10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                to

Commission File Number: 0-21531

UNITED NATURAL FOODS, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	05-0376157 (I.R.S. Employer Identification No.)
260 Lake Road Dayville, CT (Address of principal executive offices)	06241 (Zip Code)
Registrant's telephone number, including area code: (860) 779-2800
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of the common stock held by non-affiliates of the registrant was $730,758,381 based upon the closing price of the registrant's common stock on the Nasdaq Stock Market® on January 31, 2004. The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of October 4, 2004 was 40,127,186.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on December 1, 2004 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

UNITED NATURAL FOODS, INC.
FORM 10-K

TABLE OF CONTENTS

Section		Page
Part I
Item 1.	Business	1
Item 2.	Properties	9
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	10
	Executive Officers of the Registrant	10
Part II
Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters	12
Item 6.	Selected Financial Data	12
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	29
Item 8.	Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	52
Item 9A.	Controls and Procedures	52
Part III
Item 10.	Directors and Executive Officers of the Registrant	53
Item 11.	Executive Compensation	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management	53
Item 13.	Certain Relationships and Related Transactions	53
Item 14.	Principal Accounting Fees and Services	53
Part IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	54
	Signatures	55

PART I.

ITEM 1.    BUSINESS

Overview

        We are a leading national distributor of natural and organic foods and related products in the United States. We believe that we are the primary distributor of natural and organic products to a majority of our customers. We carry more than 35,000 high-quality natural and organic products, consisting of national brand, regional brand, private label and master distribution products in six product categories consisting of grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements, bulk and food service products and personal care items. We serve more than 18,000 customers, including independently owned natural products retailers, supernatural chains, which are comprised of small and large chains of natural foods supermarkets, and conventional supermarkets located across the United States. Our other distribution channels include food service, international and buying clubs. We have been the primary distributor to the largest supernatural chain in the United States, Whole Foods Market, Inc. ("Whole Foods Market") for more than 10 years. During fiscal 2004, we also entered into and consummated a five year primary distribution agreement with Wild Oats Markets, Inc. ("Wild Oats Markets"). We had previously served as primary distributor for Wild Oats Markets through August 2002.

        In recent years, our sales to existing and new customers have increased through the continued growth of the natural products industry in general, the acquisition of or merger with natural products distributors and the expansion of our existing distribution centers. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Through our subsidiary, the Natural Retail Group, Inc., we also own and operate 12 natural products retail stores located primarily in Florida. We believe that our retail business serves as a natural complement to our distribution business because it enables us to develop new marketing programs and improve customer service. In addition, our subsidiary, Hershey Imports Company, Inc. ("Hershey"), specializes in the international importing, roasting and packaging of nuts, seeds, dried fruits and snack items.

        Since our formation we have completed a number of acquisitions of distributors and suppliers, including Hershey, Albert's Organics, Inc. ("Albert's"), and 11 retail stores, all of which have expanded our distribution network, product offerings and customer base. During fiscal 2003, we acquired both Blooming Prairie Cooperative and Northeast Cooperative. Our operations are comprised of three principal divisions:

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our wholesale division, which includes our Eastern Region, Western Region and Albert's;



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our retail division, which consists of 12 retail stores; and



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our manufacturing division, which is comprised of Hershey.

Natural Products Industry

        Although most natural products are food products, including organic foods, the natural products industry encompasses a number of other categories, including nutritional, herbal and sports supplements, toiletries and personal care items, naturally based cosmetics, natural/homeopathic medicines, pet products and cleaning agents. According to the June 2004 issue of The Natural Foods Merchandiser, a leading trade publication for our industry, sales revenues for all types of natural products rose to $42.8 billion in 2003, an increase of approximately 8.1% over 2002. This increase in sales was driven primarily by growth in the following categories:

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packaged fresh produce;

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frozen and refrigerated meats, poultry and seafood;



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bread and baked goods;



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food supplements; and



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dairy products.

        The fastest growing categories in organic products were personal care items, fresh meat and seafood, beer and wine, nutrition bars and pet products.

        According to Natural Foods Merchandiser, the continuing growth trend is driven by consumer desire for healthy, tasty and low-cost prepared food. More than half of American households represent "midlevel" organic customers, that is, they regularly purchase organic and natural products and want to learn more about nutrition as concerns continue to mount about health claims, food safety, irradiation and genetically modified organisms issues. The Natural Foods Merchandiser has also noted that 69% of natural products stores reported sales increases in 2003, while many other sectors of the economy continued to slump and unemployment increased.

Competitive Advantages

        We benefit from a number of significant competitive advantages including:

Market Leader with a Nationwide Presence

        We are one of the few distributors capable of serving local and regional customers as well as the rapidly growing supernatural chains. We believe we have significant advantages over smaller, regional natural products distributors as a result of our ability to:

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invest in people, facilities, equipment and technology;



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expand marketing and customer service programs across regions;



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expand national purchasing opportunities;



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consolidate systems applications among physical locations and regions;



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integrate administrative and accounting functions; and



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reduce geographic overlap between regions.

        We were the first organic food distribution network in the United States to earn certification by Quality Assurance International, Inc. ("QAI"). This process involved a comprehensive review by QAI of our operating and purchasing systems and procedures. This certification comprises all of our distribution centers, except for our Iowa City, Iowa and Mounds View, Minnesota facilities, which are currently undergoing the certification process.

Low Cost Distributor

        In addition to our volume purchasing opportunities, a critical component of our position as a low-cost provider is our management of warehouse and distribution costs. Our continued growth has created the need for expansion of existing facilities in order to achieve maximum operating efficiencies and to ensure that we possess adequate space for future needs. We completed the expansions of our Dayville, Connecticut and Iowa City, Iowa, distribution facilities in July 2004. As a result of these expansions, we now operate a 275,000 square foot facility in Iowa City, Iowa and a 353,000 square foot facility in Dayville, Connecticut. These expansions will allow us to increase our product diversity and to better serve customers in the Midwest and Northeast markets of our Eastern Region, while eliminating outside storage expenses. We expect the efficiencies created by expanding our Iowa City and Dayville

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facilities will take approximately nine months to fully manifest themselves in the form of lower expenses relative to sales. We have made considerable capital expenditures and incurred considerable expenses in connection with the expansion of our facilities, including the expansion of our facilities located in Auburn, California, Chesterfield, New Hampshire, New Oxford, Pennsylvania and Vernon, California, the expansion and relocation of our facility in Atlanta, Georgia, and the addition of our Fontana, California distribution facility. Having completed the Iowa City and Dayville facilities' expansion, we have now added approximately 1,266,000 square feet to our distribution centers in the last 5 years, which represents a 92% increase in our distribution capacity.

Customer Relationships

        We serve more than 18,000 customers across the United States and internationally. We have developed long-standing customer relationships, which we believe are among the strongest in our industry. We have also been the primary supplier of natural and organic products to our industry's largest supernatural chain in the United States, Whole Foods Market, for more than ten years. Our current distribution arrangement with Whole Foods Market was extended through December 31, 2004 on July 28, 2004.

        Our average service level for fiscal 2004 was approximately 97%, which we believe is the highest in our industry. Service levels refer to the percentage of items ordered by customers that are delivered by the requested delivery date, excluding manufacturers' "out of stocks." We believe that our high service levels are attributable to our experienced purchasing departments and sophisticated warehousing, inventory control and distribution systems. We offer next-day delivery service to a majority of our active customers and offer multiple deliveries each week to our largest customers. We believe that customer loyalty is dependent upon excellent customer service to ensure accurate fulfillment of orders, timely product delivery, low prices and a high level of product marketing support.

        We carry more than 35,000 high-quality natural products, consisting of national brand, regional brand, private label and master distribution products in six product categories consisting of grocery and general merchandise, produce, perishables and frozen foods, nutritional supplements, bulk and food service products and personal care items.

Experienced Management Team and Employees with Significant Equity Stake

        Our management team has extensive experience in the natural products industry and has been successful in identifying, consummating and integrating multiple acquisitions. Since 1985, we have successfully completed 13 acquisitions of distributors and suppliers and 11 acquisitions of retail stores. In addition, our executive officers and directors and their affiliates, and the Employee Stock Ownership Trust, beneficially own in the aggregate approximately 8.6% of our Common Stock. Accordingly, senior management and employees have significant incentive to continue to generate strong growth in operating results in the future.

Competition

        Our major national competitor is Tree of Life Distribution, Inc. (a subsidiary of Koninklijke Wessanen N.V.) ("Tree of Life"). In addition to its natural and organic products, Tree of Life also distributes specialty food products, thereby diversifying its product offerings, and markets its own private label program. Tree of Life has also earned QAI certification and has a European presence. We also compete with over 250 smaller regional and local distributors of ethnic, kosher, gourmet and other specialty foods, including Kehe Food Distributors, Inc. and Nature's Best, Inc., that focus on niche or regional markets. Additionally, we compete with national, regional and local distributors of conventional groceries and, to a lesser extent, companies that distribute to their own retail facilities.

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        We believe that distributors in the natural products industry primarily compete on product quality and depth of inventory selection, price and quality of customer service and that we currently compete effectively with respect to each of these factors.

        Our retail stores compete against other natural products outlets, conventional supermarkets and specialty stores. We believe that retailers of natural products compete principally on product quality and selection, price, customer service, knowledge of personnel and convenience of location.

Growth Strategy

        Our growth strategy is to maintain and enhance our position as a leading national distributor to the natural products industry. Key elements of our strategy include:

Increase Market Share of the Growing Natural Products Industry

        We intend to continue to increase our leading market share of the growing natural products industry by expanding our customer base, increasing our share of existing customers' business and continuing to expand and further penetrate new distribution territories, particularly in the Southern California and Midwest markets.

Expand Customer Base

        We have expanded our number of customers served to more than 18,000 as of July 31, 2004. We plan to continue to expand our coverage of the highly fragmented natural products industry by cultivating new customer relationships within the industry and by further developing other channels of distribution, such as traditional supermarkets, mass market outlets, institutional food service providers, international, buying clubs, hotels and gourmet stores.

Increase Market Share of Existing Customers' Business

        We believe that we are the primary distributor of natural and organic products to the majority of our natural products customer base. We intend to continue to seek to become the primary supplier for a majority of our customers by offering the broadest product offerings in our industry at the most competitive prices. Since 1993, we have expanded our product offerings from approximately 14,000 to more than 35,000 individual products as of July 31, 2004. Additionally, we have launched a number of private label programs that present to us and our customers higher margins than many of our existing product offerings.

Continue to Expand and Penetrate into new Regions of Distribution

        As discussed under "Competitive Advantages," we have made considerable capital expenditures and incurred considerable expenses in connection with the expansion of our facilities. We will continue to selectively evaluate opportunities to build new facilities or to acquire distributors to fulfill existing markets and expand into new markets.

Continue to Improve Efficiency of Nationwide Distribution Network

        We continually seek to improve our operating results by integrating our nationwide network utilizing the best practices within our industry and within each of the regions, which have formed our foundation. This focus on achieving improved economies of scale in purchasing, warehousing, transportation and general and administrative functions has improved our operating margin.

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Continue to Provide the Leading Distribution Solution

        Our strategy is to continue to provide the leading distribution solution to the natural products industry through our national presence, regional responsiveness, high customer service focus and breadth of product offerings. We offer our customers a selection of inventory management, merchandising, marketing, promotional and event management services to increase sales and enhance customer satisfaction. The marketing services, many of which are supplier-sponsored, include monthly and thematic flyer programs, in-store signage and assistance in product display. We believe that our high service levels, which we believe to be the highest in our industry, are attributable to our experienced purchasing departments and sophisticated warehousing, inventory control and distribution systems. In 2002, we announced a strategic alliance with Living Naturally, the leading provider of marketing promotion and electronic ordering systems to the natural products industry. We provide our customers access to Living Naturally's suite of products at preferred prices and terms. These products include an intelligent electronic ordering system and turnkey retailer website services, which create new opportunities for our retailers to increase their inventory turns, reduce their costs and enhance their profits.

Products

        Our extensive selection of high-quality natural products enables us to provide a primary source of supply to a diverse base of customers whose product needs vary significantly. We carry more than 35,000 high-quality natural and organic products, consisting of national brand, regional brand, private label and master distribution products in six product categories consisting of grocery and general merchandise, produce, perishables and frozen, nutritional supplements, bulk and food service products and personal care items. Our private label products address certain preferences of customers, which are not otherwise being met by other suppliers.

        We evaluate over 3,500 potential new products each year based on both existing and anticipated trends in consumer preferences and buying patterns. Our buyers regularly attend regional and national natural, organic, specialty, ethnic and gourmet product shows to review the latest products which are likely to be of interest to retailers and consumers. We also actively solicit suggestions for new products from our customers. We make the majority of our new product decisions at the regional level. We believe that our decentralized purchasing practices allow our regional buyers to react quickly to changing consumer preferences and to evaluate new products and new product categories regionally. Additionally, many of the new products that we offer are marketed on a regional basis or in our own retail stores prior to being offered nationally, which enables us to evaluate local consumer reaction to the products without incurring significant inventory risk. Furthermore, by exchanging regional product sales information between our regions, we are able to make more informed and timely new product decisions in each region.

Suppliers

        We purchase our products from approximately 5,000 suppliers. The majority of our suppliers are based in the United States, but we source products from suppliers throughout Europe, Asia, South America, Africa and Australia. We believe the reason natural products suppliers seek distribution of their products through us is because we provide access to a large and growing customer base, distribute the majority of the suppliers' products and offer a wide variety of marketing programs to our customers to help sell the suppliers' products. Substantially all product categories that we distribute are available from a number of suppliers and, therefore, we are not dependent on any single source of supply for any product category. Our largest supplier, Hain Celestial Group, Inc. ("Hain"), accounted for approximately 7.6% of our total purchases in fiscal 2004. However, the product categories we purchase from Hain can be purchased from a number of other suppliers. In addition, although we have exclusive distribution arrangements and vendor support programs with several suppliers, none of these suppliers

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accounts for more than 10% of our total purchases. Generally, our purchases are made from the supplier's national price list at prices consistent with those paid by other customers. However, in other instances, we negotiate agreements with suppliers on the basis of volume and other considerations that may include discounted pricing or prompt payment discounts. The length of these agreements may vary. Furthermore, many of our agreements include the right of return to the supplier with respect to products that we are not able to sell in a certain period of time. We have commodity contracts with certain suppliers to purchase bulk items such as dried fruits, nuts, peas and beans. Our outstanding commitments for the purchase of inventory were approximately $13.8 million as of July 31, 2004.

        We believe we are well positioned to respond to regional and local customer preferences for natural products by decentralizing the majority of our purchasing decisions for all products except bulk commodities. We believe that regional buyers are better suited to identify and to respond to local demands and preferences. Although each of our regions is responsible for placing its own orders and can select the products that it believes will most appeal to its customers, each region is required to participate in companywide purchasing programs that enable us to take advantage of our consolidated purchasing power. For example, we have positioned ourselves as the largest purchaser of organically grown bulk products in the natural products industry by centralizing our purchase of nuts, seeds, grains, flours and dried foods. In addition, we have implemented a number of national consumer flyer programs, which have resulted in incremental sales growth for our customers and ourselves.

        Our purchasing staff works closely with suppliers to provide new and existing products. The suppliers assist in training our customer service representatives in marketing new products, identifying industry trends and coordinating advertising and other promotions.

        We maintain a comprehensive quality assurance program. All of the products we sell that are represented as "organic" are required to be certified as such by an independent third-party agency. We maintain current certification affidavits on all organic commodities and produce in order to verify the authenticity of the product. All potential suppliers of organic products are required to provide such third-party certification to us before they are approved as a supplier. In 2003, we became the first organic food distribution network in the United States to gain organic certification coast-to-coast. This certification comprises all of our distribution centers, except for our Iowa City, Iowa and Mounds View, Minnesota facilities, which are currently undergoing the certification process.

Customers

        We market our products to more than 18,000 customers across the United States and internationally. We maintain long-standing customer relationships with independently owned natural products retailers and supernatural chains, and have continued to emphasize our relationships with new customers, such as conventional supermarkets, mass market outlets and gourmet stores, all of which are continually increasing their natural product offerings. Among our wholesale customers for the fiscal year ended July 31, 2004 were the following:

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leading supernatural chains, including Whole Foods Market, Inc. (including Harry's Farmers Market and Fresh & Wild), Wild Oats Markets, Inc., Wild Harvest, Earth Fare and Haggen, Inc.; and



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conventional supermarket chains, including Wegman's, Stop and Shop, Shaw's, Star Market, Quality Food Centers, Hannaford, Pathmark, Bashas', Rainbow, Lowe's and Publix.

        Whole Foods Market accounted for approximately 26% and 24% of our net sales in fiscal 2004 and 2003, respectively. Our distribution agreement with Whole Foods Market has been extended through December 31, 2004. This agreement provides discounts to Whole Foods Market based on volume. We believe that we are the primary distributor of natural and organic products to the majority of Whole Foods Market's stores. No other customer accounted for more than 10% of our net sales in

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fiscal 2004 and 2003. The following table lists the percentage of sales by customer type for the fiscal years ended July 31, 2004 and 2003:

	Percentage of Net Sales
Customer type
	2004		2003
Independently owned natural products retailers	44	%	46	%
Supernatural chains	37	%	34	%
Conventional supermarkets	14	%	14	%
Other	5	%	6	%

        The shift to supernatural chains sales from independently owned natural products retailers was the result of the implementation of the primary distribution agreement with Wild Oats Markets in the second half of fiscal 2004.

Marketing

        We have developed a variety of supplier-sponsored marketing services, which cater to a broad range of retail formats. These programs are designed to educate consumers, profile suppliers and increase sales for retailers, the majority of which do not have the resources necessary to conduct such marketing programs independently.

        We offer multiple monthly regional specific consumer flyer programs featuring the logo and address of the participating retailer imprinted on a flyer advertising approximately 200 sale items, which are sold by the retailer to its customers. The four-color flyers are designed by our in-house marketing department utilizing modern digital photography and contain detailed product descriptions and pricing information. Additionally, each flyer generally includes detailed information on selected suppliers, recipes, and product features.. The monthly flyer programs are structured to pass through to the retailer the benefit our negotiated discounts and advertising allowances. The program also provides retailers with posters, window banners and shelf tags to coincide with each month's promotions.

        In addition, we have increased the number of national marketing programs we offer in order to maximize our national leverage and utilize our internal marketing resources. New programs, such as our key vendor partnership program, which helps build incremental, mutually profitable sales for vendors and ourselves, foster a sense of partnership. Other retailer initiative programs, such as our coupon booklet, allow us to explore new marketing avenues outside of our current practice.

        We are in tune with the latest trends in the industry, and in addition, we conduct focus group sessions with certain key retailers so that we can ascertain their needs in order to better service them. We also

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offer in-store signage and promotional materials, including shopping bags and end-cap displays.



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provide assistance with planning and setting up product displays.



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provide assistance with store layout designs.



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provide product data information such as best seller lists, store usage reports and easy to use product catalogs.



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maintain a website domain for retailers to access various individual retailer specific reports and product information.

Distribution

        We have carefully chosen the sites for our distribution centers to provide direct access to our regional markets. This proximity allows us to reduce our transportation costs compared to competitors

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that seek to service their customers from locations that are often hundreds of miles away. We believe that we incur lower inbound freight expense than our regional competitors because our national presence allows us to buy full and partial truckloads of products. Whenever possible, we backhaul between our distribution centers and satellite staging facilities using our own trucks. Many of our competitors must employ outside consolidation services and pay higher carrier transportation fees to move products from other regions. Additionally, we can redistribute overstocks and inventory imbalances at one distribution center to another distribution center to ensure products are sold prior to their expiration date, thereby more appropriately balancing inventories.

        Products are delivered to our distribution centers primarily by our leased fleet of trucks, contract carriers and the suppliers themselves. We lease our trucks from national leasing companies such as Ryder Truck Leasing and Penske Truck Leasing, which in some cases maintain facilities on our premises for the maintenance and service of these vehicles. Other trucks are leased from regional firms that offer competitive services.

        We ship certain orders for supplements or for items that are destined for areas outside regular delivery routes through United Parcel Service and other independent carriers. Deliveries to areas outside the continental United States are shipped by ocean-going containers on a weekly basis.

Technology

        We have made a significant investment in financial, information and warehouse management systems. We continually evaluate and upgrade our management information systems at our regional operations based on the best practices in the distribution industry in order to make the systems more efficient, cost effective and responsive to customer needs. These systems include functionality in radio frequency inventory control, computer-assisted order processing and slot locator/retrieval assignment systems. At the receiving docks, warehouse associates attach computer-generated, preprinted locator tags to inbound products. These tags contain the expiration date, locations, quantity, lot number and other information in bar code format. Customer returns are processed by scanning the UPC bar codes. We also employ a management information system that enables us to lower our inbound transportation costs by making optimum use of our own fleet of trucks or by consolidating deliveries into full truckloads. Orders from multiple suppliers and multiple distribution centers are consolidated into single truckloads for efficient use of available vehicle capacity and return-haul trips.

Retail Operations

        Our Natural Retail Group currently owns and operates 12 natural product retail stores located in Florida, Maryland and Massachusetts. Our retail operations are classified in the Other category for segment reporting purposes. Our retail strategy is to:

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selectively acquire existing stores that meet our strict criteria in categories such as sales and profitability, growth potential, merchandising and management; and



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open new stores in areas with favorable competitive climates and growth potential.

        Generally, we will not purchase or open new stores that directly compete with primary retail customers of our distribution business. We believe our retail stores have a number of advantages over their competitors, including our financial strength and marketing expertise, the purchasing power resulting from group purchasing by stores within our Natural Retail Group and the breadth of their product selection.

        We believe that we benefit from certain advantages in acting as a distributor to our retail stores, including our ability to:

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control the purchases made by these stores;

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expand the number of high-growth, high-margin product categories such as produce and prepared foods within these stores; and



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keep current with the demands of the retail marketplace which enables us to better serve our wholesale customers.

        Additionally, as the primary natural products distributor to our retail locations, we expect to realize significant economies of scale and operating and buying efficiencies. As an operator of retail stores, we also have the ability to test market select products prior to offering them nationally. We can then evaluate consumer reaction to the product without incurring significant inventory risk. We are able to test new marketing and promotional programs within our stores prior to offering them to a broader customer base.

Employees

        As of July 31, 2004, we had approximately 3,900 full and part-time employees. An aggregate of approximately 400 of the employees at our Auburn, Washington, Iowa City, Iowa and Edison, New Jersey facilities are covered by collective bargaining agreements. These agreements expire in March 2006, June 2006 and June 2005, respectively. We have never experienced a work stoppage by our unionized employees and we believe that our relations with our employee are good.

Available Information

        Our Internet address is http://www.unfi.com. The contents of our website are not part of this Annual Report on Form 10-K, and our Internet address is included in this document as an inactive textual reference only. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports available free of charge through our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the Securities and Exchange Commission.

        The Company has adopted a code of conduct and ethics for senior financial officers pursuant to section 406 of the Sarbanes-Oxley Act. A copy of our code of conduct and ethics is available free of charge by writing to United Natural Foods, Inc., 260 Lake Road, Dayville, CT 06241, Attn: Investor Relations.

ITEM 2.    PROPERTIES

        We maintained fifteen distribution centers at fiscal year end. These facilities consisted of an aggregate of approximately 2.6 million square feet of space, which represent the largest capacity of any distributor in the natural products industry.

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        Set forth below for each of our distribution facilities is its location, its current size (in square feet) and the date when our lease will expire for those distribution facilities that we do not own.

Location	Size	Lease Expiration
	(Square feet)
Atlanta, Georgia	327,500	Owned
Auburn, California	249,800	Owned
Auburn, Washington	204,700	March 2009
Aurora, Colorado	207,400	July 2013
Bridgeport, New Jersey	35,700	Owned
Chesterfield, New Hampshire	319,000	Owned
Dayville, Connecticut	352,900	Owned
Fontana, California	220,200	November 2011
Iowa City, Iowa	274,800	Owned
Kealakekua, Hawaii	16,300	December 2006
Mounds View, Minnesota	102,400	May 2007
New Oxford, Pennsylvania	271,200	Owned
Vernon, California	34,500	Owned
White Springs, Florida	13,800	July 2005
Winter Haven, Florida	13,500	October 2005
Total	2,643,700

        We rent facilities to operate twelve retail stores along the east coast with various lease expiration dates with 107,400 aggregate square feet. We also rent a 110,100 square foot processing and manufacturing facility in Edison, New Jersey with a lease expiration date of March 31, 2007.

ITEM 3.    LEGAL PROCEEDINGS

        From time to time, we are involved in routine litigation that arises in the ordinary course of our business. There are no pending material legal proceedings to which we are a party or to which our property is subject.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of the security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended July 31, 2004.

Executive Officers of the Registrant

        Our executive officers are elected on an annual basis and serve at the discretion of our Board of Directors. Our executive officers and their ages as of October 1, 2004 are listed below:

Name	Age	Position
Steven H. Townsend	51	Chief Executive Officer, President and Chair of the Board
Richard Antonelli	47	President of United Distribution and Director
Rick D. Puckett	51	Vice President, Chief Financial Officer, and Treasurer
Daniel V. Atwood	46	Senior Vice President of Marketing and Secretary
Di Ann Sanchez	43	Vice President of Human Resources
Michael Beaudry	40	Vice President of Distribution

Steven H. Townsend has served as Chair of the Board of Directors since December 2003, as our Chief Executive Officer since January 2003 and as our President since April 2001. Mr. Townsend has served as a member of the Board of Directors since December 2000. He also served on the Board of

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Directors of our predecessor company, Cornucopia Natural Foods, Inc., from August 1988 until October 1996, as its Vice President of Finance and Administration from July 1983 until May 1995, and as its Chief Financial Officer from June 1995 until December 1997. Mr. Townsend was self-employed as a real estate developer from January 1998 to November 1999.

Richard Antonelli has served as a member of the Board of Directors since December 2003 and as President of United Distribution since October 2004. Mr. Antonelli served as President of our Western Region from January 2004 to October 2004 and as President of our Eastern Region from September 2002 to December 2003. Mr. Antonelli served as president of Fairfield Farm Kitchens, a Massachusetts-based custom food manufacturer from August 2001 until August 2002. Mr. Antonelli served as Director of Sales for United Natural Foods, and its predecessor company, from 1985 until July 2001.

Rick D. Puckett has served as our Vice President, Chief Financial Officer and Treasurer since January 2003. Mr. Puckett served in various executive positions at the Suntory Water Group, Inc. from December 1998 until December 2002, including Chief Financial Officer, Chief Information Officer, Vice President, Corporate Controller and Vice President, Business Development and Planning.

Daniel V. Atwood has served as our Senior Vice President of Marketing since October 2002 and as our Secretary since January 1998. Mr. Atwood served as our National Vice President of Marketing from April 2001 until October 2002. Mr. Atwood served on the Board of Directors of our predecessor company, Cornucopia Natural Foods, from August 1988 until October 1996 and served on our Board of Directors from November 1996 until December 1997. Mr. Atwood served as President of our Natural Retail Group from August 1995 until March 2001.

Di Ann Sanchez has served as our Vice President of Human Resources since October 2003. Ms. Sanchez served as Human Resources Consultant at Resources Connection, Inc. from January 2003 to October 2003. Ms. Sanchez served as Vice President of Diversity and Talent Management at American Airlines, a division of AMR Corporation, from August 2001 to November 2002. Ms. Sanchez has also held executive Human Resources positions with Boeing Commercial Airplane Group from August 2000 to August 2001, and Delta Technology, a subsidiary of Delta Airlines, from August 1998 to August 2000.

Michael Beaudry has served as our Vice President of Distribution since August 2003. Mr. Beaudry served as our Vice President of Operations, Eastern Region, from December 2002 until August 2003, as our Director of Operations from December 2001 until December 2002 and as the Warehouse/Operations Manager of our Dayville, CT facility from December 1999 until December 2001.

11

PART II.

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our Common Stock is traded on the Nasdaq Stock Market® under the symbol "UNFI." Our Common Stock began trading on the Nasdaq Stock Market® on November 1, 1996. The following table sets forth, for the periods indicated, the high and low sale prices per share of our Common Stock on the Nasdaq Stock Market®, and has been adjusted to reflect our two-for-one stock split, effective April 20, 2004:

	High		Low
Fiscal 2003
First Quarter	$	12.495	$	8.920
Second Quarter		13.160		10.200
Third Quarter		14.695		10.340
Fourth Quarter		15.610		12.370
Fiscal 2004
First Quarter	$	19.780	$	13.655
Second Quarter		20.715		16.920
Third Quarter		26.800		19.505
Fourth Quarter		29.660		21.500
Fiscal 2005
First Quarter (through October 4, 2004)	$	29.150	$	18.900

        On October 4, 2004, we had 79 stockholders of record. The number of record holders may not be representative of the number of beneficial holders because depositories, brokers or other nominees hold many shares.

        We have never declared or paid any cash dividends on our capital stock. We anticipate that all of our earnings in the foreseeable future will be retained to finance the continued growth and development of our business and we have no current intention to pay cash dividends. Our future dividend policy will depend on earnings, capital requirements and financial condition, requirements of the financing agreements to which we are then a party and other factors considered relevant by the Board of Directors. Our existing revolving line of credit agreement prohibits the declaration or payment of cash dividends to our stockholders without the written consent of the bank during the term of the credit agreement and until all of our obligations under the credit agreement have been met.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

        The selected consolidated financial data presented below under the caption Consolidated Statement of Income Data with respect to the fiscal years ended July 31, 2004, 2003, 2002, 2001, and 2000, and under the caption Consolidated Balance Sheet Data at July 31, 2004, 2003, 2002, 2001, and 2000, are derived from our consolidated financial statements, which have been audited by KPMG LLP, independent registered public accounting firm. Certain prior year amounts have been reclassified to conform to current year presentation. The historical results are not necessarily indicative of results to be expected for any future period. The following selected consolidated financial data should be read in conjunction with and are qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. All share and per share amounts included in the following

12

consolidated financial data have been retroactively adjusted to reflect our two-for-one stock split, effective April 20, 2004.

Consolidated Statement of Income Data:

	2004			2003			2002		2001		2000
	(In thousands, except per share data)
Net sales	$	1,669,952		$	1,379,893		$	1,175,393	$	1,016,834	$	908,688
Cost of sales		1,339,496			1,099,704			934,238		808,462		727,358
Gross profit		330,456			280,189			241,155		208,372		181,330
Operating expenses		270,666			236,784			200,586		176,903		173,988
Restructuring and asset impairment charges		—			2,126			424		801		2,420
Amortization of intangibles		1,306			463			180		1,036		1,070
Total operating expenses		271,972			239,373			201,190		178,740		177,478
Operating income		58,484			40,816			39,965		29,632		3,852
Other expense (income):
Interest expense		7,265			7,795			7,233		6,939		6,412
Other, net		(1,217	)		(386	)		4,050		429		(527	)
Total other expense		6,048			7,409			11,283		7,368		5,885
Income (loss) before income taxes		52,436			33,407			28,682		22,264		(2,033	)
Income taxes (benefit)		20,450			13,187			11,473		8,906		(802	)
Net income (loss)	$	31,986		$	20,220		$	17,209	$	13,358	$	(1,231	)
Per share data—Basic:
Net income (loss)	$	0.81		$	0.53		$	0.45	$	0.36	$	(0.03	)
Weighted average basic shares of common stock		39,471			38,471			37,865		36,963		36,527
Per share data—Diluted:
Net income (loss) per share	$	0.78		$	0.51		$	0.45	$	0.35	$	(0.03	)
Weighted average diluted shares of common stock		41,025			39,454			38,667		37,636		36,527

Consolidated Balance Sheet Data:

	2004		2003		2002		2001		2000
	(In thousands)
Working capital	$	109,225	$	64,299	$	51,697	$	53,351	$	65,812
Total assets		508,767		430,099		354,457		300,444		270,234
Total long term debt and capital leases		44,115		39,119		8,672		9,289		28,529
Total stockholders' equity		234,929		187,563		160,387		135,943		117,954

13

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report.

        We are a leading national distributor of natural and organic foods and related products in the United States. In recent years, our sales to existing and new customers have increased through the continued growth of the natural products industry in general, the acquisition of or merger with natural products distributors and the expansion of our existing distribution centers. Through these efforts, we believe that we have been able to broaden our geographic penetration, expand our customer base, enhance and diversify our product selections and increase our market share. Through our subsidiary, the Natural Retail Group, Inc., we also own and operate 12 retail natural products stores located primarily in Florida. We believe that our retail business serves as a natural complement to our distribution business because it enables us to develop new marketing programs and improve customer service. In addition, our subsidiary, Hershey Imports Company, Inc. ("Hershey"), specializes in the international trading, roasting and packaging of nuts, seeds, dried fruits and snack items. Our operations are comprised of three principal divisions:

•

our wholesale division, which includes our Eastern Region, Western Region and Albert's;



•

our retail division, which consists of our retail stores; and



•

our manufacturing division, which is comprised of Hershey.

        In order to maintain our market leadership and improve our operating efficiencies, we are continually:

•

increasing our investment in our people, facilities, equipment and technology;



•

expanding marketing and customer service programs across our regions;



•

expanding national purchasing opportunities;



•

consolidating systems applications among physical locations and regions;



•

integrating administrative and accounting functions; and



•

reducing geographic overlap between regions.

        In addition, our continued growth has created the need for expansion of existing facilities in order to achieve maximum operating efficiencies and to ensure that we possess adequate space for future needs. We completed the expansions of our Dayville, Connecticut and Iowa City, Iowa distribution facilities in July 2004. As a result of these expansions, we now operate a 275,000 square foot facility in Iowa City, Iowa and a 353,000 square foot facility in Dayville, Connecticut. These expansions will allow us to increase our product diversity and to better serve customers in the Midwest and Northeast markets of our Eastern Region, while eliminating outside storage expenses. We expect the efficiencies created by expanding our Iowa City and Dayville facilities will take approximately nine months to fully manifest themselves in the form of lower expenses relative to sales. We have made considerable capital expenditures and incurred considerable expenses in connection with the expansion of our facilities, including the expansion of our facilities located in Auburn, California, Chesterfield, New Hampshire, New Oxford, Pennsylvania and Vernon, California, the expansion and relocation of our facility in Atlanta, Georgia, and the addition of our Fontana, California distribution facility. Having completed the Iowa City and Dayville facilities' expansion, we have now added approximately 1,266,000 square feet to our distribution centers in the last 5 years, which represents a 92% increase in our distribution capacity.

        Our net sales consist primarily of sales of natural products to retailers adjusted for customer volume discounts, returns and allowances. The principal components of our cost of sales include the

14

amount paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to our distribution facilities. Operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery, selling, occupancy, insurance, administrative, depreciation and amortization expense. Other expenses (income) include interest on outstanding indebtedness, interest income, and the change in fair value of financial instruments and miscellaneous income and expenses.

Critical Accounting Policies

        The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) determining our reserve for the self-insured portion of our workers' compensation, health insurance and automobile liabilities and (iii) valuing goodwill and intangible assets. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies.

Allowance for doubtful accounts

        We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are conducted using either cash-on-delivery terms, or the account is closely monitored so that as agreed upon payments are received, orders are released; a failure to pay results in held or cancelled orders. Our accounts receivable balance was $106.2 million and $90.1 million, net of the allowance for doubtful accounts of $5.6 million and $5.1 million, as of July 31, 2004 and 2003, respectively. Our notes receivable balances were $2.4 million and $1.8 million, net of the allowance of doubtful accounts of $4.2 million and $2.8 million, as of July 31, 2004 and 2003, respectively.

Insurance reserves

        It is our policy to record the self-insured portion of our workers' compensation, health insurance and automobile liabilities based upon actuarial estimates of the future cost of claims and related expenses that have been reported but not settled, and that have been incurred but not yet reported. Any projection of losses concerning workers' compensation and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting litigation trends, benefit level changes and claim settlement patterns. If actual claims incurred are greater than those anticipated, our reserves may be insufficient and additional costs could be recorded in the consolidated financial statements.

Valuation of goodwill and intangible assets

        SFAS No. 142, "Goodwill and Other Intangible Assets" requires that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment as of July 31 of each year. Impairment losses are determined based upon the excess of carrying amounts over discounted expected future cash flows of the underlying business. The assessment of the recoverability of long-lived assets will be impacted if estimated future cash flows are not achieved. For reporting units that indicated potential impairment, we determined the implied fair

15

value of that reporting unit using a discounted cash flow analysis and compared such values to the respective reporting units' carrying amounts. As of July 31, 2004, our annual assessment of each of our reporting units indicated that no impairment of goodwill existed. Total goodwill as of July 31, 2004 and 2003 was $57.2 million and $57.4 million, respectively.

Results of Operations

        The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:

			Year Ended July 31,
			GAAP basis						Excluding Special Items
			2004		2003		2002		2004		2003		2002
Net sales			100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales			80.2	%	79.7	%	79.5	%	80.2	%	79.6	%	79.5	%
		Gross profit	19.8	%	20.3	%	20.5	%	19.8	%	20.4	%	20.5	%
Operating expenses			16.2	%	17.2	%	17.1	%	16.1	%	17.1	%	16.9	%
Restructuring and asset impairment charges			0.0	%	0.1	%	0.0	%	—		—		—
Amortization of intangibles			0.1	%	0.0	%	0.0	%	0.1	%	0.0	%	0.0	%
		Total operating expenses	16.3	%	17.3	%	17.1	%	16.2	%	17.1	%	16.9	%
		Operating income	3.5	%	3.0	%	3.4	%	3.6	%	3.3	%	3.6	%
Other expense (income):
	Interest expense		0.4	%	0.6	%	0.6	%	0.4	%	0.6	%	0.6	%
	Change in value of financial instruments		0.0	%	0.1	%	0.4	%	—		—		—
	Other, net		0.0	%	-0.1	%	0.0	%	0.0	%	-0.1	%	0.0	%
	Total other expense		0.4	%	0.6	%	1.0	%	0.4	%	0.5	%	0.6	%
	Income before income taxes		3.1	%	2.4	%	2.4	%	3.2	%	2.8	%	3.0	%
Income taxes			1.2	%	1.0	%	1.0	%	1.2	%	1.1	%	1.2	%
		Net income	1.9	%	1.5	%*	1.5	%*	1.9	%*	1.7	%	1.8	%

*

Total reflects rounding

Year Ended July 31, 2004 Compared to Year Ended July 31, 2003

Net Sales

        Our net sales increased approximately 21.0%, or $290.1 million, to $1.67 billion for the year ended July 31, 2004 from $1.38 billion for the year ended July 31, 2003. This increase was due to our organic growth and the implementation of our primary distribution agreement with Wild Oats Markets, Inc. ("Wild Oats Markets") during the third quarter of fiscal 2004. Growth in the independently owned natural products retailers and mass market distribution channels was approximately 14.5% and 25.9%, respectively, compared to the same period in the prior year. Growth in the supernaturals distribution channel was approximately 30.5% compared to the same period in the prior year. Fiscal 2004 sales growth excluding the effect of sales to Wild Oats Markets was 13.4%. Sales to our largest customer, Whole Foods Market represented approximately 26% of net sales for the year ended July 31, 2004. Whole Foods Market represented approximately 24% of net sales for the year ended July 31, 2003. Our current distribution arrangement with Whole Foods Market was extended through December 31,

16

2004 on July 28, 2004. We are currently in discussions with Whole Foods Market to continue our relationship upon expiration of the existing agreement.

Gross Profit

        Our gross profit increased approximately 17.9%, or $50.3 million, to $330.5 million for the year ended July 31, 2004 from $280.2 million for the year ended July 31, 2003. Our gross profit as a percentage of net sales was 19.8% and 20.3% for the years ended July 31, 2004 and 2003, respectively. This decrease in gross profit as a percentage of net sales was primarily the result of the change in our sales mix to supernaturals, as we implemented our primary distribution agreement with Wild Oats Markets during the second half of fiscal 2004.

Operating Expenses

        Our total operating expenses, excluding special items, increased approximately 14.7%, or $34.7 million, to $270.4 million for the year ended July 31, 2004 from $235.7 million for the year ended July 31, 2003. Our total operating expenses, including special items, increased approximately 13.6%, or $32.6 million, to $272.0 million for the year ended July 31, 2004 from $239.4 million for the year ended July 31, 2003. As a percentage of net sales, operating expenses, excluding special items, decreased to 16.2% for the year ended July 31, 2004 from 17.1% for the year ended July 31, 2003. As a percentage of net sales, operating expenses, including special items, decreased from 17.3% for the year ended July 31, 2003 to 16.3% for the year ended July 31, 2004. Special items are discussed below.

        The increase in operating expenses was due primarily to an increase in our infrastructure to support our continued growth. Operating expenses for the year ended July 31, 2004 included $1.5 million in special items related to start-up and transition costs for certain equipment rental and labor costs incurred in connection with the implementation of our primary distribution agreement with Wild Oats Markets. The primary drivers of the increase in operating expenses were compensation and benefit expenses due to the increase in headcount. Transportation, fuel expense and utilities costs continued to be incurred at levels consistent with the prior year as a percentage of sales. Operating expenses for the year ended July 31, 2003 included special items of $1.4 million related to a goodwill impairment charge to our Hershey subsidiary, $1.0 million in costs incurred related to the expansion of our Chesterfield, New Hampshire distribution center, $0.8 million in restructuring and asset impairment charges and $0.5 million in costs related to the loss of a major customer. We may incur additional special items as we increase our warehouse capacity.

Operating Income

        Operating income, excluding the special items discussed below, increased approximately 31.7%, or $14.5 million, to $60.0 million for the year ended July 31, 2004 from $45.6 million for the year ended July 31, 2003. As a percentage of sales, operating income, excluding special items, increased to 3.6% for the year ended July 31, 2004 compared to 3.3% for the year ended July 31, 2003. Operating income, including special items, increased approximately 43.3%, or $17.7 million, to $58.5 million, or 3.5% of sales, for the year ended July 31, 2004 from $40.8 million, or 3.0% of sales, for the year ended July 31, 2003.

Other Expense/(Income)

        Other expense (income), excluding the change in fair value of financial instruments, decreased $0.1 million to $6.8 million for the year ended July 31, 2004 from $6.9 million for the year ended July 31, 2003. This decrease was the result of a $0.5 million decrease in interest expense partially offset by a $0.4 million decrease in other income. The decrease in interest expense was due to the novation of two of our interest rate swap agreements in December 2003, which served to lower our effective

17

interest rate, partially offset by higher debt levels in fiscal 2004 as a result of our acquisitions of Blooming Prairie and Northeast Cooperative in fiscal 2003 and an increase in inventory levels to support the growth in our business.

        Other expense (income), including the change in fair value of financial instruments, decreased 18.4% or $1.4 million to $6.0 million for the year ended July 31, 2004 from $7.4 million for the year ended July 31, 2003. This decrease was primarily due to the decrease in the change in the fair value on our interest rate swap agreements and related option agreements. On December 29, 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. As a result of this assignment, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item through the second quarter of fiscal 2004.

Income Taxes

        Our effective income tax rate was 39.0% and 39.5% for the years ended July 31, 2004 and 2003, respectively. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes.

Net Income

        As a result of the foregoing, net income, excluding special items, increased approximately 39.0%, or $9.1 million, to $32.5 million, or $0.79 per diluted share, for the year ended July 31, 2004, compared to $23.4 million, or $0.59 per diluted share, for the year ended July 31, 2003. Net income, including special items, increased approximately 58.2%, or $11.8 million, to $32.0 million, or $0.78 per diluted share, for the year ended July 31, 2004 compared to $20.2 million, or $0.51 per diluted share, for the year ended July 31, 2003. We expect earnings per diluted share in the range of $0.93 to $0.97 for fiscal 2005, excluding any potential special items.

Special Items

        Special items for the year ended July 31, 2004 included: (i) the start-up and transition costs of the new Wild Oats Markets primary distributorship consisting of certain equipment rental and labor costs and (ii) the non-cash items from the change in fair value on interest rate swap agreements which were caused by favorable changes in interest rate yield curves. Special items for the year ended July 31, 2003 included: (i) a goodwill impairment charge, inventory write down and restructuring and asset impairment charges related to our subsidiary, Hershey, (ii) moving and other costs related to the expansion of our Chesterfield, New Hampshire distribution facility, (iii) costs related to the loss of a major customer and (iv) a non-cash charge related to the change in the fair value of interest rate swaps and related option agreements caused by unfavorable changes in yield curves.

        On December 29, 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. As a result of this novation, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as a special item through the second quarter of fiscal 2004.

        We entered into interest rate swap agreements in October 1998, August 2001 and May 2003. The October 1998 and August 2001 agreements were "ineffective" hedges as a result of the options held by the counter parties that could have extended the original term of the interest rate swap agreements. Applicable accounting treatment required that we record the changes in fair value of the October 1998 and August 2001 agreements in our consolidated statement of income, rather than within "other comprehensive income" in our statement of stockholders' equity. The changes in fair value were dependent upon the forward looking yield curves for each swap. The May 2003 agreement is an "effective" hedge and therefore does not require this treatment. We believe that our October 1998 and

18

August 2001 agreements are special items that are excludable as non-recurring items. First, we only intend to enter into "effective" hedges going forward. This stated intention began with the May 2003 agreement. Second, we believe that the October 1998 and August 2001 agreements may distort and confuse investors if the change in fair value cannot be treated as a special item because their inclusion directly impacts our reported earnings per share. A change in fair value, whether positive or negative, can significantly increase or decrease our reported earnings per share. For example, we recorded a positive change in fair value for fiscal 2004 that increased our diluted earnings per share by $0.01, and in fiscal 2003 we recorded a negative change in fair value that decreased our diluted earnings per share by $0.01. If we were prohibited from excluding this item as a special item, it would artificially inflate/decrease our reported earnings per share and thereby mislead investors as to our results of operations and our financial condition.

        The following table presents, for the periods indicated, a reconciliation of income and per share items excluding special items to income and per share items including special items:

		Year Ended July 31, 2004
		Pretax Income			Net of Tax			Per diluted share
		(In thousands, except per share data)
Net income, excluding special items:		$	53,293		$	32,509		$	0.79
Special items—Income (Expense):
	Wild Oats Markets, Inc. primary distributorship transition related costs (included in operating expenses)		(1,561	)		(952	)		(0.02	)
	Interest rate swap and related option agreements (change in fair value of financial instruments)		704			429			0.01
Net income, including special items:		$	52,436		$	31,986		$	0.78

		Year Ended July 31, 2003
		Pretax Income			Net of Tax			Per diluted share
		(In thousands, except per share data)
Net income, excluding special items:		$	38,655		$	23,395		$	0.59
Special items—Income (Expense):
	Goodwill impairment charge		(1,353	)		(819	)		(0.02	)
	Inventory write down (cost of goods sold)		(1,104	)		(668	)		(0.02	)
	Moving and other costs (included in operating expenses)		(1,004	)		(607	)		(0.02	)
	Restructuring and asset impairment charges		(773	)		(467	)		(0.01	)
	Costs related to loss of major customer (included in operating expenses)		(530	)		(321	)		(0.01	)
	Interest rate swap and related option agreements (change in value of financial instruments)		(484	)		(293	)		(0.01	)
Net income, including special items:		$	33,407		$	20,220		$	0.51	*

*

Totals reflect rounding

19

        All non-GAAP numbers have been adjusted to exclude special items. A reconciliation of specific adjustments to GAAP results for the year ended July 31, 2004 and the same period last year is included in the financial tables shown above. A description of our use of non-GAAP information is provided under "Use of Non-GAAP Results" below.

Year Ended July 31, 2003 Compared to Year Ended July 31, 2002

Net Sales

        Our net sales increased approximately 17.4%, or $204.5 million, to $1.38 billion for the year ended July 31, 2003 from $1.18 billion for the year ended July 31, 2002. The increase was primarily due to the effects of the acquired businesses, resulting in growth in the independently owned natural products retailers and mass market distribution channels of approximately 28% and 9%, respectively. We acquired Blooming Prairie, a distributor of natural foods and products in the Midwest region of the United States, in October 2002, and Northeast Cooperative, another natural food distributor, in December 2002. The decline in the percentage of sales to supernaturals over the prior year was the result of the expiration of our contract as primary distributor to Wild Oats Markets in August 2002. However, we continued to distribute to Wild Oats Markets in fiscal 2003 as a secondary supplier, and generated revenue from such distribution of approximately $30 million. Fiscal 2003 sales growth including acquisitions, but excluding the effect of sales to Wild Oats, was 32.5%. Sales to our largest customer, Whole Foods Market represented approximately 24% of net sales for the year ended July 31, 2003. Whole Foods Market and Wild Oats Markets represented approximately 19% and 14%, respectively, of net sales for the year ended July 31, 2002.

Gross Profit

        Our gross profit increased approximately 16.2%, or $39.0 million, to $280.2 million for the year ended July 31, 2003 from $241.2 million for the year ended July 31, 2002. Our gross profit as a percentage of net sales was 20.3% and 20.5% for the years ended July 31, 2003 and 2002, respectively.

Operating Expenses

        Our total operating expenses, excluding special items, increased approximately 18.6%, or $36.9 million, to $235.7 million for the year ended July 31, 2003 from $198.8 million for the year ended July 31, 2002. Our total operating expenses, including special items, increased approximately 19.0%, or $38.2 million, to $239.4 million for the year ended July 31, 2003 from $201.2 million for the year ended July 31, 2002. As a percentage of net sales, operating expenses, excluding special items, increased to 17.1% for the year ended July 31, 2003 from 16.9% for the year ended July 31, 2002. As a percentage of net sales, operating expenses, including special items, increased from 17.1% for the year ended July 31, 2002 to 17.3% for the year ended July 31, 2003. Special items are discussed below. The increase in operating expenses was due primarily to the effect of the acquired businesses and lower productivity caused by the transition of the Wild Oats Markets business. Transportation, warehouse labor, and utilities costs continued to be incurred at levels consistent with the prior year as a percentage of sales. Fuel expense, as a percentage of sales, increased approximately 6 basis points compared to the prior year, due primarily to the marked increase in average diesel prices during the year. The operating expense figures reflect the impact of the adoption of the Financial Accounting Standards Board's Emerging Issues Task Force Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, which requires the reclassification of advertising income to cost of goods sold from operating expenses. These changes reduced cost of sales and also increased operating expenses by $11.4 million and $10.5 million in fiscal 2003 and 2002, respectively. This accounting change had no impact on reported operating income, net income or earnings per share.

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Operating Income

        Operating income, excluding the special items discussed below, increased approximately 7.6%, or $3.2 million, to $45.6 million for the year ended July 31, 2003 from $42.4 million for the year ended July 31, 2002. As a percentage of sales, operating income, excluding special items, decreased to 3.3% for the year ended July 31, 2003 compared to 3.6% for the year ended July 31, 2002. Operating income, including special items, increased approximately 2.1%, or $0.8 million, to $40.8 million, or 3.0% of sales, for the year ended July 31, 2003 from $40.0 million, or 3.4% of sales, for the year ended July 31, 2002.

Other (Income)/Expense

        Other expense, excluding the change in fair value of financial instruments, remained relatively flat at $7.0 million for the years ended July 31, 2003 and 2002. This consistency was primarily due to higher interest expense caused by a higher borrowing base, which was partially offset by lower interest rates and an increase in other income of $0.6 million. Other expense, including the change in fair value of financial instruments, decreased $3.9 million to $7.4 million for the year ended July 31, 2003 from $11.3 million for the year ended July 31, 2002. This decrease was primarily due to a smaller decline in the fair value of our interest rate swap agreements and related option agreements resulting from unfavorable changes in yield curves used to determine the change in fair value.

Income Taxes

        Our effective income tax rate was 39.5% and 40.0% for the years ended July 31, 2003 and 2002, respectively. The effective rates were higher than the federal statutory rate primarily due to state and local income taxes.

Net Income

        As a result of the foregoing, net income, excluding special items, increased approximately 10.1%, or $2.2 million, to $23.4 million, or $0.59 per diluted share, for the year ended July 31, 2003, compared to $21.2 million, or $0.55 per diluted share, for the year ended July 31, 2002. Net income, including special items, increased approximately 17.5%, or $3.0 million, to $20.2 million, or $0.51 per diluted share, for the year ended July 31, 2003 compared to $17.2 million, or $0.45 per diluted share, for the year ended July 31, 2002.

Special Items

        The special items for the year ended July 31, 2003 included a goodwill impairment charge, inventory write down and restructuring and asset impairment charges related to our subsidiary, Hershey, and moving and other costs related to the expansion of our Chesterfield, New Hampshire distribution facility. In addition, the special items included costs related to the loss of a major customer and a non-cash charge related to the change in the fair value of interest rate swaps and related option agreements caused by unfavorable changes in yield curves. Special items for the year ended July 31, 2002 consisted of a non-cash charge related to the change in the fair value of interest rate swaps and related option agreements caused by unfavorable changes in yield curves as well as moving, asset impairment and redundant rent expense related to moving our Atlanta, Georgia distribution facility, incremental costs such as labor, utilities and rent related to the startup of our southern California distribution facility and labor, utilities, rent and severance related to relocating our subsidiary, Hershey. See disclosure above regarding our belief that our interest rate swap agreements are special items that should be excluded as non-recurring items.

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        The following table details the amounts and effects of these items:

		Year Ended July 31, 2003
		Pretax Income			Net of Tax			Per diluted share
		(In thousands, except per share data)
Net income, excluding special items:		$	38,655		$	23,395		$	0.59
Special items—Income (Expense):
	Goodwill impairment charge		(1,353	)		(819	)		(0.02	)
	Inventory write down (included in cost of goods sold)		(1,104	)		(668	)		(0.02	)
	Moving and other costs (included in operating expenses)		(1,004	)		(607	)		(0.02	)
	Restructuring and asset impairment charges		(773	)		(467	)		(0.01	)
	Costs related to loss of major customer (included in operating expenses)		(530	)		(321	)		(0.01	)
	Interest rate swap agreements (change in value of financial instruments)		(484	)		(293	)		(0.01	)
Net income, including special items:		$	33,407		$	20,220		$	0.51	*

*

Total reflects rounding

		Year Ended July 31, 2002
		Pretax Income		Net of Tax		Per diluted share
		(In thousands, except per share data)
Net income, excluding special items:		$	35,409	$	21,245	$	0.55
Special items—Income (Expense):
	Change in value of financial instruments		4,331		2,599		0.07
	Relocation and startup costs (included in operating expenses)		1,972		1,183		0.03
	Asset impairment charges		424		254		0.01
Net income, including special items:		$	28,682	$	17,209	$	0.45	*

*

Total reflects rounding

        All non-GAAP numbers have been adjusted to exclude special items. A reconciliation of specific adjustments to GAAP results for the year ended July 31, 2003 and the same period last year is included in the financial tables shown above. A description of our use of non-GAAP information is provided under "Use of Non-GAAP Results" below.

Liquidity and Capital Resources

        We finance operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade payables, bank indebtedness and the sale of equity and debt securities. On April 30, 2004, we entered into an amended and restated four-year $250 million revolving credit facility with a bank group that was led by Bank of America Business Capital (formerly Fleet Capital Corporation) as the administrative agent. The amended and restated credit facility provides for improved terms and conditions that provide us with more financial and operational flexibility, reduced costs and increased liquidity. The new credit facility replaced an existing

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$150 million revolving credit facility. Our amended and restated secured revolving credit facility allows for borrowing up to $250 million, on which interest accrues at LIBOR plus 1.25%. The $250 million credit facility matures on March 31, 2008. This increased credit facility will support our working capital requirements in the ordinary course of business and provide capital to grow our business organically or through acquisitions. As of July 31, 2004, our borrowing base, based on accounts receivable and inventory levels, was $215.9 million, with remaining availability of $100.9 million. Additionally, in April 2003 we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with the aforementioned amendment. In December 2003, we amended this term loan agreement by increasing the principal amount by $10 million to $40 million, under the existing terms and conditions, to fund the expansion of our distribution centers in Iowa City, Iowa and Dayville, Connecticut. The $40 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. Proceeds received from the term loan were used to reduce the outstanding balance on our former $150 million credit facility on which interest accrued at the New York Prime Rate or LIBOR plus 1.50%.

        We believe that our capital requirements for fiscal 2005 will be in the $35 to $38 million range, and that we will finance these requirements with cash generated from operations and the use of our existing credit facilities. These projects will provide both new facilities and technology that will provide us with the capacity to continue to support the growth and expansion of our customers. We believe that our future capital requirements will be similar to our anticipated fiscal 2005 requirements, as we continue to invest in our growth by upgrading our infrastructure and expanding our facilities. Future investments in acquisitions will be financed through either equity or long term debt negotiated at the time of the potential acquisition.

        Net cash provided by operations was $9.0 million for the year ended July 31, 2004 and was the result of our strong operating results and increases in payables, partially offset by investments in inventory and increased receivable levels due to our increased sales. The increase in inventory levels relates to supporting increased sales with wider product assortment combined with our ability to capture purchasing efficiency opportunities in excess of total carrying costs, as well as the our implementation of our primary distribution agreement with Wild Oats Markets. Days in inventory increased slightly to 51 days at July 31, 2004 compared to 50 days at July 31, 2003. Days sales outstanding was 24 days at both July 31, 2004 and 2003. Net cash provided by operations was $31.9 million for the year ended July 31, 2003 and was due to cash collected from customers net of cash paid to vendors, partially offset by investments in inventory. Working capital at July 31, 2004 was $109.2 million.

        Net cash used in investing activities was $23.6 million for the year ended July 31, 2004 and was due primarily to the expansion of our Dayville, Connecticut and Iowa City, Iowa distribution facilities, compared to $63.5 million of net cash used for the same period last year that was due primarily to the purchase of substantially all the assets of Blooming Prairie Cooperative, the merger with privately held Northeast Cooperative, and the expansion of our Chesterfield, New Hampshire facility.

        Net cash provided by financing activities was $24.6 million for the year ended July 31, 2004 due to net borrowings under our revolving credit facility, proceeds received from the issuance of long-term debt, and proceeds received from the exercise of stock options, partially offset by repayments on long-term debt. Net cash provided by financing activities was $24.1 million for the year ended July 31, 2003 due to proceeds from the issuance of a $30 million term loan agreement and proceeds from the exercise of stock options, partially offset by repayments of long-term debt and repayments on our $150 million secured revolving credit facility.

        In October 1998, we entered into an interest rate swap agreement that provided for us to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. This

23

swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $60 million at LIBOR plus 1.50%, thereby fixing the effective rate at 6.50%. In October 2003, the counter party exercised its option to extend the original five-year term of the swap agreement to seven years. The inclusion of this option prohibited accounting for the swap as an effective hedge under Statement of Financial Accounting Standards ("SFAS") No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities.

        We entered into an additional interest rate swap agreement effective August 2001. The additional agreement provided for us to pay interest for a four-year period at a fixed rate of 4.81% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The four-year term of the swap agreement could have been extended to six years at the option of the counter party, which prohibited accounting for the swap as an effective hedge under SFAS 133. The swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing the effective rate on the notional amount at 6.31%. If LIBOR exceeded 6.0% in a given period, the agreement was suspended for that period.

        On December 29, 2003, we assigned and transferred all of our obligations of our two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. As a result of this assignment, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as special items for the first two quarters of fiscal 2004.

        In May 2003, we entered into an additional interest rate swap agreement. The agreement provides for us to pay interest for a seven-year period at a fixed rate of 3.68% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amount at 5.18%. LIBOR was 1.50% as of July 31, 2004. The swap agreement qualifies as an "effective" hedge under SFAS No. 133.

Commitments and Contingencies

        The following schedule summarizes our contractual obligations and commercial commitments as of July 31, 2004:

	Payments Due by Period
	Total		Less than One Year		1 - 3 Years		4 - 5 Years		Thereafter
	(in thousands)
Notes payable	$	107,004	$	107,004	$	—	$	—	$	—
Long-term debt		48,744		4,766		11,596		6,077		26,305
Capital lease obligations		591		454		137		—		—
Long-term non-capitalized leases		56,681		13,495		19,837		12,087		11,262
Total	$	213,020	$	125,719	$	31,570	$	18,164	$	37,567

        The notes payable, long-term debt and capital lease obligations shown above exclude interest payments due. In addition, cash to be paid for income taxes is excluded from the table above.

        Outstanding commitments as of July 31, 2004 for the purchase of inventory were approximately $13.8 million. We had outstanding letters of credit of approximately $8.2 million at July 31, 2004.

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Impact of Inflation

        Historically, we have been able to pass along inflation-related increases to our customers. Consequently, inflation has not had a material impact upon the results of our operations or profitability.

Seasonality

        Generally, we do not experience any material seasonality. However, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, management's ability to execute our operating and growth strategies, personnel changes, demand for natural products, supply shortages and general economic conditions.

Recently Issued Financial Accounting Standards

        We have determined that there are no recently issued accounting standards that are expected to have a material impact on our consolidated financial position, results of operations or cash flows.

Use of Non-GAAP Results

        Financial measures included in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not in accordance with generally accepted accounting principles (GAAP) are referred to as non-GAAP financial measures. To supplement our financial statements presented on a GAAP basis, we use non-GAAP additional measures of operating results, net earnings and earnings per share adjusted to exclude special items. We believe that the use of these additional measures is appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future as these special items are not expected to be part of our ongoing business. The adjustments to our GAAP results are made with the intent of providing both management and investors with a more complete understanding of the underlying operational results and trends and its marketplace performance. For example, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with generally accepted accounting principles in the United States. A comparison and reconciliation from non-GAAP to GAAP results is included in the tables above.

Certain Factors That May Affect Future Results

        This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K contain forward-looking statements that involve substantial risks and uncertainties. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would," or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or of financial position or state other "forward-looking" information. The important factors listed below as well as any cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in these forward-looking statements. You should be aware that the occurrence of the events described in the risk factors below and elsewhere in this Annual Report on Form 10-K could have an adverse effect on our business, results of operations and financial position.

        Any forward-looking statements in this Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged

25

by such forward-looking statements, possibly materially. We do not undertake to update any information in the foregoing reports until the effective date of our future reports required by applicable laws. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. We may from time to time update these publicly announced projections, but we are not obligated to do so.

Acquisitions

        We continually evaluate opportunities to acquire other companies. We believe that there are risks related to acquiring companies including overpaying for acquisitions, losing key employees of acquired companies and failing to achieve potential synergies. Additionally, our business could be adversely affected if we are unable to integrate our acquisitions and mergers.

        A significant portion of our historical growth has been achieved through acquisitions of or mergers with other distributors of natural products. Successful integration of mergers is critical to our future operating and financial performance. Integration requires, among other things:

•

maintaining the customer base;



•

the optimization of delivery routes;



•

coordination of administrative, distribution and finance functions; and



•

the integration of management information systems and personnel.

        The integration process has and could divert the attention of management and any difficulties or problems encountered in the transition process could have a material adverse effect on our business, financial condition or results of operations. In addition, the process of combining companies has and could cause the interruption of, or a loss of momentum in, the activities of the respective businesses, which could have an adverse effect on their combined operations. There can be no assurance that we will realize any of the anticipated benefits of mergers.

We may have difficulty in managing our growth

        The growth in the size of our business and operations has placed and is expected to continue to place a significant strain on our management. Our future growth is limited in part by the size and location of our distribution centers. There can be no assurance that we will be able to successfully expand our existing distribution facilities or open new distribution facilities in new or existing markets to facilitate growth. In addition, our growth strategy to expand our market presence includes possible additional acquisitions. To the extent our future growth includes acquisitions, there can be no assurance that we will successfully identify suitable acquisition candidates, consummate and integrate such potential acquisitions or expand into new markets. Our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force. There can be no assurance that our personnel, systems, procedures and controls will be adequate to support our operations. Our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations.

We have significant competition from a variety of sources

        We operate in competitive markets, and our future success will be largely dependent on our ability to provide quality products and services at competitive prices. Our competition comes from a variety of sources, including other distributors of natural products as well as specialty grocery and mass market grocery distributors. There can be no assurance that mass market grocery distributors will not increase

26

their emphasis on natural products and more directly compete with us or that new competitors will not enter the market. These distributors may have been in business longer than us, may have substantially greater financial and other resources than us and may be better established in their markets. There can be no assurance that our current or potential competitors will not provide services comparable or superior to those provided by us or adapt more quickly than we do to evolving industry trends or changing market requirements. It is also possible that alliances among competitors may develop and rapidly acquire significant market share or that certain of our customers will increase distribution to their own retail facilities. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect our business, financial condition or results of operations. There can be no assurance that we will be able to compete effectively against current and future competitors.

We depend heavily on our principal customer

        Our current distribution arrangement with our largest customer, Whole Foods Market, was in effect through August 31, 2004. On July 28, 2004, we announced that our current distribution agreement with Whole Foods Markets had been extended through December 31, 2004, under the same terms as the existing agreement. Whole Foods Market accounted for approximately 26% and 24% of our net sales during the fiscal years ended July 31, 2004 and 2003, respectively. As a result of this concentration of our customer base, the loss or cancellation of business from Whole Foods Market including from increased distribution to its own facilities, could materially and adversely affect our business, financial condition or results of operations. We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products. No assurance can be given that our customers will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. With the implementation of our primary distribution agreement with Wild Oats Markets during the second half of fiscal 2004, our sales to Whole Foods Markets as a percentage of our total sales may decline over the next twelve months, and our sales to Wild Oats Markets may increase as a percentage of our total net sales over the next twelve months.

Our profit margins may decrease due to consolidation in the grocery industry

        The grocery distribution industry generally is characterized by relatively high volume with relatively low profit margins. The continuing consolidation of retailers in the natural products industry and the growth of supernatural chains may reduce our profit margins in the future as more customers qualify for greater volume discounts, and we experience pricing pressures from both ends of the supply chain.

Our operations are sensitive to economic downturns

        The grocery industry is also sensitive to national and regional economic conditions and the demand for our products may be adversely affected from time to time by economic downturns. In addition, our operating results are particularly sensitive to, and may be materially adversely affected by:

•

difficulties with the collectibility of accounts receivable;



•

difficulties with inventory control;



•

competitive pricing pressures; and



•

unexpected increases in fuel or other transportation-related costs.

        There can be no assurance that one or more of such factors will not materially adversely affect our business, financial condition or results of operations.

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We are dependent on a number of key executives

        Management of our business is substantially dependent upon the services of Richard Antonelli, President of United Distribution, Daniel V. Atwood, Senior Vice President of Marketing and Secretary, Rick D. Puckett, Chief Financial Officer and Treasurer, Steven H. Townsend, Chairman, President and Chief Executive Officer, and other key management employees. Loss of the services of any officers or any other key management employee could have a material adverse effect on our business, financial condition or results of operations.

Our operating results are subject to significant fluctuations

        Our net sales and operating results may vary significantly from period to period due to:

•

demand for natural products;



•

changes in our operating expenses, including in fuel and insurance;



•

management's ability to execute our business and growth strategies;



•

changes in customer preferences and demands for natural products, including levels of enthusiasm for health, fitness and environmental issues;



•

fluctuation of natural product prices due to competitive pressures;



•

personnel changes;



•

supply shortages;



•

general economic conditions;



•

lack of an adequate supply of high-quality agricultural products due to poor growing conditions, natural disasters or otherwise;



•

volatility in prices of high-quality agricultural products resulting from poor growing conditions, natural disasters or otherwise; and



•

future acquisitions, particularly in periods immediately following the consummation of such acquisition transactions while the operations of the acquired businesses are being integrated into our operations.

        Due to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful and that such comparisons cannot be relied upon as indicators of future performance.

We are subject to significant governmental regulation

        Our business is highly regulated at the federal, state and local levels and our products and distribution operations require various licenses, permits and approvals. In particular:

•

our products are subject to inspection by the U.S. Food and Drug Administration;



•

our warehouse and distribution facilities are subject to inspection by the U.S. Department of Agriculture and state health authorities; and



•

the U.S. Department of Transportation and the U.S. Federal Highway Administration regulate our trucking operations.

        The loss or revocation of any existing licenses, permits or approvals or the failure to obtain any additional licenses, permits or approvals in new jurisdictions where we intend to do business could have a material adverse effect on our business, financial condition or results of operations.

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Union-organizing activities could cause labor relations difficulties

        As of July 31, 2004, we had approximately 3,900 full and part-time employees. An aggregate of approximately 400, or 10%, of the employees at our Auburn, Washington, Iowa City, Iowa and Edison, New Jersey facilities are covered by collective bargaining agreements. These agreements expire in March 2006, June 2006 and June 2005, respectively. We have in the past been the focus of union-organizing efforts. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. Although we have not experienced a work stoppage to date, if additional employees were to unionize, we could be subject to work stoppages and increases in labor costs, either of which could materially adversely affect our business, financial condition or results of operations.

Access to capital and the cost of that capital

        We have a secured revolving credit facility with available credit under it of $250 million at an interest rate of LIBOR plus 1.25% maturing on March 31, 2008. As of July 31, 2004, our borrowing base, based on accounts receivable and inventory levels, was $215.9 million, with remaining availability of $100.9 million. In April 2003, we executed a term loan agreement in the principal amount of $30 million secured by the real property that was released in accordance with an amendment to the loan and security agreement related to the revolving credit facility. The $30 million term loan is repayable over seven years based on a fifteen-year amortization schedule. Interest on the term loan accrues at LIBOR plus 1.50%. In December 2003, we amended this term loan agreement by increasing the principal amount from $30 million to $40 million under the existing terms and conditions.

        In order to maintain our profit margins, we rely on strategic investment buying initiatives, such as discounted bulk purchases, which require spending significant amounts of working capital. In the event that our cost of capital increases or our ability to borrow funds or raise equity capital is limited, we could suffer reduced profit margins and be unable to grow our business organically or through acquisitions, which could have a material adverse effect on our business, financial condition or results of operations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

        We are exposed to interest rate fluctuations on our borrowings. As more fully described in the notes to the consolidated financial statements, we use interest rate swap agreements to modify variable rate obligations to fixed rate obligations.

        Beginning in 1998, we began managing portions of our debt portfolio by using interest rate swaps to achieve a desired mix of fixed rates. At July 31, 2004, we had one interest rate swap relating to our $40 million term loan agreement. We account for our interest rate swap agreement entered into during May 2003 ("2003 swap") using hedge accounting treatment as the derivative has been determined to be highly effective in achieving offsetting changes in fair value of the hedged items. The agreement provides for us to pay interest for a seven-year period at a fixed rate of 3.68% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The 2003 swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $37.3 million at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amount at 5.18%. Under this method of accounting, at July 31, 2004 and 2003, we recorded a $0.4 million asset representing gross unrealized gains on this derivative, and a corresponding credit to accumulated other comprehensive income in the statement of stockholders' equity. We do not enter into derivative agreements for trading purposes.

        At July 31, 2004, the Company has long-term floating rate debt of $40.9 million and long-term fixed rate debt of $7.9 million, representing 84% and 16%, respectively, of total debt. At July 31, 2003, the Company has floating rate debt of $33.3 million and fixed rate debt of $9.7 million, representing

29

77% and 23%, respectively, of total debt. Holding other variables constant (such as swaps and debt levels), a 25 basis point decrease in interest rates would increase the unrealized fair market value of the fixed rate debt by approximately $67,000 and $88,000 at July 31, 2004 and 2003, respectively. At July 31, 2004 and 2003, the after-tax earnings and cash flows impact for next year resulting from a 25 basis point increase in interest rates would be approximately $180,000 and $9,000, respectively, holding other variables constant.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements listed below are filed as part of this Annual Report on Form 10-K.

INDEX TO FINANCIAL STATEMENTS

United Natural Foods, Inc. and Subsidiaries:	Page
Report of Independent Registered Public Accounting Firm	32
Consolidated Balance Sheets	33
Consolidated Statements of Income	34
Consolidated Statements of Stockholders' Equity	35
Consolidated Statements of Cash Flows	36
Notes to Consolidated Financial Statements	37

31

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
United Natural Foods, Inc.:

        We have audited the accompanying consolidated balance sheets of United Natural Foods, Inc. and Subsidiaries as of July 31, 2004 and 2003 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended July 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Natural Foods, Inc. and Subsidiaries as of July 31, 2004 and 2003 and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Providence, Rhode Island
August 26, 2004

32

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

July 31, 2004 and 2003

(In thousands, except per share data)

			2004			2003
ASSETS
Current assets:
	Cash and cash equivalents		$	13,633		$	3,645
	Accounts receivable, net of allowance of $5,572 and $5,061, respectively			106,178			90,111
	Notes receivable, trade, net of allowance of $351 and $177, respectively			772			585
	Inventories			196,171			158,263
	Prepaid expenses and other current assets			7,007			6,410
	Deferred income taxes			7,610			6,455
		Total current assets		331,371			265,469
Property & equipment, net				114,140			101,238
Goodwill				57,242			57,400
Notes receivable, trade, net of allowance of $3,810 and $2,618, respectively				1,601			1,261
Intangible assets, net of accumulated amortization of $146 and $516, respectively				154			1,014
Other, net				4,259			3,717
		Total assets	$	508,767		$	430,099
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Notes payable		$	107,004		$	96,170
	Current installments of long-term debt			4,766			4,459
	Current installments of obligations under capital leases			454			903
	Accounts payable			80,875			67,187
	Accrued expenses and other current liabilities			29,047			26,347
	Financial instruments			—			6,104
		Total current liabilities		222,146			201,170
Long-term debt, excluding current installments				43,978			38,507
Deferred income taxes				7,730			2,247
Obligations under capital leases, excluding current installments				137			612
		Total liabilities		273,991			242,536
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value, authorized 5,000 shares; none issued or outstanding			—			—
	Common stock, $.01 par value, authorized 50,000 shares; issued and outstanding 40,118 and 39,020 shares at July 31, 2004 and 2003, respectively			401			390
	Additional paid-in capital			101,118			85,873
	Unallocated shares of Employee Stock Ownership Plan			(1,768	)		(1,931	)
	Accumulated other comprehensive income			240			432
	Retained earnings			134,785			102,799
		Total stockholders' equity		234,776			187,563
Total liabilities and stockholders' equity			$	508,767		$	430,099

See notes to consolidated financial statements.

33

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

			Years Ended July 31,
			2004			2003			2002
Net sales			$	1,669,952		$	1,379,893		$	1,175,393
Cost of sales				1,339,496			1,099,704			934,238
		Gross profit		330,456			280,189			241,155
Operating expenses				270,666			236,784			200,586
Goodwill impairment charge				—			1,353			—
Restructuring and asset impairment charges				—			773			424
Amortization of intangibles				1,306			463			180
		Total operating expenses		271,972			239,373			201,190
		Operating income		58,484			40,816			39,965
Other expense (income):
	Interest expense			7,265			7,795			7,233
	Change in value of financial instruments			(704	)		484			4,331
	Other, net			(513	)		(870	)		(281	)
		Total other expense		6,048			7,409			11,283
Income before income taxes				52,436			33,407			28,682
	Income taxes			20,450			13,187			11,473
Net income			$	31,986		$	20,220		$	17,209
Basic per share data:
Net income			$	0.81		$	0.53		$	0.45
Weighted average basic shares of common stock				39,471			38,471			37,865
Diluted per share data:
Net income			$	0.78		$	0.51		$	0.45
Weighted average diluted shares of common stock				41,025			39,454			38,667

See notes to consolidated financial statements.

34

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Outstanding Number of Shares	Common Stock		Additional Paid in Capital		Unallocated Shares of ESOP			Accumulated Other Comprehensive Income			Retained Earnings		Total Stockholders' Equity
	(In thousands)
Balances at July 31, 2001	37,307	$	373	$	72,458	$	(2,258	)	$	—		$	65,370	$	135,943
Allocation of shares to ESOP	—		—		—		164			—			—		164
Issuance of common stock, net	506		5		2,402		—			—			—		2,407
Tax effect of exercises of stock options	—		—		415		—			—			—		415
Issuance of common stock in connection with acquisition	399		4		4,245		—			—			—		4,249
Net income	—		—		—		—			—			17,209		17,209
Balances at July 31, 2002	38,212		382		79,520		(2,094	)		—			82,579		160,387
Allocation of shares to ESOP	—		—		—		163			—			—		163
Issuance of common stock, net	808		8		5,403		—			—			—		5,411
Tax effect of exercises of stock options	—		—		950		—			—			—		950
Fair value of swap agreement	—		—		—		—			432			—		432
Net income	—		—		—		—			—			20,220		20,220
Total comprehensive income															20,652
Balances at July 31, 2003	39,020		390		85,873		(1,931	)		432			102,799		187,563
Allocation of shares to ESOP	—		—		—		163			—			—		163
Issuance of common stock, net	1,098		11		9,032		—			—			—		9,043
Tax effect of exercises of stock options	—		—		6,213		—			—			—		6,213
Fair value of swap agreement	—		—		—		—			(192	)		—		(192	)
Net income	—		—		—		—			—			31,986		31,986
Total comprehensive income															31,794
Balances at July 31, 2004	40,118	$	401	$	101,118	$	(1,768	)	$	240		$	134,785	$	234,776

See notes to consolidated financial statements.

35

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended July 31,
			2004			2003			2002
			(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	31,986		$	20,220		$	17,209
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			11,660			10,330			8,206
	Change in fair value of financial instruments			(704	)		484			4,331
	Goodwill impairment charge			—			1,353			—
	(Gain) Loss on disposals of property & equipment			(95	)		154			307
	Deferred income taxes			3,724			1,667			(1,099	)
	Provision for doubtful accounts			3,586			2,622			1,806
	Changes in assets and liabilities, net of acquired companies:
		Accounts receivable		(19,653	)		(1,083	)		(3,867	)
		Inventories		(37,801	)		(3,861	)		(21,091	)
		Prepaid expenses and other assets		(913	)		(2,330	)		301
		Notes receivable, trade		(527	)		87			266
		Accounts payable		13,688			(496	)		(692	)
		Accrued expenses		3,202			1,775			5,346
		Financial instruments		(5,400	)		—			—
		Tax effect of stock option exercises		6,213			950			415
	Net cash provided by operating activities			8,966			31,872			11,438
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(23,851	)		(20,025	)		(27,789	)
	Payments for purchases of subsidiaries, net of cash acquired			(6	)		(43,723	)		(16	)
	Proceeds from disposals of property and equipment			244			257			33
	Net cash used in investing activities			(23,613	)		(63,491	)		(27,772	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net borrowings (repayments) under note payable			10,834			(9,939	)		38,053
	Repayments on long-term debt			(4,522	)		(2,073	)		(21,062	)
	Net proceeds from issuance of long-term debt			10,204			32,110			2,967
	Principal payments of capital lease obligations			(924	)		(1,429	)		(1,240	)
	Proceeds from exercise of stock options			9,043			5,411			2,407
	Net cash provided by financing activities			24,635			24,080			21,125
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				9,988			(7,539	)		4,791
Cash and cash equivalents at beginning of period				3,645			11,184			6,393
Cash and cash equivalents at end of period			$	13,633		$	3,645		$	11,184
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
	Interest		$	7,074		$	7,697		$	7,089
	Income taxes, net of refunds		$	9,851		$	7,999		$	12,883

In 2004, 2003 and 2002, the Company incurred capital lease obligations of approximately $0, $912 and $667, respectively.

The fair value of common stock issued for an acquisition of a subsidiary in fiscal 2002 was $4,249.

See notes to consolidated financial statements.

36

UNITED NATURAL FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal years ended July 31, 2004, 2003 and 2002

(1)   SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Business

        United Natural Foods, Inc. and Subsidiaries (the "Company") is a distributor and retailer of natural and organic products. The Company sells its products primarily throughout the United States.

(b) Basis of Presentation

        The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.

        On March 17, 2004, the Company's Board of Directors approved a two-for-one split of the Company's common stock that was payable in the form of a stock dividend. Stockholders received one additional share of the Company's common stock for each share of common stock held on the record date of March 29, 2004. The split became effective on April 20, 2004. The applicable share and per-share data for all periods included herein have been restated to give effect to this stock split. The par value of the common stock was not affected by the stock split and remains at $0.01 per share.

(c) Cash Equivalents

        Cash equivalents consist of highly liquid investments with original maturities of three months or less.

(d) Inventories and Cost of Sales

        Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. Allowances received from suppliers are recorded as reductions in cost of sales upon the sale of the related products.

(e) Property and Equipment

        Property and equipment are stated at cost. Equipment under capital leases is stated at the lower of the present value of minimum lease payments at the inception of the lease or the fair value of the asset. Depreciation and amortization are principally provided using the straight-line method over the estimated useful lives.

(f) Income Taxes

        The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

37

(g) Intangible Assets and Other Long-Lived Assets

        Intangible assets consist principally of goodwill and covenants not to compete. Goodwill represents the excess purchase price over fair value of net assets acquired in connection with purchase business combinations. Covenants not to compete are initially recorded at fair value and are amortized using the straight-line method over the lives of the respective agreements, generally five years.

        Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, requires that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has elected to perform its annual tests for indications of goodwill impairment as of July 31 of each year. Impairment losses are determined based upon the excess of carrying amounts over discounted expected future cash flows of the underlying business. The assessment of the recoverability of long-lived assets will be impacted if estimated future cash flows are not achieved. For reporting units that indicated potential impairment, we determined the implied fair value of that reporting unit using a discounted cash flow analysis and compared such values to the respective reporting units' carrying amounts.

        As of July 31, 2004, the Company's annual assessment of each of its reporting units indicated that no impairment of goodwill existed. The restructuring of the Hershey Imports Company ("Hershey") division during the fourth quarter of fiscal 2003 represented a triggering event that required the Company to evaluate Hershey's goodwill for potential impairment. The Company's testing and subsequent analysis indicated that goodwill for Hershey was impaired. Accordingly, the Company recognized an impairment charge of approximately $1.4 million on goodwill for the year ended July 31, 2003.

        Total goodwill as of July 31, 2004 was $57.2 million. The Company recorded additional goodwill in the Wholesale operating segment of approximately $27.4 million during the year ended July 31, 2003 as a result of the acquisitions of Blooming Prairie Cooperative Warehouse ($13.8 million) and Northeast Cooperative ($13.6 million). As of July 31, 2003, the Company had goodwill of $57.4 million after recording the Hershey impairment charge of approximately $1.4 million.

        Other intangibles consist of covenants not to compete and supply agreements with a weighted average amortization period of five years. The Company had other intangibles and related accumulated amortization of $0.2 million and $0.1 million at July 31, 2004, respectively, and $1.5 million and $0.5 million at July 31, 2003, respectively. Amortization expense was $0.9 million, $0.4 million and $0.1 million for the years ended July 31, 2004, 2003 and 2002, respectively. Estimated amortization expense for the next four fiscal years is as follows:

Years ended July 31	(In thousands)
2005	$	61
2006		60
2007		30
2008		3
	$	154

(h) Revenue Recognition and Concentration of Credit Risk

        The Company records revenue upon delivery of products. Revenues are recorded net of applicable sales discounts and estimated sales returns. Sales incentives provided to customers are accounted for as reductions in revenue as the related revenue is recorded. The Company's sales are primarily with customers located throughout the United States. The Company had one customer in 2004 and 2003, Whole Foods Market, Inc. ("Whole Foods Markets"), which provided more than 10% of the

38

Company's revenue. In 2002, two customers, Whole Foods Markets and Wild Oats Markets, Inc. ("Wild Oats Markets"), generated 10% or more of the Company's revenues. Net sales to Whole Foods Markets were approximately 26%, 24% and 19% of net sales in 2004, 2003 and 2002, respectively. Wild Oats Markets represented 14% of net sales net sales in 2002.

        The Company analyzes customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of its allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are conducted using either cash-on-delivery terms, or the account is closely monitored so that as agreed upon payments are received, orders are released; a failure to pay results in held or cancelled orders.

(i) Advertising

        Advertising costs are expensed as incurred. Advertising expense was $6.4 million, $6.6 million and $5.2 million for the years ended July 31, 2004, 2003 and 2002, respectively.

(j) Fair Value of Financial Instruments

        The carrying amounts of the Company's financial instruments including cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments. The carrying value of notes receivable, long-term debt and capital lease obligations are based on the instruments' interest rate, terms, maturity date and collateral, if any, in comparison to the Company's incremental borrowing rate for similar financial instruments.

        The following estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

							July 31, 2003
	July 31, 2004
							Carrying Value
	Carrying Value			Fair Value						Fair Value
	(In thousands)
Assets:
Cash and cash equivalents	$	13,633		$	13,633		$	3,645		$	3,645
Liabilities:
Notes payable		(107,004	)		(107,004	)		(96,170	)		(96,170	)
Long term debt, including current portion		(48,744	)		(49,879	)		(42,966	)		(44,732	)
Interest rate agreements:
Interest rate swap and option agreements		393			393			(5,672	)		(5,672	)

(k) Use of Estimates

        Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

(l) Notes Receivable, Trade

        The Company issues notes receivable, trade to certain customers under two basic circumstances; inventory purchases for initial store openings and overdue accounts receivable. Initial store opening notes are generally receivable over a period not to exceed twelve months. The overdue accounts

39

receivable notes may extend for periods greater than one year. All notes are issued at a market interest rate and contain certain guarantees and collateral assignments in favor of the Company.

(m) Stock-Based Compensation

        The Company grants stock options for a fixed number of shares to employees and certain other individuals with exercise prices equal to the fair value of the shares at the dates of grant. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation ("SFAS 123"), and will continue to account for its stock option plans in accordance with the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees. In addition, the Company has made the appropriate disclosures as required under Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 ("SFAS 148").

        The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS 123 and SFAS 148 to stock-based employee compensation:

		Years ended July 31,
		2004			2003			2002
		(In thousands)
Net income—as reported		$	31,986		$	20,220		$	17,209
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(3,150	)		(2,839	)		(2,786	)
Net income—pro forma		$	28,836		$	17,381		$	14,423
Basic earnings per share
	As reported	$	0.81		$	1.05		$	0.91
	Pro forma	$	0.73		$	0.90		$	0.76
Diluted earnings per share
	As reported	$	0.78		$	1.02		$	0.89
	Pro forma	$	0.70		$	0.88		$	0.75

        The Company estimates the fair value of each option as of the date of grant using the Black-Scholes pricing model with the following weighted average assumptions used for grants in 2004, 2003 and 2002:

	Years ended July 31,
	2004		2003		2002
Expected volatility	49.7	%	60.5	%	64.0	%
Dividend yield	0.0	%	0.0	%	0.0	%
Risk free interest rate	3.7	%	3.3	%	4.7	%
Expected life	3.27 years		5 years		5 years

(n) Earnings Per Share

        Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by adding the dilutive potential common shares to the weighted average number of common shares that were outstanding during the period. For purposes of the diluted earnings per share calculation, outstanding

40

stock options are considered common stock equivalents, using the treasury stock method. A reconciliation of the weighted average number of shares outstanding used in the computation of the basic and diluted earnings per share for all periods presented follows:

	Years ended July 31,
	2004	2003	2002
	(In thousands)
Basic weighted average shares outstanding	39,471	38,471	37,865
Net effect of dilutive stock options based upon the treasury stock method	1,554	983	802
Diluted weighted average shares outstanding	41,025	39,454	38,667
Antidilutive potential common shares excluded from the computation above	2	—	1,202

(o) Comprehensive Income

        Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statement of stockholders' equity. Comprehensive income is comprised of net income and the net change in fair value of derivative instruments designated as cash flow hedges.

(p) Derivative Financial Instruments

        The Company is exposed to market risks arising from changes in interest rates. The Company uses derivatives principally in the management of interest rate exposure. It does not utilize derivatives that contain leverage features. On the date on which the Company enters into a derivative transaction, the derivative is designated as a hedge of the identified exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking the hedge transaction. In this documentation, the Company specifically identifies the asset, liability, firm commitment, forecasted transaction, or net investment that has been designated as the hedged item and states how the hedging instrument is expected to reduce the risks related to the hedged item. The Company measures effectiveness of its hedging relationships both at hedge inception and on an ongoing basis.

(q) New Accounting Pronouncements

        The Company has determined that there are no recently issued accounting standards that are expected to have a material impact on its consolidated financial position, results of operations or cash flows.

(2)   ACQUISITIONS

        On December 31, 2002, the Company acquired by merger privately held Northeast Cooperative, a natural food distributor, headquartered in Brattleboro, Vermont, which services customers in the Northeast and Midwest regions of the United States, for cash consideration of $14.1 million. The acquisition was financed by proceeds from the Company's line of credit. The operating results of Northeast Cooperative have been included in the consolidated financial statements of the Company beginning with the acquisition date. The Company has recorded goodwill of $13.6 million related to this purchase acquisition, reflecting the cost of the acquisition and additional liabilities recorded.

        On October 11, 2002, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of Blooming Prairie Cooperative ("Blooming Prairie"), a distributor of natural foods and related products in the Midwest region of the United States, for cash consideration of $29.6 million. The acquisition was financed by proceeds from the Company's line of credit. The operating results of Blooming Prairie have been included in the consolidated financial statements of the

41

Company beginning with the acquisition date. The Company recorded goodwill of $13.8 million related to this purchase acquisition.

        On November 6, 2001, the Company's wholly owned subsidiary, Albert's Organics, Inc., purchased the assets of Boulder Fruit Express, a distributor of high quality organic produce and perishables. In connection with the acquisition of Boulder Fruit Express, the Company issued 398,872 shares of common stock with a fair value of approximately $4.3 million, and paid cash of approximately $0.8 million. The operating results of Boulder Fruit Express have been included in the consolidated financial statements of the Company beginning with the acquisition date. This acquisition was accounted for as a purchase with goodwill of approximately $3.9 million.

        The following presents the unaudited pro forma results assuming that the acquisitions discussed above had occurred as of the beginning of fiscal 2002. These pro forma results are not necessarily indicative of the results that will occur in future periods.

		Years ended July 31
		2003		2002
		(In thousands, except per share data)
Net sales		$	1,460,187	$	1,426,709
Income before income taxes		$	32,678	$	22,268
Net income		$	19,783	$	13,327
Earnings per common share:
	Basic	$	0.51	$	0.35
	Diluted	$	0.50	$	0.34

(3)   STOCK OPTION PLAN

        At July 31, 2004, the Company had two stock option plans, the 2002 Stock Incentive Plan, and the 1996 Stock Option Plan. The Board of Directors adopted, and the stockholders approved, the 2002 Stock Incentive Plan, which provides for grants of stock options to employees, officers, directors and others, on October 2, 2002 and December 3, 2002, respectively. These options are intended to either qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code or be "non-statutory stock options." At July 31, 2004, 108,800 shares were available for grant under the 1996 Stock Option Plan and 1,323,758 shares were available for grant under the 2002 Stock Incentive Plan.

        The following table summarizes the stock option activity for the fiscal years ended July 31, 2004, 2003 and 2002:

		2004					2003					2002
		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year			3,429,318		$	9.65		3,385,616		$	8.11		2,837,768		$	6.13
Granted			782,000		$	18.67		1,049,500		$	12.44		1,188,000		$	11.39
Exercised			(1,097,819	)	$	8.31		(808,648	)	$	6.70		(506,152	)	$	4.76
Forfeited			(169,850	)	$	11.79		(197,150	)	$	9.92		(134,000	)	$	7.89
Outstanding at end of year			2,943,649		$	12.42		3,429,318		$	9.65		3,385,616		$	8.11
Options exercisable at year-end			919,948		$	8.40		1,171,118		$	7.02		1,234,492		$	5.84
Weighted average fair value of options granted during the year:
	Exercise price equals stock price	$	7.14				$	6.89				$	6.60

42

        The options for the purchase of 2,943,649 shares outstanding at July 31, 2004 had exercise prices and remaining contractual lives as follows:

Range of Exercise Prices	Shares Outstanding	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Shares Exercisable	Weighted Average Exercise Price
$  3.19 - $  5.06	190,150	2.3	$	3.30	187,150	$	3.27
$  5.30 - $  8.78	389,124	5.3	$	6.94	254,250	$	6.54
$  9.99 - $14.35	1,606,375	7.5	$	11.87	478,548	$	11.38
$16.35 - $24.54	758,000	9.3	$	18.71	—	$	—
$  3.19 - $24.54	2,943,649	7.4	$	12.42	919,948	$	8.40

(4)   GOODWILL IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

        During the fourth quarter of fiscal 2003, the Company recorded special items of approximately $3.3 million related to the Hershey division. The charges included $1.4 million related to the impairment of goodwill associated with the acquisition of Hershey, $1.1 million related to the writedown of inventory (included in cost of sales), severance and fringe benefit costs of $0.5 million related to cost reduction actions taken at Hershey, and $0.3 million primarily related to the abandonment of equipment and other charges at Hershey. The severance and fringe benefit costs were for 11 employees. All impacted employees had been notified of their status as of July 31, 2003. Approximately $0.5 million of the restructuring charge, related to severance and fringe benefit costs, remained as of July 31, 2003. During fiscal 2004, the remaining accruals related to the restructuring were utilized.

(5)   PROPERTY AND EQUIPMENT

        Property and equipment consisted of the following at July 31, 2004 and 2003:

	Estimated Useful Lives (Years)	2004		2003
		(In thousands)
Land		$	5,912	$	5,888
Buildings and improvements	20-40		84,545		71,912
Leasehold improvements	5-30		15,942		14,465
Warehouse equipment	5-20		27,770		23,058
Office equipment	3-10		29,106		24,130
Motor vehicles	3-5		6,428		6,542
Equipment under capital leases	3-5		5,965		6,262
Construction in progress			1,781		2,191
			177,449		154,448
Less accumulated depreciation and amortization			63,309		53,210
Net property and equipment		$	114,140	$	101,238

(6)   NOTES PAYABLE

        On April 30, 2004, the Company entered into an amended and restated four-year $250 million secured revolving credit facility with a bank group that was led by Bank of America Business Capital (formerly Fleet Capital Corporation) as the administrative agent (the "amended credit facility"). The amended credit facility increased the amount available for borrowing from $150 million to $250 million,

43

on which interest accrues, at the Company's option, at the New York Prime Rate (4.25% at July 31, 2004 and (4.00% at July 31, 2003) or at the London Interbank Offered Rate ("LIBOR") plus 1.25%. The $250 million credit facility matures on March 31, 2008. The weighted average interest rate on the amended credit facility was 2.75% as of July 31, 2004. As of July 31, 2004, the Company's outstanding borrowings under the amended credit facility totaled $107.0 million with an availability of $100.9 million. As more fully discussed in Note 8, the Company entered into certain interest rate swap agreements to hedge this indebtedness which were assigned and transferred to a third party in December 2003.

        The credit agreement contains certain restrictive covenants. The Company was in compliance with all restrictive covenants at July 31, 2004. The agreement also provides for the bank to syndicate the credit facility to other banks and lending institutions. The Company has pledged the majority of its accounts receivable and inventory for its obligations under the credit agreement.

(7)   LONG-TERM DEBT

        The Company entered into a $30 million term loan agreement with a financial institution effective April 30, 2003. The term loan is repayable over seven years based on a fifteen year amortization schedule. Interest accrues at 30 day LIBOR plus 1.50%. The Company has pledged certain real property as collateral for its obligations under the term loan agreement. In December 2003, the Company amended the term loan agreement with the financial institution, increasing the principal amount by $10 million to $40 million, under the existing terms and conditions. The proceeds were used for the expansion of its distribution facilities.

        As of July 31, 2004 and 2003, the Company's long-term debt consisted on the following:

		July 31,
		2004		2003
		(In thousands)
Term loans payable to bank, secured by real estate, due monthly and mature in April 2010, at a rate of 30 day LIBOR plus 1.5% (3.00% at July 31, 2004)		$	37,278	$	29,667
Promissory note due October 2005, at a rate of 30 day LIBOR plus 1.25% (2.75% at July 31, 2004)			3,595		3,595
Equipment financing loans payable to bank, secured by the underlying assets, due monthly and maturing at various dates from March 2006 through July 2007, at rates ranging from 4.79% to 11.57%			3,652		5,279
Real estate term loans payable to bank and others, secured by building and other assets, due monthly and maturing at various dates from March 2005 through April 2015, at rates ranging from 7.50% to 8.60%			2,157		2,494
Term loan for employee stock ownership plan, secured by stock of the Company, due $14 monthly plus interest at 10.0%, balance due May 1, 2015			1,768		1,931
Other			294		—
		$	48,744	$	42,966
	Less: current installments		4,766		4,459
	Long-term debt, excluding current installments	$	43,978	$	38,507

44

        Certain debt agreements contain restrictive covenants. The Company was in compliance with all of its restrictive covenants at July 31, 2004.

        Aggregate maturities of long-term debt for the next five years and thereafter are as follows at July 31, 2004:

Year	(In thousands)
2005	$	4,766
2006		7,897
2007		3,699
2008		3,181
2009		2,896
2010 and thereafter		26,305
	$	48,744

(8)   FINANCIAL INSTRUMENTS

        In October 1998, the Company entered into an interest rate swap agreement that provided for it to pay interest for a five-year period at a fixed rate of 5% on a notional principal amount of $60 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. This swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $60 million at LIBOR plus 1.50%, thereby fixing the effective rate at 6.50%. In October 2003, the counter party exercised its option to extend the original five-year term of the swap agreement to seven years. The inclusion of this option prohibited accounting for the swap as an effective hedge under Statement of Financial Accounting Standards ("SFAS") No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities.

        The Company entered into an additional interest rate swap agreement effective August 2001. The additional agreement provided for it to pay interest for a four-year period at a fixed rate of 4.81% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The four-year term of the swap agreement could have been extended to six years at the option of the counter party, which prohibited accounting for the swap as an effective hedge under SFAS 133. The swap had been entered into as a hedge against LIBOR interest rate movements on current and anticipated variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing the effective rate on the notional amount at 6.31%. If LIBOR exceeded 6.0% in a given period, the agreement was suspended for that period.

        On December 29, 2003, the Company assigned and transferred all of its obligations of its two "ineffective" interest rate swaps to a third party at a cost of $5.4 million plus accrued interest. As a result of this assignment, these "ineffective" swaps will no longer be included as a special item for future fiscal periods. These "ineffective" swaps were included as special items for the first two quarters of fiscal 2004.

        In May 2003, the Company entered into an additional interest rate swap agreement. The agreement provides for it to pay interest for a seven-year period at a fixed rate of 3.68% on a notional principal amount of $30 million while receiving interest for the same period at the LIBOR rate on the same notional principal amount. The swap has been entered into as a hedge against LIBOR interest rate movements on current variable rate indebtedness totaling $30 million at LIBOR plus 1.50%, thereby fixing our effective rate on the notional amount at 5.18%. LIBOR was 1.50% as of July 31, 2004. The swap agreement qualifies as an "effective" hedge under SFAS No. 133, and the Company recorded an asset of $0.4 million as of July 31, 2004 and 2003, and a corresponding credit to accumulated other comprehensive income in the statement of stockholders' equity.

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(9)   CAPITAL LEASES

        The Company leases computer, office and warehouse equipment under capital leases expiring in various years through 2007. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are depreciated over the shorter of their related lease terms or their estimated productive lives. Total capital leased assets at July 31, 2004 and 2003 were $5,965, and $6,262, respectively, less accumulated depreciation of $4,558 and $4,106, respectively.

        The remaining minimum future lease payments under capital leases as of July 31, 2004 are:

Years ended July 31	(In thousands)
2005	$	493
2006		133
2007		6
Total minimum lease payments		632
Less: Amount representing interest		41
Present value of net minimum lease payments		591
Less: current installments		454
Capital lease obligations, excluding current installments	$	137

(10) COMMITMENTS AND CONTINGENCIES

        The Company leases various facilities under operating lease agreements with varying terms. Most of the leases contain renewal options and purchase options at several specific dates throughout the terms of the leases.

        Rent and other lease expense for the years ended July 31, 2004, 2003 and 2002 totaled approximately $16.8 million, $16.4 million, and $14.3 million, respectively.

        Future minimum annual fixed payments required under non-cancelable operating leases having an original term of more than one year as of July 31, 2004 are as follows:

Year	(In thousands)
2005	$	13,495
2006		10,918
2007		8,919
2008		6,969
2009		5,118
Thereafter		11,262
	$	56,681

        Outstanding commitments as of July 31, 2004 for the purchase of inventory were approximately $13.8 million. The Company had outstanding letters of credit of approximately $8.2 million at July 31, 2004.

        The Company may from time to time be involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.

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(11) RETIREMENT PLAN

        The Company has one defined contribution retirement plan, ("the 401(k) Plan"). During fiscal 2004, the Company merged the defined contribution plans of Blooming Prairie and Northeast Cooperatives into the 401(k) Plan. Under the 401(k) Plan, the employees may choose to reduce their compensation and have these amounts contributed to the 401(k) Plan on their behalf. In order to become a participant in the 401(k) Plan, employees must meet certain eligibility requirements as described in the respective 401(k) Plan's document. In addition to amounts contributed to the 401(k) Plan by employees, the Company makes contributions to the 401(k) Plan on behalf of the employees. The Company contributions to the 401(k) Plan were approximately $1.9 million, $1.6 million, and $1.3 million for the years ended July 31, 2004, 2003 and 2002, respectively.

(12) EMPLOYEE STOCK OWNERSHIP PLAN

        The Company adopted the UNFI Employee Stock Ownership Plan (the "ESOP Plan") for the purpose of acquiring outstanding shares of the Company for the benefit of eligible employees. The ESOP Plan was effective as of November 1, 1988 and has received notice of qualification by the Internal Revenue Service.

        In connection with the adoption of the ESOP Plan, a Trust was established to hold the shares acquired. On November 1, 1988, the Trust purchased 40% of the then outstanding Common Stock of the Company at a price of $4.1 million. The trustees funded this purchase by issuing promissory notes to the initial stockholders, with the Trust shares pledged as collateral. These notes bear interest at 10% and are payable through May 2015. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.

        The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 93-6 ("SOP 93-6"), Employers' Accounting for Employee Stock Ownership Plans, in November 1993. The statement provides guidance on employers' accounting for ESOPs and is required to be applied to shares purchased by ESOPs after December 31, 1992, that have not been committed to be released as of the beginning of the year of adoption. In accordance with SOP 93-6, the Company elected not to adopt the guidance in SOP 93-6 for the shares held by the ESOP, all of which were purchased prior to December 31, 1992. The debt of the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. During each of 2004, 2003 and 2002 contributions totaling approximately $0.3 million, $0.4 million and $0.4 million, respectively, were made to the Trust. Of these contributions, approximately $0.2 million represented interest in 2004, 2003 and 2002.

        The ESOP shares were classified as follows:

	July 31
	2004		2003
	(In thousands)
Allocated shares	2,332		2,156
Shares released for allocation	176		176
Shares distributed to employees	(1,180	)	(982	)
Unreleased shares	1,892		2,068
Total ESOP shares	3,220		3,418

        The fair value of unreleased shares was approximately $41.0 million and $31.6 million at July 31, 2004 and 2003, respectively.

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(13) INCOME TAXES

        Total federal and state income tax (benefit) expense from continuing operations consists of the following:

	Current		Deferred			Total
	(In thousands)
Fiscal year ended July 31, 2004:
U.S. Federal	$	14,349	$	3,246		$	17,595
State and local		2,377		478			2,855
	$	16,726	$	3,724		$	20,450
Fiscal year ended July 31, 2003:
U.S. Federal	$	9,526	$	1,991		$	11,517
State and local		1,194		476			1,670
	$	10,720	$	2,467		$	13,187
Fiscal year ended July 31, 2002:
U.S. Federal	$	11,560	$	(2,083	)	$	9,477
State and local		1,537		459			1,996
	$	13,097	$	(1,624	)	$	11,473

        Total income tax expense (benefit) was different than the amounts computed using the United States statutory income tax rate (35%) applied to income before income taxes as a result of the following:

	Years ended July 31
	2004			2003			2002
	(In thousands)
Computed "expected" tax expense	$	18,351		$	11,711		$	10,039
State and local income tax, net of Federal income tax expense		1,528			1,086			1,307
Non-deductible expenses		318			257			177
General Business Credits		(135	)		(138	)		—
Increase in valuation allowance		328			182			642
Other, net		60			89			(692	)
	$	20,450		$	13,187		$	11,473

        Total income tax expense (benefit) for the years ended July 31, 2004, 2003, and 2002 was allocated as follows:

	July 31, 2004			July 31, 2003			July 31, 2002
	(In thousands)
Income from continuing operations	$	20,450		$	13,187		$	11,473
Stockholders' equity, for compensation expense for tax purposes in excess of amounts recognized for financial statement purposes		(6,213	)		(950	)		(415	)
	$	14,237		$	12,237		$	11,058

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        The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at July 31, 2004 and 2003 are presented below:

	2004			2003
	(In thousands)
Deferred tax assets:
Change in financial instruments	$	—		$	2,410
Inventories, principally due to additional costs inventoried for tax purposes		2,560			2,147
Compensation and benefit related		1,408			1,274
Accounts receivable, principally due to allowances for uncollectible accounts		2,602			1,743
Accrued expenses		1,651			1,242
State net operating loss carryforward		1,073			956
Other		210			459
Total gross deferred tax assets		9,504			10,231
Less valuation allowance		1,152			824
Net deferred tax assets		8,352			9,407
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation		5,680			3,558
Intangible assets		2,487			1,515
Other		305			126
Total deferred tax liabilities		8,472			5,199
Net deferred tax (liabilities) assets	$	(120	)	$	4,208
Current deferred income tax assets	$	7,610		$	6,455
Non-current deferred income tax liabilities		(7,730	)		(2,247	)
	$	(120	)	$	4,208

        At July 31, 2004, the Company had net operating loss carryforwards of approximately $26 million for state income tax purposes that expire in years 2005 through 2024.

        In assessing the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for, with the exception of certain state operating loss carryforwards, federal and state tax purposes appears more likely than not.

(14) BUSINESS SEGMENTS

        The Company has several operating segments aggregated under the wholesale segment, which is the Company's only reportable segment. These operating segments have similar products and services, customer types, distribution methods and historical margins. The wholesale segment is engaged in national distribution of natural foods and related products in the United States. Other operating segments include the retail segment, which engages in the sale of natural foods and related products to the general public through retail storefronts on the east coast of the United States, and a segment engaging in trading, roasting and packaging of nuts, seeds, dried fruit and snack items. These other operating segments do not meet the quantitative thresholds for reportable segments and are therefore

49

included in an "Other" caption in the segment information. The "Other" caption also includes corporate expenses that are not allocated to operating segments.

        Following is business segment information for the periods indicated:

	Wholesale		Other			Eliminations			Unallocated Expenses		Consolidated
	(In thousands)
2004
Revenue	$	1,629,717	$	70,637		$	(30,402	)			$	1,669,952
Operating income		63,144		(4,667	)		7					58,484
Interest expense									7,265			7,265
Other, net									(1,217	)		(1,217	)
Income before income taxes												52,436
Amortization and depreciation		10,484		1,176								11,660
Capital expenditures		23,303		548								23,851
Assets		657,411		39,852			(188,496	)				508,767
2003
Revenue		1,336,239		65,529			(21,875	)				1,379,893
Operating income		50,382		(9,514	)		(52	)				40,816
Interest expense									7,795			7,795
Other, net									(386	)		(386	)
Income before income taxes												33,407
Amortization and depreciation		9,093		1,237								10,330
Capital expenditures		19,208		817								20,025
Assets		578,907		40,109			(188,917	)				430,099
2002
Revenue		1,133,678		62,918			(21,203	)				1,175,393
Operating income		43,899		(3,978	)		44					39,965
Interest expense									7,233			7,233
Other, net									4,050			4,050
Income before income taxes												28,682
Amortization and depreciation		7,097		1,109								8,206
Capital expenditures		25,465		2,324								27,789
Assets		459,997		42,984			(148,524	)				354,457

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(15) QUARTERLY FINANCIAL DATA (UNAUDITED)

        The following table sets forth certain key interim financial information for the years ended July 31, 2004 and 2003:

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Full Year
		(In thousands except per share data)
2004
Net sales		$	381,382	$	393,248	$	448,900	$	446,422	$	1,669,952
Gross profit			76,173		78,785		87,577		87,922		330,456
Income before income taxes			11,110		11,544		14,105		15,677		52,436
Net income			6,777		7,042		8,604		6,114		31,986
Per common share income
Basic:		$	0.17	$	0.18	$	0.22	$	0.24	$	0.81
Diluted:		$	0.17	$	0.17	$	0.21	$	0.23	$	0.78
Weighted average basic Shares outstanding			39,051		39,196		39,648		39,993		39,471
Weighted average diluted Shares outstanding			40,364		40,750		41,344		41,623		41,025
Market Price
	High	$	19.78	$	20.72	$	26.80	$	29.66	$	29.66
	Low	$	13.66	$	16.92	$	19.51	$	21.50	$	13.66

		First		Second		Third		Fourth		Full Year
2003
Net sales		$	310,993	$	338,447	$	363,611	$	366,843	$	1,379,893
Gross profit			63,425		68,849		73,555		74,361		280,189
Income before income taxes			6,640		9,180		9,466		8,120		33,407
Net income			3,984		5,508		5,774		4,953		20,220
Per common share income
Basic:		$	0.10	$	0.14	$	0.15	$	0.13	$	0.53
Diluted:		$	0.10	$	0.14	$	0.15	$	0.12	$	0.51
Weighted average basic Shares outstanding			38,213		38,238		38,483		38,949		38,471
Weighted average diluted Shares outstanding			38,869		39,052		39,500		40,049		39,454
Market Price
	High	$	12.50	$	13.16	$	14.70	$	15.61	$	15.61
	Low	$	8.92	$	10.20	$	10.34	$	12.37	$	8.92

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in timely reporting material information required to be included in our periodic reports filed with the Securities and Exchange Commission.



(b)

Changes in internal controls. Since the Evaluation Date, there have not been any significant changes to our internal controls or in other factors that could significantly affect those internal controls.

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PART III.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by this item is contained in part in our Definitive Proxy Statement on Schedule 14A for our Annual Meeting of Stockholders to be held on December 1, 2004 (the "2004 Proxy Statement") under the captions "PROPOSAL 1—ELECTION OF DIRECTORS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" and is incorporated herein by this reference. Pursuant to Item 401(b) of Regulation S-K, our executive officers are reported in Part I of this annual report on Form 10-K.

        We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Corporate Controller and other finance organization employees. Our code of ethics is publicly available on our website at www.unfi.com. If we make any substantive amendments to our code of ethics or grant any waiver, including any implicit waiver, from a provision of the code of ethics to our Chief Executive Officer, Chief Financial Officer or Corporate Controller, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this item is contained in the 2004 Proxy Statement under the captions "Director Compensation," "Compensation of Executive Officers" and "Compensation Committee Interlocks and Insider Participation" and is incorporated herein by this reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this item is contained in part in the 2004 Proxy Statement under the caption "Stock Ownership of Certain Beneficial Owners and Management" and is incorporated herein by this reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this item is contained in the 2004 Proxy Statement under the caption "Certain Relationships and Related Transactions" and is incorporated herein by this reference.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information required by this item is contained in the 2004 Proxy Statement under the caption "Fees Paid to KPMG LLP" and is incorporated herein by this reference.

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PART IV.

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

Documents filed as a part of this Form 10-K.

1.

Financial Statements. The Financial Statements listed in the Index to Financial Statements in Item 8 hereof are filed as part of this Annual Report on Form 10-K.

2.

Financial Statement Schedules. Schedule II Valuation and Qualifying Accounts. All other schedules have been omitted since they are either not required or the information required is included in the consolidated financial statements or the notes thereto.

3.

Exhibits. The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Annual Report on Form 10-K.

(b)

Reports on Form 8-K.

1.

Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 4, 2004 announcing that Company entered into an amended and restated four-year $250 million revolving credit facility effective April 30, 2004.

2.

Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 1, 2004, announcing the Company's financial results for the fiscal quarter ended April 30, 2004.

3.

Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 28, 2004, announcing the amendment of the Company's stockholder rights plan to accelerate the final expiration date of the purchase rights issued thereunder.

4.

Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 29, 2004, announcing that the Company has extended its primary distribution agreement with Whole Foods Market, Inc. through December 31, 2004.

5.

Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 8, 2004, announcing the Company's earnings estimates for its fiscal year ending July 31, 2005.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED NATURAL FOODS, INC.

/S/  RICK D. PUCKETT Rick D. Puckett
Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: October 14, 2004

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/  STEVEN H. TOWNSEND Steven H. Townsend	Chair of the Board, President, Chief Executive Officer, and Director (Principal Executive Officer)	October 14, 2004
/s/  THOMAS B. SIMONE Thomas B. Simone	Vice Chair of the Board and Lead Independent Director	October 14, 2004
/s/  RICK D. PUCKETT Rick D. Puckett	Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	October 14, 2004
/s/  RICHARD ANTONELLI Richard Antonelli	President of United Distribution and Director	October 14, 2004
/s/  GORDON D. BARKER Gordon D. Barker	Director	October 14, 2004
/s/  JOSEPH M. CIANCIOLO Joseph M. Cianciolo	Director	October 14, 2004

55

/s/  MICHAEL S. FUNK Michael S. Funk	Director	October 14, 2004
/s/  GAIL A. GRAHAM Gail A. Graham	Director	October 14, 2004
/s/  JAMES P. HEFFERNAN James P. Heffernan	Director	October 14, 2004

56

EXHIBIT INDEX

Exhibit No.	Description
3.1(1)	Amended and Restated Certificate of Incorporation of the Registrant.
3.2(2)	Amendment to Amended and Restated Certificate of Incorporation of the Registrant.
3.3(3)	Amended and Restated By-Laws of the Registrant.
4.1*	Specimen Certificate for shares of Common Stock, $.01 par value, of the Registrant.
10.1(1)	1996 Employee Stock Purchase Plan.
10.2*	Amended and Restated Employee Stock Ownership Plan.
10.3(1)	Employee Stock Ownership Trust Loan Agreement among Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and the Employee Stock Ownership Plan and Trust, dated November 1, 1988.
10.4(1)	Stock Pledge Agreement between the Employee Stock Ownership Trust and Steven H. Townsend, Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988.
10.5(1)	Trust Agreement among Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood, Theodore Cloutier and Steven H. Townsend as Trustee, dated November 1, 1988.
10.6(1)	Guaranty Agreement between the Registrant and Steven H. Townsend as Trustee for Norman A. Cloutier, Steven H. Townsend, Daniel V. Atwood and Theodore Cloutier, dated November 1, 1988.
10.7(4)	Amended and Restated 1996 Stock Option Plan.
10.8(4)	Amendment No. 1 to Amended and Restated 1996 Stock Option Plan.
10.9(4)	Amendment No. 2 to Amended and Restated 1996 Stock Option Plan.
10.10(5)	2002 Stock Incentive Plan.
10.11(6)	Amended and Restated Loan and Security Agreement, dated April 30, 2004, with Bank of America Business Capital (formerly Fleet Capital Corporation).
10.12(7)	Term Loan Agreement with Fleet Capital Corporation dated April 30, 2003.
10.13(8)	Second Amendment to Term Loan Agreement with Fleet Capital Corporation dated December 18, 2003.
10.14(9)	Real estate Term Notes between the Registrant and City National Bank, dated April 28, 2000.
10.15(1)	Distribution Agreement between Mountain People's Wine Distributing, Inc., and Mountain People's, dated August 23, 1994.
10.16(10)	Lease between Valley Centre I, L.L.C. and the Registrant, dated August, 1998.
10.17(11)	Lease between AmberJack, Ltd. and the Registrant, dated July 11, 1997.
10.18(12)	Lease between Metropolitan Life Insurance Company and the Registrant, dated July 31, 2001.
10.19(3)	Lease between the Registrant and Two Seventy M Edison, a New Jersey general partnership, dated April 1, 2002.
10.20(13)	Employment Transition Agreement and Release for Norman A. Cloutier, dated December 8, 1999.

10.21(14)	Employment Agreement between the Registrant and Steven H. Townsend dated December 5, 2003.
10.22(5)+	Distribution Agreement between the Registrant and Whole Foods Market, Inc. dated August 1, 1998.
10.23(5)+	Amendment to Distribution Agreement between the Registrant and Whole Foods Market, Inc. dated August 31, 2001.
10.24(8)+	Distribution Agreement between the Registrant and Wild Oats Market, Inc. dated January 12, 2004.
10.25*	First Amendment to Term Loan Agreement with Fleet Capital Corporation dated August 26, 2003.
10.26*	Employee Stock Ownership Trust, as amended.
21*	Subsidiaries of the Registrant.
23*	Consent of Independent Registered Public Accounting Firm.
	Schedule II—Valuation and Qualifying Accounts and Report of Independent Registered Public Accounting Firm thereon.
31.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—CEO.
31.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—CFO.
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CEO.
32.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CFO.

*

Filed herewith.

+

Confidential treatment has been granted for certain provisions of this exhibit. Such provisions have been omitted from this exhibit and have been filed separately with the Securities and Exchange Commission.

(1)

Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-11349).

(2)

Incorporated by reference to the Registrant's Definitive Proxy Statement for the year ended July 31, 1998.

(3)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 2002.

(4)

Incorporated by reference to the Registrant's Definitive Proxy Statement for the year ended July 31, 2000.

(5)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 2003.

(6)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 2004.

(7)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 2002.

(8)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2004.

(9)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 2000.

(10)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 1999.

(11)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 1997.

(12)

Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended July 31, 2001.

(13)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 2000.

(14)

Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 2002.

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Accounts Receivable and Notes Receivable Allowance for Doubtful Accounts

	Balance at beginning of period		Additions charged to costs and expenses		Deductions		Balance at end of period
Year ended July 31, 2004	$	7,856	$	3,586	$	1,709	$	9,733
Year ended July 31, 2003	$	5,992	$	2,622	$	758	$	7,856
Year ended July 31, 2002	$	5,010	$	1,806	$	824	$	5,992

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TABLE OF CONTENTS
PART I.

ITEM 1. BUSINESS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS July 31, 2004 and 2003 (In thousands, except per share data)
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNITED NATURAL FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED NATURAL FOODS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal years ended July 31, 2004, 2003 and 2002

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
EXHIBIT INDEX

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

EX-4.1

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Exhibit 4.1

NUMBER		SHARES
UNF	UNITED NATURAL FOODS, INC.
COMMON STOCK	INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE	CUSIP 911163 10 3 SEE REVERSE FOR CERTAIN DEFINITIONS

This Certifies that

SPECIMEN

is the owner of

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE OF

UNITED NATURAL FOODS, INC. transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are subject to the laws of the State of Delaware and to the Certificate of Incorporation and the Bylaws of the Corporation as from time to time amended (copies of which are on file with the Transfer Agent) to all of which the holder by acceptance hereof asserts. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.

Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated

/s/  RICK D. PUCKETT	/s/  STEVEN H. TOWNSEND
CHIEF FINANCIAL OFFICER	CHAIRMAN OF THE BOARD

UNITED NATURAL FOODS, INC.

        The Corporation has more than one class or series of stock authorized to be issued. The Corporation will furnish without charge to each stockholder upon written request a copy of the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class or series of stock authorized to be issued by the Corporation as set forth in the Certificate of Incorporation of the Corporation and amendments thereto filed with the Secretary of State of Delaware.

        The following abbreviation, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	—	as tenants in common	UNF GIFT MIN ACT —		Custodian
TEN ENT	—	as tenants by the entireties
JT TEN	—	as joint tenants with rights of survivorship and not as tenants in common		(Cust.)		(Minor)
				Under Uniform Gifts to Minors Act
					(State)

Additional abbreviations may also be used though not in the above list.

For value received,                                    hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE

__________________________________________________________________________________________________

____________________________________________________________________________________________ Shares

of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

___________________________________________________________________________________ Attorney

to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.

Dated _____________________

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By _____________________________________________

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

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Exhibit 4.1

EX-10.2

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Exhibit 10.2

UNITED NATURAL FOODS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN

EFFECTIVE MARCH 1, 2004

Employee Stock Ownership Plan

UNITED NATURAL FOODS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN

Table of Contents

Introduction		1
Article I.	Definitions	1
1.1.	Account	1
1.2.	Acquisition Loan	1
1.3.	Affiliate	1
1.4.	Aggregation Group	1
1.5.	Board	1
1.6.	Code	1
1.7.	Compensation	1
1.8.	Contribution Suspense Account	2
1.9.	Disability	2
1.10.	Diversification Election	2
1.11.	Effective Date	2
1.12.	Employee	2
1.13.	Employer	2
1.14.	Employer Stock	2
1.15.	Entry Date	2
1.16.	Financed Shares	2
1.17.	Forfeiture	4
1.18.	Hour of Service	4
1.19.	Leased Employee	4
1.20.	Limitation Year	4
1.21.	Normal Retirement Age	4
1.22.	One-Year Break in Service	4
1.23.	Participant	4
1.24.	Plan	4
1.25	Plan Administrator	4
1.26.	Plan Year	4
1.27.	Qualified Election Period	4
1.28.	Qualified Participant	4
1.29.	Suspense Account	4
1.30.	Trust	4
1.31.	Trustees	4
1.32.	Valuation Date	5
1.33.	Vested	5
1.34.	Year of Service	5
Article II.	Eligibility and Participation	5
2.1.	Eligible Employees	5
2.2.	Commencement of Participation	5
2.3.	Participation of Affiliates, Etc.	5
2.4.	Termination of Active Participation	5
2.5.	Resumption of Active Participation	6
Article III.	Contributions	6
3.1.	Employer Contributions	6

i

3.2.	Limitations on Annual Additions	6
3.4.	Participant Contributions	7
3.5.	Rollover Contributions	7
Article IV.	Participants' Accounts	7
4.1.	Separate Accounts	7
4.2.	Allocations	8
4.3.	Release from Suspense Account	8
4.4.	Dividends on Employer Stock	9
4.5.	Forfeitures	9
4.6.	Valuations	9
4.7.	Prohibited Allocation	10
Article V.	Vesting	10
5.1.	Vesting Schedule	10
5.2.	Full Vesting	10
5.3.	Past Service	11
5.4.	Breaks In Service	11
5.5.	Treatment of Forfeitures	11
Article VI.	Distributions from the Plan	11
6.1.	Time and Manner of Distributions	11
6.2.	Diversification Election	13
6.3.	Put Option	14
6.4.	Designation of Beneficiary	14
6.5.	Proof of Death, Etc.	14
6.6.	Qualified Domestic Relations Order	14
Article VII.	Plan Administration	15
7.1.	Organization of the Plan Administrator	15
7.2.	Operation of the Plan Administrator	15
7.3.	Responsibilities of the Employer and Plan Administrator	15
7.4.	Management of Trust Fund Assets	16
7.5.	Expenses	16
7.6.	Allocation and Delegation of Responsibility	16
7.7.	Indemnification	16
7.8.	Service of Process	17
7.9.	Statement of Account	17
7.10.	Advisory Committee	17
Article VIII.	The Trust	17
8.1.	Establishment of Trust	17
8.2.	Interest in Trust	17
8.3.	Accounts	17
8.4.	Investment of Assets and Voting Rights	17
8.5.	Acquisition Loans	18
8.6.	Liability of Trustee	19
8.7.	Allocation of Duties	19
8.8.	Legal Limitation	19
8.9.	Appointment of Independent Fiduciary	19
Article IX.	General	20
9.1.	Amendment of Plan	20

ii

9.2.	Plan Termination	20
9.3.	Notice of Amendment	21
9.4.	Non-Alienation of Benefits	21
9.5.	Employment Relation	21
9.6.	Payments to Minors and Incompetents	21
9.7.	Missing Persons	21
9.8.	Sole Source of Benefits	21
9.9.	Plan Qualification	21
9.10.	Merger Consolidation	21
9.11.	Exclusive Benefit	22
9.12.	Claims for Benefits	22
9.13.	Service of Plan Fiduciaries	22
9.14.	Governing Law	22
9.15.	Gender and Number	22
9.16.	Titles and Headings	22
Article X.	Top-Heavy Provisions	22
10.1.	Definitions	22
10.2.	Minimum Contributions	24
10.3.	Vesting	24

iii

Introduction

        The Cornucopia Natural Foods, Inc. Employee Stock Ownership was originally adopted effective November 1, 1988. The plan was amended and restated in its entirety in the form of the United Natural Foods, Inc. Employee Stock Ownership Plan effective August 1, 1996 and subsequently amended by amendments 1 through 4 (collectively the "Prior Plan"). The Plan as amended and restated herein is generally effective March 1, 2004, except as otherwise provided.

        The Plan is intended to recognize the contributions made to the Employer's successful operation by its Employees, and to provide a means for participating Employees to acquire an equity interest in the Employer, while furthering their personal financial goals. The Plan is intended to be a stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") and an employee stock ownership plan ("ESOP") under Section 4975 (e)(7) of the Code and is designed to invest primarily in qualifying employer securities, as defined in Section 4975(e)(8) of the Code. At no time shall any of the funds contributed under the Plan be used for any purpose other than the exclusive benefit of Plan Participants and their beneficiaries.

Article I. Definitions

        Wherever used herein, the following words shall have the following meanings, unless otherwise stated:

        1.1.  "Account" means the entire interest of a Participant in the Trust, and includes separate subaccounts maintained to record a Participant's interest in Employer Stock and other investments.

        1.2.  "Acquisition Loan" means any loan or other extension of credit to the Plan or Trust not prohibited by Section 4975(c) of the Code, including a loan which meets the requirements set forth in Section 4975(d)(3) of the Code and the regulations thereunder, the proceeds of which are used to finance the acquisition of Employer Stock or to refinance such a loan.

        1.3.  "Affiliate" means a parent, subsidiary, or other corporation which is a member of the same controlled group of corporations within the meaning of Section 414(b) of the Code as the Employer.

        1.4.  "Aggregation Group" means the Employer and any corporation which becomes a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Employer; any trade or business (whether or not incorporated) which comes under common control (as defined in Section 414(c) of the Code) with the Employer; any organization (whether or not incorporated) which becomes a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code.

        1.5.  "Board" means the Board of Directors of United Natural Foods, Inc., a Delaware corporation with its principal place of business in Connecticut.

        1.6.  "Code" means the Internal Revenue Code of 1986 and any amendments thereto. All citations to Sections of the Code are to such Sections as they may from time to time be amended or renumbered,

        1.7.  "Compensation" means with respect to any Participant, such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052 (i.e., wages, tips and other compensation as reported on Form W-2). 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 performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

1

        Notwithstanding the foregoing the definition of Compensation under this Section shall (i) exclude (even if includible in gross income), fringe benefits (cash and non-cash), moving expenses, deferred compensation and compensation attributable to the exercise of any stock options which may be issued by the Employer, and (ii) include amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3) or 402(h)(1)(B). Compensation prior to the commencement of participation in the Plan shall be disregarded.

        The maximum Compensation is any Plan Year that may be taken into account for any purpose under the Plan is $200,000, as adjusted in accordance with Section 401(a)(17) of the Code.

        1.8.  "Contribution Suspense Account" means the account comprised of excess Employer contributions and Forfeitures maintained in accordance with Section 3.2(b).

        1.9.  "Disability" means a condition which 1) qualifies the Participant for total disability benefits under a long-term disability plan maintained by the Employer, or 2) qualifies the Participant for Social Security disability benefits, or 3) is determined to constitute total disability by a physician chosen by the Plan Administrator, acting in a uniform and nondiscriminatory manner.

        1.10. "Diversification Election" means an election made in accordance with Section 6.2.

        1.11. "Effective Date" means February 1, 2004. Upon its adoption, this amended and restated Plan shall take effect on the Effective Date.

        1.12. "Employee" means any person employed by an Employer as a full time or part time employee (including an officer but not a director as such) who receives Compensation from the Employer.

        1.13. "Employer" means United Natural Foods, Inc., a Delaware corporation, its successors and assigns, and, when the context requires, shall include a participating Affiliate which is designated by the Board in accordance with the provisions of Section 2.2 as an affiliated Employer under the Plan and whose designation as such has been accepted by the Affiliate and continues in effect. An affiliated Employer may revoke its acceptance of such designation at any time, but until such acceptance has been revoked all the provisions of the Plan shall apply to the Participants of that Employer and their beneficiaries. Each affiliated Employer by adopting this Plan appoints the Employer and the Plan Administrator as its agents to act for it in all matters relating to the Plan and the Trust, and agrees to furnish the Plan Administrator with such information as may be necessary for the proper administration of the Plan.

        1.14. "Employer Stock" means common stock issued by the Employer or an Affiliate, which stock is readily tradable on an established securities market. If there is no common stock which meets the foregoing requirement, the term "Employer Stock" means common stock issued by the Employer or an Affiliate having a combination of voting power and dividend rights equal to or in excess of (a) that class of common stock of the issuer having the greatest voting power, and (b) that class of common stock of the issuer having the greatest dividend rights. Noncallable preferred stock shall be deemed to be Employer Stock if such stock is convertible at any time into stock which constitutes Employer Stock hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. For purposes of the preceding sentence, pursuant to regulations under 409(e) of the Code, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence.

        1.15. "Entry Date" means August 1 and February 1 of each Plan year, and such other special entry dates as the Board of Directors of the Company may establish when an Affiliated Employer adopts the Plan and its employees first becomes eligible to commence participation in the Plan.

        1.16. "Financed Shares" means any Employer Stock acquired by the Trust with the proceeds of an Acquisition Loan.

2

        1.17. "Forfeiture" means the part of a Participant's Account which is not Vested and becomes forfeited following the Participant's termination of employment.

        1.18. "Hour of Service" means:

        (a)   (i) each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Employer during the period in which the duties are performed;

        (ii)   each hour for which an Employee is paid, or entitled to payment, by an Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including Disability), layoff, jury duty, military duty or leave of absence; and

        (iii)  each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer.

        (b)   Hours of Service determined in accordance with Subsection (a)(i) shall be credited to the period during which the duties were performed.

        (c)   Hours of Service determined in accordance with Subsection (a)(ii) shall be credited to the period to which the Employee is compensated for other than the performance of services.

        (d)   Hours of Service determined in accordance with Subsection (a)(iii) shall be credited to the period to which the award or agreement relates.

        (e)   For purposes of Subsection (a)(ii), a payment shall be deemed to be made by or due from an Employer regardless of whether such payment is made by or due from an Employer directly or indirectly through, among others, a trust fund or insurance company to which an Employer contributes or pays premiums, and regardless of whether contributions made or due to the trust fund, insurance company or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

        (f)    Notwithstanding any provision in this Section 1.18 to the contrary, (i) no more than 501 Hours of Service for a Plan Year are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); and (ii) no Hours of Service will be credited to an Employee if payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws.

        (g)   Hours of Service with a member of the Aggregation Group shall be recognized, except that simultaneous service with more than one such entity shall not result in duplication of credited Hours of Service.

        (h)   Hours of Service shall be computed and credited in accordance with paragraphs (b) and (c) of Section 2530.200b-2 of the Department of Labor Regulations.

        (i)    Solely for purposes of determining whether a One-Year Break in Service has occurred in a particular Plan Year, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, up to a maximum of 501 Hours, or in any case in which such Hours cannot be determined, eight Hours of Service per day of such absence, provided that the individual timely provides the Plan Administrator with such information as it shall require regarding such absence. For purposes of this Subsection, an absence from work for maternity or paternity reasons means an absence:

(i)

by reason of the pregnancy of the individual,



(ii)

by reason of the birth of a child of the individual,

3

(iii)

by reason of the placement of a child with the individual in connection with the adoption of such child by such individual, or



(iv)

for purposes of caring for such child for a period beginning immediately following such birth or placement.

        The Hours of Service credited under this Subsection shall be credited in the Plan Year in which the absence begins if the crediting is necessary to prevent a One-Year Break in Service in that period, or in all other cases, in the following Plan Year.

        (j)    With respect to those Employees for whom records of actual Hours of Service are not kept (e.g. salaried Employees), Hours of Service shall be credited using an equivalency of 45 Hours of Service for each week for which an Employee is paid or entitled to payment for at least one Hour of Service.

        1.19. "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 Section 414(n)(6) of the Code) 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 of the recipient. Notwithstanding the foregoing, a Leased Employee shall not be considered an employee of the recipient if (a) the Leased Employee is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), (ii) immediate participation, and (iii) full and immediate vesting, and (b) Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force.

        1.20. "Limitation Year" means, for purposes of Section 415 of the Code, the Plan Year.

        1.21. "Normal Retirement Age" means the later of the Participant's 65^th birthday, or the 5^th anniversary of participation in the Plan.

        1.22. "One-Year Break in Service" means a Plan Year during which a Participant completes 500 or fewer Hours of Service.

        1.23. "Participant" means any Employee participating in the Plan in accordance with Article II.

        1.24. "Plan" means The United Natural Foods Employee Stock Ownership Plan, as set forth herein, as the same may be amended from time to time, and includes the Trust.

        1.25 "Plan Administrator" means the Employer, acting through an individual or committee designated by the Board.

        1.26. "Plan Year" means the Employer's fiscal year from August 1 through the following July 31.

        1.27. "Qualified Election Period" means the six-Plan-Year period beginning with the Plan Year in which the Participant first becomes a Qualified Participant.

        1.28. "Qualified Participant" means a Participant who has attained age 55 and who has completed at least 10 years of active participation in the Plan.

        1.29. "Suspense Account" means the account comprised of unallocated shares of Employer Stock maintained in accordance with Section 4.4.

        1.30. "Trust" means The United Natural Foods, Inc. Employee Stock Ownership Trust described in Article VIII which constitutes part of the Plan.

        1.31. "Trustee" means the person or persons appointed by the Board to serve at its pleasure as Trustee(s) of the Trust.

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        1.32. "Valuation Date" means the last day of the Plan Year, and such other date(s) as the Plan Administrator may designate for valuing Plan assets.

        1.33. "Vested" means the portion of a Participant's Account that is non-forfeitable.

        1.34. "Year of Service" means the computation period of 12 consecutive months during which an Employee has completed at least 1000 Hours of Service with an Employer determined as follows:

        (a)   For purposes of eligibility for participation, the computation period shall begin with the date on which the Employee first performs or is credited with an Hour of Service. The participation computation period for determining a Year of Service shall then commence with the first day of the Plan Year which includes the first anniversary of the date on which the Employee first performed an Hour of Service.

        (b)   For purposes of determining a Participant's Vested interest in his or her Account, the computation period shall be the Plan Year.

        (c)   Service prior to the Effective Date shall be counted for eligibility and vesting purposes.

        (d)   Notwithstanding any other provision of the Plan, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Section 414(u) of the Code.

        (e)   For eligibility and vesting purposes, Years of Service shall be determined by taking into account service with any member of the Aggregation Group, including service as a Leased Employee within such Group. Years of Service may also include any period of prior employment by any predecessor or affiliated organization upon such terms and conditions (uniformly applicable to Participants similarly situated) as the Plan Administrator may approve.

Article II. Eligibility and Participation

        2.1.    Eligible Employees.    All Employees who are Participants in the Plan as of the Effective Date of this amendment and restatement shall continue to participate in the Plan. Thereafter, all Employees are eligible to participate in the Plan except (a) Employees who are members of a collective bargaining unit, unless the applicable collective bargaining agreement provides for participation in the Plan, (b) Leased Employees, (c) Employees who are nonresident aliens and who do not receive any earned income from an Employer that constitutes income from sources within the United States, (d) independent contractors (or any person treated by the employer as an independent contractor regardless of any agency or judicial determination that the individual is an employee for other purposes); and (e) contract workers hired through, or who are employees of, an outside agency.

        2.2.    Commencement of Participation.    An eligible Employee shall become a Participant in the Plan as on the Entry Date coincident with or next following the date on which he or she attained age 18 and completed one Year of Service.

        2.3.    Participation of Affiliates, Etc.    The Employer may at any time and from time to time by action of its Board (a) authorize an Affiliate to adopt the Plan and establish the terms on which its employees shall commence participation in the Plan, or (b) provide for the merger into this Plan, and continuation of as a part of this Plan, any other retirement or pension plan of the Employer or an Affiliate, on such terms and conditions as the Board may establish.

        2.4.    Termination of Active Participation.    Except to the extent that an allocation under Section 4.2 may be required, active participation in the Plan shall cease when a Participant ceases to be employed within the Aggregation Group for any reason. Active participation shall also cease when a Participant is transferred to a nonparticipating member of the Aggregation Group, or is transferred to a classification of Employees not eligible to participate under Section 2.1.

5

        2.5.    Resumption of Active Participation.    A former active Participant who resumes employment as an Employee shall recommence participation in the Plan as of the date he or she is credited with his or her first Hour of Service after re-employment. If an Employee has become a Participant in the Plan and his or her status as an active Participant is subsequently terminated due to a transfer of employment to a nonparticipating Affiliate, or the Employee becomes ineligible under Section 2.1, the individual shall resume participation immediately upon his or her re-employment with a participating Employer or transfer to an eligible classification.

Article III. Contributions

        3.1.    Employer Contributions.

        (a)   For each Plan Year, the Employer shall contribute to the Plan, in cash or shares of Employer Stock, such amount as the Employer may determine in its sole discretion, which amount may be zero, provided that (i) the Employer's contribution shall not exceed the maximum deductible contribution for any Plan Year under Section 404 of the Code, and (ii) the Employer shall contribute sufficient cash to (A) make any required payments of principal and interest on any outstanding Acquisition Loan, (B) restore any Forfeitures suffered by reemployed former Participants to the extent required after application of Section 5.5(c), and (C) restore any Accounts which were cancelled in accordance with Section 9.7, after the missing owner has been located.

        (b)   The Employer may contribute all or part of the entire amount due on behalf of one or more other Employers and charge the amount thereof to the Employer responsible therefor. In any Plan Year, the contribution on behalf of Participants who are Employees of an Employer, when expressed as a percentage of the aggregate Compensation of such Participants, may, but need not, be the same as the contribution on behalf of the Participants who are Employees of another Employer.

        (c)   Contributions for any Plan Year shall be paid to the Trustee not later than the due date (including any extensions thereof) for filing the Employer's federal income tax return for its taxable year on account of which such contribution was made.

        (d)   All or part of the contributions made under Section 3.1.(a) may be used to purchase Employer Stock allocated to the Accounts of Participants or beneficiaries, if necessary to make cash distributions.

        3.2.    Limitations on Annual Additions.

        (a)   The maximum Annual Additions that may be contributed or allocated to a Participant's Account for any Limitation Year shall not exceed the lesser of:

(i)

the Defined Contribution Dollar Limitation, or



(ii)

100 percent of the Participant's compensation, within the meaning of Section 415(c)(3) of the Code for the Limitation Year.

The "Defined Contribution Dollar Limitation" shall mean $40,000, as adjusted under Section 415(d) of the Code. The compensation limitation referred to above in (ii) shall not apply to any contribution for medical benefits (within the meaning of Section 419A(f)(2) of the Code) after separation from service which is otherwise treated as an Annual Addition, or to any amount otherwise treated as an Annual Addition under Section 415(l)(1) of the Code.

        (b)   For purposes of the Plan, "Annual Additions" shall mean, with respect to a Participant, the total of (i) the Employer contributions (whether or not used to pay principal or interest on any Acquisition Loan); (ii) Forfeitures (including any income attributable to Forfeitures); and (iii) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code (using the definitions

6

found in Sections 415(l)(2) and 419A(d)(3) of the Code), allocated to a Participant's Account for the Limitation Year by the Employer. Notwithstanding any provision in this Section 3.2(b) to the contrary, if not more than one-third of the total Employer contributions for the Plan Year are allocated to the Accounts of Participants who are "highly compensated employees" (as defined below), then the term "Annual Additions" shall not include Forfeitures of Employer Stock if such Employer Stock was acquired with the proceeds of an Acquisition Loan, or any amounts contributed to the Trust by an Employer and applied to the repayment of interest on an Acquisition Loan. For purposes of this Section 3.2(b), shares of Employer Stock that are released from the Suspense Account and credited to a Participant's Account during any Plan Year shall be valued at the lesser of (i) the Participant's allocable share of Employer contributions for the Plan Year that are used to repay the Acquisition Loan, or (ii) the fair market value of Employer Stock released from the Suspense Account and allocated to the Participant's Account for the Plan Year as provided in Article IV. For any Plan Year a "highly compensated employee" is an Employee of the Employer or an Affiliate who (i) at any time during the Plan Year or the preceding Plan Year was a 5% owner of the Employer, or (ii) at any time during the preceding Plan Year received compensation from the Employer in excess of $80,000 (as adjusted for inflation in the manner provided in Section 415 of the Code, except that the base period shall be the calendar quarter ending September 30, 1996). At the option of the Employer, employees who are not among the top 20 percent of employees ranked on the basis of compensation paid during the Plan Year may be excluded from the definition of highly compensated employees. If, as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's compensation or other limited facts and circumstances that the Commissioner of the Internal Revenue Service finds justifiable under Treasury regulation Section 1.415-6(b)(6), the total Annual Additions to a Participant's Account would otherwise exceed the above limitations, the amount of such excess shall be allocated to a Contribution Suspense Account. The amount allocated to the Contribution Suspense Account shall be deemed to be a contribution of the Employer made on account of the Plan for the next Plan Year.

        (c)   If a participating Employer or any other member of the Aggregation Group (determined using the more than 50% control test in Section 415(h) of the Code), maintains any other defined contribution plan, each Participant's Annual Additions under the Plan shall be aggregated with the Participant's annual additions (within the meaning of Section 415(c)(2) of the Code) under each such other plan for the purposes of applying the limitations of Section 3.2(b). In the event the aggregated plan limitations of this Section 3.2 would be exceeded after application of the allocation rules set forth in Section 4.2, the annual additions provided under the other plan shall be reduced, or refunded if permitted by the terms of such plan, to the extent necessary to achieve compliance with the limitations of Section 415 of the Code.

        (d)   The Annual Additions allocated to each Participant's Account shall be further limited to the extent necessary to ensure compliance with the nonallocation provisions of Section 4.7.

        3.3.    Participant Contributions.    No Participant shall be required or permitted to contribute to the Plan.

        3.4.    Rollover Contributions.    This Plan will not accept rollover contributions from any source.

Article IV. Participants' Accounts

        4.1.    Separate Accounts.    The Plan Administrator shall maintain an Account for each Participant, to which shall be credited, as of each Valuation Date, the Participant's share of Employer contributions to the Plan, Forfeitures under the Plan, if any, and all earnings and/or losses thereon. Separate subaccounts shall be maintained to record each Participant's interest in Employer Stock (the "Stock Account") and other investments of the Trust (the "Other Investments Account"). The Plan

7

Administrator may also maintain a Stock Forfeiture Account and Other Investments Forfeiture Account in the name of a Participant who has terminated employment.

        The Stock Account shall reflect the Participant's share of Employer contributions made in Employer Stock or purchased with Employer contributions, his or her allocable share of released Financed Shares pursuant to Section 4.3(a), his or her allocable share of Forfeitures of Employer Stock, and his or her allocable share of any Employer Stock attributable to earnings on Employer Stock (such as stock dividends).

        The Other Investments Account shall reflect the Participant's share of Employer contributions made in cash and any cash dividends or distributions on Employer Stock allocated and credited to the Participant's Stock Account (other than currently distributable dividends or distributions), his or her share of cash Forfeitures, and any income, gains, losses, appreciation or depreciation attributable thereto.

        4.2.    Allocations

        (a)   Subject to the limitations of Section 3.2, Employer Stock released from the Suspense Account pursuant to Section 4.3(a) with respect to a Plan Year (after the special allocation required under Section 4.4 (a)(ii) if dividends are used to repay an Acquisition Loan), and Employer contributions and Forfeitures (other than Employer contributions and cash Forfeitures used to pay principal or interest on an Acquisition Loan) for such Plan Year shall be allocated to the Account of each Participant (i) who completed 1,000 or more Hours of Service during the Plan Year and was employed by the Employer on the last day of the Plan Year, or (ii) whose employment terminated during such Plan Year by reason of death, Disability, or at or after the attainment of Normal Retirement Age, in the proportion that the Participant's Compensation for the Plan Year from the Employer bears to the Compensation of all Participants entitled to share in the allocation for the Plan year.

        (b)   Allocations of Employer Stock shall be expressed in terms of whole and fractional shares.

        4.3.    Release from Suspense Account.

        (a)   Any Financed Shares acquired by the Trust shall initially be credited to a Suspense Account and will be allocated to the Accounts of Participants only as payments on the Acquisition Loan are made by the Trustees. The number of Financed Shares to be released from the Suspense Account for allocation to Participants' Accounts for each Plan Year shall be the number of Financed Shares held in the Suspense Account immediately before the release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal paid on the Acquisition Loan for that Plan Year and the denominator of which is the sum of the numerator and the total of all payments of principal on that Acquisition Loan to be paid during the remaining term of the Acquisition Loan.

        (b)   At the option of the Plan Administrator and in accordance with the regulations under Section 4975 of the Code, Financed Shares may be allocated to the Accounts of Participants as payments of principal and interest on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Suspense Account for allocation to Participants' Accounts for each Plan Year shall be based upon the ratio that the payments of principal and interest on the Acquisition Loan for the Plan Year bear to the total projected payments of principal and interest for the Plan Year and over the remainder of the Acquisition Loan repayment period (determined without any reference to any possible extensions or renewals thereof). For purposes of computing the above ratio, if the interest rate on an Acquisition Loan is variable, the interest to be paid in subsequent Plan Years shall be calculated by assuming that the interest rate in effect as of the end of the applicable Plan Year will be the interest rate in effect for the remainder of the term of the Acquisition Loan. Notwithstanding the foregoing, in the event such

8

Acquisition Loan shall be repaid with the proceeds of a subsequent Acquisition Loan (the "Substitute Loan"), such repayment shall not operate to release all such Employer Stock in the Suspense Account, but, rather, such release shall be effected pursuant to the foregoing provisions of this Section 4.3 on the basis of payments of principal and interest on the Substitute Loan.

        (c)   If at any time there is more than one Acquisition Loan outstanding, separate accounts shall be established within the Suspense Account for each such Acquisition Loan. Each Acquisition Loan for which a separate account is maintained shall be treated separately for purposes of the provisions governing the release of Employer Stock from the Suspense Account under this Section 4.3.

        (d)   It is intended that the provisions of this Section 4.3 shall be applied and construed in a manner consistent with the applicable requirements of the Code and regulations. Employer Stock released from the Suspense Account for a Plan Year in accordance with this Section 4.3 shall be held in the Trust on an unallocated basis until allocated by the Plan Administrator pursuant to Section 4.2 as of the last day of that Plan Year.

        4.4.    Dividends on Employer Stock.

        (a)   In the discretion of the Plan Administrator, cash dividends paid on shares of Employer Stock allocated to Participants' Accounts may be (i) allocated to each Participant's Account in proportion that the number of shares of Employer Stock allocated to the Participant's Account bears to the total number of allocated shares of Employer Stock in the Trust, or (ii) used to repay, in whole or in part, principal (or interest) due on an Acquisition Loan; provided, however, that if cash dividends on allocated shares of Employer Stock are used to repay an Acquisition Loan, Employer Stock having a fair market value equal to the amount of the dividends which would otherwise have been credited to a Participant's Account shall be allocated to each such Account.

        (b)   Cash dividends on Employer Stock held in the Suspense Account shall be used to repay the related Acquisition Loan. Stock dividends on Employer Stock held in the Suspense Account shall be held in the Suspense Account and released as provided in Section 4.3.

        (c)   If so determined by the Plan Administrator, any cash dividends on Employer Stock allocated to Participants' Accounts may be paid currently (or within ninety (90) days after the end of the Plan Year in which the dividends are paid to the Trust) in cash to such Participant on a nondiscriminatory basis, or the Employer may pay such dividends directly to Participants. Such distribution (if any) of cash dividends to Participants may be limited to Participants who are still Employees, may be limited to dividends on shares of Employer Stock which are then Vested or may be applicable to dividends on all shares allocated to Participants' Accounts.

        4.5    Forfeitures.    The allocation of Forfeitures to Participants' Accounts shall be made after application of the rules set forth in Section 5.5.

        4.6.    Valuations.

        (a)   As of each Valuation Date, each Participant's Account shall be valued at fair market value and credited with the Participant's allocable share of any Forfeitures, earnings, losses or expenses of the Trust.

        (b)   All valuations of Employer Stock which are not readily tradable on an established securities market with respect to activities carried on by the Plan shall be made by an independent appraiser meeting requirements similar to those contained in Treasury regulations under Section 170(a)(1) of the Code.

        (c)   The allocation to a Participant's Account of earnings, losses, or expenses of the Trust shall be made in the proportion that the Participant's Account balance at the close of business as of the last day of the prior Plan Year bore to the total Account balances of all Plan Participants as of such date.

9

        4.7.    Prohibited Allocations.

        (a)   No portion of the Trust attributable to (or allocable in lieu of) Employer Stock acquired by the Plan in a sale to which Section 1042 of the Code applies ("Section 1042 Stock") may accrue or be allocated directly or indirectly under the Plan:

(i)

during the "Nonallocation Period", for the benefit of



(A)

any taxpayer who makes an election under Section 1042(a) of the Code with respect to the Employer Stock,



(B)

any individual who is related to the taxpayer (within the meaning of Section 267(b) of the Code), except as provided below,



(ii)

for the benefit of any other person who owns (after application of Section 318(a) of the Code applied without regard to the employee trust exception of Section 318(a)(2)(B)(i)) more than 25 percent of:



(A)

any class of outstanding stock of the Employer or any Affiliate, or



(B)

the total value of any class of outstanding stock of Employer or any Affiliate.

        (b)   Notwithstanding the foregoing, Section 1042 Stock or other assets in the Trust in lieu thereof may accrue or be allocated to lineal descendants of the taxpayer referred to in Section 4.7(a)(i)(A) above, provided that the aggregate amount allocated to the benefit of all such lineal descendants during the "Nonallocation Period" does not exceed more than five percent (5%) of the Section 1042 Stock (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Section 267(c)(4)) of the Code.

        (c)   A person shall be treated as failing to meet the stock ownership limitation under Section 4.7(a)(ii) above if such person fails such limitation:

(i)

at any time during the one (1) year period ending on the date of sale of Section 1042 Stock to the Plan, or



(ii)

on the date as of which Section 1042 Stock is allocated to Participants in the Plan.

        (d)   for purposes of this Section 4.7, "Nonallocation Period" means the period beginning on the date of the sale of the Section 1042 Stock and ending on the later of:

(i)

the date which is ten (10) years after the date of sale, or



(ii)

the date of the Plan allocation attributable to the final payment of the Acquisition Loan incurred in connection with such sale.

Article V. Vesting

        5.1.    Vesting Schedule.    A Participant's interest in his or her Account shall become Vested as follows:

Participant's Years of Service	Vested Percentage
less than 5	0	%
5 or more	100	%

        5.2.    Full Vesting.    Notwithstanding the provisions of Section 5.1 above, each Participant shall become fully Vested upon the Participant's death, Disability or attainment of Normal Retirement Age (provided the Participant is employed by an Employer on that date), or the date on which the

10

Participant is required to be fully Vested under the applicable provisions of the Code on account of the termination or partial termination of the Plan or the complete discontinuance of contributions to the Plan.

        5.3.    Past Service.    For purposes of determining a Participant's Vested interest in his or her Account, Years of Service shall include employment with the Employer or an Affiliate recognized under Section 1.34 before the Effective Date.

        5.4.    Breaks In Service.

        (a)   If a Participant terminates employment and incurs five (5) or more consecutive One-Year Breaks in Service, then in the event that the Participant is reemployed, all Years of Service after such termination will be disregarded for the purpose of determining the Participant's Vested interest in his or her Account that accrued before such Breaks.

        (b)   If a Participant had no Vested interest at the time the Participant terminated employment, Years of Service prior to any period of consecutive One-Year Breaks in Service shall not be taken into account if the number of consecutive One-Year Breaks in Service equals or exceeds the greater of five (5), or the number of Years of Service credited to the Participant prior to such Breaks.

        5.5.    Treatment of Forfeitures.

        (a)   If a Participant terminates employment, any amount credited to the Participant's Account which is not Vested at the time of the Participant's termination of employment shall become a Forfeiture as of the earlier of (i) the last day of the Plan Year in which the Participant received a complete distribution of the Participant's Vested interest in his or her Account, or (ii) the Participant's fifth consecutive One-Year Break in Service. For purposes of this Section 5.5, a Participant who has no Vested interest shall be deemed to have received a complete distribution of his or her Vested interest as of the last day of the Plan Year in which the Participant terminates employment. If a portion of a Participant's Account is forfeited, Employer Stock allocated to the Participant's Account shall be forfeited only after other assets.

        (b)   If a former Participant shall be reemployed by the Employer before incurring five (5) consecutive One-Year Breaks in Service, any Forfeiture incurred under Section 5.5, and any undistributed portion of the Participant's Vested interest in the Account, shall be reinstated and maintained as a separate Account until the Participant becomes fully Vested. At any subsequent time until the Participant becomes fully Vested, the Participant's Vested interest in the reinstated Account shall be equal to an amount ("X") determined by the formula X = P(AB + D) -D, where P equals the Participant's Vested percentage, AB Equals the Account balance, and D is the amount of the prior distribution or deemed distribution.

        (c)   Forfeitures occurring during any Plan Year shall be used first to restore (i) any Forfeitures for reemployed former Participants pursuant to Section 5.5(b), and (ii) cancelled Accounts of missing persons who have been located pursuant to Section 9.7. Any remaining Forfeitures shall be allocated among Participants as provided in Section 4.2.

Article VI. Distributions from the Plan

        6.1.    Time and Manner of Distributions.

        (a)   Distribution of the balance in a Participant's Account shall commence as soon as practicable after the Participant's death, Retirement at or after age 65, Disability or separation from service for any other reason. However, if the value of the Vested portion of a Participant's

11

Account exceeds Five Thousand Dollars ($5,000), the Participant may elect to defer distribution until his or her Retirement at or after age 65.

        (b)   Notwithstanding any other provision of the Plan, unless a Participant elects otherwise, distribution of the Vested portion of the Participant's Account must commence not later than the sixtieth (60th) day after the close of the Plan Year in which occurs the latest of: (i) the date the Participant attains age 65; (ii) the date the Participant's employment with an Employer terminates; or (iii) the tenth (10th) anniversary of the date on which the Participant commenced participation in the Plan.

        (c)   A Participant's benefits must begin to be distributed in accordance with the requirements of the regulations under Section 401(a)(9) of the Code not later than April 1st of the calendar year following the later of: (i) the calendar year in which the Participant attains age 70¹/2, or (ii) the calendar year in which the Participant retires; provided, however, that clause (ii) shall not apply in the case of a Participant who is a 5- percent owner of the Employer. Notwithstanding any provision of this Section 6.1 to the contrary, distributions shall be made in accordance with Section 401(a)(9) of the Code and the regulations thereunder.

        (d)   Distribution of the Vested portion of a Participant's Account shall be made pursuant to the election of the Participant (or at the election of the Beneficiary if no election has been made prior to the Participant's death) in either (i) a lump sum or (ii) five (5) substantially equal annual installments equal to one-fifth of the Vested Account balance in the first year; one-fourth in the second year; one third in the third year; one-half in the fourth year, and the remaining balance in the fifth year. If a Participant dies before benefit distribution has commenced, the Vested portion of the Participant's Account shall be fully distributed not later than five (5) years after the date of the Participant's death. If installment distributions commenced prior to the Participant's death, they shall continue to the Participant's beneficiary.

        So long as the Employer Stock held in the Plan is publicly traded on a nationally recognized securities exchange, distributions to Participants shall be made in the form of Employer Stock, except for the value of fractional shares, which shall be distributed in cash. If the Employer Stock acquired with the proceeds of an Acquisition Loan consists of more than one class, the Participant must receive substantially the same proportion of each class.

        (e)   So long as the Employer Stock held in the Plan is publicly traded on a nationally recognized securities exchange, an active Participant who (i) is not a "highly compensated employee" within the meaning of Section 414(q) of the Code, (ii) has completed at least 8 years of participation in the Plan, and (iii) has not received a distribution or transfer under this Section or Section 6.1(f), or a hardship distribution or in-service transfer under the Prior Plan within the preceding 8 years, may elect to receive a distribution of up to fifty percent (50%) of the Participant's Account balance as an "In-Service Distribution". An In-Service Distribution shall be made in the form of Employer Stock. An In-Service Distribution to a participant who has previously received an In-Service Distribution, an In-Service Transfer under Section 6.1(f) or a hardship distribution or in-service transfer under the Prior Plan (each a "Prior Withdrawal") may not exceed 50% of the sum of the balance in the Participant's Account as of the date of the Participant's election plus the amount of all Prior Withdrawals, less the amount of all Prior Withdrawals. In-Service Distributions shall be made in a uniform nondiscriminatory manner in accordance with policies adopted by the Plan Administrator.

        (f)    So long as the Employer Stock held in the Plan is publicly traded on a nationally recognized securities exchange, an active Participant who (i) is not a "highly compensated employee" within the meaning of Section 414(q) of the Code, (ii) has completed at least 8 years of participation in the Plan, and (iii) has not received a Prior Withdrawal within the preceding 8 years, may elect to make a transfer of up to fifty percent (50%) of the Participant's Account

12

balance, as an "In-Service Transfer" to a tax-qualified defined contribution plan sponsored by the Employer or an Affiliate which accepts said transfers. To the extent required to fund the In-Service Transfer, Employer Stock allocated to the Participant's Account shall be sold. An In-Service Transfer to a Participant who has received a Prior Withdrawal may not exceed 50% of the sum of the balance in the Participant's Account as of the date of the Participant's election plus the amount of all Prior Withdrawals, less the amount of all Prior Withdrawals.

        (g)   Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Participant's election under this Section 6.1(g), a Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to have all or any portion of an eligible rollover distribution paid in a direct rollover, in cash or Employer Stock, directly to an eligible retirement plan specified by the Participant.

        An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the Participant, except that an eligible rollover distribution does not include: (i) any distribution 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 Participant or the joint lives (or joint life expectancies) of the Participant and the Participant's designated beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); (iv) any hardship distribution described in Section 401(K)(2)(B)(i)(IV) of the Code; and (v) other items designated not to be eligible rollover distributions by regulation, revenue ruling, notice, or other guidance issued by the Department of the Treasury.

        An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or 403(b), an eligible plan under Section 457 of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or a political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or a qualified trust described in Code Section 401(a), that accepts the Participant's eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. The Participant's surviving spouse and the Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code section 414(p), are considered Participants with regard to the interest of the spouse or former spouse.

        6.2.    Diversification Election.

        (a)   Each Qualified Participant shall be permitted to make a Diversification Election with respect to 25 percent of the total number of shares of Employer Stock acquired by or contributed to the Plan that have ever been allocated to such Qualified Participant's Account (reduced by the number of shares to which any prior Diversification Election applied) within 90 days after the last day of each Plan Year during the Participant's Qualified Election Period. Within 90 days after the close of the last Plan Year in the Participant's Qualified Election Period, a Qualified Participant may make a Diversification Election with respect to 50 percent of the total number of shares of Employer Stock acquired by or contributed to the Plan that have ever been allocated to such Qualified Participant's Account (reduced by the number of shares previously distributed pursuant to a Diversification Election). A Participant's Diversification Election shall be submitted to the Plan Administrator in writing.

        (b)   The Diversification Election shall be satisfied through the transfer in cash of that portion of the Participant's Account covered by the Diversification Election to another qualified plan of an Employer which accepts such transfers, within the 90-day period described in Section 6.2(a),

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provided that such plan permits employee-directed investments and offers at least three (3) distinct investment options.

        6.3.    Put Option.    If at the time of distribution, Employer Stock distributed from the Trust is not treated as "readily tradable on an established market" within the meaning of Section 409(h) of the Code, a Participant or beneficiary who receives shares of such Employer Stock pursuant to Section 6.1 or 6.2 shall have the right (a "put") to require the Employer to purchase the shares of Employer Stock for their fair market value determined pursuant to Section 4.6. The put shall be exercisable by written notice to the Plan Administrator during the first 60 days after the stock is distributed by the Plan and, if not exercised in that period, during the first 60-day period in the next Plan Year after the valuation of Employer Stock under Section 4.6(b) has been completed. If the put is exercised, the Trustees may, in their discretion, assume the Employer's rights and obligations with respect to purchasing the stock. Payment of the fair market value of the distributed shares under the put shall be made in a lump sum or, if the Employer Stock was distributed as part of a total distribution, in substantially equal annual installments commencing not later than thirty (30) days after the Participant exercises the put option over a period not exceeding 5 years. Installment obligations under the put option may be prepaid at any time. If payment is made in installments, adequate security shall be provided and reasonable interest shall be paid on the unpaid principal balance.

        6.4.    Designation of Beneficiary.    Each Participant may designate a beneficiary or beneficiaries to receive any benefits payable to the Participant under the Plan upon the Participant's death and may change any such designation at will. Such beneficiary or beneficiaries shall receive benefits pursuant to Section 6.1. of the Plan. Any designation or change of designation shall be made in writing in the form and manner prescribed by the Plan Administrator, and shall be effective upon receipt by the Plan Administrator. Notwithstanding the foregoing, if the Participant is married, the Participant's surviving spouse shall be the designated beneficiary, unless such spouse has consented in a duly notarized written consent to the designation of another beneficiary. If the Participant fails to properly designate a beneficiary, or if the Plan Administrator shall be unable to locate the designated beneficiary after reasonable efforts have been made, or if no named beneficiary shall survive the Participant, distribution of the Vested portion of the deceased Participant's Account shall be made to the Participant's estate.

        6.5.    Proof of Death, Etc.    The Plan Administrator may require the execution and delivery of such documents, papers and receipts as the Plan Administrator may determine necessary or appropriate in order to establish the fact of death of the Participant and the right and identity of any beneficiary or other person or persons claiming any benefits under this Plan.

        6.6.    Qualified Domestic Relations Order.    In addition to payments made under Section 6.1 on account of a Participant's separation from service, payments may be made to an Alternate Payee (as defined below) prior to, coincident with, or after a Participant's separation from service if made pursuant to a Qualified Domestic Relations Order. A distribution to an Alternate Payee may be made out of a Participant's Account without regards to the Participant's earliest retirement age. Nothing in this subsection 6.7 shall provide a Participant with a right to receive a distribution at a time not otherwise permitted under the Plan, nor shall it provide the Alternate Payee with a right to receive a form of payment not permitted under the Plan. The term "Qualified Domestic Relations Order" means any judgment, decree, or order (including approval of a property settlement agreement) which:

        (a)   relates to the provision of child support, alimony payments, or marital property rights to a spouse, child or other dependent of a Participant,

        (b)   is made pursuant to a State domestic relations law (including a community property law),

        (c)   creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable with respect to the Participant,

14

        (d)   clearly specifies the name and last known mailing address, if any, of the Participant and the name and mailing address of each Alternate Payee covered by the order, the amount and percentage of the participant's benefits to be paid by the Plan to each Alternate Payee, or the manner in which such amount or percentage is to be determined, the number of payments or period to which such order applies and each plan to which such order applies, and

        (e)   does not require the Plan to provide (i) any form or type of benefit, or any option, not otherwise provided under the Plan, (ii) increased benefits, or (iii) benefits to an Alternate Payee which are required to be paid to another payee under another order previously determined by the Plan Administrator to be a Qualified Domestic Relations Order.

        The Plan Administrator shall establish reasonable procedures to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. The Plan Administrator may, in it sole discretion, establish and maintain a segregated account for each Alternate Payee. The term "Alternate Payee" means any spouse, former spouse, child or other dependent of a Participant who is recognized by a Qualified Domestic Relations Order as having a right to receive all or a portion of the benefits payable under the Plan with respect to the Participant.

Article VII. Plan Administration

        7.1.    Organization of the Plan Administrator.    The Employer, acting through the Corporate Vice President of Human Resources or such other individual or committee as may be designated by the Board, shall be the Plan Administrator and shall administer the Plan on behalf of the Employer. Any person serving as Plan Administrator may be removed by the Board at any time, and may resign by delivering written notice to the Board. A person or committee serving as the Plan Administrator hereunder shall report to the Board periodically with regard to the matters for which it is responsible under the Plan, but in no event less frequently than annually.

        7.2.    Operation of the Plan Administrator.    The Plan Administrator may make such rules regarding its duties as Plan Administrator as it may deem necessary or appropriate. No person serving as Plan Administrator shall be entitled to act on or decide any matter relating to any of his or her rights or benefits under the Plan.

        7.3.    Responsibilities of the Employer and Plan Administrator.    The Plan Administrator shall be the named fiduciary of the Plan and shall serve as the administrator of the Plan as defined in Section 3(16) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan Administrator shall have general responsibility for:

        (a)   Operating, interpreting and administering the Plan in accordance with the terms of the pertinent documents, written resolutions adopted from time to time governing the Plan and any related funding agreement;

        (b)   Determining benefit eligibility, communicating and administering the distribution provisions of Article VI of the Plan, and directing the Trustee as to the time and manner of benefit distributions under the Plan, and;

        (c)   Establishing procedures and adopting uniform rules and regulations including, without limitation, funding and liquidity policies for the Trust, as it deems necessary or appropriate for the effective administration of the Plan;

        (d)   Hiring persons and organizations to provide legal, accounting, actuarial and other services necessary to the Plan;

        (e)   Issuing directions for the payment of any fees, taxes, charges or other costs incidental to the operation and management of the Plan as provided in Section 7.5;

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        (f)    Preparing and filing all reports and returns required to be filed by the Plan with any government agency and submitting an annual report of the operations of the Plan to the Board;

        (g)   Compliance with all disclosure requirements imposed by state or federal law;

        (h)   Maintenance of all records of the Plan other than those required to be maintained by the Trustee, including, without limiting the foregoing, records and information with respect to the employment date, date of participation in the Plan and, elections by Participants, their spouses and beneficiaries, and consents granted and determinations made under the Plan and the Trust; and

        (i)    Performance of all other acts required by the Plan documents or applicable law to be performed by the Plan Administrator.

The Plan Administrator shall have, except as otherwise provided herein, all powers necessary to carry out the provisions of the pertinent documents, shall have the exclusive right to construe such documents and to determine and resolve any question that may arise in connection with the funding, application or administration of the Plan, and may secure all reasonable assistance and advice in the performance of its duties. The Plan Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or person who is employed or engaged for such purposes.

        7.4.    Management of Trust Fund Assets.    The Trustee shall have exclusive responsibility, subject to specific provisions of the Plan and Trust, for the management and control of the assets of the Trust.

        7.5.    Expenses.    Any person acting as Plan Administrator shall be reimbursed for the reasonable expenses incurred in connection with their services. All costs and expenses incurred in the implementation, administration and operation of the Plan shall be paid by the Plan to the extent not paid by the Employer. Except as otherwise required by ERISA, no bond or other security shall be required of any person acting as Plan Administrator in any jurisdiction.

        7.6.    Allocation and Delegation of Responsibility.    If more than one person is serving as Plan Administrator, they may allocate their duties in any manner they deem appropriate, by a written instrument signed by all members of the Plan Administrator. A copy of any such instrument shall be maintained with the Plan records. In the event the Plan Administrator should so allocate its duties, an individual shall be liable only for those duties specifically allocated to him or her under the instrument, and not for those allocated to any other person. The Plan Administrator may delegate to any person or agent its responsibility to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion, provided that such delegation shall be subject to revocation at any time at the discretion of the Plan Administrator. A person exercising administrative responsibilities delegated by the Plan Administrator shall be subject to removal by the Plan Administrator at any time, and may resign by delivering written notice to the Plan Administrator.

        7.7.    Indemnification.    To the maximum extent permitted by law, no person serving as Plan Administrator shall be personally liable by reason of any contract or other instrument executed by the person or on the person's behalf in his or her capacity as Plan Administrator nor for any mistake of judgment made in good faith, and the Employer shall indemnify and hold harmless directly from its own assets (including the proceeds of any insurance policy, the premiums of which are paid from the Employer's own assets) each person serving as the Plan Administrator and each other officer, Employee, or director of the Employer to whom any duty or power relating to the administration or interpretation of the Plan or to the management and control of the assets of the Plan may be delegated or allocated, against any cost or expense (including counsel fees) or liability (including any amount imposed in the form of a money judgment, civil penalty, excise tax, or any sum paid in settlement of a claim with the approval of the Employer) arising out of any act or omission to act in connection with the Plan unless arising out of such person's gross negligence, willful misconduct or bad faith. No such

16

individual shall be liable with respect to a breach of fiduciary duty if such a breach occurred before the individual became a fiduciary or after he or she ceased to be a fiduciary.

        7.8.    Service of Process.    The Corporate Vice President of Human Resources of the Employer, or such other person(s) as may from time to time be designated by the Plan Administrator, shall be the agent for service of process under the Plan.

        7.9.    Statement of Account.    The Plan Administrator shall provide each Participant with an annual statement of the Participant's Account as of the last day of the preceding Plan Year.

        7.10.    Advisory Committee.    The Board may, in its discretion, appoint an advisory committee of Employees to assist the Plan Administrator in explaining and communicating the terms of the Plan to Participants.

Article VIII. The Trust

        8.1.    Establishment of Trust.    Contemporaneously with the execution of this amended and restated Plan, the Employer shall execute a trust agreement with one (1) or more Trustees appointed by the Board, to hold the assets of the prior plan, into which all contributions to the Plan shall be paid, and from which all benefits under the Plan and any Plan expenses not paid directly by the Employer shall be paid. All contributions to the Plan shall be paid over to the Trustee and held and invested pursuant to the provisions of the Trust

        8.2.    Interest in Trust.    No person shall have any interest in or right to any part of the earnings or the assets of the Trust, except as and to the extent provided herein. The Employer and any participating affiliated Employers shall have no liability for the payment of benefits from the Trust nor for the administration of funds paid to the Trustee.

        8.3.    Accounts.    A Participant's interest in the Trust shall be reflected in his or her Account. One or more subaccounts shall be established under each Participant's Account as described in Section 4.1. Notwithstanding the foregoing, the Trust shall be treated as a single trust for purposes of investment and administration, and nothing contained herein shall require a physical segregation of assets for any subaccount or Account. The Trustee shall render an account of the transactions of the Trust to the Board and to the Plan Administrator at least annually and at such other times as may reasonably be required by the Board or the Plan Administrator.

        8.4.    Investment of Assets and Voting Rights.

        (a)   The Trustee shall invest all cash contributions to the Plan and any earnings thereon in Employer Stock, except to the extent necessary to meet the requirements of the Plan liquidity policy as communicated to the Trustee by the Plan Administrator. No investment in Employer Stock shall be made at a price in excess of the fair market value of such Stock at the time of purchase. Assets of the Trust not invested in Employer Stock shall be invested by the Trustee or by an investment manager appointed by the Board. Employer contributions made in cash, and other cash received by the Trustee, may be used to acquire Employer Stock on the open market, or directly from the issuer or from one or more of its shareholders.

        (b)   Voting rights with respect to Employer Stock held by the Trust shall be exercised by the Trustee in accordance with the following provisions of this Section 8.4(b):

(i)

The Trustee shall vote all Employer Stock held as part of the Plan assets.



(ii)

Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or beneficiary shall be entitled to direct the Trustee as to the manner in which the Employer Stock allocated to the Account of such Participant or beneficiary is to be voted. The Trustee shall vote unallocated Employer Stock and allocated Employer

17

Stock for which no voting instructions are received in the same proportions as Participants have given directions to the Trustee to vote their allocated Employer Stock. If the Employer does not have a registration-type class of securities, each Participant or beneficiary shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Employer Stock which are allocated to the Account of such Participant or beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as may be prescribed in regulations under Section 409(e) of the Code. For purposes of this Section, the term "registration-type class of securities" means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such Section 12.

(iii)

To facilitate the pass through voting rights described in (ii) above, the Trustee, with the assistance of the Plan Administrator, shall deliver to each Participant a copy of all proxies, notices and other information which is distributed to voting shareholders generally; and the Plan Administrator shall establish such procedures for the collection of Participants' instructions as to the voting of Employer Stock and the timely transmission of such instructions to the Trustee as it shall determine to be appropriate.

        8.5.    Acquisition Loans.    The Trustee may incur an Acquisition Loan from time to time from any person, including a disqualified person, for the purpose of financing the acquisition of Financed Shares for the Trust, or repaying the Acquisition Loan or a prior Acquisition Loan. All Acquisition Loans shall satisfy the following requirements:

        (a)   The Acquisition Loan must be at a reasonable rate of interest;

        (b)   Any collateral pledged to the creditor by the Plan shall consist only of Employer Stock purchased with the borrowed funds, or Employer Stock that was used as collateral on a prior Acquisition Loan repaid with the proceeds of the current Acquisition Loan;

        (c)   Under the terms of the Acquisition Loan, any pledge of Employer Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Section 4.3;

        (d)   Under the terms of the Acquisition Loan, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer contributions (other than contributions of Employer Stock) that were made to meet obligations under the Loan, and earnings attributable to such contributions;

        (e)   The Acquisition Loan must be for a specific term and may not be payable at the demand of any person, except in the event of default;

        (f)    In the event of default, the value of Plan assets transferred in satisfaction of the Acquisition Loan shall not exceed the amount of default. If the lender is a disqualified person, an Acquisition Loan shall provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Acquisition Loan; and

        (g)   Acquisition Loan payments during a Plan Year must not exceed an amount equal to (i) the sum, over all Plan Years, of all contributions and cash dividends paid by the Employer to the Plan with respect to such Acquisition Loan and earnings on such Employer contributions and cash dividends, less (ii) the sum of the Acquisition Loan payments in all preceding Plan Years. A separate accounting shall be maintained for such Employer contributions, cash dividends and earnings until the Acquisition Loan is repaid.

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For purposes of this Section, the term "disqualified person" means a person within the meaning of Section 4975(e)(2) of the Code who is (i) a fiduciary; (ii) a person providing services to the Plan; (iii) an employer any of whose employees are covered by the Plan; (iv) an employee organization any of whose members are covered by the Plan; (v) an owner, direct or indirect, of 50% or more of the total combined voting power of all classes of voting stock or of the total value of all classes of stock, of an employer or employee organization described in (iii) or (iv); (vi) a member of the family of any individual described in (i) through (iii), or (v); (vii) a corporation, partnership, trust or estate of which (or in which) 50% or more of the voting power, capital interest or beneficial interest, as appropriate, is owned by any person described in (i) through (v); (viii) an officer, director, 10% or more shareholder, or a highly compensated employee of a person described in (iii) through (v), or (vii); or (ix) a 10% or more partner (in capital or profits) or joint venturer of a person described in (iii) through (v), or (vii).

        No Employer Stock, except as provided in Section 6.3 and Section 6.4, acquired with the proceeds of an Acquisition Loan may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from the Trust, whether or not the Plan is then an ESOP. The protections and rights granted in this section are nonterminable, and such protections and rights shall continue to exist under the terms of this Plan so long as any Employer Stock acquired with the proceeds of an Acquisition Loan is held by the Trust or by any Participant or other person for whose benefit such protections and rights have been created, and neither the repayment of such Loan nor the failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a termination of said protections and rights.

        8.6.    Liability of Trustee.    The Trustee shall administer the Trust, in accordance with the Plan documents, solely for the benefit of Plan Participants, with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man familiar with such matters would employ acting in a like capacity and with like aims, and shall be liable only to the extent the Trustee fails to act in such manner. A Trustee shall be liable for a breach of such duty by another Trustee only to the extent he or she could have prevented such breach, or participated therein, or failed to make reasonable efforts to remedy such breach after obtaining knowledge thereof. No Trustee shall incur any liability on account of any action taken at the direction of the Employer or the Plan Administrator in accordance with the terms of the Plan, or for any investment decision made at the direction of an investment manager.

        8.7.    Allocation of Duties.    If more than one Trustee has been appointed, the Trustees shall have the power to allocate their duties among themselves by a written instrument signed by all the Trustees, copies of which are delivered to the Plan Administrator and the Board. In the event the Trustees should so allocate their responsibilities, each Trustee shall be liable only for those duties specifically allocated to him or her, and not for those not specifically allocated to another Trustee.

        8.8.    Legal Limitation.    The Trustee shall not be required to engage in any transaction, including, without limitation, a purchase or sale of Employer Stock, if the Trustee determines in its sole discretion that such action might tend to subject the Trustee, the Plan, an Employer or any Participant to liability under federal or state laws.

        8.9.    Appointment of Independent Fiduciary.    Notwithstanding any provision of the Plan or Trust to the contrary, the Board may appoint an Independent Fiduciary to act on behalf of the Plan and Trust, or to direct the Trustee to act on behalf of the Plan and Trust, with respect to any issue which involves a conflict of interest, or for any other purpose determined by the Board. The Independent Fiduciary shall be granted such power, authority and discretion as may be necessary and appropriate for it to carry out its duties and responsibilities, including, but not limited to, any and all powers and discretion granted to the Plan Administrator or the Trustee under the Plan and Trust and the authority to direct the Trustee to take such action as the Independent Fiduciary determines to be appropriate.

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Article IX. General

        9.1.    Amendment of Plan.    (a) The Employer reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to conform with governmental regulations or other policies, to modify or amend in whole or in part any or all of the provisions of the Plan, without the consent of any participating Affiliate, Participant or beneficiary; provided, however, that the Vested benefit of any Participant on the later of (i) the date the amendment is adopted, or (ii) the date the amendment is effective, shall not be less than the Participant's Vested benefit under the Plan without regard to such amendment.

        (b)   In the event the vesting schedule provided in Section 5.1 is amended, or changed on account of the Plan becoming or ceasing to be Top-Heavy, any Participant who has completed at least three (3) Years of Service may elect to have the Vested interest in his or her Account determined under the Plan without regard to such amendment or change by notifying the Plan Administrator in writing within the election period hereinafter described. The election period shall begin on the date such amendment is adopted or the date such change is effective, as the case may be, and shall end no earlier than the latest of the following dates:

(i)

the date which is 60 days after the day such amendment is adopted;



(ii)

the date which is 60 days after the day such amendment or change becomes effective; or



(iii)

the date which is 60 days after the day the Participant is given written notice of such amendment or change by the Plan Administrator.

        Any election made pursuant to this Section 9.1 (b) shall be irrevocable.

        9.2.    Plan Termination.

        (a)   The Employer reserves the right to terminate the Plan in whole or in part or to discontinue contributions hereto at any time without the consent of any Employee, Participant or beneficiary. Each affiliated Employer, by its adoption of the Plan, shall be deemed to have delegated this authority to the Employer.

        (b)   Upon termination of the Plan, no further contributions shall be made under the Plan and no amount shall thereafter be payable under the Plan to or in respect of any Participant except as provided in this Section 9.2. To the maximum extent permitted by ERISA, transfers, distributions or other dispositions of the assets of the Plan as provided in this Section 9.2 shall constitute a complete discharge of all liabilities under the Plan. All of the provisions of the Plan which in the opinion of the Plan Administrator are necessary for the administration of the Plan and the administration and distribution, transfer or other disposition of the assets of the Plan in accordance with this Section 9.2 and Section 9.11 shall remain in force. The interest of each Participant as of the date of the termination of the Plan in the amount, if any, allocated to the Participant's Account shall be non-forfeitable as of such date. Upon receipt by the Plan Administrator of the approval of the Internal Revenue Service of such termination, the value of each such Account shall be determined as of the Valuation Date coinciding with or immediately preceding the date of distribution and shall be paid from the Trust to each Participant and former Participant (or, in the event of the death of a Participant or former Participant, the beneficiary thereof) in a lump sum or any manner of distribution specified in Article VI above, as the Plan Administrator shall determine. All determinations, approvals and notifications referred to above shall be in form and substance and from a source satisfactory to counsel for the Plan.

        (c)   In the event that the Plan Administrator or the Internal Revenue Service determines that a partial termination (within the meaning of ERISA) of the Plan has occurred, then the interest of

20

each Participant affected thereby in the amount, if any, allocated to his or her Account shall be non-forfeitable as of the date of such partial termination.

        9.3.    Notice of Amendment.    Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Board to the Plan Administrator, the Trustee and all Employers.

        9.4.    Non-Alienation of Benefits.    No benefit under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, except insofar as may be otherwise required by law or in accordance with a "qualified domestic relations order" (as defined in Section 414(p) of the Code). Any attempt to do so shall be void and shall entitle the Plan Administrator to suspend such benefit and to hold or apply the same to or for the benefit of such Participant or his or her beneficiary, spouse, child, parent or other blood relative, or any of them.

        9.5.    Employment Relation.    The establishment of the Plan shall have no effect on the employment rights of any Employee or former Employee of an Employer. The adoption and maintenance of the Plan shall not constitute a contract between the Employer and any Employee, or consideration for, or an inducement to or condition of, the employment of any Employee.

        9.6.    Payments to Minors and Incompetents.    In the event that the Plan Administrator shall determine that a Participant or beneficiary hereunder is a minor, is unable to care for his or her affairs due to illness or accident, or is otherwise incompetent to receive a benefit payable hereunder, the Plan Administrator may, in its discretion, direct that any benefit payment due the Participant, if not claimed by a duly appointed legal representative, may be held for the Participant or may be paid to his or her spouse, child, parent or other blood relative, or to a person with whom he or she resides, and any payment so made shall completely discharge the liability of the Plan therefor.

        9.7.    Missing Persons.    If the Plan Administrator after undertaking a reasonable investigation, cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, and if after such payment is due, a notice of such payment due is mailed to the last known address of such person, as shown on the records of the Plan Administrator or the Employer and, within twelve months after such mailing, such person has not made written claim therefor, the Plan Administrator, after receiving advice from counsel to the Plan, may direct that such payment and all remaining payments otherwise due to such person be cancelled on the records of the Plan and the amount thereof allocated as an Employer contribution for the benefit of other Participants, and upon such cancellation, the Plan and the Trust shall have no further liability therefor. If the Plan Administrator subsequently locates such person, the cancelled Account shall be restored in the manner described in Section 3.1(a)

        9.8.    Sole Source of Benefits.    The Participants in the Plan and their beneficiaries shall look solely to the assets of the Trust established hereunder for the benefits payable hereunder, and the Employer shall not be liable hereunder except to the extent payments are made to the Trust.

        9.9.    Plan Qualification.    Notwithstanding any other provision of the Plan, the adoption of this amendment and restatement to the Plan is conditioned upon the Plan and Trust being determined by the Internal Revenue Service to continue to meet the qualification requirements of Section 401(a) of the Code, so that the Employer may deduct currently for Federal income tax purposes its contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this amended and restated Plan is held by the Internal Revenue Service not to qualify under Section 401(a) of the Code, the Plan may be amended retroactively to the earliest date permitted by Treasury regulations in order to secure qualification under Section 401(a) of the Code.

        9.10.    Merger, Consolidation, Etc.    No merger or consolidation with, or transfer of assets or liabilities to, any other plan shall occur unless, immediately after such merger, consolidation or transfer each Participant in the Plan would, if the Plan were then terminated, be entitled to receive a benefit

21

equal to or greater than the benefit he or she would have been entitled to receive immediately before such merger, consolidation, or transfer if the Plan had then been terminated.

        9.11.    Exclusive Benefit.    Except to the extent required to be used to repay an Acquisition Loan, and under the circumstances permitted from time to time by the law governing the requirements applicable to qualified plans, within the meaning of Section 401 of the Code (or any successor provision), none of the assets held by the Trustee under the Plan shall, prior to the satisfaction of all liabilities under the Plan, ever revert to any Employer or otherwise be diverted to purposes other than the exclusive benefit of the Participants or their beneficiaries. Notwithstanding the foregoing:

        (a)   any contribution made by an Employer or on behalf of an Employer because of a mistake of fact may be returned to such Employer within one year after such contribution is made; and

        (b)   if the deduction of a contribution by an Employer or on behalf of an Employer is disallowed under Section 404 of the Code, then, to the extent the deduction is disallowed, such contribution may be returned to such Employer within one year after the disallowance of the deduction.

        9.12.    Claims for Benefits.    In the event a claim for benefits under the Plan is denied, notice of such denial shall be given to the Participant or beneficiary whose claim has been denied, clearly stating the reason for such denial and informing such Participant or beneficiary of the procedure for obtaining a full and fair review of such denial.

        9.13.    Service of Plan Fiduciaries.    Any Trustee, person or committee serving as Plan Administrator, and any other fiduciary with respect to the Plan may serve the Plan in more than one such capacity.

        9.14.    Governing Law.    The Plan shall be construed, interpreted, regulated and administered under the laws of the State of Delaware to the extent such laws are not preempted by federal law.

        9.15.    Gender and Number.    Wherever used herein, the masculine gender shall include the feminine gender and the singular shall include the plural, unless the context clearly requires otherwise.

        9.16.    Titles and Headings.    The titles to Articles and headings of Sections of the Plan are for convenience of reference only. In case of conflict, the text of the Plan, rather than such titles and headings, shall control.

Article X. Top-Heavy Provisions

        10.1.    Definitions.

        (a)   For purposes of this Article X and as otherwise used in the Plan, the following definitions shall apply in addition to those set forth in Article I:

"Aggregated Plans" shall mean (i) all plans of the Aggregation Group which are required to be aggregated with the Plan, and (ii) all plans of the Aggregation Group which are permitted to be aggregated with the Plan and which the Employer elects to aggregate with the Plan, for purposes of determining whether the Plan is Top-Heavy. A plan (including a terminated plan) shall be required to be aggregated with the Plan if such a plan during the Plan Year containing the Determination Date or any of the four preceding Plan Years, includes as a participant a Key Employee or enables a plan of the Aggregation Group in which a Key Employee participates to qualify under Section 401(a)(4) or Section 410 of the Code. A plan of the Aggregation Group shall be permitted to be aggregated with the Plan if such plan satisfies the requirements of Sections 401(a)(4) and 410 of the Code, when considered together with the Plan and all plans which are required to be aggregated with the Plan. No plan shall be aggregated with the Plan unless it is a qualified plan under Section 401

22

of the Code. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to the Determination Dates that fall within the same calendar year.

"Compensation" for purposes of computing the minimum allocation, compensation shall mean compensation as defined in Treas. Reg. §1.415-2(d), as limited by Section 401(a)(17) of the Code. For purposes of determining whether an employee is a Key Employee, compensation shall mean compensation as defined in Section 415(c)(3) of the Code.

"Determination Date" shall mean, with respect to the first Plan Year, the last day of such Plan Year, and with respect to any subsequent Plan Year, the last day of the preceding Plan Year.

"Key Employee" shall mean any Participant in the Plan (including a beneficiary) who at any time during the Plan Year was (i) an officer of the Employer having annual compensation in excess of $130,000, (ii) a five percent owner of the Employer; or (iii) a one percent owner of the Employer having annual compensation in excess of $150,000. For purposes of clause (i), no more than 50 employees (or, if lesser, the greater of 3 or 10 percent of the employees) shall be treated as officers, and, for Plan Years beginning after 2002, the $130,000 shall be adjusted in the manner provided in Section 415(d) of the Code, except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000. The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and the Regulations thereunder.

"Non-Key Employee" shall mean an individual who is not a Key Employee.

"Top-Heavy" shall mean that as of the Determination Date for a Plan Year, the Value of Accumulated Benefits for Key Employees under all Aggregated Plans exceeds 60% of the Value of Accumulated Benefits for all individuals under all Aggregated Plans as set forth in Section 416(g) of the Code. Solely for the purpose of determining if the Plan, or any other plan included in a required Aggregation Group of which this Plan is a part, is Top-Heavy the accrued benefit of an Employee other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Aggregation Group, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code.

"Valuation Date" means the annual date on which plan assets must be valued for the purpose of determining the value of account balances or the date as of which a defined benefit plan computes plan costs, assets and liabilities for purposes of minimum funding. The Valuation Date for a defined contribution plan shall be the most recent Valuation Date for such plan within the 12-month period ending on the Determination Date.

"Value of Accumulated Benefits" shall mean the sum of:

(i)

In the case of a defined benefit plan, the present value of the accrued benefit determined as of the most recent Valuation Date which is within a 12-month period ending on the Determination Date and using the same actuarial assumptions as to interest and mortality as specified in such defined benefit plan, plus the sum of any amounts distributed to the individual from any defined benefit plan in the Aggregation Group, and any terminated deferred benefit plan which, had it not been terminated, would have been aggregated with such plan under Section 416(g)(2)(A)(i) of the Code during the 1-year period ending on the Determination Date.

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(ii)

In the case of a defined contribution plan, the sum of the accounts of the individual as of the most recent Valuation Date which is within a 12-month period ending on the Determination Date, plus the sum of any amounts distributed to the individual from any defined continuation plan in the Aggregation Group and any terminated defined contribution plan which, had it not been terminated, would have been aggregated with such plan under Section 416(g)(2)(A)(i) of the Code during the 1-year period ending on the Determination Date.

        In the case of a distribution made for a reason other than separation from service, death or Disability, "5-year period" shall be substituted in clauses (i) and (ii) for each reference to "1-year period"; provided, however, that in no case shall the accrued benefits or account balances of any individual who has not performed services for the employer during the 1-year period ending on the Determination Date be taken into account.

"Year of Top-Heavy Service" shall mean a Year of Service of a Participant which commenced in a Plan Year during which the Plan was Top-Heavy.

        (b)   Only for purposes of determining a Key Employee's allocation percentage under Section 10.2(a), any Employer matching and salary deferral contributions will be included. The minimum contributions specified in Section 10.2(a) shall apply to all Participants under this Plan who are Non-Key Employees except any such Participant who was not employed by an Employer on the last day of the Plan Year. In addition, in the case of a Non-Key Employee who is a participant in both this Plan and in a defined benefit plan that is an Aggregated Plan, the minimum contribution specified in Section 10.2(a) above shall be 5% of compensation.

        10.2.    Minimum Contributions.

        (a)   Except as otherwise provided in Section 10.2(b) below, if the Plan is determined to be Top-Heavy with respect to a Plan Year, the Employer contributions and Forfeitures allocated on behalf of any Participant who is a Non-Key Employee shall not be less than the lesser of 3 percent of such Participant's compensation (within the meaning of Section 415 of the Code) or, in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer contributions and Forfeitures allocated on behalf of any Key Employee for that year. This minimum allocation is determined without regard to any social security contribution. The minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year.

        (b)   The provision in Section 10.2(a) above shall not apply to any Participant who was not employed by an Employer on the last day of the Plan Year. The Plan Administrator shall to the maximum permitted by the Code and in accordance with the regulations thereunder, apply the provisions of this Article X by taking into account the benefits payable and the contributions made under all other defined contribution and defined benefit plans maintained by an Employer which are qualified under Section 401(a) of the Code to prevent inappropriate omissions or required duplication of minimum benefits or contributions.

        10.3.    Vesting.

        If the Plan is determined to be Top-Heavy with respect to a Plan Year, the Vested interest of each Participant, who is credited with at least one Hour of Service on or after the date the Plan becomes Top-Heavy, in the amount allocated to his or her Account shall not be less than the percentage

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determined in accordance with the most favorable to the Participant of (i) the current vesting Schedule, or (ii) the following vesting schedule:

Participant's Years of Service	Vested Percentage
less than 3	None
More than 3	100	%

If in a subsequent Plan Year the Plan is no longer Top-Heavy, the above vesting Schedule (if otherwise applicable) shall not apply to the portion of the Participant's Account attributable to Employer contributions and Forfeitures made on or after the first day of the first Plan Year in which the Plan is no longer Top-Heavy and the vesting provisions that were in effect prior to the time the Plan became Top-Heavy shall be reinstated, provided, however, that portions of a Participant's Account which were Vested prior to the time the Plan was no longer Top-Heavy shall remain Vested.

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        IN WITNESS WHEREOF, United Natural Foods, Inc. has adopted the Plan this 1st day of March, 2004, effective as of the Effective Date.

WITNESS:	UNITED NATURAL FOODS, INC.
	By
/s/  DIANN SANCHEZ		/s/  STEVEN H. TOWNSEND    Authorized Officer

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Exhibit 10.2

EX-10.25

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Exhibit 10.25

August 26, 2003

United Natural Foods, Inc.
260 Lake Road
Dayville, CT 06241

Attention: Rick Puckett, Chief Financial Officer

        RE:Amendment to Term Loan Agreement

Dear Rick:

        Reference is made to that certain Term Loan Agreement dated as of April 28, 2003 (the "Loan Agreement") among United Natural Foods, Inc. ("UNFI"), Stow Mills, Inc. ("SMI"), United Natural Foods Pennsylvania, Inc. ("UNFPA") and Albert's Organics, Inc. ("Albert's" and together with UNFI, SMI and UNFPA, the "Borrowers") and Fleet Capital Corporation (the "Lender"). Capitalized terms not defined herein shall have the meanings ascribed thereto in the Loan Agreement.

1.

Amendment to the Loan Agreement.

a.

Section 6.3.3. Loan To Value is hereby amended by deleting the first sentence and by adding the following sentence in lieu thereof:

"The Borrowers shall maintain a Loan-To-Value ratio on the Closing Date and thereafter of not more than seventy-five percent (75%)."

2.

Representations and Warranties. The Borrowers hereby represent and warrant as follows:



a.

Power, Authority, Etc. The Borrowers have the power and authority for the making and performing of this Amendment to Loan Agreement. This Amendment to Loan Agreement has been duly executed and delivered by or on behalf of the Borrowers pursuant to authority legally adequate therefor, and this Amendment to Loan Agreement is in full force and effect and is a legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws and equitable principles affecting the enforcement of creditors' rights generally.



b.

Incorporation of Representations and Warranties. The representations and warranties of the Borrowers contained in the Loan Agreement, except for any changes resulting only from the passage of time, are true and correct on and as of the date hereof as though made on and as of the date hereof and such representations and warranties are hereto incorporated in this Amendment to Loan Agreement as though fully set forth herein.



3.

Miscellaneous.

a.

Counterparts. This Amendment to Loan Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment to Loan Agreement by signing any such counterpart.



b.

Force and Effect. Except as amended or modified by this Amendment to Loan Agreement, the Loan Agreement and each of its terms and provisions, shall continue in full force or effect.



c.

Loan Document. This Amendment to Loan Agreement and all other documents executed in connection herewith are "Loan Documents" as such term is defined in the Loan Agreement. This Amendment to Loan Agreement and the other documents executed and delivered in connection herewith set forth the entire agreement of the parties with respect

to the subject matter thereof and supersede any prior agreement and contemporaneous oral agreements of the parties concerning their subject matter.

[remainder of page intentionally left blank]

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Signature Page to Amendment to Loan Agreement

        IN WITNESS WHEREOF, the parties have executed this Amendment to Loan Agreement as of the date first above written.

BORROWERS:	UNITED NATURAL FOODS, INC.
	By:	/s/  STEVEN H. TOWNSEND Name: Steven H. Townsend Title: President
	STOW MILLS, INC.
	By:	/s/  STEVEN H. TOWNSEND Name: Steven H. Townsend Title: President
	UNITED NATURAL FOODS PENNSYLVANIA, INC.
	By:	/s/  STEVEN H. TOWNSEND Name: Steven H. Townsend Title: President
	ALBERT'S ORGANICS, INC.
	By:	/s/  STEVEN H. TOWNSEND Name: Steven H. Townsend Title: Vice President
LENDER:	FLEET CAPITAL CORPORATION
	By:	/s/  KIM B. BUSHEY Name: Kim B. Bushey Title: Senior Vice President

3

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Exhibit 10.25

EX-10.26

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Exhibit 10.26

UNITED NATURAL FOODS, INC.
EMPLOYEE STOCK OWNERSHIP TRUST

UNITED NATURAL FOODS, INC.
EMPLOYEE STOCK OWNERSHIP TRUST

        This TRUST AGREEMENT ("Agreement") is entered into this 1^st day of March, 2004, by and between United Natural Foods, Inc., a Delaware corporation having its principal place of business at 260 Lake Road, Dayville, Connecticut, 06241 (the "Employer"), and Robert G. Huckins with a principal place of business at 19404 Camino Del Aguila, Escondido, California 92025 (the "Trustee").

W I T N E S E T H:

        WHEREAS, the Employer has adopted the amended and restated United Natural Foods, Inc. Employee Stock Ownership Plan ("Plan"), effective March 1, 2004, as the continuation of a qualified plan under section 401(a) of the Internal Revenue Code of 1986, as amended ("Code'), as well as the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") for the exclusive benefit of participating employees ("Participants") and their beneficiaries; and

        WHEREAS, the Plan as so amended and restated contemplates the establishment of this separate amended and restated United Natural Foods, Inc. Employee Stock Ownership Trust (the "Trust"), also effective March 1, 2004, to hold the assets of the trust established under the prior plan, and to which additional contributions will be made from time to time, to be accepted, invested and maintained in accordance with this Agreement; and

        WHEREAS, the Plan provides for the assets of the Trust to be invested in shares of voting common stock of the Employer which constitute "qualifying employer securities" within the meaning of Section 4975(e)(8) of the Code ("Employer Stock") and for the assumption of debt for the purpose of purchasing Employer Stock;

        NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Employer and the Trustee hereby agree as follows:

ARTICLE I
Trust Fund

        Section 1.1    Definitions and Construction.    Unless the context of this Agreement clearly indicates otherwise, the terms defined in Article I of the Plan shall, when used herein, have the same meaning as in the Plan. In this Agreement, the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and vice versa. The headings in this Agreement are used for the convenience of reference only and are to be ignored in any construction of the provisions thereof.

        Section 1.2    Trust Fund.    In accordance with the terms of this amended and restated Trust, the Trustee shall hold the assets of the trust established under the prior plan, together with such Employer Stock and sums of money as shall from time to time be paid or delivered to or deposited with the Trustee by or with the approval of the Employer in accordance with the terms of the Plan. All such Employer Stock and all such sums of money, all investments and reinvestments thereof and all earnings, appreciation and additions allocable thereto, less losses, depreciation and expenses allocable thereto and any payments made therefrom as authorized under the Plan or this Agreement shall constitute the "Trust Fund". The Trust Fund shall be held, managed and administered by the Trustee, in trust, and dealt with in accordance with the provisions of this Agreement and in accordance with any funding policy or guidelines established under the Plan that are communicated in writing to the Trustee.

        Section 1.3    Non-diversion of Funds.    Notwithstanding anything to the contrary contained in this Agreement or any amendment hereto, no part of the Trust Fund other than such expenses, fees, indemnities and taxes properly charged to the Trust Fund under the Plan or this Agreement or as

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specifically provided in Sections 9.9 and 9.11 of the Plan, shall be used for or diverted to purposes other than for the exclusive benefit of Plan Participants and their beneficiaries.

        Section 1.4    Multiple Trustees.    If there shall be more than one Trustee serving hereunder, they shall act by a majority of their number, but any one Trustee may be authorized to execute documents and to act on behalf of all Trustees hereunder. The Trustees shall certify in writing any such allocation of authority, and the limits thereof, to the Plan Administrator and the Employer, who may rely upon such certification for all purposes until notified in writing of a change in or revocation of such authority by the Trustees.

ARTICLE II
Investment and Administration

        Section 2.1    Administration of Plan.    In his capacity as Trustee hereunder, the Trustee shall have no authority over and shall have no responsibility for the administration of the Plan, which authority and responsibility shall be exercised by the Plan Administrator as provided in the Plan. The Trustee shall be under no duty to enforce the payment of any contribution to the Trust Fund and shall not be responsible for the adequacy of the Trust Fund to satisfy any obligations for benefits, expenses and liabilities under the Plan. The Plan Administrator shall furnish the Trustee with such information and data relative to the Plan as is necessary for the proper administration of the Trust Fund.

        Section 2.2    In General.    The Trust Fund shall be held by the Trustee and shall be invested and reinvested as provided in this Article II, exclusively in Employer Stock except to the extent necessary to meet the Plan liquidity policy as communicated to the Trustee by the Plan Administrator. Assets of the Trust Fund not invested in Employer Stock shall be invested in savings accounts, money market funds, stocks, bonds, securities or other property of any kind, nature or description, without distinction between principal and income. The Trustee's investment decisions shall give due regard to the funding and liquidity policies established under the Plan.

        Section 2.3    Appointment of Investment Manager.    (a) The Employer may, in its discretion, appoint an investment manager ("Investment Manager") to direct the investment and reinvestment of all or any portion of the assets in the Trust Fund, other than Employer Stock. Any such Investment Manager shall either be (i) registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Investment Advisers Act"); (ii) if not registered as an investment adviser under such Act by reason of paragraph (1) of Section 203 (a) of such Act, be registered as an investment adviser under the laws of the state (referred to in such paragraph (1)) in which it maintains its principal office and place of business, and, at the time the fiduciary last filed the registration form most recently filed by the fiduciary with such state in order to maintain the fiduciary's registration under the laws of such state, also filed a copy of such form with the Secretary of Labor; (iii) be a Bank, as defined in the Investment Advisers Act; or (iii) be an insurance company qualified to perform investment services under the laws of more than one state. Any such Investment Manager must acknowledge that it is a fiduciary with respect to the Plan.

        To the extent that an Investment Manager has not been appointed to invest any portion of the assets of the Trust Fund other than Employer Stock, the Trustee shall invest and reinvest such assets consistent with ERISA and the purposes of the Plan.

        Section 2.4    Investment in Commingled Funds.    The Trustee may invest any assets of the Trust Fund, other than Employer Stock, in any commingled or group trust fund described in Section 401(a) of the Code and exempt under Section 501(a) of the Code or in any common trust fund exempt under Section 584 of the Code. To the extent that the Trust Fund is at any time invested in any commingled, group or common trust fund, the declaration of trust or other instrument pertaining to such fund and any amendments thereto are hereby adopted as part of this Agreement and deemed to form a part of the Plan. If there is any conflict between the provisions of this Agreement and such declaration of trust

3

or other instrument, then the terms of the declaration of trust or other instrument of the commingled, group or common trust shall govern.

        Section 2.5    Uninvested Cash.    Notwithstanding any provisions of this Article II to the contrary, the Trustee may hold uninvested cash or cash balances within the Trust Fund without being required to pay interest thereon, to the extent he deems advisable to meet the needs of the Plan for short-term liquidity.

        Section 2.6    Trustee's Authority.    In addition to and not by way of limitation of any other powers conferred upon the Trustee by law or by other provisions of this Agreement, but subject to the provisions of Section 1.3 and this Article II, the Trustee is authorized and empowered:

        (a)   to sell, exchange, convey, transfer or dispose of any property, whether real or personal, at any time held by him, and any sale may be made by private contract or by public auction, and for cash or upon credit, or partly for cash and partly upon credit, and no person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency or propriety of any such sale or other disposition;

        (b)   to retain, manage, operate, repair and rehabilitate and to mortgage or lease for any period any real estate held by him and, in his discretion, cause to be formed any corporation or trust to hold title to any such real property;

        (c)   subject to Section 2.7, to vote in person or by proxy on any stocks, bonds, or other securities held by him, to exercise any options appurtenant to any stocks, bonds or other securities for the conversion thereof into other stocks, bonds or securities, and to exercise any rights to subscribe for additional stocks, bonds or other securities and to make any and all necessary payment therefor and to enter into any voting trust;

        (d)   with respect to any investment, to join in, dissent from, or oppose any action or inaction of any corporation, or of the directors, officers or stockholders of any corporation, including, without limitation, any reorganization, recapitalization, consolidation, liquidation, sale or merger;

        (e)   to settle, adjust, compromise, or submit to arbitration any claims, debts or damages due or owing to or from the Trust Fund;

        (f)    to deposit any property with any protective, reorganization or similar committee, to delegate power thereto and to pay and agree to pay part of its expenses and compensation and any assessments levied with respect to any property so deposited.

        (g)   to commence or defend suits or legal proceedings, and to represent the Trust Fund in all suits or legal proceedings in any court or before any other body or tribunal;

        (h)   to register securities in his name or in the name of any nominee or nominees with or without indication of the capacity in which the securities shall be held, or to hold securities in bearer form;

        (i)    subject to Section 2.8, to borrow money for the purchase of Employer Stock from any lender, except a corporate Trustee, and for any sum so borrowed to issue the Trustee's promissory note and to secure the repayment thereof by pledging all or any portion of the Employer Stock acquired with the loan, and no person lending money to the Trustee shall be bound to see to the application of the money loaned or to inquire into the validity, expedience or propriety of any such borrowing;

        (j)    to make distributions to Participants upon the direction of the Plan Administrator;

4

        (k)   to employ such agents, counsel, independent appraisers, and accountants as the Trustee shall deem advisable, who shall be reimbursed by the Employer for their reasonable expenses and compensation;

        (l)    to make, execute, acknowledge, and deliver any and all deeds, leases, assignments and instruments; and

        (m)  generally, to do all acts which the Trustee may deem necessary or desirable for the administration and protection of the Trust Fund.

        Section 2.7    Exercise of Voting Rights with Respect to Employer Stock.    The Trustee shall vote all Employer Stock held in the Trust Fund, except to the extent that Participants are entitled to direct the voting of any Employer Stock allocated to their Accounts as provided in the Plan.

        Section 2.8    Acquisition Loans.    The Trustee may obtain a loan from any lender, except a corporate Trustee, or enter into a deferred payment obligation on behalf of the Plan (an "Acquisition Loan") only for the following purposes:

        (a)   to purchase Employer Stock; or

        (b)   to make payments of principal or interest, or a combination of principal and interest, with respect to such Acquisition Loan; or

        (c)   to make payments of principal or interest, or a combination of principal and interest, with respect to a previously obtained Acquisition Loan that is then outstanding.

Any such Acquisition Loan shall meet the requirements set forth in Section 8.6 of the Plan and shall otherwise be on such terms and conditions as the Trustee may determine.

ARTICLE III
Reliance

        Section 3.1.    Identification of Plan Administrator.    The Employer shall certify to the Trustee in writing the name of the person or persons serving as Plan Administrator and shall furnish to the Trustee a specimen signature or signatures of any stock persons.

        Section 3.2    Trustee's Reliance.    The Trustee may rely and act upon any certificate, notice or direction of the Plan Administrator, the Board, or any person authorized to act on behalf of the Employer, or of an Investment Manager which the Trustee believes to be genuine and to have been signed by the person or persons duly authorized to sign such certificate, notice, or direction.

        Section 3.3    Legal Counsel.    The Trustee may consult with legal counsel (who may be counsel to the Employer) and may charge the expense to the Employer concerning any question which may arise under this Agreement, and the opinions of such counsel shall be full and complete protection with respect to any action taken, or omitted, by the Trustee hereunder in good faith in accordance with the opinion of such counsel.

ARTICLE IV
Distributions from the Trust Fund

        Section 4.1    In General.    The Trustee shall make payments from the Trust Fund in such manner and amounts, at such times, and to such persons as the Plan Administrator may direct.

        Section 4.2    Direction by the Plan Administrator.    (a) A direction by the Plan Administrator to make a distribution from the Trust Fund shall:

        (i)    be made in writing;

5

        (ii)   specify the amount of the payment, the method of payment, the person to whom payment is to be made, and the address to which the payment is to be sent; and

        (iii)  be deemed to certify to the Trustee that such direction and any payment pursuant thereto are authorized under the terms of the Plan.

        (b)   The Trustee shall be entitled to rely conclusively on the Plan Administration's certification of its authority to direct a payment without independent investigation. The Trustee shall have no liability to any person with respect to payments made in accordance with the provisions of this Article IV.

        Section 4.3    Method of Payment.    Payments of money by the Trustee may be made by check. Distributions of Employer Stock shall be made, as directed by the Plan Administer, directly to the Participant, or to a designated account in the name of the Participant.

ARTICLE V
Trustee's Responsibilities

        Section 5.1    General Standard of Care.    The Trustee and any Investment Manager shall at all times discharge their duties with respect to the Trust Fund solely in the interest of the Plan Participants and their beneficiaries and with the care, skill, prudence, and diligence that, under the circumstances prevailing, a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

        Section 5.2    No Liability for Acts of Others.    No "fiduciary" (as such term is defined in section 3(21) of ERISA) under this Agreement shall be liable for an act or omission of another person in carrying out any fiduciary responsibility where such fiduciary responsibility is allocated to such other person by this Agreement or pursuant to a procedure established in this Agreement except to the extent that:

        (a)   such fiduciary participated knowingly in, or knowingly undertook to conceal, an act or omission of such other person, knowing such act or omission to be a breach of fiduciary responsibility;

        (b)   such fiduciary, by his failure to comply with section 404(a)(1) of ERISA in the administration of his specific responsibilities which give rise to his status as a fiduciary, has enabled such other person to commit a breach of fiduciary responsibility;

        (c)   such fiduciary has knowledge of a breach of fiduciary responsibility by such other person, unless he makes reasonable efforts under the circumstances to remedy the breach; or

        (d)   such fiduciary is a "named fiduciary" (as such term is defined in section 401(a) of ERISA) and has violated his duties under section 404(a) (1) of ERISA:

        (i)    with respect to the allocation of fiduciary responsibilities among named fiduciaries or the designation of persons other than named fiduciaries to carry out fiduciary responsibilities under this Agreement;

        (ii)   with respect to the establishment or implementation of procedures for allocating fiduciary responsibilities among named fiduciaries or for designating persons other than named fiduciaries to carry out fiduciary responsibilities under this Agreement; or

        (iii)  in continuing the allocation of fiduciary responsibilities among named fiduciaries or the designation of persons other than named fiduciaries to carry out fiduciary responsibilities under this Agreement.

6

ARTICLE VI
Trustee's Accounts

        Section 6.1    Accounts.    The Trustee shall keep or cause to be kept accurate and detailed accounts of all investments, reinvestments, receipts and disbursements, and other transactions hereunder, and all such accounts and the books and records relating thereto shall be open to inspection at all reasonable times by the Plan Administrator or the Employer or any persons designated by them.

        Section 6.2    Valuation of Trust Fund.    The Trustee shall value or cause to be valued the Trust Fund as of the last business day of each Plan Year, and as of such other date(s) as may be directed by the Plan Administrator or the Employer upon not less than sixty (60) days notice ("Valuation Date"). The Trustee shall report to the Plan Administrator and the Employer the value of the Trust Fund as of each Valuation Date, within a reasonable time after the first day of the month next succeeding each such date.

        Section 6.3    Reports to the Plan Administrator.    (a) Within thirty (30) days following each Valuation Date, and within thirty (30) days following the effective date of the resignation or removal of the Trustee as provided in Section 8.1, the Trustee shall render to the Plan Administrator and the Employer a written account setting forth all investments, receipts, disbursements and other transactions affecting the Trust Fund and any investment fund within the Trust Fund, since the last account.

        (b)   The Plan Administrator shall notify the Trustee in writing of any objection or exception to an account so rendered not later than thirty (30) days following the date on which the Account was mailed to the Plan Administrator, whereupon the Plan Administrator and the Trustee shall cooperate in resolving such objection or exception.

        (c)   If the Plan Administrator has not communicated in writing to the Trustee within Thirty (30) days following the mailing of the account to the Plan Administrator any exception or objection to the account, the account shall become an account stated. If the Plan Administrator does communicate such an exception or objection, as to which it later becomes satisfied, the Plan Administrator shall thereupon indicate in writing its approval of the account, or of the account as amended, and the account shall thereupon become an account stated.

        (d)   Whenever an account shall have become an account stated as aforesaid, such account shall be deemed to be finally settled and shall be conclusive upon the Trustee, the Employer, the Plan Administrator and all persons having or claiming to have any interest in the Trust Fund or under the Plan, and the Trustee shall be fully and completely discharged and released to the same extent as if the account had been settled and allowed by a judgment or decree of a court of competent jurisdiction in an action or proceeding in which the Trustee, the Employer, the Plan Administrator and all persons having or claiming to have an interest in the Trust Fund or under the Plan were parties.

        Section 6.4    Right of Judicial Settlement.    Notwithstanding the provisions of section 6.4, the Trustee, the Plan Administrator, and the Employer, or any of them, shall have the right to apply at any time to a court of competent jurisdiction for the judicial settlement of the Trustee's account. In any such case, it shall be necessary to join as parties thereto only the Trustee, the Plan Administrator and the Employer; and any judgment or decree which may be entered therein shall be conclusive upon all persons having or claiming to have any interest in the Trust Fund or under the Plan.

        Section 6.5    Enforcement of Agreement.    To protect the Trust Fund from expense which might otherwise be incurred, the Employer and the Plan Administrator shall have authority, either jointly or severally, to enforce this Agreement on behalf of all persons claiming any interest in the Trust Fund or under the Plan, and no other person may institute or maintain any action or proceeding against the Trustee or the Trust Fund in the absence of written authority from the Plan Administrator or a

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judgment of a court of competent jurisdiction that in refusing authority the Plan Administrator acted fraudulently or in bad faith.

ARTICLE VII
Taxes: Compensation of Trustee

        Section 7.1    Taxes.    Any taxes that may be imposed upon the Trust Fund or the income therefrom shall be deducted from and charged against the Trust Fund.

        Section 7.2    Compensation of Trustee; Expenses.    The Trustee shall receive for his services hereunder such compensation as may be agreed upon in writing from time to time by the Employer and the Trustee and shall be reimbursed by the Employer for his reasonable expenses, including counsel fees, incurred in the performance of his duties hereunder. The Trustee shall deduct from and charge against the Trust Fund such compensation and all such expenses if not paid by the Employer, except that no person serving as a Trustee who receives full-time pay from an Employer whose Employees participate in the Plan shall receive any compensation (except for reimbursement of expenses) from the Trust Fund.

ARTICLE VIII
Resignation and Removal of Trustee

        Section 8.1    Resignation or Removal of Trustee.    Any Trustee may resign as a Trustee hereunder at any time by giving thirty (30) days prior written notice to the Employer. The Employer may remove any Trustee hereunder at any time by giving the Trustee written notice of such removal. Such removal shall take effect not earlier than thirty (30) days following receipt of such notice by the Trustee, unless otherwise agreed upon by the Trustee and the Employer. Notwithstanding the foregoing, the resignation or removal of the sole Trustee shall not be effective until a successor Trustee has been appointed.

        Section 8.2    Appointment of Successor.    In the event of the resignation or removal of the sole Trustee, a successor Trustee shall be appointed by the Employer. In the event of the resignation or removal of less than all Trustees, the Employer may (but need not) appoint a successor Trustee. Subject to the provisions of Section 8.1, the appointment of a successor Trustee shall take effect upon an instrument of acceptance executed by such successor and, if applicable, delivery to the remaining Trustees of an instrument so appointing the successor. If a successor shall not have been appointed as aforesaid, the remaining Trustee or Trustees shall have and exercise all the powers given to the Trustee hereunder until a successor has been duly appointed in accordance with the foregoing.

        Section 8.3    Successor Bound by Agreement.    All the provisions of this Agreement shall apply to any successor Trustee with the same force and effect as if such successor had been originally named herein as a Trustee hereunder.

ARTICLE IX
Amendment and Termination.

        Section 9.1    Amendment and Termination.    (a) The Employer may, at any time and from time to time, by instrument in writing executed pursuant to authorization of the Board, (i) amend in whole or in part any or all of the provisions of this Agreement, or (ii) terminate this Agreement and the Trust created hereby; provided, however, that no amendment which affects the rights, duties, fees or responsibilities of the Trustee may be made without the Trustee's consent.

        (b)   Effective Date. Any such amendment shall become effective upon receipt by the Trustee of the instrument of amendment and endorsement thereon by the Trustee of his consent thereto, if such consent is required. Any such termination shall become effective upon the receipt by the Trustee of the instrument of termination or any subsequent termination date as provided for

8

therein; thereafter the Trustee, upon the direction of the Plan Administrator, shall liquidate the Trust Fund to the extent required for distribution and, after the final account of the Trustee has been approved or settled, shall distribute the balance of the Trust Fund remaining in his hands as directed by the Plan Administrator, or in the absence of such direction, as may be directed by a judgment or decree of a court of competent jurisdiction. Following any such termination, the powers of the Trustee hereunder shall continue as long as any of the Trust Fund remains in his hands.

ARTICLE X
Miscellaneous

        Section 10.1    Binding Effect; Assignability.    This Agreement shall be binding upon, and the powers granted to the Employer and the Trustee, respectively, shall be exercisable by the respective successors and assigns of the Employer and any corporate Trustee. Any corporation which shall, by merger, consolidation, purchase, or otherwise, succeed to substantially all the trust business of a corporate Trustee shall, upon such succession and without any appointment or other action by the Employer, be and become a successor Trustee hereunder.

        Section 10.2    Governing Law.    This Agreement and the trust created and the Trust Fund held hereunder shall be interpreted, construed and administered in accordance with the laws of the State of Delaware, to the extent federal law does not apply.

        Section 10.3    Notices.    Any communication to the Trustee, including any notice, direction, designation, certification, order, instruction, or objection shall be in writing and signed by the person authorized under the Plan to give the communication. The Trustees shall be fully protected in acting in accordance with any such written communication. Any notice required or permitted to be given to a party hereunder shall be deemed given if in writing and hand delivered or mailed, postage prepaid, certified mail, return receipt requested, to such party at the following address or at such other address as such party may by notice specify:

        If to the Employer:

United Natural Foods, Inc.
206 Lake Road
Dayville, CT 06241
Attention: Corporate Vice President of Human Resources

        If to the Trustee:

Robert G. Huckins
19404 Camino Del Aguila
Escondido, CA 92025

        Section 10.4    Severability.    The invalidity or unenforceability of any provision of this Agreement shall not affect the validity of enforceability of the remaining provisions.

        Section 10.5    Waiver.    Failure of any party to insist at any time or times upon strict compliance with any provision of this Agreement shall not be a waiver of such provision at such time or any later time unless in a writing designated as a waiver and signed by or on behalf of the party against whom enforcement of the waiver is sought.

        Section 10.6    Non-Alienation.    No interest, right or claim in or to any part of the Trust Fund or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind, and the Trustee and the Plan Administrator shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute, or anticipate the same, except to the extent required by law.

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        Section 10.7    Qualified Plan and Trust.    This Agreement and the Trust hereby created are part of an employee benefit plan which the Employer intends shall remain qualified under Sections 401(a) and 4975(e)(7) of the Code and until advised to the contrary, the Trustee may assume that the Plan so qualifies and that the Trust is exempt from tax under Section 401(a) of the Code. However, any taxes that may be assessed on or in respect of the Trust Fund shall be a charge against the Trust Fund. All contributions are made with the understanding that the Employer will pursue and receive a determination from the Internal Revenue Service to the effect that the Trust forming part of the Plan remains a qualified trust under Section 401(a) of the Code and that the Trust is exempt from federal income tax under Section 401(a) of the Code. If the Plan and Trust in their amended and restated form fail to meet the requirements of a qualified plan under Sections 401(a) and 4975(e)(7) of the Code, the Employer retains the right to retroactively amend such documents in order to meet such requirements.

        Section 10.8    Compliance with Securities Laws.    In the event that the Plan or any portion thereof, or any interest therein, by virtue of investments made in Employer Stock, shall be deemed to be a "security" for purposes of the Securities Act of 1933, the Securities Exchange Act of 1934 or any other federal or state law, for which there is no exemption from the registration, reporting, blue sky or other requirements applicable to securities under such laws, the Employer shall, at its sole cost and expense, take all such actions as are necessary or appropriate to comply with the requirements of such laws. The Employer hereby agrees to indemnify the Trustee and hold him harmless from and against any claim or liability which may be asserted against the Trustee by reason of any determination that the Plan or any portion thereof, or any interest therein, constitutes such a security.

        Section 10.9    Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written, effective March 1, 2004.

UNITED NATURAL FOODS, INC.
By:	/s/ Steven H. Townsend Steven H. Townsend, CEO
TRUSTEE
By:	/s/ Robert G. Huckins Robert G. Huckins

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Exhibit 10.26

EX-21

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Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

NAME	STATE OF INCORPORATION
Albert's Organics, Inc.	California
Mountain People's Warehouse, Inc.	California
Natural Retail Group, Inc.	Delaware
Nutrasource, Inc.	Washington
Rainbow Natural Foods, Inc.	Colorado
Stow Mills, Inc.	Vermont
United Natural Foods Pennsylvania, Inc.	Pennsylvania
United Natural Transportation Co.	Delaware
United Natural Trading, Inc. Co.	Delaware
d/b/a Hershey Imports Company, Inc.
United Northeast LLC	Delaware

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Exhibit 21

EX-23

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Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors United Natural Foods, Inc.:

        We consent to incorporation by reference in the Registration Statements (Nos. 333-19947, 333-19949, 333-71673, 333-56652, and 333-106217 on Form S-8) of United Natural Foods, Inc. of our reports dated August 26, 2004, relating to the consolidated balance sheets of United Natural Foods, Inc. and Subsidiaries as of July 31, 2004 and 2003 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended July 31, 2004, and the related schedule, which reports appear in the July 31, 2004 annual report on Form 10-K of United Natural Foods, Inc.

/s/ KPMG LLP

Providence, Rhode Island
October 13, 2004

Exhibit 23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
United Natural Foods, Inc.:

        Under date of August 26, 2004, we reported on the consolidated balance sheets of United Natural Foods, Inc. and subsidiaries as of July 31, 2004 and 2003 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended July 31, 2004, as contained in the annual report on Form 10-K for the year 2004. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.

        In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Providence, Rhode Island
August 26, 2004

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Exhibit 23

EX-31.1

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Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

        I, Steven H. Townsend, in my capacity as the Chief Executive Officer of United Natural Foods, Inc. (the "Company"), hereby certify that:

1.

I have reviewed this annual report on Form 10-K of the Company;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report.



4.

The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) for the Company and we have:



(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



(b)

evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and



(c)

disclosed in this annual report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):



(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and



(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

/s/ STEVEN H. TOWNSEND Steven H. Townsend
Chief Executive Officer

October 14, 2004

Note:

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

        I, Rick D. Puckett, in my capacity as the Chief Financial Officer of United Natural Foods, Inc. (the "Company"), hereby certify that:

1.

I have reviewed this annual report on Form 10-Q of the Company;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report.



4.

The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) for the Company and we have:



1.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



2.

evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and



3.

disclosed in this annual report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



5.

The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):



(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and



(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

/s/ RICK D. PUCKETT Rick D. Puckett
Chief Financial Officer

October 14, 2004

Note:

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

        The undersigned, in his capacity as the Chief Executive Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies that the Annual Report of the Company on Form 10-K for the period ended July 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ STEVEN H. TOWNSEND Steven H. Townsend
Chief Executive Officer

October 14, 2004

Note:

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

        The undersigned, in his capacity as the Chief Financial Officer of United Natural Foods, Inc., a Delaware corporation (the "Company"), hereby certifies that the Annual Report of the Company on Form 10-K for the period ended July 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ RICK D. PUCKETT Rick D. Puckett
Chief Financial Officer

October 14, 2004

Note:

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2