation, and
the right, remedy or obligation shall continue in full force and affect.

        12. ENTIRE AGREEMENT AND MODIFICATION

                                       11

<PAGE>

        This Agreement, together with that certain Nonrecourse Secured
Promissory Note and Deed of Trust with Assignment of Rents (Short Form) as both
are described more fully in Section 19 of this Agreement, sets forth the entire
agreement of the parties concerning the employment of Executive by the Employer
and any oral or written statements, representations, agreements or
understandings made or entered into prior to or contemporaneously with the
execution of this Agreement, including without limitation that certain offer
letter dated April 19, 2001, are hereby rescinded, revoked, and rendered null
and void by the parties. This Agreement may be modified only by a written
instrument duly executed by each party hereto.

        13. ASSIGNMENT

        This Agreement shall be binding upon the parties hereto, their
respective heirs, personal representatives, executors, administrators,
successors and assigns. Any such assignee or successor of Employer shall, within
ten (10) business days after receipt of a written request by Executive, send to
Executive its acknowledgment and agreement that such assignee or successor
expressly assumes all of Employer's obligations under this Agreement as if such
assignee or successor was the original employer and the term "Employer" as used
herein as include any such assignee or successor.

        14. INTERPRETATION OF AGREEMENT

        The parties have cooperated in the drafting and preparation of this
Agreement. Therefore, the parties hereto agree that, in any construction to be
made of the Agreement the same shall not be construed against any of the
parties. Each of the parties hereto has carefully read this Agreement and has
been given the opportunity to have it reviewed by legal counsel and negotiate
its terms.

        15. SPECIFIC OBLIGATIONS OF THE EXECUTIVE

        In addition to the general duties set forth herein, Executive shall use
his reasonable efforts for the benefit of Employer by whatever activities
Employer finds reasonably appropriate to maintain and improve Employer's
standing in the community generally and among current and prospective customers,
including such entertainment for professional purposes as Executive and Employer
mutually consider appropriate. Executive shall undertake business development
endeavors as reasonably directed by Employer. Executive (i) knows no reason why
he may not by hired by Employer or cannot carry out his obligations under this
agreement, (ii) is not under an obligation, contractual or otherwise, that would
prohibit Executive from carrying out his obligations hereunder, and (iii) will
not breach or otherwise violate any agreement to which he is a party by entering
into and/or performing his obligations under this Agreement.

                                       12

<PAGE>

        16. NONDISCLOSURE AND NONAPPROPRIATION OF INFORMATION AND NONCOMPETITION

                (a) Executive recognizes and acknowledges that while employed by
        Employer, he has and will have access to, learn, be provided with and,
        in some cases, prepare and create certain confidential, proprietary
        business information and/or trade secrets for Employer, including, but
        not limited to, lists, files and forms, (hereinafter collectively
        referred to as the "trade secrets"), all of which are of substantial
        value to Employer and its business. In this connection, Executive
        expressly covenants and agrees, during his employment with Employer, to:

                        (i) Hold in a fiduciary capacity and not reveal,
                communicate, use or cause to be used for his own benefit or
                divulge any trade secrets, or other proprietary right now or
                hereafter owned by the Employer;

                        (ii) Not sell, exchange or give away, or otherwise
                dispose of any trade secrets now or hereafter owned by Employer,
                whether the same shall or may have been originated or discovered
                by Employer or otherwise;

                        (iii) Not reveal, divulge or make known to any person,
                firm, corporation or other entity any trade secrets of Employer;
                and

                        (iv) Not reveal, divulge or make known to any person
                (other than his spouse, attorney and/or accountant), firm,
                company or corporation any of the terms of this Agreement.

                (b) To protect the legitimate business interests of Employer
        from unfair competition by Employee, Employee expressly covenants and
        agrees that during his employment with Employer and continuing
        thereafter for a period of two (2) years, Employee shall not, directly
        or indirectly:

                        (i) (1) Accept employment of any kind or nature,
                including without limitation in a consultancy role, with, (2)
                render services to or for, (3) engage in, undertake or carry out
                any business activity with, or (4) obtain an ownership interest
                in ICX International, Inc., U S Electronics Components
                Corporation, or Philips Consumer Electronics BV, or any of such
                companies' parents, subsidiaries and affiliates;

                        (ii) Solicit, interfere with or endeavor to entice away
                from Employer any person, firm, company or corporation that, at
                the time Employee's employment with Employer ceased, was doing
                business with Employer and accounted for ten percent

                                       13

<PAGE>

                (10%) or more of Employer's gross revenue as determined by
                Employer's book and records; and

                        (iii) Solicit for hire, either directly or indirectly,
                or hire as a result of such solicitation, any key employee of
                Employer, except that Executive may hire any such key employee
                so long as such hiring was made as a result of a general
                solicitation of employment through typical solicitation means,
                such as advertisements and the like, or such solicitation was
                initiated by such key employee.

                (c) Executive further covenants and agrees to return to Employer
        either before or immediately upon his termination of employment with
        Employer any and all written information, material or equipment that
        constitutes, contains or relates to Employer's proprietary information
        trade secrets and which relate to Employer's business which are in
        Executive's possession, custody and control, whether confidential or
        not, including any and all copies thereof which may have been made by or
        for Executive. Executive shall maintain no copies thereof after
        termination of his employment.

        17. SURVIVAL OF OBLIGATIONS

        In addition to those specific provisions of Section 3, which by their
express terms survive the termination of this Agreement under certain
circumstances, the terms and conditions and obligations of the parties as
contained or described in Sections 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16, 17,
18, 19, and 20 shall survive the termination of this Agreement and,
notwithstanding such termination, shall remain fully binding on the parties
hereto.

        18. ARBITRATION

        Except for any claim or dispute in which equitable relief under this
Agreement is sought, any disagreement, dispute or controversy concerning whether
there has been Just Cause, Good Reason or breach of any of the terms of this
Agreement shall be settled exclusively and finally by arbitration. The
arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect from time to time (the
"AAA Rules"). The arbitration shall be conducted in Los Angeles, California, or
in such other city as the parties to the dispute may designate by mutual
consent. The arbitral tribunal shall consist of three arbitrators (or such
lesser number as may be agreed upon by the parties) selected according to the
procedure set forth in the AAA Rules, with the chairman of the arbitral tribunal
selected in accordance with the AAA Rules. Except as otherwise set forth in this
Agreement, the fees and expenses of the arbitral tribunal in connection with
such arbitration shall be borne by the parties to the dispute as shall be
determined by the arbitral tribunal.

                                       14

<PAGE>

        19. RELOCATION LOAN MADE TO EXECUTIVE

        At such time as demanded by Executive, Employer shall loan One Hundred
Thousand Dollars ($100,000) to Executive which Executive shall use solely for
relocating his home and family from his present place of residence in Austin,
Texas to a new residence located in Southern California and in this connection
the Executive shall execute and deliver to Employer a Nonrecourse Secured
Promissory Note and Deed of Trust with Assignment of Rents (Short Form) in favor
of Employer in the form acceptable to Employer, the terms and conditions of
which are incorporated into this Agreement by this reference. On each December
15 during the term of such Note and on the payment of principal of the Note,
Employer shall pay to Executive an amount equal to 1.045 times the amount of
interest due by Executive under the Note as of each of such dates (the "Interest
Compensation"), regardless of whether Executive is employed by Employer on such
dates. Such loan and such Interest Compensation is in addition to all amounts to
be paid and/or reimbursed to Executive pursuant to Employer's Executive
Relocation Policy.

        IN WITNESS WHEREOF, the parties have executed the Agreement as of this
14th day of May, 2001

Signed and acknowledged in           UNIVERSAL ELECTRONICS INC.
the presence of:
                                     By:
---------------------------             ----------------------------------------
Corporate Secretary                     Paul D. Arling, Chief Executive Officer

                                     ROBERT P. LILLENESS

---------------------------             ----------------------------------------
                                        Signature

                                       15

<PAGE>

                                    EXHIBIT A

                               STOCK OPTION AWARD

                            PURSUANT TO SECTION 4(c)

Options to acquire up to 125,000 shares of the common stock of Employer with an
exercise price determined as market price of the average of the beginning and
the end of business on April 25, 2001, the date of your acceptance of Employer's
offer of employment. These options shall vest at a rate of 25% per year for four
years, but all in accordance with the terms and conditions of the Stock Option
Agreement and Stock Option Plans of Employer.

                                       16
<PAGE>

                                    EXHIBIT
                   COPY OF NONRECOURSE SECURED PROMISSORY NOTE
                                       AND
               DEED OF TRUST WITH ASSIGNMENT OF RENTS (SHORT FORM)

                             PURSUANT TO SECTION 19

    [TO BE PROVIDED TO EXECUTIVE WHEN LOAN REQUESTED PURSUANT TO SECTION 19]

                                       17

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