Employment Agreement - Safeway Inc. and Vasant Prabhu


                              EMPLOYMENT AGREEMENT


This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
August 14, 2000 by and between Safeway Inc., a Delaware corporation 
("Safeway") and Vasant Prabhu ("Prabhu").


WHEREAS, Safeway has offered and wishes to employ Prabhu in accordance 
with the terms of this Agreement; and

WHEREAS, Prabhu wishes to become employed by Safeway in accordance 
with the terms of this Agreement;

NOW THEREFORE, in consideration of the foregoing and the mutual 
covenants and conditions set forth herein, the parties agree that 
Prabhu shall be employed by Safeway on the following terms and 
conditions:

1. Position. Prabhu will be employed by Safeway in the position of
Executive Vice President, Chief Financial Officer and President,
E-Commerce.

2. Start Date. Prabhu's employment with Safeway will commence on a date
(the "Start Date") to be mutually agreed upon by the parties, but in 
no event later than September 30, 2000.

3. Term. Prabhu's employment with Safeway shall be for no specific term.
Subject only to the terms of this Agreement, the employment 
relationship between Prabhu and Safeway may be terminated by either 
party at any time, with or without cause and with or without prior 
notice.

4. Salary. Prabhu's starting annualized base compensation will be 
$500,000, less state and federal tax withholdings and other authorized 
deductions. He will be eligible for a merit increase review in or 
about March, 2001 and, thereafter, in accordance with Safeway's normal 
employment policies and practices.

5. Performance Bonus. Prabhu will be covered by and eligible to 
participate in a bonus plan pursuant to which he will be eligible to 
receive a potential annual performance bonus, payable by the end of 
the first calendar quarter of the year following the year in which the 
bonus is earned, of up to 125% of his base salary. For services 
rendered during 2000, Prabhu's bonus will not be less than a gross 
amount of $325,000.

6. Retention Bonuses. Prabhu will be eligible to receive retention 
bonuses as follows: $250,000 for services rendered during 2000, 
payable by the end of the first calendar quarter of 2001; $250,000 for 
services rendered during 2001 and $250,000 for 

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services rendered during 2002 (for a total of $500,000), payable by
the end of the first calendar quarter of 2003; and $ 250,000 for services
rendered during 2003, payable by the end of the first calendar quarter of 2004;
provided, in each case, that Prabhu remains employed by Safeway as of December
30 of 2000, 2001, 2002 or 2003, as applicable.

7. Signing Bonus. Prabhu will receive a one-time signing bonus in the gross
amount of $325,000, said signing bonus to be paid to Prabhu within ten (10) days
after the Start Date.

8. Home Purchase Mortgage Loan. Within sixty (60) days after the Start
Date, and upon Prabhu's execution of an appropriate Promissory Note, Safeway
will loan Prabhu the amount of $1,000,000 to facilitate Prabhu's purchase of a
residence in Northern California. Said Promissory Note will be interest free and
will be secured by a second deed of trust upon the subject property. This loan
will be for a four-year term. Twenty per cent (20%) of the loan amount will be
due on September 1, 2001, forty per cent (40%) of the loan amount will be due on
April 30, 2003 and the remaining forty per cent (40%) of the loan amount will be
due on September 1, 2004. If, at any time prior to the fourth anniversary of the
Start Date, Prabhu resigns his employment with Safeway, the remaining loan
balance shall become due and payable in full within ninety (90) days of such
resignation.

9. Stock Options. Prabhu will be granted 600,000 Safeway stock options, at the
stock closing price on the Start Date. These stock options will have a 10-year
term and will vest 20% upon each anniversary of the Start Date, provided that
Prabhu remains employed as of that anniversary date. Prabhu will also be granted
at least an additional 200,000 Safeway stock options on or before the third
anniversary of the Start Date, provided that Prabhu remains employed as of that
anniversary date.

10. Restricted Stock. Prabhu will receive approximately 40,000 shares of
restricted stock, which will vest 25 % on December 31, 2000, 25% on January 1,
2001 and 50% on January 1, 2002, provided that Prabhu remains employed by
Safeway as of those dates. The actual amount of restricted stock will be
determined by the stock closing price on the Start Date and will be calculated
so as to provide Prabhu with restricted stock valued at $2,000,000.

11. Benefits. Prabhu and his eligible dependents will be eligible for coverage
under Safeway's group health plan upon his Start Date. Prabhu will be eligible
to participate in the Safeway 401(k) Plan on the first of the month following
the month in which he completes thirty (30) days of employment. Prabhu will be
entitled to all other benefits available to executive employees of Safeway in
accordance with the normal terms and conditions of the applicable benefit plans.

12. Vacation. Effective immediately upon the Start Date, Prabhu will begin
accruing paid vacation benefits at the rate of four (4) weeks per year.

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13. Relocation. Prabhu will be eligible to receive Level 1 relocation
benefits in accordance with Safeway's Relocation Assistance Policy.

14. Relocation Allowance. In addition to any other relocation benefits available
to him in accordance with the terms of this Agreement, Prabhu will be granted a
one-time relocation allowance in the gross amount of $25,000, said allowance to
be paid to Prabhu within ten (10) days of the Start Date.

15. Termination. 

     a. Termination for Cause. Prabhu's rights to receive any salary, bonus
compensation and other benefits shall terminate upon termination of his
employment by Safeway for Cause. "Cause" shall mean any acts or omissions on the
part of Prabhu involving any or all of the following:

          (i) material dishonesty or misappropriation adversely affecting 
Safeway or its property or funds;

          (ii) misconduct, including but not limited to violation of Safeway's 
policy against harassment, or reckless or willful destruction of Safeway 
property;

          (iii) a breach of any of the covenants set forth in paragraphs 16(a) 
through 16(c), below; or

          (iv) illegal, fraudulent or other conduct tending to place Prabhu, or 
Safeway, by reason of its association with him, in disrepute or to subject 
Safeway to financial loss.

     b. Termination without Cause . Subject to the provisions of paragraphs 8
and 15(d) of this Agreement, Prabhu's employment hereunder may be terminated by
Safeway without Cause at any time and without prior notice to Prabhu.

     c. Resignation for Good Reason. Prabhu may resign his employment with
Safeway at any time, provided that such resignation shall be considered to be
for Good Reason for purposes of this Agreement if, but only if, one or more of
the following conditions occur and such condition(s) is (are) not fully
corrected within ten (10) days after written notice from Prabhu to Safeway:

          (i) the assignment to Prabhu of any duties or responsibilities
materially inconsistent with the position of Executive Vice President, Chief
Financial Officer and President, E-Commerce; or

          (ii) the failure by Safeway either to pay Prabhu any salary or bonus 
due hereunder within ten (10) days of the date that such payment is due and/or 
to provide any employment benefits as required by this Agreement.

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     d. Payments upon Termination without Cause or Resignation for Good Reason.
     In the event that Prabhu's employment with Safeway is terminated by Safeway
without Cause pursuant to paragraph 15(b), above, or by Prabhu as the result of
a resignation for Good Reason pursuant to paragraph 15(c), above, then Prabhu
shall be entitled to receive: (i) payment of one year of his base salary in
effect as of the date of such termination without Cause or resignation for Good
Reason, said payments to be made in accordance with the normal payroll cycle of
Safeway and subject to any required tax withholdings and deductions; (ii)
accelerated vesting of any restricted stock granted to him in accordance with
paragraph 9, above; and (iii) remaining unpaid retention bonuses pursuant to
paragraph 6, above. For such time that Prabhu is entitled to receive continued
salary payments pursuant to paragraph 15(d)(i), above, he will also be eligible
for continued vesting of stock options granted to him pursuant to paragraph 9 of
this Agreement and continued participation in any Safeway employee benefit plans
in which he participated prior to the date of his termination or resignation,
with the exception that he shall not be eligible for continued participation in
the Long-Term Disability Plan. In the event that Prabhu breaches any of the
covenants set forth in paragraphs 16(a) through 16(c), below, Safeway shall have
no further obligation to provide, and Prabhu shall have no further right to
receive, any payments or benefits pursuant to this paragraph 15(d).

16. Non-Compete, Confidentiality, Non-Disparagement and Non-Solicitation
Covenants.

     a. Non-Compete. Prabhu covenants and agrees that, during his employment
with Safeway and for a period of one year thereafter, he shall not, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control, or be connected as a director, officer,
employee, partner, consultant or otherwise, with any Competing Food or Drug
Retailing Business, other than as a shareholder or beneficial owner of 5% or
less of the outstanding securities of a Competing Food or Drug Retailing
Business that is a public company. For purposes of this Agreement, "Competing
Food or Drug Retailing Business" shall mean any business, firm or enterprise
engaged in a food and drug retailing business substantially similar to that of
either Safeway, or any of its subsidiaries, within any geographical location(s)
in which Safeway operates. The provisions of this paragraph 16(a) shall survive
the expiration or termination, for any reason, of this Agreement.

     b. Confidentiality. Prabhu acknowledges that he has learned or will learn
trade secrets and has obtained or will obtain other confidential information
concerning the business operations, policies and plans of Safeway. Prabhu
covenants and agrees that he will not divulge or otherwise disclose any such
trade secrets or other confidential information concerning the business
operations, policies or plans of Safeway which he may learn as a result of his
employment with Safeway, or may have learned prior thereto, except to the extent
that such information is lawfully obtainable from public sources or such use or
disclosure is either required by applicable laws or is authorized in writing by
an executive officer of Safeway. The provisions of this paragraph 16(b) shall
survive the expiration or termination, for any reason, of this Agreement.


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     c. Non-Disparagement and Non-Solicitation. Prabhu covenants and agrees
that, during his employment with Safeway and for a period of two years
thereafter, he shall not, whether acting for himself or for any third party: (i)
disparage the image or reputation of Safeway; (ii) interfere with the
contractual relationship between Safeway and any of its vendors or suppliers; or
(iii) without the advance written approval of an executive officer of Safeway,
employ or solicit for employment any person who is employed by Safeway. The
provisions of this paragraph 16(c)shall survive the expiration or termination,
for any reason, of this Agreement.

17.  Miscellaneous.
     

     a. Non-Assignment. The obligations and duties of Prabhu hereunder shall be
personal and not assignable. 

     b. Notices. Unless otherwise provided herein or subsequently agreed to by
the parties, any notice, instruction or document to be given hereunder by any
party shall be in writing and delivered in person, by facsimile transmission or
by mail as follows:

                  If to Prabhu:             Vasant M. Prabhu
                                            350 East 57th Street, #8A
                                            New York, NY 10022

                  If to Safeway:            Safeway Inc. 
                                            5918 Stoneridge Mall Rd. 
                                            Pleasanton, CA 94588
                                            Attn: Sr. Vice President, 
                                            Human Resources


     c. Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, and it replaces and supersedes
any prior agreements, written or oral, between the parties relating to such
subject matter.

     d. Amendments. This Agreement may be amended only by a written agreement
signed by the parties. 

     e. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

     f. Severability. If any provision of the Agreement is found to be invalid
or unenforceable in whole or part, the remainder of the Agreement shall
nevertheless remain in full force and effect.


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     g. Counterparts. This Agreement may be executed by one or more
counterparts, each of which shall be deemed to be an original copy of the
Agreement and all of which taken together shall constitute one agreement.

     In witness whereof, the parties have executed this Agreement as of the date
first written above.





SAFEWAY INC.                                         VASANT PRABHU

By: /s/ Steven A. Burd                               /s/ Vasant Prabhu
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Its:  Chairman, President & CEO