10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended April 26, 2008
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  000-21531

UNITED NATURAL FOODS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	05-0376157
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

260 Lake Road Dayville, CT	06241
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code:  (860) 779-2800

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 x          No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No ý    

As of June 2, 2008 there were 42,873,930 shares of the Registrant’s Common Stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited)	3
	Condensed Consolidated Statements of Income (unaudited)	4
	Condensed Consolidated Statements of Cash Flows (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
Part II.	Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	Signatures	30

2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except per share amounts)

	April 26,			July 28,
ASSETS	2008			2007
Current assets:
Cash and cash equivalents	$	19,481		$	17,010
Accounts receivable, net of allowance of $5,694 and $4,416, respectively		185,680			160,329
Notes receivable, trade, net of allowance of $68 and $44, respectively		1,544			1,836
Inventories		413,539			312,377
Prepaid expenses and other current assets		12,296			8,199
Assets held for sale		-			5,935
Deferred income taxes		9,474			9,474
Total current assets		642,014			515,160
Property & equipment, net		218,899			185,083
Other assets:
Goodwill		181,692			79,903
Notes receivable, trade, net of allowance of $1,157 and $1,521, respectively		2,870			2,647
Intangible assets, net of accumulated amortization of $425 and $423, respectively		28,877			8,552
Other assets		10,258			9,553
Total assets	$	1,084,610		$	800,898
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable	$	295,000		$	120,000
Accounts payable		182,097			134,576
Accrued expenses and other current liabilities		64,880			37,132
Current portion of long-term debt		4,995			6,934
Total current liabilities		546,972			298,642
Long-term debt, excluding current portion		60,231			65,067
Deferred income taxes		1,201			9,555
Other long-term liabilities		10,454			839
Total liabilities		618,858			374,103
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 5,000 shares; none issued or outstanding		-			-
Common stock, $0.01 par value, authorized 100,000 shares; 43,103 issued and 42,874 outstanding shares at April 26, 2008; 43,051 issued and 42,822 outstanding shares at July 28, 2007		431			431
Additional paid-in capital		168,088			163,473
Unallocated shares of Employee Stock Ownership Plan		(1,081	)		(1,203	)
Treasury stock		(6,092	)		(6,092	)
Accumulated other comprehensive (loss) income		(1,041	)		399
Retained earnings		305,447			269,787
Total stockholders' equity		465,752			426,795
Total liabilities and stockholders' equity	$	1,084,610		$	800,898

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share data)

	Three months ended						Nine months ended
	April 26,			April 28,			April 26,			April 28,
	2008			2007			2008			2007
Net sales	$	886,962		$	732,516		$	2,454,007		$	2,047,494
Cost of sales		721,119			602,573			1,998,021			1,669,912
Gross profit		165,843			129,943			455,986			377,582
Operating expenses		141,018			104,818			387,384			307,126
Impairment on assets held for sale		-			-			-			756
Total operating expenses		141,018			104,818			387,384			307,882
Operating income		24,825			25,125			68,602			69,700
Other expense (income):
Interest expense		4,186			3,021			12,137			9,282
Interest income		(140	)		(324	)		(472	)		(618	)
Other, net		80			(39	)		154			332
Total other expense		4,126			2,658			11,819			8,996
Income before income taxes		20,699			22,467			56,783			60,704
Provision for income taxes		7,700			8,762			21,123			23,675
Net income	$	12,999		$	13,705		$	35,660		$	37,029
Basic per share data:
Net income	$	0.30		$	0.32		$	0.84		$	0.87
Weighted average basic shares of common stock		42,727			42,595			42,678			42,396
Diluted per share data:
Net income	$	0.30		$	0.32		$	0.83		$	0.87
Weighted average diluted shares of common stock		42,847			42,884			42,858			42,784

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

UNITED NATURAL FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Nine months ended
	April 26,			April 28,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	35,660		$	37,029
Adjustments to reconcile net income to net cash (used in) provided by operating activites:
Depreciation and amortization		15,694			13,793
Loss on disposals of property and equipment		8			1,999
Impairment on assets held for sale		-			756
Provision for doubtful accounts		1,665			1,008
Share-based compensation		3,503			2,956
Gain on forgiveness of loan		(157	)		-
Changes in assets and liabilities, net of acquired companies:
Accounts receivable		(15,215	)		(20,808	)
Inventories		(77,007	)		(43,391	)
Prepaid expenses and other assets		(1,080	)		(5,688	)
Notes receivable, trade		69			409
Accounts payable		2,074			25,829
Accrued expenses		(1,663	)		(2,029	)
Income taxes payable		923			636
Net cash (used in) provided by operating activities		(35,526	)		12,499
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(32,024	)		(20,684	)
Purchases of acquired businesses, net of cash acquired		(107,726	)		(6,470	)
Proceeds from disposals of property and equipment		-			5,448
Other investing activities		-			(1,042	)
Net cash used in investing activities		(139,750	)		(22,748	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under note payable		175,000			(11,004	)
Repayments of long-term debt		(7,754	)		(4,438	)
Increase in bank overdraft		9,482			6,246
Proceeds from exercise of stock options		848			7,086
Tax benefit from exercise of stock options		171			2,853
Proceeds from borrowing of long-term debt		-			10,000
Principal payments of capital lease obligations		-			(4	)
Net cash provided by financing activities		177,747			10,739
NET INCREASE IN CASH AND CASH EQUIVALENTS		2,471			490
Cash and cash equivalents at beginning of period		17,010			20,054
Cash and cash equivalents at end of period	$	19,481		$	20,544
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	11,431		$	9,235
Federal and state income taxes, net of refunds	$	18,877		$	19,771
Supplemental disclosure of noncash investing and financing activities:
Fair value of assets acquired	$	-		$	8,498
Cash paid for assets		-			(5,498	)
Liabilities incurred	$	-		$	3,000

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

UNITED NATURAL FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 26, 2008 (Unaudited)

1.      BASIS OF PRESENTATION

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

The accompanying unaudited condensed consolidated 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.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission for interim financial information, including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally required in complete financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. In our opinion, these financial statements include all adjustments necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for interim periods, however, may not be indicative of the results that may be expected for a full year.  These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 28, 2007.

Net sales consists primarily of sales of natural, organic and specialty products to retailers adjusted for customer volume discounts, returns and allowances.  Net sales also includes amounts due to the Company from customers for shipping and handling and fuel surcharges.  The principal components of cost of sales include the amounts paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to the Company’s distribution facilities.  Cost of sales also includes amounts incurred by the Company’s manufacturing segment, Hershey Import Company, Inc. (“Hershey Imports”) for inbound transportation costs and depreciation for manufacturing equipment, and consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.  Operating expenses include salaries and wages, employee benefits (including payments under the Company’s Employee Stock Ownership Plan), warehousing and delivery (including shipping and handling), selling, occupancy, insurance, administrative, share-based compensation and amortization expense.  Operating expenses also includes depreciation expense related to our wholesale and retail divisions. Other expense (income) includes interest on outstanding indebtedness, interest income, and miscellaneous income and expenses.

2.      SHARE-BASED COMPENSATION

The Company has a share-based compensation program that provides our Board of Directors broad discretion in creating employee equity incentives. This program includes incentive and non-statutory stock options and nonvested stock awards (consisting of awards of restricted stock and restricted stock units).  These awards to employees are granted under various plans which are stockholder approved. Stock options are generally time-based, vesting 25% on each annual anniversary of the grant date over four years and generally expire ten years from the grant date. Awards of restricted stock and restricted stock units to employees are generally time-based and vest 25% on each annual anniversary of the grant date over four years.  As of April 26, 2008, we had approximately 0.8 million shares of common stock reserved for future issuance under our share-based compensation plans.

The Company recognizes share-based compensation expense in accordance with Financial Accounting Standards Board (the “FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”) over the requisite service period of the individual grants, which generally equals the vesting period.  The Company recognized share-based compensation expense for the three months ended April 26, 2008 and April 28, 2007 of $1.1 million and $1.0 million, respectively.  For the nine months ended April 26, 2008 and April 28, 2007, the Company recognized $3.5 million and $3.0 million, respectively, of share-based compensation expense.  The effect on net income from recognizing share-based compensation for the three months ended April 26, 2008 and April 28, 2007 was $0.7 million, or $0.02 per basic and diluted share, and $0.6 million, or $0.01 per basic and diluted share, respectively.  The effect on net income from recognizing share-based compensation for the nine months ended April 26, 2008 and April 28, 2007 was $2.2 million, or $0.05 per basic and diluted share, and $1.8 million, or $0.04 per basic and diluted share, respectively.  The Company recorded related tax benefits for the nine months ended April 26, 2008 and April 28, 2007 of $0.2 million and $2.9 million, respectively.

6

As of April 26, 2008, there was $11.0 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock option, restricted stock and restricted stock unit awards).  This cost is expected to be recognized over a weighted-average period of 1.8 years.

There were no option awards granted during the three months ended April 26, 2008.  The weighted average grant-date fair value of options granted during the nine months ended April 26, 2008 and April 28, 2007 was $7.34 and $10.53, respectively.  The fair value of stock option awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the three months and nine months ended April 26, 2008 and April 28, 2007, respectively:

	Three months ended		Nine months ended
	April 26, 2008	April 28, 2007	April 26, 2008	April 28, 2007
Expected volatility	-	33.7%	32.7%	34.6%
Dividend yield	-	0.0%	0.0%	0.0%
Risk free interest rate	-	4.6%	3.1%	4.5%
Expected life	-	3.0 years	3.0 years	3.0 years

Our computation of expected volatility is based on the historical volatility of the Company’s stock price.  Our computation of expected life is based on historical exercise patterns and other factors.  The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

3.      ACQUISITIONS

During the nine months ended April 26, 2008, the Company acquired substantially all of the assets and liabilities of three companies and one retail store outside of the wholesale segment.  The total cash consideration paid for these product lines and retail store was approximately $22.2 million, in addition to approximately $1.1 million of holdbacks recorded in accrued expenses in the consolidated balance sheets.  No goodwill was recorded in connection with the product line acquisitions.  Goodwill of $0.6 million was recorded in connection with the retail store acquisition.  Other intangible assets acquired were $20.5 million.  The cash paid was financed by borrowings under the Company’s existing revolving credit facility.

On November 2, 2007, the Company acquired Distribution Holdings, Inc. (“DHI”) and its wholly-owned subsidiary Millbrook Distribution Services, Inc. (“Millbrook”).  Total cash consideration paid in connection with the merger was $85.4 million, including the $84.0 million purchase price and $1.4 million of related transaction fees incurred, subject to certain adjustments set forth in the merger agreement.  Prior to the acquisition and during the three months ended October 27, 2007, the Company entered into a note receivable from DHI in the amount of $5.0 million, which was assumed by the Company as part of the purchase price.  This acquisition was financed through borrowings under the Company’s existing revolving credit facility, which was amended in November 2007 to increase the Company’s maximum borrowing base thereunder.  See Note 8 for a description of these amendments.

7

The Company is in the process of making the final purchase price allocation for the Millbrook acquisition and has engaged a third party valuation firm to independently appraise the fair value of certain assets acquired.  The following table presents the preliminary allocation of fair values of assets and liabilities recorded in connection with the Millbrook acquisition (in thousands):

Cash	$	(142	)
Accounts receivable		10,466
Inventories		22,714
Prepaid expenses and other current assets		2,280
Property & equipment, net		8,097
Goodwill		101,171
Other assets		8,548
		153,134
Accounts payable		35,485
Accrued expenses and other current liabilities		23,062
Other long-term liabilities		9,205
Cash consideration paid	$	85,382

Results of operations of the acquired companies have been included in the Company’s consolidated statements of income since the respective dates of acquisition.  The following table presents the Company’s unaudited pro forma results of operations assuming that the acquisitions discussed above had occurred as of the beginning of fiscal 2007 (in thousands). These pro forma results are not necessarily indicative of the results that will occur in future periods.

	Three months ended				Nine months ended
	April 26,		April 28,		April 26,		April 28,
	2008		2007		2008		2007
Net sales	$	887,011	$	817,314	$	2,828,640	$	2,606,732
Income before income taxes		20,699		20,913		47,522		58,077
Net income		12,918		12,815		29,657		35,588
Earnings per common share:
Basic	$	0.30	$	0.30	$	0.69	$	0.84
Diluted	$	0.30	$	0.30	$	0.69	$	0.83

4.      EARNINGS PER SHARE

Following is a reconciliation of the basic and diluted number of shares used in computing earnings per share:

	Three months ended				Nine months ended
(In thousands)	April 26, 2008		April 28, 2007		April 26, 2008		April 28, 2007
Basic weighted average shares outstanding		42,727		42,595		42,678		42,396
Net effect of dilutive stock options based upon the treasury stock method		120		289		180		388
Diluted weighted average shares outstanding		42,847		42,884		42,858		42,784

There were 895,218 and 321,040 anti-dilutive stock options outstanding for the three months ended April 26, 2008 and April 28, 2007, respectively.  For the nine months ended April 26, 2008 and April 28, 2007, there were 892,218 and 309,040 anti-dilutive stock options outstanding, respectively.  These anti-dilutive stock options were excluded from the calculation of diluted earnings per share.

8

5.      DERIVATIVE FINANCIAL INSTRUMENTS

On August 1, 2005, the Company entered into an interest rate swap agreement effective July 29, 2005. The agreement provides for the Company to pay interest for a seven-year period at a fixed rate of 4.70% on a notional principal amount of $50.0 million while receiving interest for the same period at the one-month London Interbank Offered Rate (“LIBOR”) 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 $50.0 million at one-month LIBOR plus 1.00%, thereby fixing its effective rate on the notional amount at 5.70%.  The swap agreement qualified as an “effective” hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).  One-month LIBOR was 2.70% and 5.32% as of April 26, 2008 and April 28, 2007, respectively.

The Company may from time to time enter into commodity swap agreements to reduce price risk associated with anticipated purchases of diesel fuel. These commodity swap agreements hedge a portion of the Company’s expected fuel usage for the periods set forth in the agreements. The Company monitors the commodity (NYMEX #2 Heating oil) used in its swap agreements to determine that the correlation between the commodity and diesel fuel is deemed to be “highly effective.” At April 26, 2008, the Company had no outstanding commodity swap agreements.  At April 28, 2007, the Company had one outstanding commodity swap agreement which matured on June 30, 2007.

Interest rate swap and commodity swap agreements are designated as cash flow hedges and are reflected at fair value in the Company’s consolidated balance sheet and related gains or losses, net of income taxes, are deferred in stockholders’ equity as a component of accumulated other comprehensive income (loss).  The Company does not enter into derivative agreements for trading purposes.

6.      COMPREHENSIVE INCOME

Total comprehensive income for the three months ended April 26, 2008 and April 28, 2007 amounted to approximately $13.3 million and $14.0 million, respectively.  Total comprehensive income for the nine months ended April 26, 2008 and April 28, 2007 was approximately $34.2 million and $36.0 million, respectively.  Comprehensive income is comprised of net income plus the change in the fair value of the interest rate swap agreement and for the three months ended April 28, 2007, the commodity swap agreement discussed in Note 5.  For both the three months ended April 26, 2008 and April 28, 2007, the change in fair value of these financial instruments was a $0.5 million pre-tax gain ($0.3 million after-tax gain).  The change in fair value of these derivative financial instruments was a $2.3 million pre-tax loss ($1.4 million after-tax loss) and a $1.7 million pre-tax loss ($1.1 million after-tax loss) for the nine months ended April 26, 2008 and April 28, 2007, respectively.

7.      ASSETS HELD FOR SALE

In the year ended July 28, 2007, the Company transitioned its remaining Auburn, California operations to its Rocklin, California facility, determined to sell the second Auburn, California facility and related assets and recorded an impairment loss of $0.8 million with respect to that facility.   The impairment loss was recognized based on management’s estimate of fair value of the facility, less costs of disposal.  As a result, the Company reclassified, to assets held for sale, $5.9 million of long-lived assets, net of the $0.8 million impairment loss, that were previously included in property and equipment in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets.  During the nine months ended April 26, 2008, the Company decided not to sell the second Auburn, California facility and related assets due to a need for additional warehouse space in northern California.  This resulted in the recording of catch up depreciation of $0.2 million during the nine months ended April 26, 2008 and the reclassification of $5.9 million of assets held for sale to property and equipment, net.

8.      DEBT

On November 2, 2007, the Company amended its $250 million secured revolving credit facility with a bank group led by Bank of America Business Capital as the administrative agent.  The amendment temporarily increased the maximum borrowing base under the credit facility from $250 million to $270 million.

On November 27, 2007, the Company amended its $270 million secured revolving credit facility with a bank group led by Bank of America Business Capital as the administrative agent.  The amendment increased the maximum borrowing base under the credit facility from $270 million to $400 million and provides the Company with a one-time option, subject to approval by the lenders under the credit facility, to increase the borrowing base by up to an additional $50 million.  Interest accrues on borrowings under the credit facility, at the Company’s option, at either the base rate (the applicable prime lending rate of Bank of America Business Capital, as announced from time to time) or at one-month LIBOR plus 0.75%. The $400 million credit facility matures on November 27, 2012.

9

In connection with the amendments to the amended and restated revolving credit facility described above, effective November 2, 2007 and November 27, 2007, the Company amended its term loan agreement to conform certain terms and conditions to the corresponding terms and conditions in the credit agreement that establishes the amended and restated revolving credit facility (the “Amended Credit Agreement”).

The Company further amended the Amended Credit Agreement and the term loan agreement following the end of its fiscal quarter ended April 26, 2008.  See Note 11 for additional information regarding these amendments.

9.      BUSINESS SEGMENTS

The Company has several operating divisions aggregated under the wholesale segment, which is the Company’s only reportable segment.  These operating divisions have similar products and services, customer channels, distribution methods and historical margins.  The wholesale segment is engaged in national distribution of natural, organic and specialty foods, produce, and related products in the United States.  The Company has additional operating divisions that do not meet the quantitative thresholds for reportable segments.  Therefore, these operating divisions are aggregated under the caption of “Other” with corporate operating expenses that are not allocated to operating divisions.  Non-operating expenses that are not allocated to the operating divisions are under the caption of “Unallocated Expenses.”  “Other” includes a retail division, 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 manufacturing division, which engages in importing, roasting and packaging nuts, seeds, dried fruit and snack items.  “Other” also includes corporate expenses, which consist of salaries, retainers, and other related expenses of officers, directors, corporate finance (including professional services), governance, human resources and internal audit that are necessary to operate the Company’s headquarters located in Dayville, Connecticut.

Following is business segment information for the periods indicated (in thousands):

	Wholesale		Other			Eliminations			Unallocated Expenses			Consolidated
Three months ended April 26, 2008:
Net sales	$	870,188	$	39,026		$	(22,252	)				$	886,962
Operating income (loss)		27,496		(1,890	)		(781	)					24,825
Interest expense									$	4,186			4,186
Interest income										(140	)		(140	)
Other, net										80			80
Income before income taxes													20,699
Depreciation and amortization		5,246		289									5,535
Capital expenditures		10,135		424									10,559
Goodwill		165,203		16,489									181,692
Total assets		975,827		118,780			(9,997	)					1,084,610
Three months ended April 28, 2007:
Net sales	$	720,219	$	30,486		$	(18,189	)				$	732,516
Operating income (loss)		26,475		196			(1,546	)					25,125
Interest expense									$	3,021			3,021
Interest income										(324	)		(324	)
Other, net										(39	)		(39	)
Income before income taxes													22,467
Depreciation and amortization		4,165		250			-						4,415
Goodwill		64,032		15,868									79,900
Capital expenditures		3,520		2,623			-						6,143
Total assets		697,759		87,662			(7,828	)					777,593

10

	Wholesale		Other			Eliminations			Unallocated Expenses			Consolidated
Nine months ended April 26, 2008:
Net sales	$	2,414,195	$	101,926		$	(62,114	)				$	2,454,007
Operating income (loss)		70,890		(1,050	)		(1,238	)					68,602
Interest expense									$	12,137			12,137
Interest income										(472	)		(472	)
Other, net										154			154
Income before income taxes													56,783
Depreciation and amortization		14,823		871									15,694
Capital expenditures		31,183		841									32,024
Goodwill		165,203		16,489									181,692
Total assets		975,827		118,780			(9,997	)					1,084,610
Nine months ended April 28, 2007:
Net sales	$	2,013,548	$	83,455		$	(49,509	)				$	2,047,494
Operating income (loss)		71,731		1,619			(3,650	)					69,700
Interest expense									$	9,282			9,282
Interest income										(618	)		(618	)
Other, net										332			332
Income before income taxes													60,704
Depreciation and amortization		13,076		717			-						13,793
Capital expenditures		17,721		2,963			-						20,684
Goodwill		64,032		15,868									79,900
Total assets		697,759		87,662			(7,828	)					777,593

10.     NEW ACCOUNTING PRONOUNCEMENTS

On July 29, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 ("FIN 48"), which applies to all tax positions accounted for under SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribes a two step process for the measurement of uncertain tax positions that have been taken or are expected to be taken in a tax return.  The first step is a determination of whether the tax position should be recognized in the financial statements.  The second step determines the measurement of the tax position. FIN 48 also provides guidance on de-recognition of such tax positions, classification, potential interest and penalties, accounting in interim periods and disclosure.  We did not have any unrecognized tax benefits and there was no effect on our consolidated financial statements as a result of adopting FIN 48.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various state jurisdictions.  The Company is no longer subject to U.S. federal tax examinations for years before the Company's fiscal 2004.  The tax years that remain subject to examination by state jurisdictions range from the Company's fiscal 2002 to 2007.  In the normal course of business, the Company is regularly audited by U.S. federal, state and local tax authorities in various tax jurisdictions.  The ultimate resolution of these matters, including those that may be resolved within the next twelve months, is not yet determinable.

Our policy to include interest and penalties related to unrecognized tax benefits as a component of income tax expense did not change as a result of implementing FIN 48.  As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the quarter.

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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements under other accounting pronouncements, but does not change the existing guidance as to whether or not an instrument is carried at fair value. The statement is effective for fiscal years beginning after November 15, 2007. The Company will adopt SFAS 157 in fiscal 2009 and is currently evaluating whether the adoption of SFAS 157 will have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The statement is effective for fiscal years beginning after November 15, 2007.  The Company will adopt SFAS 159 in fiscal 2009 and is currently evaluating whether the adoption of SFAS 159 will have a material effect on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (“SFAS 160”). This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 160 to have a material effect on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an Amendment of SFAS No. 133 ("SFAS 161"). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows.  SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 and early adoption is permitted.  The Company does not expect the adoption of SFAS 161 to have a material effect on the disclosures that accompany its consolidated financial statements.

11.      SUBSEQUENT EVENTS

Amendments to credit facilities

On June 4, 2008, the Company entered into amendments, which were effective as of May 28, 2008, to the Amended Credit Agreement and the term loan agreement in order to (i) waive events of default as a result of the Company’s noncompliance at April 26, 2008 with the fixed charge coverage ratio covenants under the Amended Credit Agreement and the term loan agreement (the “Fixed Charge Coverage Ratio Covenants”), (ii) increase the interest rate applicable to borrowings under each of the Company’s amended and restated revolving credit facility and term loan by 0.25% during the period from June 1, 2008 through the date on which the Company demonstrates compliance with the applicable Fixed Charge Coverage Ratio Covenant, and (iii) exclude non-cash share based compensation expense from the calculation of EBITDA (as defined in the applicable agreement) in connection with the calculation of the fixed charge coverage ratio under the Amended Credit Agreement and the term loan agreement.  The Amended Credit Agreement and the term loan agreement, as amended, require the Company to maintain a minimum fixed charge coverage ratio of 1.5 to 1.0 and 1.45 to 1.0, respectively, each calculated at the end of each of the Company’s fiscal quarters on a rolling four quarter basis.  The principal reason for the Company’s noncompliance with the Fixed Charge Coverage Ratio Covenants was the Company’s high level of capital expenditures in the trailing twelve month period ending April 26, 2008.

Mediation of lawsuit

United Natural Foods West, Inc., a subsidiary of the Company, has been named as a defendant in a purported class action brought by a former employee in the Superior Court of California, Placer County.  The lawsuit alleges that United Natural Foods West violated certain provisions of California state employment law.  The parties have submitted the matter to mediation for possible settlement and settlement discussions are ongoing.  The Company does not believe that the ultimate settlement of this matter will have a material effect on the Company’s consolidated financial statements.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains 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 condition or state other “forward-looking” information.  The risk factors listed in Item 1A of Part II of this report, as well as any cautionary language elsewhere in this Quarterly Report on Form 10-Q, 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 in Item 1A of Part II of this report and elsewhere in this Quarterly Report on Form 10-Q could have an adverse effect on our business, results of operations and financial condition.

Any forward-looking statements in this Quarterly Report on Form 10-Q are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements, possibly materially.  We do not undertake any obligation to update any information in this report 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.

Overview

We are a leading national distributor of natural, organic and specialty 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 and organic products industry in general; increased market share through our high quality service and a broader product selection, and the acquisition of, or merger with, natural and specialty products distributors; the expansion of our existing distribution centers; the construction of new distribution centers; and the development of our own line of natural and organic branded products.

On November 2, 2007, we acquired Distribution Holdings, Inc. (“DHI”) and its wholly-owned subsidiary Millbrook Distribution Services, Inc. (“Millbrook”) for total cash consideration of $85.4 million, including the $84.0 million purchase price and $1.4 million of related transaction fees, subject to certain adjustments set forth in the merger agreement.  Millbrook operates three distribution centers in Massachusetts, New Jersey, and Arkansas and has approximately 950 employees located throughout the United States.  Through our Millbrook division’s three distribution centers, which provide approximately 1.6 million square feet of warehouse space, we distribute specialty food items (including ethnic, kosher, gourmet, organic and natural foods), health and beauty care items and other non-food items to more than 9,000 retail locations.

We believe that the acquisition of Millbrook accomplishes several of the Company’s strategic objectives, including accelerating the Company’s expansion into a number of high-growth business segments and establishing immediate market share in the fast-growing specialty foods market.  We believe that Millbrook’s customer base enhances the Company’s conventional supermarket business channel and that the organizations’ complementary product lines present opportunities for cross-selling.

We also own and operate 13 retail natural products stores, located primarily in Florida, through our subsidiary, the Natural Retail Group.  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 Import Company, Inc. (“Hershey Imports”), specializes in the importing, 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 broadline distribution business, Albert’s Organics, Millbrook and Select Nutrition;

· our retail division, which consists of our 13 retail stores; and

· our manufacturing division, which is comprised of Hershey Imports and our branded product lines.

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

· expand our marketing and customer service programs across regions;

· expand our national purchasing opportunities;

· offer a broader product selection;

· consolidate systems applications among physical locations and regions;

· increase our investment in people, facilities, equipment and technology; and

· reduce geographic overlap between regions.

Our continued growth has created the need for expansion of existing facilities to achieve maximum operating efficiencies and to assure adequate space for future needs.  In April 2008, we announced plans to lease a new 675,000 square foot distribution center in York, Pennsylvania to serve our customers in New York, New Jersey, Pennsylvania, Delaware, Maryland, Ohio, Virginia and West Virginia.  Operations are scheduled to commence near the end of calendar year 2008.  In January 2008, we announced plans to lease a new, 613,000 square foot distribution center in Moreno Valley, California to serve our customers in Southern California, Arizona, Southern Nevada, Southern Utah, and Hawaii.  Operations are scheduled to commence during the summer of 2008.  Our new 237,000 square foot distribution center in Ridgefield, Washington commenced operations in December 2007 and serves as a regional distribution hub for customers in Portland, Oregon and other Northwest states.  We opened our Sarasota, Florida warehouse in the first quarter of fiscal 2008 in order to reduce the geographic area served by our Atlanta, Georgia facility, which we believe will contribute to lower transportation costs.  We have made significant capital expenditures and incurred considerable expenses in connection with the opening and expansion of facilities.

With the opening of the Sarasota and Ridgefield facilities as well as our acquisition of four Millbrook facilities, we have added approximately 3,700,000 square feet to our distribution centers since fiscal 2002, representing a 200% increase in our distribution capacity.  Our current capacity utilization is approximately 71%.

Net sales consists primarily of sales of natural, organic and specialty products to retailers, adjusted for customer volume discounts, returns and allowances.  Net sales also includes amounts due to us from customers for shipping and handling and fuel surcharges.  The principal components of our cost of sales include the amounts paid to manufacturers and growers for product sold, plus the cost of transportation necessary to bring the product to our distribution facilities.  Cost of sales also includes amounts incurred by us for inbound transportation costs and depreciation for manufacturing equipment at our manufacturing subsidiary, Hershey Imports, and consideration received from suppliers in connection with the purchase or promotion of the suppliers’ products.  Total operating expenses include salaries and wages, employee benefits (including payments under our Employee Stock Ownership Plan), warehousing and delivery (including shipping and handling), selling, occupancy, insurance, administrative, share-based compensation, depreciation and amortization expense.  Other expense (income) includes interest on our outstanding indebtedness, interest income and miscellaneous income and expenses.  Our gross margin may not be comparable to other similar companies within our industry that may include all costs related to their distribution network in their costs of sales rather than as operating expenses. We include costs to support the purchasing department and outbound transportation expenses within our operating expenses rather than in our cost of sales.

In August 2007, Whole Foods Market, Inc. (“Whole Foods Market”) and Wild Oats Markets, Inc. (“Wild Oats Markets”) completed their previously-announced merger, as a result of which, Wild Oats Markets became a wholly-owned subsidiary of Whole Foods Market.  Whole Foods Market sold all thirty-five of Wild Oats Markets’ Henry's and Sun Harvest store locations to a subsidiary of Smart & Final Inc. on September 30, 2007.  On a combined basis and excluding sales to Henry’s and Sun Harvest store locations, Whole Foods Market and Wild Oats Markets accounted for approximately 32.0% and 33.5% of our net sales for the three months and nine months ended April 26, 2008, respectively.  On a combined basis and excluding sales to Henry’s and Sun Harvest store locations, Whole Foods Market and Wild Oats Markets accounted for approximately 35.9% and 34.5% of our net sales for the three months and nine months ended April 28, 2007, respectively.

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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 Securities and Exchange Commission (“SEC”) has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results of operations 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 reserves for the self-insured portions of our workers’ compensation 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 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 $185.7 million and $160.3 million, net of the allowance for doubtful accounts of $5.7 million and $4.4 million, as of April 26, 2008 and July 28, 2007, respectively.  Our notes receivable balances were $4.4 million and $4.5 million, net of the allowance of doubtful accounts of $1.2 million and $1.6 million, as of April 26, 2008 and July 28, 2007, respectively.

Insurance reserves

It is our policy to record the self-insured portions of our workers’ compensation and automobile liabilities based upon actuarial methods of estimating 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.  Accruals for workers’ compensation and automobile liabilities totaled $13.0 million and $8.5 million as of April 26, 2008 and July 28, 2007, respectively.

Valuation of goodwill and intangible assets

Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, requires that companies 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 during the fourth quarter 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 indicate potential impairment, we determine the implied fair value of that reporting unit using a discounted cash flow analysis and compare such values to the respective reporting units’ carrying amounts.  Total goodwill as of April 26, 2008 and July 28, 2007 was $181.7 million and $79.9 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:

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	Three months ended		Nine months ended
	April 26,	April 28,	April 26,	April 28,
	2008	2007	2008	2007
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of sales	81.3%	82.3%	81.4%	81.6%
Gross profit	18.7%	17.7%	18.6%	18.4%
Operating expenses	15.9%	14.3%	15.8%	15.0%
Impairment on assets held for sale	0.0%	0.0%	0.0%	0.0%
Total operating expenses	15.9%	14.3%	15.8%	15.0%
Operating income	2.8%	3.4%	2.8%	3.4%
Other expense (income):
Interest expense	0.5%	0.4%	0.5%	0.5%
Interest income	0.0%	0.0%	0.0%	0.0%
Other, net	0.0%	0.0%	0.0%	0.0%
Total other expense	0.5%	0.4%	0.5%	0.4%*
Income before income taxes	2.3%	3.1%*	2.3%	3.0%
Provision for income taxes	0.9%	1.2%	0.9%	1.2%
Net income	1.5%*	1.9%	1.5%*	1.8%

* Total reflects rounding

Three Months Ended April 26, 2008 Compared To Three Months Ended April 28, 2007

Net Sales

Our net sales increased approximately 21.1%, or $154.4 million, to $887.0 million for the three months ended April 26, 2008, from $732.5 million for the three months ended April 28, 2007.   This increase was primarily due to sales from our newly acquired Millbrook business of $77.2 million as well as organic sales growth (sales growth excluding the impact of acquisitions) in our wholesale division of $72.7 million.  Our organic growth is due to the continued growth of the natural products industry in general and the opening of new distribution centers, which allows us to carry a broader selection of products.

On a combined basis, and excluding sales to Henry’s and Sun Harvest store locations, which were divested by Whole Foods Market following its merger with Wild Oats Markets, Whole Foods Market and Wild Oats Markets accounted for approximately 32.0% and 35.9% of our net sales for the three months ended April 26, 2008 and April 28, 2007, respectively.  The Henry’s and Sun Harvest locations divested by Whole Foods Market remain our customers.

The following table lists the percentage of sales by customer type for the three months ended April 26, 2008 and April 28, 2007:

Customer type	Percentage of Net Sales
	2008	2007
Independently owned natural products retailers	41%	45%
Supernatural chains	32%	36%
Conventional supermarkets	22%	15%
Other	5%	4%

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Sales to Henry’s and Sun Harvest store locations have been reclassified from our supernatural channel into our supermarket channel in both the current and prior year and will continue in this classification going forward.  This reclassification resulted in an increase in sales in the supermarket channel of 1.6% and a decrease in sales in the supernatural channel of 1.6% for the three months ended April 28, 2007.

Sales by channel have been adjusted to properly reflect changes in customer types resulting from a review of our customer lists.  As a result of this adjustment, sales to the independents and other channels increased 1.1% and 0.5%, respectively, for the three months ended April 28, 2007 and sales to the supermarket channel decreased 1.6% for the three months ended April 28, 2007.

Compared to sales for the three months ended April 28, 2007, sales in the supermarket channel were positively impacted for the three months ended April 26, 2008 by our acquisition of Millbrook and negatively impacted for the three months ended April 26, 2008 by the loss of a key customer in the first quarter of fiscal 2008.

Gross Profit

Our gross profit increased approximately 27.6%, or $35.9 million, to $165.8 million for the three months ended April 26, 2008, from $129.9 million for the three months ended April 28, 2007.  Our gross profit as a percentage of net sales was 18.7% and 17.7% for the three months ended April 26, 2008 and April 28, 2007, respectively.  Gross profit as a percentage of net sales during the three months ended April 26, 2008 was positively impacted by sales from our Millbrook business and sales through our branded product lines.  We have worked to take advantage of forward buying opportunities during the three months ended April 26, 2008 in order to improve Millbrook’s gross margin.  We expect Millbrook's full service supermarket model to generate a higher gross margin over the long-term in our core distribution business; however, we also expect to incur higher operating expenses in providing those services.  Gross profit as a percentage of net sales during the three months ended April 28, 2007 was negatively impacted by missed forward buying opportunities and $1.9 million of incremental inventory adjustments in our broadline distribution business. We intend to increase our emphasis on sales of branded products, which we believe will allow us to generate higher gross margins over the long-term, as branded product revenues generally yield relatively higher margins.

Operating Expenses

Our total operating expenses increased approximately 34.5%, or $36.2 million, to $141.0 million for the three months ended April 26, 2008, from $104.8 million for the three months ended April 28, 2007.  The increase in total operating expenses for the three months ended April 26, 2008 was due primarily to increases in infrastructure, fuel and personnel costs within our wholesale division of approximately $29.7 million, as a result of the Millbrook acquisition and to support our continued sales growth.  We have been able to partially offset the effect of rising fuel prices by increasing delivery sizes, improving route design and by opening new facilities which reduce the total distance traveled to customers.  We also incurred higher operating expenses during the three months ended April 26, 2008 related to our branded product lines as we have built our infrastructure to support anticipated growing business.  Operating expenses for the three months ended April 28, 2007 included $0.5 million of increased expense related to our fuel hedging program.    The last of our fuel hedges expired in June 2007 and we have not entered into any fuel hedges during fiscal 2008.  Total operating expenses for the three months ended April 26, 2008 includes share-based compensation expense of $1.1 million.  Share-based compensation expense for the three months ended April 28, 2007 was $1.0 million.  See Note 2 to our condensed consolidated financial statements.

As a percentage of net sales, total operating expenses increased to approximately 15.9% for the three months ended April 26, 2008, from approximately 14.3% for the three months ended April 28, 2007.  The increase in operating expenses as a percentage of net sales was primarily attributable to our acquisition of Millbrook, our investment in infrastructure for our branded product lines, and continued operating inefficiencies related to the opening of our Sarasota, Florida and Ridgefield, Washington distribution facilities.  Despite these inefficiencies, we expect that the opening of new facilities will contribute efficiencies and lead to lower operating expenses related to sales over the long-term.

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Operating Income

Operating income decreased approximately 1.2%, or $0.3 million, to $24.8 million for the three months ended April 26, 2008 from $25.1 million for the three months ended April 28, 2007.  As a percentage of net sales, operating income was 2.8% for the three months ended April 26, 2008, compared to 3.4% for the three months ended April 28, 2007.  The decrease in operating income as a percentage of net sales is attributable to the increase in operating expenses as a percentage of net sales for the three months ended April 26, 2008, compared to the three months ended April 28, 2007, which is primarily attributable to our acquisition of Millbrook.

Other Expense (Income)

Other expense (income) increased $1.5 million to $4.1 million for the three months ended April 26, 2008, from $2.7 million for the three months ended April 28, 2007.  Interest expense of $4.2 million for the three months ended April 26, 2008 represented an increase of 38.6% from the three months ended April 28, 2007 due primarily to the increase in debt levels required to fund our acquisitions of Millbrook and branded product companies.  Debt levels also increased for the three months ended April 26, 2008 compared to the three months ended April 28, 2007 as a result of Millbrook’s working capital needs and increased inventory levels in preparation for the opening of the Sarasota, Florida and Ridgefield, Washington facilities in the first and second quarters of fiscal 2008, respectively, and capital expenditures related to the future opening of our Moreno Valley, California facility.

Provision for Income Taxes

Our effective income tax rate was 37.2% and 39.0% for the three months ended April 26, 2008 and April 28, 2007, respectively.  The decrease in the effective income tax rate was primarily due to anticipated tax credits associated with the solar panel installation projects at our Rocklin, California and Dayville, Connecticut distribution facilities.  This decrease was offset by an increase in our effective income tax rate due to the acquisition of Millbrook.  Our effective income tax rate was also affected by share-based compensation for incentive stock options and the timing of disqualifying dispositions of certain share-based compensation awards.  SFAS 123(R) provides that the tax effect of the book compensation cost previously recognized for an incentive stock option that an employee does not retain for the minimum holding period required by the Internal Revenue Code (a “disqualified disposition”) is recognized as a tax benefit in the period the disqualifying disposition occurs.  Our effective income tax rate will continue to be effected by the tax impact related to incentive stock options and the timing of tax benefits related to disqualifying dispositions.

Net Income

Net income decreased $0.7 million to $13.0 million, or $0.30 per diluted share, for the three months ended April 26, 2008, compared to $13.7 million, or $0.32 per diluted share, for the three months ended April 28, 2007.

Nine Months Ended April 26, 2008 Compared To Nine Months Ended April 28, 2007

Net Sales

Our net sales increased approximately 19.9%, or $406.5 million, to $2,454.0 million for the nine months ended April 26, 2008, from $2,047.0 million for the nine months ended April 28, 2007.  This increase was primarily due to sales from our newly acquired Millbrook distribution business of $149.6 million as well as organic growth in our wholesale division of $251.1 million.  Our organic growth is due to the continued growth of the natural products industry in general, increased market share through our focus on service and added value services, and the opening of new, and expansion of existing, distribution centers, which allows us to carry a broader selection of products.

On a combined basis, and excluding sales to Henry’s and Sun Harvest store locations, which were divested by Whole Foods Market following its merger with Wild Oats Markets, Whole Foods Market and Wild Oats Markets accounted for approximately 33.5% and 34.5% of our net sales for the nine months ended April 26, 2008 and April 28, 2007, respectively.  The Henry’s and Sun Harvest locations divested by Whole Foods Market remain our customers.

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The following table lists the percentage of sales by customer type for the nine months ended April 26, 2008 and April 28, 2007:

Customer type	Percentage of Net Sales
	2008	2007
Independently owned natural products retailers	42%	45%
Supernatural chains	34%	35%
Conventional supermarkets	20%	16%
Other	4%	4%

Sales to Henry’s and Sun Harvest store locations have been reclassified from our supernatural channel into our supermarket channel in both the current and prior year and will continue in this classification going forward.  This reclassification resulted in an increase in sales in the supermarket channel of 1.5% and a decrease in sales in the supernatural channel of 1.5% for the nine months ended April 28, 2007.

Sales by channel have been adjusted to properly reflect changes in customer types resulting from a review of our customer lists.  As a result of this adjustment, sales to the independents channel increased 0.4% for the nine months ended April 28, 2007 and sales to the supermarket channel decreased 0.4% for the three months ended April 28, 2007.

Compared to sales for the nine months ended April 28, 2007, sales in the supermarket channel were positively impacted for the nine months ended April 26, 2008 by our acquisition of Millbrook and negatively impacted for the nine months ended April 26, 2008 by the loss of a key customer in the first quarter of fiscal 2008.

Gross Profit

Our gross profit increased approximately 20.8%, or $78.4 million, to $456.0 million for the nine months ended April 26, 2008, from $377.6 million for the nine months ended April 28, 2007.  Our gross profit as a percentage of net sales was 18.6% and 18.4% for the nine months ended April 26, 2008 and April 28, 2007, respectively.  Gross profit as a percentage of net sales during the nine months ended April 26, 2008 was positively impacted by sales from our Millbrook business and sales through our branded product lines.  We have worked to take advantage of forward buying opportunities during the nine months ended April 26, 2008 in order to improve Millbrook’s gross margin.  We expect Millbrook’s full service supermarket model to generate a higher gross margin over the long-term in our core distribution business; however, we also expect to incur higher operating expenses in providing those services.  Gross profit as a percentage of net sales during the nine months ended April 28, 2007 was negatively impacted by missed forward buying opportunities and $1.9 million of incremental inventory adjustments in our broadline distribution business. We intend to increase our emphasis on sales of branded products, which we believe will allow us to generate higher gross margins over the long-term, as branded product revenues generally yield relatively higher margins.

Operating Expenses

Our total operating expenses increased approximately 25.8%, or $79.5 million, to $387.4 million for the nine months ended April 26, 2008, from $307.9 million for the nine months ended April 28, 2007.  The increase in total operating expenses for the nine months ended April 26, 2008 was primarily due to increases in infrastructure, fuel and personnel costs within our wholesale division of approximately $66.2 million, as a result of the Millbrook acquisition and to support our continued sales growth.  We have been able to partially offset the effect of rising fuel prices by increasing delivery sizes, improving route design and by opening new facilities which reduce the total distance traveled to customers.  We also incurred higher operating expenses during the nine months ended April 26, 2008 related to our branded product lines as we have built our infrastructure to support anticipated growing business and $3.3 million of costs associated with opening the Sarasota, Florida and Ridgefield, Washington facilities.  Total operating expenses for the nine months ended April 28, 2007 included a loss of $1.5 million related to the sale of one of our Auburn, California facilities, an impairment charge of $0.8 million related to the reclassification of the remaining Auburn, California facility to held-for-sale, $0.4 million in termination fees related to the early termination of unused leased space at a facility in Minnesota, and $0.5 million of increased expense related to our fuel hedging program.  The last of our fuel hedges expired in June 2007 and we have not entered into any fuel hedges in fiscal 2008.  Total operating expenses for the first nine months of fiscal 2008 includes share-based compensation expense of $3.5 million, compared to $3.0 million in the first nine months of 2007, resulting from the adoption of SFAS 123(R).  See Note 2 to our condensed consolidated financial statements.

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As a percentage of net sales, total operating expenses increased to approximately 15.8% for the nine months ended April 26, 2008, from approximately 15.0% for the nine months ended April 28, 2007.  The increase in operating expenses as a percentage of net sales was primarily attributable to our acquisition of Millbrook, $3.3 million of initial costs associated with starting up the Sarasota, Florida and Ridgefield, Washington facilities as well as operating inefficiencies related to the recent opening of these facilities, and our investment in infrastructure for our branded product lines.  We expect that the opening of new facilities will contribute efficiencies and lead to lower operating expenses related to sales over the long-term.

Operating Income

Operating income decreased approximately 1.6%, or $1.1 million, to $68.6 million for the nine months ended April 26, 2008, from $69.7 million for the nine months ended April 28, 2007.  As a percentage of net sales, operating income was 2.8% for the nine months ended April 26, 2008, compared to 3.4% for the nine months ended April 28, 2007.  The decrease in operating income as a percentage of net sales is attributable to the increase in operating expenses as a percentage of net sales for the nine months ended April 26, 2008, compared to the nine months ended April 28, 2007, which is primarily attributable to our acquisition of Millbrook.

Other Expense (Income)

Other expense (income) increased $2.8 million to $11.8 million for the nine months ended April 26, 2008, from $9.0 million for the nine months ended April 28, 2007.  Interest expense for the nine months ended April 26, 2008 increased to $12.1 million from $9.3 million for the nine months ended April 28, 2007.  The increase in interest expense was due primarily to the increase in debt levels required to fund our acquisitions of Millbrook and branded product companies.  Debt levels also increased for the nine months ended April 26, 2008 compared to the nine months ended April 28, 2007 as a result of Millbrook’s working capital needs and increased inventory levels in preparation for the opening of the Sarasota, Florida and Ridgefield, Washington facilities in the first and second quarters of fiscal 2008, respectively, and capital expenditures related to the future opening of our Moreno Valley, California facility.

Provision for Income Taxes

Our effective income tax rate was 37.2% and 39.0% for the nine months ended April 26, 2008 and April 28, 2007, respectively.  The decrease in the effective income tax rate was primarily due to anticipated tax credits associated with the solar panel installation projects at our Rocklin, California and Dayville, Connecticut distribution facilities.  This decrease was offset by an increase in our effective income tax rate due to the acquisition of Millbrook.  Our effective income tax rate was also affected by share-based compensation for incentive stock options and the timing of disqualifying dispositions of certain share-based compensation awards.  Our effective income tax rate will continue to be effected by the tax impact related to incentive stock options and the timing of tax benefits related to disqualifying dispositions.

Net Income

Net income decreased $1.4 million to $35.7 million, or $0.83 per diluted share, for the nine months ended April 26, 2008, compared to $37.0 million, or $0.87 per diluted share, for the nine months ended April 28, 2007.

Liquidity and Capital Resources

We finance our operations and growth primarily with cash flows from operations, borrowings under our credit facility, operating leases, trade payables and bank indebtedness.  In addition, from time to time, we may issue equity and debt securities.

On November 2, 2007, we amended our $250 million secured revolving credit facility with a bank group led by Bank of America Business Capital as the administrative agent.  The amendment temporarily increased the maximum borrowing base under the credit facility from $250 million to $270 million.

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On November 27, 2007, we amended our $270 million secured revolving credit facility with a bank group led by Bank of America Business Capital as the administrative agent.  The amendment increased the maximum borrowing base under the credit facility from $270 million to $400 million and provides the Company with a one-time option, subject to approval by the lenders under the credit facility, to increase the borrowing base by up to an additional $50 million.  Interest accrues on borrowings under the credit facility, at our option, at either the base rate (the applicable prime lending rate of Bank of America Business Capital, as announced from time to time) or at the one-month London Interbank Offered Rate (“LIBOR”) plus 0.75%. The $400 million credit facility matures on November 27, 2012.   The amended and restated credit facility supports our working capital requirements in the ordinary course of business and provides capital to grow our business organically or through acquisitions.  As of April 26, 2008, our borrowing base, based on accounts receivable and inventory levels, was $393.5 million, with remaining availability of $72.3 million.

In April 2003, we executed a term loan agreement in the principal amount of $30 million, secured by certain real property that was released from the lien under our amended and restated credit facility in accordance with an amendment to the loan and security agreement related to that facility.  The term loan is repayable over seven years based on a fifteen-year amortization schedule.  Interest on the term loan initially accrued at one-month LIBOR plus 1.50%.  In December 2003, we amended this term loan agreement to increase the principal amount from $30 million to $40 million under the existing terms and conditions.  On July 29, 2005, we entered into an amended term loan agreement which further increased the principal amount of this term loan from $40 million to up to $75 million and decreased the rate at which interest accrues to one-month LIBOR plus 1.00%.  In connection with the amendments to our amended and restated revolving credit facility described above, effective November 2, 2007 and November 27, 2007, we amended the term loan agreement to conform certain terms and conditions to the corresponding terms and conditions in the credit agreement that establishes our amended and restated revolving credit facility (the “Amended Credit Agreement”).  As of April 26, 2008, approximately $62.8 million was outstanding under the term loan agreement.

On June 4, 2008, we further amended the Amended Credit Agreement and our term loan agreement, effective as of May 28, 2008, in order to (i) waive events of default as a result of our noncompliance at April 26, 2008 with the fixed charge coverage ratio covenants under the Amended Credit Agreement and our term loan agreement (the “Fixed Charge Coverage Ratio Covenants”), (ii) increase the interest rate applicable to borrowings under each of our amended and restated revolving credit facility and our term loan by 0.25% during the period from June 1, 2008 through the date on which we demonstrate compliance with the applicable Fixed Charge Coverage Ratio Covenant, and (iii) exclude non-cash share based compensation expense from the calculation of EBITDA (as defined in the applicable agreement) in connection with the calculation of the fixed charge coverage ratio under the Amended Credit Agreement and the term loan agreement.  The Amended Credit Agreement and our term loan agreement, as amended, require us to maintain a minimum fixed charge coverage ratio of 1.5 to 1.0 and 1.45 to 1.0, respectively, each calculated at the end of each of our fiscal quarters on a rolling four quarter basis.  The principal reason for our noncompliance with the Fixed Charge Coverage Ratio Covenants was the high level of capital expenditures we have made in the trailing twelve month period ended April 26, 2008.  We expect to be in compliance with the Fixed Charge Coverage Ratio Covenants as of the close of our fourth quarter of fiscal 2008.

We believe that our capital expenditure requirements for fiscal 2008 will be between $50 and $55 million.  We expect to finance these requirements with cash generated from operations and borrowings under our existing credit facilities.  These projects will provide both expanded facilities and enhanced technology that we believe will provide us with the capacity to continue to support the growth and expansion of our customer base.  We believe that our future capital expenditure requirements will be similar to our anticipated fiscal 2008 requirements, as a percentage of net sales, as we continue to invest in our growth by upgrading our infrastructure and expanding our facilities.  Future investments in acquisitions that we may pursue will be financed through our existing credit facilities, equity or long-term debt negotiated at the time of the potential acquisition.

Net cash used in operations was $35.5 million for the nine months ended April 26, 2008, and was the result of net income of $35.7 million, the change in cash collected from customers net of cash paid to vendors and a $77.0 million investment in inventory.  The increase in inventory levels primarily related to increased sales, restoring Millbrook’s inventory levels by taking advantage of forward buying opportunities to improve Millbrook’s gross profit and building inventory in anticipation of the opening of our Sarasota, Florida and Ridgefield, Washington facilities in September 2007 and December 2007, respectively.  Net cash provided by operations was $12.5 million for the nine months ended April 28, 2007, as the result of net income of $37.0 million, the change in cash collected from customers net of cash paid to vendors and a $43.4 million investment in inventory.  Days in inventory was 51 days at April 26, 2008 and 45 days at April 28, 2007.  This increase was due primarily to inventory purchased in anticipation of the opening of our Sarasota, Florida and Ridgefield, Washington distribution facilities while we worked to reduce inventory levels at the Atlanta, Georgia and Auburn, Washington facilities.  Days sales outstanding improved to 20 days at April 26, 2008, compared to 21 days at April 28, 2007.  Working capital decreased by $121.5 million, or 56%, to $95.0 million at April 26, 2008, compared to working capital of $216.5 million at July 28, 2007.

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Net cash used in investing activities increased $117.0 million to $139.8 million for the nine months ended April 26, 2008, compared to $22.7 million for the same period in 2007.  This increase was primarily due to purchases of acquired businesses, net of cash.

Net cash provided by financing activities was $177.7 million for the nine months ended April 26, 2008, primarily due to new debt incurred related to our acquisition of Millbrook, the increase in our bank overdraft and proceeds from borrowings under notes payable, partially offset by repayments on long-term debt.  Net cash provided by financing activities was $10.7 million for the nine months ended April 28, 2007, primarily due to $10.0 million in proceeds received from the increase in borrowings under our term loan agreement, the increase in our bank overdraft and proceeds from, and the tax benefit due to, the exercise of stock options, partially offset by repayments of long-term debt.

On December 1, 2004, our Board of Directors authorized the repurchase of up to $50 million of common stock from time to time in the open market or in privately negotiated transactions.  As part of the stock repurchase program, we have purchased 228,800 shares of our common stock for our treasury at an aggregate cost of approximately $6.1 million.  All shares were purchased at prevailing market prices.  We may continue or, from time to time, suspend repurchases of shares under our stock repurchase program, depending on prevailing market conditions, alternate uses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchased will be determined in our complete discretion.  We did not make any such common stock repurchases in the nine months ended April 26, 2008 or April 28, 2007.

In August 2005, we entered into an interest rate swap agreement effective July 29, 2005.  This agreement provides for us to pay interest for a seven-year period at a fixed rate of 4.70% on a notional principal amount of $50 million while receiving interest for the same period at one-month LIBOR on the same notional principal amount.  The swap has been entered into as a hedge against LIBOR movements on current variable rate indebtedness totaling $50 million at one-month LIBOR plus 1.00%, thereby fixing our effective rate on the notional amount at 5.70%.  One-month LIBOR was 2.70% as of April 26, 2008.  The swap agreement qualifies as an “effective” hedge under SFAS 133.

We may from time to time enter into commodity swap agreements to reduce price risk associated with our anticipated purchases of diesel fuel. These commodity swap agreements hedge a portion of our expected fuel usage for the periods set forth in the agreements.  We monitor the commodity (NYMEX #2 Heating oil) used in our swap agreements to determine that the correlation between the commodity and diesel fuel is deemed to be “highly effective.”  At April 26, 2008, we had no outstanding commodity swap agreements.  At April 28, 2007, we had one outstanding commodity swap agreement which matured on June 30, 2007.

There have been no material changes to our commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the year ended July 28, 2007 except for operating leases signed with respect to warehouse space in Moreno Valley, California and York, Pennsylvania.  Commitments related to the Moreno Valley, California lease agreement amount to $0.2 million in fiscal year 2008, $7.0 million in fiscal years 2009 through 2011, $5.1 million in fiscal years 2012 and 2013, and $14.0 million, thereafter.  Commitments related to the York, Pennsylvania lease agreement amount to $0.4 million in fiscal year 2008, $7.9 million in fiscal years 2009 through 2011, $5.6 million in fiscal years 2012 and 2013, and $21.3 million, thereafter.

SEASONALITY

In the fiscal years ended July 28, 2007 and July 29, 2006, we experienced a slight sequential decline in sales from the third fiscal quarter to the fourth fiscal quarter.  This may indicate that our business is developing some seasonality during late spring and early summer months.  Additionally, our sales and operating results may vary significantly from quarter to quarter due to factors such as changes in our operating expenses, demand for natural products, supply shortages and general economic conditions.

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RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.  FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions upon initial adoption of the Interpretation. The cumulative effect of applying the provisions of this Interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. We adopted FIN 48 on July 29, 2007.  The cumulative effect of our adoption of FIN 48 did not result in a material adjustment to our tax liability for unrecognized income tax benefits. Our policy to include interest and penalties related to unrecognized tax benefits as a component of income tax expense did not change as a result of implementing the FIN 48.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. (“SFAS”) 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements under other accounting pronouncements, but does not change the existing guidance as to whether or not an instrument is carried at fair value.  The statement is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS 157 in fiscal 2009 and currently are evaluating whether the adoption of SFAS 157 will have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The statement is effective for fiscal years beginning after November 15, 2007.  We will adopt SFAS 159 in fiscal 2009 and currently are evaluating whether the adoption of SFAS 159 will have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (“SFAS 160”). This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years beginning on or after December 15, 2008.  We do not expect the adoption of SFAS 160 to have a material effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an Amendment of SFAS No. 133 ("SFAS 161"). SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows.  SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 and early adoption is permitted.  We do not expect the adoption of SFAS 161 to have a material effect on the disclosures that accompany our consolidated financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk results primarily from fluctuations in interest rates on our borrowings and price increases in diesel fuel. As more fully described in Note 5 to the condensed consolidated financial statements, we use interest rate swap agreements to modify variable rate obligations to fixed rate obligations for a portion of our debt, and from time to time use commodity swap agreements to hedge a portion of our expected diesel fuel usage. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the year ended July 28, 2007.

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Item 4. 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-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q (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.

(b) Changes in internal controls.    There has been no change in our internal control over financial reporting that occurred during the third fiscal quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

Fair and Accurate Credit Transactions Act Litigation

The Company and its subsidiary Natural Retail Group are defendants in a purported class action filed in January 2008 in the U.S. District Court for the Middle District of Florida.  The lawsuit alleges that the Company and Natural Retail Group violated the Fair and Accurate Credit Transactions Act by printing expiration dates on customer sales receipts for the Company’s retail stores. On May 21, 2008, the Court stayed the case for 90 days pending resolution of legislation that will limit liability in cases involving the printing of expiration dates on sales receipts.  The President signed this legislation into law on June 3, 2008.  The case remains subject to the stay pending further action by the parties.

Item 1A. Risk Factors

Our business, financial condition and results of operations are subject to various risks and uncertainties, including those described below and elsewhere in this Quarterly Report on Form 10-Q.  This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. Our business, financial condition or results of operations could be materially adversely affected by any of these risks.

We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. See “Part I. Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We depend heavily on our principal customer

Our ability to maintain a close, mutually beneficial relationship with our largest customer, Whole Foods Market, is an important element to our continued growth.  In October 2006, we announced a seven-year distribution agreement with Whole Foods Market, which commenced on September 26, 2006, under which we will continue to serve as the primary U.S. distributor to Whole Foods Market in the regions where we previously served.  In November 2006, we entered into an amendment to that distribution agreement, under which we were named the primary wholesale natural grocery distributor to Whole Foods Market in the Southern Pacific region of the United States, which includes Southern California, Arizona and Southern Nevada, and is a region we did not previously serve.  We began expanding our relationship with Whole Foods Market for this region in January 2007.  In August 2007, Whole Foods Market and Wild Oats Markets completed their previously-announced merger, as a result of which, Wild Oats Markets became a wholly-owned subsidiary of Whole Foods Market.  All stores previously owned by Wild Oats Markets and now owned by Whole Foods Market are subject to the terms of the distribution agreement with Whole Foods Market.  Whole Foods Market sold all thirty-five of Wild Oats Markets’ Henry’s and Sun Harvest store locations to a subsidiary of Smart & Final Inc. on September 30, 2007.  On a combined basis, and excluding sales to Henry’s and Sun Harvest store locations, Whole Foods Market and Wild Oats Markets accounted for approximately 33.5% and 34.5% of our net sales for the nine months ended April 26, 2008 and April 28, 2007, 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 their own facilities or closures of stores previously owned by Wild Oats Markets, could materially and adversely affect our business, financial condition or results of operations.

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We sell products under purchase orders, and we generally have no agreements with or commitments from our customers for the purchase of products.  We cannot assure you 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.

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 acquisition strategy poses risks to our business

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 the companies acquired in 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 merger partners is critical to our future operating and financial performance.  Integration requires, among other things:

· maintaining the customer base;

· optimizing delivery routes;

· coordinating administrative, distribution and finance functions; and

· integrating 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 caused 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.  For example, our acquisition of Millbrook has diverted the attention of management away from our core business, not yet produced the purchasing efficiencies and other synergies we expect to result from the acquisition and negatively affected our operating expenses.  Although we expect to achieve efficiencies from this acquisition in future periods, we cannot assure you that we will realize any of the anticipated benefits of this or other mergers.

We may have difficulty 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.  We cannot assure you 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, we cannot assure you 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.  We cannot assure you 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.  Our focus on growth may temporarily redirect resources previously focused on reducing product cost, resulting in lower gross profits in relation to sales.

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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.  We cannot assure you that mass market grocery distributors will not increase 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.  We cannot assure you that our current or potential competitors will not provide products or 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. We cannot assure you that we will be able to compete effectively against current and future competitors.

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.

We cannot assure you that one or more of such factors will not materially adversely affect our business, financial condition or results of operations.

Increased fuel costs may have a negative impact on our results of operations

Increased fuel costs may have a negative impact on our results of operations. The high cost of diesel fuel can increase the price we pay for products as well as the costs we incur to deliver products to our customers. These factors, in turn, may negatively impact our net sales, margins, operating expenses and operating results.   To manage this risk, we have in the past periodically entered, and may in the future periodically enter, into heating oil derivative contracts to hedge a portion of our projected diesel fuel requirements.  Heating crude oil prices have a highly correlated relationship to fuel prices, making these derivatives effective in offsetting changes in the cost of diesel fuel.  We are not party to any commodity swap agreements at April 26, 2008 and, as a result, our exposure to volatility in the price of diesel fuel has increased relative to our exposure to volatility in prior periods in which we had outstanding heating oil derivative contracts.  We do not enter into fuel hedge contracts for speculative purposes.  We also have maintained a fuel surcharge program since fiscal 2005 which allows us to pass some of our higher fuel costs through to our customers.  We cannot guarantee that we will continue to be able to pass a comparable proportion or any of our higher fuel costs to our customers in the future.

The cost of the capital available to us and any limitations on our ability to access additional capital may have a material adverse effect on our business, financial condition or results of operations

We have an amended $400 million secured revolving credit facility, which matures on November 27, 2012, and under which borrowings accrue interest, at our option, at either (i) the base rate (the applicable prime lending rate of Bank of America Business Capital, as announced from time to time) plus, during the period from June 1, 2008 through the date on which we demonstrate compliance with the Fixed Charge Coverage Ratio Covenant thereunder (the “Credit Facility Noncompliance Period”), 0.25%, or (ii) one-month LIBOR plus 1.0% during the Credit Facility Noncompliance Period and one-month LIBOR plus 0.75% thereafter.  As of April 26, 2008, our borrowing base, based on accounts receivable and inventory levels, was $393.5 million, with remaining availability of $72.3 million. We have a term loan agreement in the principal amount of $75 million secured by certain real property.  The term loan is repayable over seven years based on a fifteen-year amortization schedule.  Interest on the term loan accrues at one-month LIBOR plus 1.25% during the period from June 1, 2008 through the date on which we demonstrate compliance with the Fixed Charge Coverage Ratio Covenant thereunder and one-month LIBOR plus 1.0% thereafter.  As of April 26, 2008, $62.8 million was outstanding under the term loan agreement.

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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, such as during the period in which we are not in compliance with the Fixed Charge Coverage Ratio Covenants, 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.

Our operating results are subject to significant fluctuations

Our 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, including levels of enthusiasm for health, fitness and environmental issues;

· fluctuation of natural product prices due to competitive pressures;

· personnel changes;

· general economic conditions;

· supply shortages, including due to a 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.

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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.

We are dependent on a number of key executives

Management of our business is substantially dependent upon the services of certain 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.

Union-organizing activities could cause labor relations difficulties

As of April 26, 2008, we had approximately 6,200 full and part-time employees.  An aggregate of approximately 5% of our total employees, or approximately 335 of the employees at our Auburn, Washington, East Brunswick, New Jersey, Edison, New Jersey, Iowa City, Iowa and Leicester, Massachusetts facilities, are covered by collective bargaining agreements.  The Edison, New Jersey, Auburn, Washington, East Brunswick, New Jersey, Leicester, Massachusetts and Iowa City, Iowa agreements expire in June 2008, February 2009, June 2009, March 2008 and July 2009, 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 or we are not successful in reaching agreement with these employees, 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

As of April 26, 2008, we were not in compliance with the Fixed Charge Coverage Ratio Covenants, and we were unable to obtain a waiver of compliance with these covenants within 30 days thereafter.  The principal reason for our noncompliance with these covenants was our high level of capital expenditures in the trailing twelve month period ended April 26, 2008.  As of April 26, 2008, we had a gross borrowing base of $393.5 million, with remaining availability of $72.3 million under our amended and restated revolving credit facility and $62.8 million of outstanding indebtedness under our term loan agreement.  On June 4, 2008, we entered into amendments to our Amended Credit Agreement and our term loan agreement, effective as of May 28, 2008, that include waivers of these events of default.  We expect to be in compliance with the Fixed Charge Coverage Ratio Covenants as of the close of our fourth quarter of fiscal 2008.  However, there can be no assurance that we will regain compliance with these covenants as of the close of our fourth quarter of fiscal 2008.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

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Item 6.  Exhibits

Exhibits

Exhibit  No.	Description
10.55	Lease between FR York Property Holding, LP, and the Registrant, dated March 14, 2008.
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

*                 *                 *

We would be pleased to furnish a copy of this Form 10-Q to any stockholder who requests it by writing to:

United Natural Foods, Inc.

Investor Relations

260 Lake Road

Dayville, CT  06241

29

SIGNATURES

Pursuant to the requirements 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/ Mark E. Shamber

Mark E. Shamber

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated:  June 5, 2008

30

EX-10.55

Exhibit 10.55

STANDARD FORM
INDUSTRIAL BUILDING LEASE
(SINGLE-TENANT)

1.           BASIC TERMS.  This Section 1 contains the Basic Terms of this lease (this “Lease”) between Landlord and Tenant, named below.  Other Sections of the Lease referred to in this Section 1 explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.

1.1. Effective Date of Lease:  March 14, 2008

1.2. Landlord:  FR York Property Holding, LP, a Delaware limited partnership

1.3. Tenant:  United Natural Foods, Inc.

1.4. Premises:  A building commonly known as 225 Cross Farm Lane, York, Pennsylvania, and containing approximately 675,000 rentable square feet, as legally described on Exhibit A attached hereto.

1.5. Lease Term: Twelve (12) years (“Term”) commencing June 1, 2008 (“Commencement Date”) and ending, subject to Section 2.3 below, on May 31, 2020 (“Expiration Date”).

1.6. Permitted Uses:  (See Section 4.1) Warehousing, distribution and any other use not prohibited by applicable zoning laws or regulations and approved in writing by Landlord, which shall not be unreasonably withheld, conditioned or delayed

1.7. Tenant’s Guarantor:  None

1.8. Brokers:  (See Section 23; if none, so state):  (A) Tenant’s Broker:  NAI Brannen Goddard; and (B) Landlord’s Broker:  CB Richard Ellis

1.9. Security/Damage Deposit:  None

1.10. Exhibits to Lease:  The following exhibits are attached to and made a part of this Lease. (If none, so state):  A (legal description); B (Tenant Operations Inquiry Form); C (Tenant Improvements), D (Confirmation of Commencement Date); E (Broom Clean Condition and Repair Requirements); Exhibit F (Signage Plan); Addendum 1 (Renewal Option); and Addendum 2 (Purchase Option)

2.           LEASE OF PREMISES; RENT.

2.1.           Lease of Premises for Lease Term.  Landlord hereby leases the Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the Term and subject to the conditions of this Lease.

2.2.           Types of Rental Payments. Tenant shall pay net base rent to Landlord in monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease (the “Base Rent”) in the amounts and for the periods as set forth below:

Rental Payments

Lease Period	Annual Base Rent	Monthly Base Rent
____, 2008 – May 31, 2008	$0.00	$0.00
June 1, 2008 – May 31, 2009	$2,558,250.00	$231,187.50
June 1, 2009 – May 31, 2010	$2,619,000.00	$218,250.00
June 1, 2010 – May 31, 2011	$2,666,250.00	$222,187.50

June 1, 2011 – May 31, 2012	$2,754,000.00	$229,500.00
June 1, 2012 – May 31, 2013	$2,821,500.00	$235,125.00
June 1, 2013 – May 31, 2014	$2,889,000.00	$240,750.00
June 1, 2014 – May 31, 2015	$2,963,250.00	$246,937.50
June 1, 2015 – May 31, 2016	$3,037,500.00	$253,125.00
June 1, 2016 – May 31, 2017	$3,111,750.00	$259,312.50
June 1, 2017 – May 31, 2018	$3,192,750.00	$266,062.50
June 1, 2018 – May 31, 2019	$3,273,750.00	$272,812.50
June 1, 2019 – May 31, 2020	$3,354,750.00	$279,562.50

Tenant shall also pay all Operating Expenses (defined below) and any other amounts owed by Tenant hereunder (collectively, “Additional Rent”).  In the event any monthly installment of Base Rent or Additional Rent, or both, is not paid within 5 days of the date when due, a late charge in an amount equal to 5% of the then delinquent installment of Base Rent and/or Additional Rent (the “Late Charge”; the Late Charge, Default Interest, as defined in Section 22.3 below, Base Rent and Additional Rent shall collectively be referred to as “Rent”), shall be paid by Tenant to Landlord, c/o First Industrial Investment, Inc., 75 Remittance Drive Suite 1066, Chicago IL 60675-1066, or if sent by overnight courier, The Northern Trust Company, 350 North Orleans, 8th Floor Receipt & Dispatch, Chicago IL 60654, Attention:  FIDS Suite 1066 (or such other entity designated as Landlord’s management agent, if any, and if Landlord so appoints such a management agent, the “Agent”), or pursuant to such other directions as Landlord shall designate in this Lease or otherwise in writing.  Notwithstanding the foregoing, for the first three (3) monthly installments of Rent during the Term, the Late Charge will not be charged to Tenant until five (5) days after notice by Landlord to Tenant of any such delinquent installment of Base Rent and/or Additional Rent

2.3.           Covenants Concerning Rental Payments; Initial and Final Rent Payments.  Tenant shall pay the Rent promptly when due, without notice or demand, and without any abatement, deduction or setoff.  No payment by Tenant, or receipt or acceptance by Agent or Landlord, of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or letter accompanying any payment be deemed an accord or satisfaction, and Agent or Landlord may accept such payment without prejudice to its right to recover the balance due or to pursue any other remedy available to Landlord.  If the Commencement Date occurs on a day other than the first day of a calendar month, the Rent due for the first calendar month of the Term shall be prorated on a per diem basis (based on a 360 day, 12 month year) and paid to Landlord on the Commencement Date, and the Term will be extended to terminate on the last day of the calendar month in which the Expiration Date stated in Section 1.5 occurs.

2.4.           Net Lease.  This is an absolutely net lease to Landlord.  It is the intent of the parties hereto that the Base Rent payable under this Lease shall be an absolutely net return to Landlord and that Tenant shall pay all costs and expenses relating to the ownership and operation of the Premises and the business carried on therein, unless otherwise expressly provided to the contrary in this Lease.  Any amount or obligation relating to the Premises that is not expressly declared (under this Lease) to be that of Landlord shall be deemed to be an obligation of Tenant to be performed by Tenant, at Tenant’s expense.  It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, that the Base Rent and the Additional Rent shall continue to be payable in all events, and that the obligations of Tenant hereunder shall continue unaffected in all events, unless the requirement to pay or perform the same shall have been specifically terminated pursuant to an express provision of this Lease.

3.           OPERATING EXPENSES.

3.1.           Definitional Terms Relating to Additional Rent.  For purposes of this Section and other relevant provisions of the Lease:

3.1.1.           Operating Expenses. The term “Operating Expenses” shall mean all costs and expenses paid or incurred by Landlord with respect to, or in connection with, the ownership, repair, restoration, maintenance and operation of the Premises.  Operating Expenses may include, but are not limited to, any or all of the following:  (i) all market-based premiums for commercial property, casualty, general liability, boiler, flood, earthquake, terrorism and all other types of insurance provided by Landlord and relating to the Premises, and all deductibles paid by Landlord pursuant to insurance policies required to be maintained by Landlord under this Lease; (ii) management fees to Landlord or Agent in an amount not to exceed 2% per annum of all Rent due hereunder; (iii) Taxes, as hereinafter defined in Section 3.1.2 (subject, however, to the last sentence of Section 3.1.2); (iv) dues, fees or other costs and expenses, of any nature, due and payable to any association or comparable entity to which Landlord, as owner of the Premises, is a member or otherwise belongs and that governs or controls any aspect of the ownership and operation of the Premises; (v) all fees in incurred in connection with the lawn care and landscaping of the Premises; and (vi) any real estate taxes and common area maintenance expenses levied against, or attributable to, the Premises under any declaration of covenants, conditions and restrictions, reciprocal easement agreement or comparable arrangement that encumbers and benefits the Premises and other real property (e.g. a business park).

3.1.2.           Taxes.  The term “Taxes,” as referred to in Section 3.1.1(iii) above shall mean (i) all governmental taxes, assessments, fees and charges of every kind or nature (other than Landlord’s income taxes), whether general, special, ordinary or extraordinary, due at any time or from time to time, during the Term and any extensions thereof, in connection with the ownership, leasing, or operation of the Premises, or of the personal property and equipment located therein or used in connection therewith; and (ii) any reasonable expenses incurred by Landlord in contesting such taxes or assessments and/or the assessed value of the Premises.  For purposes hereof, Tenant shall be responsible for any Taxes that are due and payable at any time or from time to time during the Term and for any Taxes that are assessed, become a lien, or accrue during any Operating Year, which obligation shall survive the termination or expiration of this Lease.  If Landlord so elects, by delivery of written notice to Tenant at any time during the Term, Tenant shall pay the Taxes directly to the taxing authority(ies), rather than to Landlord for payment to the taxing authority(ies), whereupon Tenant shall be required to pay all Taxes prior to the date on which they become delinquent and Tenant shall deliver to Landlord, promptly after Tenant’s payment of same, reasonable evidence of such payments.

3.1.3.           Operating Year.  The term “Operating Year” shall mean the calendar year commencing January 1st of each year (including the calendar year within which the Commencement Date occurs) during the Term.

3.2.           Payment of Operating Expenses.  Tenant shall pay, as Additional Rent and in accordance with the requirements of Section 3.3, all of the Operating Expenses, as set forth in Section 3.3. Additional Rent commences to accrue upon the Commencement Date.  The Operating Expenses payable hereunder for the Operating Years in which the Term begins and ends shall be prorated to correspond to that portion of said Operating Years occurring within the Term.  The Operating Expenses and any other sums due and payable under this Lease shall be adjusted upon receipt of the actual bills therefor, and the obligations of this Section 3 shall survive the termination or expiration of the Lease.

3.3.           Payment of Additional Rent.  Landlord shall have the right to reasonably estimate the Operating Expenses for each Operating Year.  Upon Landlord’s or Agent’s notice to Tenant of such estimated amount, Tenant shall pay, on the first day of each month during that Operating Year, an amount (the “Estimated Additional Rent”) equal to the estimate of the Operating Expenses divided by 12 (or the fractional portion of the Operating Year remaining at the time Landlord delivers its notice of the estimated amounts due from Tenant for that Operating Year).  If the aggregate amount of Estimated Additional Rent actually paid by Tenant during any Operating Year is less than Tenant’s actual ultimate liability for Operating Expenses for that particular Operating Year, Tenant shall pay the deficiency within thirty (30) days of Landlord’s written demand therefor.  If the aggregate amount of Estimated Additional Rent actually paid by Tenant during a given Operating Year exceeds Tenant’s actual liability for such Operating Year, the excess shall be credited against the Estimated Additional Rent next due from Tenant during the immediately subsequent Operating Year, except that in the event that such excess is paid by Tenant during the final Lease Year, then upon the expiration of the Term, Landlord or Agent shall pay Tenant the then-applicable excess promptly after determination thereof.

3.4.           Audit.  As soon as is reasonably practical after each Operating Year, Landlord shall provide Tenant with a statement (a “Statement”) setting forth the actual ultimate Additional Rent for the subject Operating Year.  If Tenant disputes the amount set forth in a given Statement, Tenant shall have the right, at Tenant's sole expense, to cause Landlord's books and records

with respect to the particular Operating Year that is the subject of that particular Statement to be audited (the “Audit”) by a certified public accountant mutually acceptable to Landlord and Tenant (the “Accountant”), provided Tenant (i) has not defaulted under this Lease and failed to cure such default on a timely basis and (ii)  delivers written notice (an “Audit Notice”) to Landlord on or prior to the date that is thirty (30) days after Landlord delivers the Statement in question to Tenant (such 30-day period, the “Response Period”).  If Tenant fails to timely deliver an Audit Notice with respect to a given Statement, then Tenant's right to undertake an Audit with respect to that Statement and the Operating Year to which that particular Statement relates shall automatically and irrevocably be waived and such Statement shall be final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct.  If Tenant timely delivers an Audit Notice, Tenant must commence such Audit within thirty (30) days after the Audit Notice is delivered to Landlord, and the Audit must be completed within thirty (30) days of the date on which it is begun.  If Tenant fails, for any reason other than Landlord’s lack of cooperation, to commence and complete the Audit within such periods, the Statement that Tenant elected to Audit shall be deemed final and binding upon Tenant and shall, as between the parties, be conclusively deemed correct.  The Audit shall take place at the offices of Landlord where its books and records are located, at a mutually convenient time during Landlord's regular business hours.  Before conducting the Audit, Tenant must pay the full amount of the Additional Rent billed under the Statement then in question.  Tenant hereby covenants and agrees that the Accountant engaged by Tenant to conduct the Audit shall be compensated on an hourly basis and shall not be compensated based upon a percentage of overcharges it discovers.  If an Audit is conducted in a timely manner, such Audit shall be deemed final and binding upon Landlord and Tenant and shall, as between the parties, be conclusively deemed correct.  If the results of the Audit reveal that the actual ultimate Additional Rent does not equal the aggregate amount of the estimated Additional Rent actually paid by Tenant to Landlord during the Operating Year that is the subject of the Audit, the appropriate adjustment shall be made between Landlord and Tenant, and any payment required to be made by Landlord or Tenant to the other shall be made within thirty (30) days after the Accountant’s determination.  In no event shall this Lease be terminable nor shall Landlord be liable for damages based upon any disagreement regarding an adjustment of the Additional Rent. Tenant agrees that the results of any Audit shall be kept strictly confidential by Tenant and shall not be disclosed to any other person or entity.

4.           USE OF PREMISES; SIGNAGE; SECURITY DEPOSIT.

4.1.           Use of Premises.  The Premises shall be used by the Tenant for the purpose(s) set forth in Section 1.6 above and for no other purpose whatsoever.  Except as expressly permitted by this Lease, Tenant shall not, at any time, use or occupy, or suffer or permit anyone to use or occupy, the Premises, or do or permit anything to be done in the Premises, in any manner that may (a) violate any Certificate of Occupancy for the Premises; (b) cause, or be liable to cause, injury to, or in any way impair the value or proper utilization of, all or any portion of the Premises (including, but not limited to, the structural elements of the Premises) or any equipment, facilities or systems therein; (c) constitute a violation of the laws and requirements of any public authority or the requirements of insurance bodies or the rules and regulations of the Premises, including any covenant, condition or restriction affecting the Premises; (d) exceed the load bearing capacity of the floor of the Premises; or (e) impair or tend to impair the character, reputation or appearance of the Premises as a commercial warehouse.  On or prior to the date hereof, Tenant has completed and delivered for the benefit of Landlord a “Tenant Operations Inquiry Form” in the form attached hereto as Exhibit B describing the nature of Tenant’s proposed business operations at the Premises, which form is intended to be, and shall be, relied upon by Landlord.  From time to time during the Term (but no more often than once in any twelve month period unless Tenant is in default hereunder or unless Tenant assigns this Lease or subleases all or any portion of the Premises, whether or not in accordance with Section 8), Tenant shall provide an updated and current Tenant Operations Inquiry Form upon Landlord’s request.

4.2.           Signage.  Tenant shall not affix any sign of any size or character to any portion of the Premises, without prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed.  Tenant shall remove all signs of Tenant upon the expiration or earlier termination of this Lease and immediately repair any damage to the Premises caused by, or resulting from, such removal. Notwithstanding the foregoing, Tenant may install a sign at the Premises, at Tenant’s sole cost, in accordance with the signage plan attached hereto as Exhibit F.

4.3.           Intentionally omitted.

5.           CONDITION AND DELIVERY OF PREMISES.

5.1.           Condition of Premises.  Subject to the last sentence of Section 9.1, Tenant agrees that Tenant is familiar with the condition of the Premises, and Tenant hereby accepts the foregoing on an “AS-IS,” “WHERE-IS” basis.  Tenant acknowledges that neither Landlord nor Agent, nor any representative of Landlord, has made any representation as to the condition of the foregoing or the suitability of the foregoing for Tenant’s intended use.  Tenant represents and warrants that Tenant has made its own inspection of the foregoing.  Neither Landlord nor Agent shall be obligated to make any repairs, replacements or improvements

(whether structural or otherwise) of any kind or nature to the foregoing in connection with, or in consideration of, this Lease.  Tenant shall construct and install the tenant improvements (“Tenant Improvements”), at Tenant’s sole cost and expense, pursuant to the terms and conditions of Exhibit C. Further, any documents that Landlord provided to Tenant prior to the execution of this Lease were furnished to Tenant for information purposes only and without any representation or warranty Landlord with respect thereto, express or implied. The floor capacity of the Premises is 500 pound per square foot live load capacity.

5.2.           Delay in Commencement.  

5.3.           Memorandum of Commencement Date.  Upon lease execution, and as a condition precedent to such delivery, of the Premises to Tenant, and Tenant shall deliver to Landlord a Confirmation of Commencement Date in substantially the form attached hereto as Exhibit D.

6.           SUBORDINATION; ESTOPPEL CERTIFICATES; ATTORNMENT.

6.1.           Subordination and Attornment.  This Lease is and shall be subject and subordinate at all times to (a) all ground leases or underlying leases that may now exist or hereafter be executed affecting the Premises and (b) any mortgage or deed of trust that may now exist or hereafter be placed upon, and encumber, any or all of (x) the Premises; (y) any ground leases or underlying leases for the benefit of the Premises; and (z) all or any portion of Landlord’s interest or estate in any of said items.  Tenant shall execute and deliver, within ten (10) days of receipt thereof, and in the form reasonably requested by Landlord (or its lender), any documents evidencing the subordination of this Lease.  Tenant hereby covenants and agrees that Tenant shall attorn to any successor to Landlord.

6.2.           Estoppel Certificate.  Tenant agrees, from time to time and within ten (10) days after request by Landlord, to deliver to Landlord, or Landlord’s designee, an estoppel certificate stating such matters pertaining to this Lease as may be reasonably requested by Landlord, so long as such estoppel accurately describes the terms of this Lease.  Failure by Tenant to timely execute and deliver such certificate shall constitute a Default, as defined below (without any obligation to provide any notice thereof or any opportunity to cure such failure to timely perform).

6.3.           Transfer by Landlord. In the event of a sale or conveyance by Landlord of the Premises, the same shall operate to release Landlord from any future liability for any of the covenants or conditions, express or implied, herein contained in favor of Tenant and first arising or accruing after the effective date of Landlord’s transfer of its interest in the Premises, and in such event Tenant agrees to look solely to Landlord’s successor in interest (“Successor Landlord”) with respect thereto and agrees to attorn to such successor.

7.           QUIET ENJOYMENT.  Subject to the provisions of this Lease, so long as Tenant pays all of the Rent and performs all of its other obligations hereunder, Tenant shall not be disturbed in its possession of the Premises by Landlord, Agent or any other person lawfully claiming through or under Landlord.

8.           ASSIGNMENT AND SUBLETTING.  Tenant shall not (a) assign (whether directly or indirectly), in whole or in part, this Lease, or (b) allow this Lease to be assigned, in whole or in part, by operation of law or otherwise, including, without limitation, by transfer of a controlling interest (i.e. greater than a 50% interest) of stock, membership interests or partnership interests, or by merger or dissolution, which transfer of a controlling interest, merger or dissolution shall be deemed an assignment for purposes of this Lease, or (c) mortgage or pledge the Lease, or (d) sublet the Premises, in whole or in part, without (in the case of any or all of (a) through (d) above) the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, subsection (b) shall not apply as long as Tenant is a publicly traded company (i.e. Tenant’s stock is listed on the Nasdaq or similar stock exchange).  Tenant may, however, assign this Lease or sublease a portion of the Premises to a wholly-owned subsidiary, provided that Tenant advises Landlord, in writing, in advance, and otherwise complies with the succeeding provisions of this Section 8.  In no event shall any assignment or sublease ever release Tenant or any guarantor from any obligation or liability hereunder; and in the case of any assignment, Landlord shall retain all rights with respect to the Security.  Any purported assignment, mortgage, transfer, pledge or sublease made without the prior written consent of Landlord shall be absolutely null and void.  No assignment of this Lease shall be effective and valid unless and until the assignee executes and delivers to Landlord any and all documentation reasonably required by Landlord in order to evidence assignee’s assumption of all obligations of Tenant hereunder.  Regardless of whether or not an assignee or sublessee executes and delivers any documentation to Landlord pursuant to the preceding sentence, any assignee or sublessee shall be deemed to have automatically attorned to Landlord in the event of any termination of this Lease.  If this Lease is assigned, or if the Premises (or any part thereof) are sublet or used or occupied by anyone other than Tenant, whether or not in violation of this Lease, Landlord or Agent may (without prejudice to, or waiver of its rights), collect Rent from the assignee, subtenant

or occupant.  In the event of an assignment of this Lease and the payment of consideration from the assignee to the Tenant in connection therewith, 50% of such consideration (after deducting Tenant’s actual cost of such assignment or subletting) shall be paid to Landlord.  With respect to the allocable portion of the Premises sublet, in the event that the total rent and any other considerations received under any sublease by Tenant is greater than (on a pro rata and proportionate basis) the total Rent required to be paid, from time to time, under this Lease, Tenant shall pay to Landlord fifty percent (50%) of such excess as received from any subtenant and such amount shall be deemed a component of the Additional Rent. 

9.           COMPLIANCE WITH LAWS.

9.1.           Compliance with Laws.  Tenant shall, at its sole expense (regardless of the cost thereof), comply with all local, state and federal laws, rules, regulations and requirements now or hereafter in force and all judicial and administrative decisions in connection with the enforcement thereof (collectively, “Laws”), whether such Laws (a) pertain to either or both of the Premises and Tenant’s use and occupancy thereof; (b) concern or address matters of an environmental nature; (c) require the making of any structural, unforeseen or extraordinary changes; and (d) involve a change of policy on the part of the body enacting the same, including, in all instances described in (a) through (d), but not limited to, the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.).  If any license or permit is required for the conduct of Tenant’s business in the Premises, Tenant, at its expense, shall procure such license prior to the Commencement Date, and shall maintain such license or permit in good standing throughout the Term.  Tenant and Landlord shall give prompt notice to the other party of any written notice it receives of the alleged violation of any Law or requirement of any governmental or administrative authority with respect to either or both of the Premises and the use or occupation thereof.  Landlord warrants that, as of the date that Landlord executes this Lease, to Landlord’s knowledge, Landlord has not received any notice indicating either the Building or the Premises is/are in violation of any Law or restrictive covenant affecting the Building and the Premises.  As used herein, “Landlord’s knowledge” or words of similar import shall refer only to the actual (as opposed to deemed, imputed or constructive) knowledge of Jeffrey Thomas and Max Wilder without inquiry and, notwithstanding any fact or circumstance to the contrary, shall not be construed to refer to the knowledge of any other person or entity. Notwithstanding the foregoing, Landlord shall be obligated to repair and violations of any Laws that existed prior to the Effective Date of the Lease and was not a result of the Tenant Improvements or otherwise caused by Tenant or any Tenant Parties, provided that Tenant must provide written notice to Landlord of any such violation prior to December 31, 2008.

9.2.           Hazardous Materials.  If, at any time or from time to time during the Term (or any extension thereof), any Hazardous Material (defined below) is generated, transported, stored, used, treated or disposed of at, to, from, on or in the Premises by, or as a result of any act or omission of, any or all of Tenant and any or all of Tenant Parties (defined below): (i) Tenant shall, at its own cost, at all times comply (and cause all others to comply) with all Laws relating to Hazardous Materials, and Tenant shall further, at its own cost, obtain and maintain in full force and effect at all times all permits and other approvals required in connection therewith; (ii) Tenant shall promptly provide Landlord or Agent with complete copies of all communications, permits or agreements with, from or issued by any governmental authority or agency (federal, state or local) or any private entity relating in any way to the presence, release, threat of release, or placement of Hazardous Materials on or in the Premises or any portion of the Premises, or the generation, transportation, storage, use, treatment, or disposal at, on, in or from the Premises, of any Hazardous Materials; (iii) Landlord, Agent and their respective agents and employees shall have the right to either or both (x) enter the Premises and (y) conduct appropriate tests, at Tenant’s expense, for the purposes of ascertaining Tenant’s compliance with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises; and (iv) upon written request by Landlord or Agent, Tenant shall cause to be performed, and shall provide Landlord with the results of reasonably appropriate tests of air, water or soil to demonstrate that Tenant complies with all applicable Laws or permits relating in any way to the generation, transport, storage, use, treatment, disposal or presence of Hazardous Materials on, at, in or from all or any portion of the Premises.  This Section 9.2 does not authorize the generation, transportation, storage, use, treatment or disposal of any Hazardous Materials at, to, from, on or in the Premises in contravention of this Section 9.  Tenant covenants to investigate, clean up and otherwise remediate, at Tenant’s sole expense, any release of Hazardous Materials caused, contributed to, or created by any or all of (A) Tenant and (B) any or all of Tenant’s officers, directors, members, managers, partners, invitees, agents, employees, contractors or representatives (collectively, “Tenant Parties”) during the Term.  Such investigation and remediation shall be performed only after Tenant has obtained Landlord’s prior written consent; provided, however, that Tenant shall be entitled to respond (in a reasonably appropriate manner) immediately to an emergency without first obtaining such consent.  All remediation shall be performed in strict compliance with Laws and to the reasonable satisfaction of Landlord.  Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Materials in any way connected to the Premises without first obtaining Landlord’s written consent (which consent may be given or withheld in Landlord’s sole, but reasonable, discretion) and affording Landlord the reasonable opportunity to participate in any such proceedings.  As used herein, the term, “Hazardous Materials,” shall mean any waste, material or substance (whether in the form of liquids, solids or gases, and whether or not airborne) that is or may be deemed to be or include a pesticide, petroleum,

asbestos, polychlorinated biphenyl, radioactive material, urea formaldehyde or any other pollutant or contaminant that is or may be deemed to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or injurious, or that presents a risk to public health or to the environment, and that is or becomes regulated by any Law.  The undertakings, covenants and obligations imposed on Tenant under this Section 9.2 shall survive the termination or expiration of this Lease.  Landlord acknowledges and agrees that, as part of the Tenant Improvements, Tenant will be installing an ammonia-based refrigeration system into the Premises (the “Refrigeration System”) and, as long as the Refrigeration System complies with any and all applicable governmental rules and regulations and the terms of this Section 9.2, the presence of the Refrigeration System at the Premises shall not be an Event of Default (hereinafter defined) by Tenant.  Notwithstanding anything to the contrary contained herein, the Tenant shall be solely responsible for causing the Refrigeration System to comply with any and all applicable governmental rules and regulations and the terms of this Section 9.2.

10.           INSURANCE.

10.1.           Insurance to be Maintained by Landlord.  Landlord shall maintain:  (a) a commercial property insurance policy covering the Premises (at its full replacement cost), but excluding Tenant’s personal property; (b) commercial general public liability insurance covering Landlord for claims arising out of liability for bodily injury, death, personal injury, advertising injury and property damage occurring in and about the Premises and otherwise resulting from any acts and operations of Landlord, its agents and employees; (c) rent loss insurance; and (d) any other insurance coverage deemed appropriate by Landlord or required by Landlord’s lender.  All of the coverages described in (a) through (d) shall be determined from time to time by Landlord, in its sole discretion.  All insurance maintained by Landlord shall be in addition to and not in lieu of the insurance required to be maintained by the Tenant.

10.2.           Insurance to be Maintained by Tenant.  Tenant shall purchase, at its own expense, and keep in force at all times from and after the date of this Lease, the policies of insurance set forth below (collectively, “Tenant’s Policies”).  All Tenant’s Policies shall (a) be issued by an insurance company with a Best’s rating of A or better and otherwise reasonably acceptable to Landlord and shall be licensed to do business in the state in which the Premises is located; (b) provide that said insurance shall not be canceled or materially modified unless 30 days’ prior written notice shall have been given to Landlord; (c) provide for deductible amounts that are reasonably acceptable to Landlord (and its lender, if applicable) and (d) otherwise be in such form, and include such coverages, as Landlord may reasonably require.  The Tenant’s Policies described in (i) and (ii) below shall (1) provide coverage on an occurrence basis; (2) name Landlord (and its lender, if applicable) as an additional insured; (3) provide coverage, to the extent insurable, for the indemnity obligations of Tenant under this Lease; (4) contain a separation of insured parties provision; (5) be primary, not contributing with, and not in excess of, coverage that Landlord may carry; and (6) provide coverage with no exclusion for a pollution incident arising from a hostile fire. All Tenant’s Policies (or, at Landlord’s option, Certificates of Insurance and applicable endorsements, including, without limitation,an "Additional Insured-Managers or Landlords of Premises" endorsement) shall be delivered to Landlord prior to the Commencement Date and renewals thereof shall be delivered to Landlord’s notice addresses at least 30 days prior to the applicable expiration date of each Tenant’s Policy.  In the event that Tenant fails, at any time or from time to time, to comply with the requirements of the preceding sentence and such failure continues for five (5) days after written notice from Landlord,  Landlord may (i) order such insurance and charge the cost thereof to Tenant, which amount shall be payable by Tenant to Landlord upon demand, as Additional Rent or (ii) impose on Tenant, as Additional Rent, a monthly delinquency fee, for each month during which Tenant fails to comply with the foregoing obligation, in an amount equal to five percent (5%) of the monthly Base Rent then in effect.  Tenant shall give prompt notice to Landlord and Agent of any bodily injury, death, personal injury, advertising injury or property damage occurring in and about the Premises.

Tenant shall purchase and maintain, throughout the Term, a Tenant’s Policy(ies) of (i) commercial general or excess liability insurance, including personal injury and property damage, in the amount of not less than $2,000,000.00 per occurrence, and $5,000,000.00 annual general aggregate, per location (such limits may be provided through a combination or primary and excess policies); (ii) comprehensive automobile liability insurance covering Tenant against any personal injuries or deaths of persons and property damage based upon or arising out of the ownership, use, occupancy or maintenance of a motor vehicle at the Premises and all areas appurtenant thereto in the amount of not less than $1,000,000, combined single limit; (iii) commercial property insurance covering Tenant’s personal property; and (iv) workers’ compensation insurance per the applicable state statutes covering all employees of Tenant.

10.3.           Waiver of Subrogation.  Notwithstanding anything to the contrary in this Lease, Landlord and Tenant mutually waive their respective rights of recovery against each other and each other’s officers, directors, constituent partners, members, agents and employees, and (to the extent such parties waive their rights of subrogation against Tenant) Tenant further waives such rights against (a) each lessor under any ground or underlying lease encumbering the Premises and (b) each lender under any mortgage or deed of trust or other lien encumbering the Premises (or any portion thereof or interest therein), to the extent any loss

is insured against or required to be insured against under this Lease, including, but not limited to, losses, deductibles or self-insured retentions covered by Landlord’s or Tenant’s commercial property, general liability, automobile liability or workers’ compensation policies described above,  This provision is intended to waive, fully and for the benefit of each party to this Lease, any and all rights and claims that might give rise to a right of subrogation by any insurance carrier.  Each party shall cause its respective insurance policy(ies) to be endorsed to evidence compliance with such waiver.

11.           ALTERATIONS.  Tenant may, from time to time, at its expense, make alterations or improvements in and to the Premises (hereinafter collectively referred to as “Alterations”; provided that this term shall not apply to the Tenant Improvements, which are governed by other provisions), provided that Tenant first obtains the written consent of Landlord, which shall not be unreasonably withheld, delayed or conditioned. All of the following shall apply with respect to all Alterations:  (a) the Alterations are non-structural and the structural integrity of the Premises shall not be affected; (b) the proper functioning of the mechanical, electrical, heating, ventilating, air-conditioning (“HVAC”), sanitary and other service systems of the Premises shall not be adversely affected; and (c) Tenant shall have appropriate insurance coverage, reasonably satisfactory to Landlord, regarding the performance and installation of the Alterations.  Additionally, before proceeding with any Alterations, Tenant shall (i) at Tenant’s expense, obtain all necessary governmental permits and certificates for the commencement and prosecution of Alterations; (ii) if Landlord’s consent is required for the planned Alteration, submit to Landlord, for its written approval, working drawings, plans and specifications and all permits for the work to be done and Tenant shall not proceed with such Alterations until it has received Landlord’s approval (if required), , which shall not be unreasonably withheld, delayed or conditioned, and which shall be given or declined within ten (10) business days.  If Landlord declined to give its consent Landlord shall provide the reasons with reasonably specificity, and Tenant may resubmit a request for approval which addresses such reasons, which shall again but subject to the above-referenced 10-day provision; and (iii) cause any contractors or others engaged to perform the Alterations to deliver to Landlord certificates of insurance (in a form reasonably acceptable to Landlord) evidencing policies of commercial general liability insurance (providing the same coverages as required in Section 10 above) and workers’ compensation insurance.  Such insurance policies shall satisfy the obligations imposed under Section 10.  Tenant shall cause the Alterations to be performed in compliance with all applicable permits, Laws and requirements of public authorities, and any other reasonably restrictions that Landlord may impose on the Alterations.  Tenant shall cause the Alterations to be diligently performed in a good and workmanlike manner, using new materials and equipment at least equal in quality and class to the standards for the Premises established by Landlord.  With respect to any and all Alterations for which Landlord’s consent is required, Tenant shall provide Landlord with “as built” plans, copies of all construction contracts, governmental permits and certificates and proof of payment for all labor and materials, including, without limitation, copies of paid invoices and final lien waivers.  If Landlord’s consent to any Alterations is required, and Landlord provides that consent, then at the time Landlord so consents, Landlord shall also advise Tenant whether or not Landlord shall require that Tenant remove such Alterations at the expiration or termination of this Lease.  

12.           LANDLORD’S AND TENANT’S PROPERTY.  All fixtures, machinery, equipment, improvements and appurtenances built into the Premises at the commencement of, or during the Term, whether or not placed there by or at the expense of Tenant, shall become and remain a part of the Premises; shall be deemed the property of Landlord (the “Landlord’s Property”), without compensation or credit to Tenant; and shall not be removed by Tenant at the Expiration Date unless Landlord requires their removal (including, but not limited to, Alterations pursuant to Section 10.3).  Further, any personal property in the Premises on the Commencement Date, movable or otherwise, unless installed and paid for by Tenant, shall also constitute Landlord’s Property and shall not be removed by Tenant.  Notwithstanding the foregoing, the Tenant Improvements shall not constitute Landlord’s Property.  In no event shall Tenant remove any of the following materials or equipment without Landlord’s prior written consent (which consent may be given or withheld in Landlord’s sole discretion):  any power wiring or power panels, lighting or lighting fixtures, wall or window coverings, carpets or other floor coverings, heaters, air conditioners or any other HVAC equipment, fencing or security gates, or other similar building operating equipment and decorations. At or before the Expiration Date, or the date of any earlier termination, Tenant, at its expense, shall remove from the Premises all of Tenant’s personal property and any Alterations that Landlord requires be removed pursuant to Section 10.3, and Tenant shall repair (to Landlord’s reasonable satisfaction) any damage to the Premises resulting from either or both of such installation and removal.  Any other items of Tenant’s personal property that remain in the Premises after the Expiration Date, or following an earlier termination date, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items may be retained by Landlord as its property or be disposed of by Landlord, in Landlord’s sole and absolute discretion and without accountability, at Tenant’s expense.  Notwithstanding the foregoing, if Tenant is in default beyond any applicable cure period provided herein and under the terms of this Lease, Tenant may remove Tenant’s personal property from the Premises only upon the express written direction of Landlord.  The foregoing sentence shall not apply to Tenant’s inventory.

13.           REPAIRS AND MAINTENANCE.

13.1.           Tenant Responsibilities.  Tenant acknowledges that, with full awareness of its obligations under this Lease, Tenant has accepted the condition, state of repair and appearance of the Premises.  Except for events of damage, destruction or casualty to the Premises (as addressed in Section 18 below), Tenant agrees that, at its sole expense, it shall put, keep and maintain the Premises, including any Alterations and any altered, rebuilt, additional or substituted buildings, structures and other improvements thereto or thereon, in a good and safe condition, repair and appearance (collectively, the “Required Condition”) and shall make all repairs and replacements necessary therefore.  Without limiting the foregoing, Tenant shall promptly make all structural and nonstructural, foreseen and unforeseen, ordinary and extraordinary changes, replacements and repairs of every kind and nature, and correct any patent or latent defects in the Premises, which may be required to put, keep and maintain the Premises in the Required Condition.  Tenant will keep the Premises orderly and free and clear of rubbish.  Tenant covenants to perform or observe all terms, covenants and conditions of any easement, restriction, covenant, declaration or maintenance agreement (collectively, “Easements”) to which the Premises are currently subject or become subject pursuant to this Lease, whether or not such performance is required of Landlord under such Easements, including, without limitation, payment of all amounts due from Landlord or Tenant (whether as assessments, service fees or other charges) under such Easements.  Each party shall deliver to the other party promptly, but in no event later than five (5) business days after receipt thereof, copies of all written notices received from any party thereto regarding the non-compliance of the Premises or Landlord’s or Tenant’s performance of obligations under any Easements.  Tenant shall, at its expenses, use reasonable efforts to enforce compliance with any Easements benefiting the Premises by any other person or entity or property subject to such Easement.Landlord shall not be required to maintain, repair or rebuild, or to make any alterations, replacements or renewals of any nature to the Premises, or any part thereof, whether ordinary or extraordinary, structural or nonstructural, foreseen or not foreseen, or to maintain the Premises or any part thereof in any way or to correct any patent or latent defect therein.  Tenant hereby expressly waives any right to make repairs at the expense of Landlord which may be provided for in any Law in effect at the Effective Date of the Lease or that may thereafter be enacted.  If Tenant shall vacate or abandon the Premises, it shall give Landlord immediate written notice thereof. Notwithstanding anything to the contrary contained herein, Landlord shall be responsible for the lawn care and landscaping and Tenant shall be solely responsible, at Tenant’s sole cost, for snow removal at the Premises and maintenance of the fire maintenance systems of the Premises.

13.2.           HVAC Maintenance Contract.  Tenant shall also maintain, in full force and effect, a preventative maintenance and service contract with a reputable service provider for maintenance of any of the HVAC systems of the Premises (the “HVAC Maintenance Contract”).  The terms and provisions of any such HVAC Maintenance Contract shall require that the service provider maintain the Premises’ HVAC system in accordance with the manufacturer’s recommendations and otherwise in accordance with normal, customary and reasonable practices in the geographic area in which the Premises is located and for HVAC systems comparable to the Premises’ HVAC system. Within 30 days following the Commencement Date, Tenant shall procure and deliver to Landlord the HVAC Maintenance Contract for any HVAC systems currently existing. In the event Tenant installs any additional HVAC systems at the Premises, Tenant shall obtain a HVAC Maintenance Contract for such HVAC systems.  Thereafter, Tenant shall provide to Landlord a copy of renewals or replacements of such HVAC Maintenance Contract no later than 30 days prior to the then-applicable expiry date of the existing HVAC Maintenance Contract.  If Tenant fails to timely deliver to Landlord the HVAC Maintenance Contract (or any applicable renewal or replacement thereof), then Landlord shall have the right to contract directly for the periodic maintenance of the HVAC systems in the Premises and to charge the cost thereof back to Tenant as Additional Rent.

14.           UTILITIES.  Tenant shall purchase all utility services and shall provide for scavenger, cleaning and extermination services.  Tenant shall pay the utility charges for the Premises directly to the utility or municipality providing such service, all charges shall be paid by Tenant before they become delinquent.  Tenant shall be solely responsible for the repair and maintenance of any meters necessary in connection with such services.  Tenant’s use of electrical energy in the Premises shall not, at any time, exceed the capacity of either or both of (x) any of the electrical conductors and equipment in or otherwise servicing the Premises; and (y) the HVAC systems of the Premises.

15.           INVOLUNTARY CESSATION OF SERVICES.  Landlord reserves the right, without any liability to Tenant and without affecting Tenant’s covenants and obligations hereunder, to stop service of any or all of the HVAC, electric, sanitary, elevator (if any), and other systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for so long as may be necessary by reason of (i) accidents, emergencies, strikes, or (ii) any other cause beyond Landlord’s reasonable control, if and only if all of such stoppages are believed to be, in Landlord’s discretion, absolutely necessary to effect any repairs to the Premises or if Landlord is requested or required by any governmental or quasi-governmental authority to stop such services.  Further, it is also understood and agreed that Landlord or Agent shall have no liability or responsibility for a cessation of services to the Premises that occurs as a result of causes beyond Landlord’s or Agent’s reasonable control.  No such interruption of service shall be deemed an eviction or disturbance of Tenant’s use and possession of the Premises or any part thereof, or render Landlord or Agent liable to Tenant for damages, or relieve Tenant from performance of Tenant’s obligations under this Lease, including, but not limited to, the obligation to pay Rent; provided, however, that if any interruption of services persists for a period in excess of five (5) consecutive business days Tenant shall, as Tenant’s sole remedy, be entitled to a proportionate abatement of Rent to the extent, if any, of any actual loss of use of the Premises by Tenant.

16.           LANDLORD’S RIGHTS.  Landlord, Agent and their respective agents, employees and representatives shall have the right to enter and/or pass through the Premises at any time or times upon reasonable prior notice (except in the event of emergency) to examine and inspect the Premises and to show them to actual and prospective lenders, prospective purchasers or mortgagees of the Premises or providers of capital to Landlord and its affiliates; and in connection with the foregoing, to install a sign at or on the Premises to advertise the Premises for lease or sale; during the period of six months prior to the Expiration Date (or at any time, if Tenant has vacated or abandoned the Premises or is otherwise in default under this Lease), Landlord and its agents may exhibit the Premises to prospective tenants.  Additionally, Landlord and Agent shall have the following rights with respect to the Premises, exercisable without notice to Tenant, without liability to Tenant, and without being deemed an eviction or disturbance of Tenant’s use or possession of the Premises or giving rise to any claim for setoff or abatement of Rent:  (i) to have pass keys, access cards, or both, to the Premises; and (ii) to decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any time after Tenant vacates or abandons the Premises for more than 30 consecutive days or without notice to Landlord of Tenant’s intention to reoccupy the Premises.

17.           NON-LIABILITY AND INDEMNIFICATION.

17.1.           Non-Liability.  None of Landlord, Agent, any other managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant for any loss, injury, or damage, to Tenant or to any other person, or to its or their property, irrespective of the cause of such injury, damage or loss; provided, however, that the preceding limitation shall not be construed to limit or negate Landlord’s obligations under Section 17.3 below.  In the event that Landlord’s indemnity under Section 17.3 is applicable, it shall apply only as and to the specific extent expressly provided in Section 17.3.  Further, none of Landlord, Agent, any other managing agent, or their respective affiliates, owners, partners, directors, officers, agents and employees shall be liable to Tenant (a) for any damage caused by other persons in, upon or about the Premises, or caused by operations in construction of any public or quasi-public work; (b) for consequential or indirect damages, including those purportedly arising out of any loss of use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant; (c) for any defect in the Premises; or (d) for injury or damage to person or property caused by fire, or theft, or resulting from the operation of heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow from any part of the Premises, or from the pipes, appliances or plumbing work of the same.

17.2.           Tenant Indemnification.  Except in the event of, and to the extent of, Landlord’s negligence, sole negligence or willful misconduct, Tenant hereby indemnifies, defends, and holds Landlord, Agent, Landlord’s members and their respective affiliates, owners, partners, members, directors, officers, agents and employees (collectively, “Landlord Indemnified Parties”) harmless from and against any and all Losses (defined below) arising from or in connection with any or all of:  (a) the conduct or management of the Premises or any business therein, or any work or Alterations done, or any condition created by any or all of Tenant and Tenant Parties in or about the Premises during the Term or during the period of time, if any, prior to the Commencement Date that Tenant has possession of, or is given access to the Premises; (b) any act, omission or negligence of any or all of Tenant and Tenant Parties; (c) any accident, injury or damage whatsoever occurring in, at or upon the Premises and caused by any or all of Tenant and Tenant Parties; (d) any breach by Tenant of any or all of its warranties, representations and covenants under this Lease; (e) any actions necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding or other proceeding initiated by or against Tenant under the Bankruptcy Code; (f) the creation or existence of any Hazardous Materials in, at, on or under the Premises, if and to the extent brought to the Premises or caused by Tenant or any party within Tenant’s control; and (g) any violation or alleged violation by any or all of Tenant and Tenant Parties of any Law (collectively, “Tenant’s Indemnified Matters”).  In case any action or proceeding is brought against any or all of Landlord and the Landlord Indemnified Parties by reason of any of Tenant’s Indemnified Matters, Tenant, upon notice from any or all of Landlord, Agent or any Superior Party (defined below), shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord.  The term “Losses” shall mean all claims, demands, expenses, actions, judgments, damages (actual, but not consequential), penalties, fines, liabilities, losses of every kind and nature, suits, administrative proceedings, costs and fees, including, without limitation, attorneys’ and consultants’ reasonable fees and expenses, and the costs of cleanup, remediation, removal and restoration, that are in any way related to any matter covered by the foregoing indemnity.  The provisions of this Section 17.2 shall survive the expiration or termination of this Lease.

17.3.           Landlord Indemnification.  Landlord hereby indemnifies, defends and holds Tenant harmless from and against any and all Losses actually suffered or incurred by Tenant as the sole and direct result of any negligent, willful or intentional acts or omissions of any or all of Landlord, Agent and any parties within the direct and sole control of either or both of Landlord and Agent.  Notwithstanding anything to the contrary set forth in this Lease, however, in all events and under all circumstances, the liability of Landlord to Tenant, whether under this Section 17.3 or any other provision of this Lease, shall be limited to the interest of Landlord in the Premises, and Tenant agrees to look solely to Landlord’s interest in the Premises for the recovery of any judgment or award against Landlord, it being intended that Landlord shall not be personally liable for any judgment or deficiency.  The provisions of this Section 17.3 shall survive the expiration or termination of this Lease.

17.4.           Force Majeure.  Each of the obligations of Tenant (except the obligation to pay Rent and the obligation to maintain insurance, and provide evidence thereof, in accordance with Section 10.2) and each of the obligations of Landlord, shall be excused, and neither Landlord nor Tenant shall have any liability whatsoever to the other, to the extent that any failure to perform, or delay in performing such obligation arises out of either or both of (a) any labor dispute, governmental preemption of property in connection with a public emergency or shortages of fuel, supplies, or labor, or any other cause, whether similar or dissimilar, beyond Landlord’s or Tenant’s, as the case may be, reasonable control; or (b) any failure or defect in the supply, quantity or character of utilities furnished to the Premises, or by reason of any requirement, act or omission of any public utility or others serving the Premises, beyond Landlord’s or Tenant’s, as the case may be, reasonable control.

18.           DAMAGE OR DESTRUCTION.

18.1.           Notification and Repair; Rent Abatement.  Tenant shall give prompt notice to Landlord and Agent of (a) any fire or other casualty to the Premises, and (b) any damage to, or defect in, any part or appurtenance of the Premises’ sanitary, electrical, HVAC, or other systems.  In the event that, as a result of Tenant’s failure to promptly notify Landlord pursuant to the preceding sentence, Landlord’s insurance coverage is compromised or adversely affected, then Tenant is and shall be responsible for the payment to Landlord of any insurance proceeds that Landlord’s insurer fails or refuses to pay to Landlord as a result of the delayed notification.  Subject to the provisions of Section 18.2 below, if the Premises is damaged by fire or other insured casualty,Landlord shall repair (or cause Agent to repair) the damage and restore and rebuild the Premises (except Tenant’s personal property) with reasonable dispatch after the adjustment of the insurance proceeds attributable to such damage.  Landlord (or Agent, as the case may be) shall use its diligent, good faith efforts to make such repair or restoration promptly and in such manner as not to unreasonably interfere with Tenant’s use and occupancy of the Premises, but Landlord or Agent shall not be required to do such repair or restoration work except during normal business hours of business days.  Provided that any damage to the Premises is not caused by, or is not the result of acts or omissions by, any or all of Tenant and Tenant Parties, if the Premises are partially damaged by fire or other casualty, the Rent shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant.

18.2.           Total Destruction.  If the Premises shall be totally destroyed by fire or other casualty, or if the Premises shall be so damaged by fire or other casualty that (in the reasonable opinion of a reputable contractor or architect designated by Landlord):  (i) its repair or restoration requires more than one hundred eighty (180) days or (ii) such repair or restoration requires the expenditure of more than fifty percent (50%) of the full insurable value of the Premises immediately prior to the casualty, Landlord and Tenant shall each have the option to terminate this Lease (by so advising the other, in writing) within ten (10) days after said contractor or architect delivers written notice of its opinion to Landlord and Tenant, but in all events prior to the commencement of any restoration of the Premises by Landlord.  Additionally, if the damage (x) is less than the amount stated in (ii) above, but more than ten percent (10%) of the full insurable value of the Premises; and (y) occurs during the last two years of Lease Term, then Landlord, but not Tenant, shall have the option to terminate this Lease pursuant to the notice and within the time period established pursuant to the immediately preceding sentence.  In the event of a termination pursuant to either of the preceding two (2) sentences, the termination shall be effective as of the date upon which either Landlord or Tenant, as the case may be, receives timely written notice from the other terminating this Lease pursuant to the preceding sentence.  If neither Landlord nor Tenant timely delivers a termination notice, this Lease shall remain in full force and effect.  Notwithstanding the foregoing, if (A) any holder of a mortgage or deed of trust encumbering the Premises or landlord pursuant to a ground lease encumbering the Premises (collectively, “Superior Parties”) or other party entitled to the insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Premises, or (B) the issuer of any commercial property insurance policies on the Premises fails to make available to Landlord sufficient proceeds for restoration of the Premises, then Landlord may, at Landlord’s sole option, terminate this Lease by giving Tenant written notice to such effect within thirty (30) days after Landlord receives notice from the Superior Party or insurance company, as the case may be, that such proceeds shall not be made available, in which event the termination of this Lease shall be effective as of the date Tenant receives written notice from Landlord of Landlord’s election to terminate this Lease.  Landlord shall have no liability to Tenant, and Tenant shall not be entitled to terminate this Lease by virtue of any delays in completion of repairs and restoration.  For purposes of this Section 18.2 only, “full insurable value” shall mean replacement cost, less the cost of footings, foundations and other structures below grade.

19.           EMINENT DOMAIN.  If the whole, or any substantial (as reasonably determined by Landlord) portion, of the Premises is taken or condemned for any public use under any Law or by right of eminent domain, or by private purchase in lieu thereof, and such taking would prevent or materially interfere with the Permitted Use of the Premises, this Lease shall terminate effective when the physical taking of said Premises occurs.  If less than a substantial portion of the Premises is so taken or condemned,

or if the taking or condemnation is temporary (regardless of the portion of the Premises affected), this Lease shall not terminate, but the Rent payable hereunder shall be proportionally abated to the extent of any actual loss of use of the Premises by Tenant.  Landlord shall be entitled to any and all payment, income, rent or award, or any interest therein whatsoever, which may be paid or made in connection with such a taking or conveyance, and Tenant shall have no claim against Landlord for the value of any unexpired portion of this Lease.  Notwithstanding the foregoing, any compensation specifically and independently awarded to Tenant for loss of business or goodwill, or for its personal property, shall be the property of Tenant.

20.           SURRENDER AND HOLDOVER.  On the last day of the Term, or upon any earlier termination of this Lease, or upon any re-entry by Landlord upon the Premises:  (a) Tenant shall quit and surrender the Premises to Landlord “broom-clean” (as defined by Exhibit E attached hereto and incorporated herein by reference), and in a condition that would reasonably be expected with normal and customary use in accordance with prudent operating practices and in accordance with the covenants and requirements imposed under this Lease, subject only to ordinary wear and tear (as is attributable to deterioration by reason of time and use, in spite of Tenant’s reasonable care) and such damage or destruction as Landlord is required to repair or restore under this Lease; provided, however, Tenant shall remove all of the Tenant Improvements and restore the Premises to a dry, shell condition, including without limitation, the removal of the Refrigeration Systems and structures (provided, however, the floors of the freezer, cooler and/or cold dock areas may remain so long as there is no evidence of heaving or buckling and the floor load is equal to or exceeds the design parameters of the rest of the warehouse floor), lawfully disposing of any and all of the ammonia or other chemicals that supply the Refrigeration System (in accordance with any and all applicable laws), returning the sprinklers to their original condition and capping any and all floor piping; (b) Tenant shall remove all of Tenant’s personal property therefrom, except as otherwise expressly provided in this Lease; and (c) Tenant shall surrender to Landlord any and all keys, access cards, computer codes or any other items used to access the Premises.  Landlord shall be permitted to inspect the Premises in order to verify compliance with this Section 20 at any time prior to (x) the Expiration Date, (y) the effective date of any earlier termination of this Lease, or (z) the surrender date otherwise agreed to in writing by Landlord and Tenant.  The obligations imposed under the first sentence of this Section 20 shall survive the termination or expiration of this Lease.  If Tenant remains in possession after the Expiration Date hereof or after any earlier termination date of this Lease or of Tenant’s right to possession:  (i)  Tenant shall be deemed a tenant-at-will;  (ii) Tenant shall pay 150% of the aggregate of all Rent last prevailing hereunder, and also shall pay all actual damages sustained by Landlord, directly by reason of Tenant’s remaining in possession after the expiration or termination of this Lease;  (iii) there shall be no renewal or extension of this Lease by operation of law; and (iv) the tenancy-at-will may be terminated by either party hereto upon 30 days’ prior written notice given by the terminating party to the non-terminating party.  The provisions of this Section 20 shall not constitute a waiver by Landlord of any re-entry rights of Landlord provided hereunder or by law.

21.           EVENTS OF DEFAULT.

21.1.           Bankruptcy of Tenant.  It shall be a default by Tenant under this Lease (“Default” or “Event of Default”) if Tenant makes an assignment for the benefit of creditors, or files a voluntary petition under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law, or an involuntary petition is filed against Tenant under any state or federal bankruptcy (including the United States Bankruptcy Code) or insolvency law that is not dismissed within ninety (90) days after filing, or whenever a receiver of Tenant, or of, or for, the property of Tenant shall be appointed, or Tenant admits it is insolvent or is not able to pay its debts as they mature.

21.2.           Default Provisions.  In addition to any Default arising under Section 21.1 above, each of the following shall constitute a Default:  (a) if Tenant fails to pay Rent or any other payment when due hereunder within five days after written notice from Landlord of such failure to pay on the due date; provided, however, that if in any consecutive twelve (12) month period, Tenant shall, on two (2) separate occasions, fail to pay any installment of Rent on the date such installment of Rent is due, then, on the third such occasion and on each occasion thereafter on which Tenant shall fail to pay an installment of Rent on the date such installment of Rent is due, Landlord shall be relieved from any obligation to provide notice to Tenant, and Tenant shall then no longer have a five (5) day period in which to cure any such failure; (b) if Tenant fails, whether by action or inaction, to timely comply with, or satisfy, any or all of the obligations imposed on Tenant under this Lease (other than the obligation to pay Rent) for a period of thirty (30) days after Landlord’s delivery to Tenant of written notice of such default under this Section 21.2(b); provided, however, that if the default cannot, by its nature, be cured within such thirty (30) day period, but Tenant commences and diligently pursues a cure of such default promptly within the initial thirty (30) day cure period, then Landlord shall not exercise its remedies under Section 22 unless such default remains uncured for more than sixty (60) days after the initial delivery of Landlord’s original default notice; and, at Landlord’s election, (c) if Tenant vacates or abandons the Premises during the Term.

22.           RIGHTS AND REMEDIES.

22.1.           Landlord’s Cure Rights Upon Default of Tenant.  If a Default occurs, then Landlord may (but shall not be obligated to) cure or remedy the Default for the account of, and at the expense of, Tenant, but without waiving such Default.

22.2.           Landlord’s Remedies.  In the event of any Default by Tenant under this Lease, Landlord, at its option, may, in addition to any and all other rights and remedies provided in this Lease or otherwise at law or in equity, do or perform any or all of the following:

22.2.1.         Terminate Tenant’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession to Landlord.  In such event, Landlord shall be entitled to recover from Tenant all of:  (i) the unpaid Rent that is accrued and unpaid as of the date on which this Lease is terminated; (ii) the worth, at the time of award, of the amount by which (x) the unpaid Rent that would otherwise be due and payable under this Lease (had this Lease not been terminated) for the period of time from the date on which this Lease is terminated through the Expiration Date exceeds (y) the amount of such rental loss that the Tenant proves could have been reasonably avoided; and (iii) any other amount necessary to compensate Landlord for all the detriment proximately caused by the Tenant’s failure to perform its obligations under this Lease or which, in the ordinary course of events, would be likely to result therefrom, including but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Landlord in connection with this Lease applicable to the unexpired Term (as of the date on which this Lease is terminated).  The worth, at the time of award, of the amount referred to in provision (ii) of the immediately preceding sentence shall be computed by discounting such amount at the current yield, as of the date on which this Lease is terminated under this Section 22.2.1, on United States Treasury Bills having a maturity date closest to the stated Expiration Date of this Lease, plus one percent per annum.  Efforts by Landlord to mitigate damages caused by Tenant’s Default shall not waive Landlord’s right to recover damages under this Section 22.2.  If this Lease is terminated through any unlawful entry and detainer action, Landlord shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable in such action, or Landlord may reserve the right to recover all or any part of such Rent and damages in a separate suit; or

22.2.2.         Continue the Lease and either (a) continue Tenant’s right to possession or (b) terminate Tenant’s right to possession and in the case of either (a) or (b), recover the Rent as it becomes due.  Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Landlord’s interests shall not constitute a termination of the Tenant’s right to possession; or

22.2.3.         Pursue any other remedy now or hereafter available under the laws of the state in which the Premises are located.

22.2.4.         Without limitation of any of Landlord’s rights in the event of a Default by Tenant, Landlord may also exercise its rights and remedies with respect to any Security under Section 4.3 above.

Any and all personal property of Tenant that may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law may be handled, removed or stored by Landlord at the sole risk, cost and expense of Tenant, and in no event or circumstance shall Landlord be responsible for the value, preservation or safekeeping thereof.  Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges for such property of Tenant so long as the same shall be in Landlord’s possession or under Landlord’s control.  Any such property of Tenant not removed from the Premises as of the Expiration Date or any other earlier date on which this Lease is terminated shall be conclusively presumed to have been conveyed by Tenant to Landlord under this Lease as in a bill of sale, without further payment or credit by Landlord to Tenant.  Neither expiration or termination of this Lease nor the termination of Tenant’s right to possession shall relieve Tenant from its liability under the indemnity provisions of this Lease.

22.3.           Additional Rights of Landlord.  All sums advanced by Landlord or Agent on account of Tenant under this Section, or pursuant to any other provision of this Lease, and all Base Rent and Additional Rent, if delinquent or not paid by Tenant and received by Landlord when due hereunder, shall bear interest (“Default Interest”) at the rate of five percent (5%) per annum above the “prime” or “reference” or “base” rate (on a per annum basis) of interest publicly announced as such, from time to time, by the JPMorgan Chase Bank, NA, or its successor, from the due date thereof until paid, and such interest shall be and constitute Additional Rent and be due and payable upon Landlord’s or Agent’s submission of an invoice therefor.  The various rights, remedies and elections of Landlord reserved, expressed or contained herein are cumulative and no one of them shall be deemed to be exclusive of the others or of such other rights, remedies, options or elections as are now or may hereafter be conferred upon Landlord by law.

22.4.           Event of Bankruptcy.  In addition to, and in no way limiting the other remedies set forth herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary or involuntary bankruptcy, reorganization, composition, or other similar type proceeding under the federal bankruptcy laws, as now enacted or hereinafter amended, then:  (a) “adequate assurance of future performance” by Tenant pursuant to Bankruptcy Code Section 365 will include (but not be limited to) payment of an additional/new security deposit in the amount of three times the then current Base Rent payable hereunder; (b) any person or entity to which this Lease is assigned, pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations of Tenant arising under this Lease on and after the effective date of such assignment, and any such assignee shall, upon demand by Landlord, execute and deliver to Landlord an instrument confirming such assumption of liability; (c) notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as “Rent”, shall constitute “rent” for the purposes of Section 502(b)(6) of the Bankruptcy Code; and (d) if this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered to Landlord or Agent (including Base Rent, Additional Rent and other amounts hereunder), shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the bankruptcy estate of Tenant.  Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord or Agent shall be held in trust by Tenant or Tenant’s bankruptcy estate for the benefit of Landlord and shall be promptly paid to or turned over to Landlord.

22.5.           WAIVER OF NOTICE UNDER PENNSYLVANIA LANDLORD AND TENANT ACT.  IF PROCEEDINGS ARE COMMENCED BY LANDLORD TO RECOVER POSSESSION UNDER THE ACTS OF ASSEMBLY AND RULES OF CIVIL PROCEDURE, UPON THE EXPIRATION OR EARLIER TERMINATION OF THE TERM, OR FOR NON-PAYMENT OF RENT OR ANY OTHER REASON, TENANT SPECIFICALLY WAIVES THE RIGHT TO THE NOTICES REQUIRED BY THE LANDLORD AND TENANT ACT OF 1951, AS THE SAME MAY BE AMENDED, AND AGREES THAT TEN (10) DAYS' NOTICE SHALL BE SUFFICIENT IN ALL CASES, EXCEPT WHERE OTHERWISE PROVIDED HEREIN.

23.           BROKER.  Tenant covenants, warrants and represents that the broker set forth in Section 1.7(A) was the only broker to represent Tenant in the negotiation of this Lease (“Tenant’s Broker”).  Landlord covenants, warrants and represents that the broker set forth in Section 1.7(B) was the only broker to represent Landlord in the negotiation of this Lease (“Landlord’s Broker”).  Landlord shall be solely responsible for paying the commission of Landlord’s Broker and Tenant’s Broker.  Each party agrees to and hereby does defend, indemnify and hold the other harmless against and from any brokerage commissions or finder’s fees or claims therefor by a party claiming to have dealt with the indemnifying party and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses, for any breach of the foregoing.  The foregoing indemnification shall survive the termination or expiration of this Lease.

24.           MISCELLANEOUS.

24.1.           Merger.  All prior understandings and agreements between the parties are merged in this Lease, which alone fully and completely expresses the agreement of the parties.  No agreement shall be effective to modify this Lease, in whole or in part, unless such agreement is in writing, and is signed by the party against whom enforcement of said change or modification is sought.

24.2.           Notices.  Any notice required to be given by either party pursuant to this Lease, shall be in writing and shall be deemed to have been properly given, rendered or made only if (a) personally delivered, or (b) if sent by Federal Express or other comparable commercial overnight delivery service, or (c) sent by certified mail, return receipt requested and postage prepaid addressed (in the case of any or all of (a), (b) and (c) above) to the other party at the addresses set forth below each party’s respective signature block (or to such other address as Landlord or Tenant may designate to each other from time to time by written notice), and shall be deemed to have been given, rendered or made (i) on the day so delivered or (ii) in the case of overnight courier delivery on the first business day after having been deposited with the courier service, and (iii) in the case of certified mail, on the third (3rd) business day after deposit with the U.S. Postal Service, postage prepaid.

24.3.           Non-Waiver.  The failure of either party to insist, in any one or more instances, upon the strict performance of any one or more of the obligations of this Lease, or to exercise any election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this Lease or of the right to exercise such election, but the Lease shall continue and remain in full force and effect with respect to any subsequent breach, act or omission.  The receipt and acceptance by Landlord or Agent of Base Rent or Additional Rent with knowledge of any breach by Tenant of any obligation of this Lease shall not be deemed a waiver of such breach.

24.4.           Legal Costs.  Any party in breach or default under this Lease (the “Defaulting Party”) shall reimburse the other party (the “Nondefaulting Party”) upon demand for any legal fees and court (or other administrative proceeding) costs or expenses that the Nondefaulting Party incurs in connection with the breach or default, regardless whether suit is commenced or judgment entered.  Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise.  Furthermore, in the event of litigation, the court in such action shall award to the party in whose favor a judgment is entered a reasonable sum as attorneys’ fees and costs, which sum shall be paid by the losing party. Tenant shall pay Landlord’s attorneys’ reasonable fees incurred in connection with Tenant’s request for Landlord’s consent under provisions of this Lease governing assignment and subletting, or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent.

24.5.           Parties Bound.  Except as otherwise expressly provided for in this Lease, this Lease shall be binding upon, and inure to the benefit of, the successors and assignees of the parties hereto.  Tenant hereby releases Landlord named herein from any obligations of Landlord for any period subsequent to the conveyance and transfer of Landlord’s ownership interest in the Premises.  In the event of such conveyance and transfer, Landlord’s obligations hereunder shall thereafter be binding upon each transferee (whether Successor Landlord or otherwise).  No obligation of Landlord shall arise under this Lease until the instrument is signed by, and delivered to, both Landlord and Tenant.

24.6.           Recordation of Lease.  Tenant shall not record or file this Lease (or any memorandum hereof) in the public records of any county or state.

24.7.           Governing Law; Construction.  This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises is located.  If any provision of this Lease shall be invalid or unenforceable, the remainder of this Lease shall not be affected but shall be enforced to the extent permitted by law.  The captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation.  This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted.  Each covenant, agreement, obligation, or other provision of this Lease to be performed by Tenant, shall be construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease.  All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require.

24.8.           Time.  Time is of the essence for this Lease.  If the time for performance hereunder falls on a Saturday, Sunday or a day that is recognized as a holiday in the state in which the Premises is located, then such time shall be deemed extended to the next day that is not a Saturday, Sunday or holiday in said state.

24.9.           Authority of Tenant.  Tenant and the person(s) executing this Lease on behalf of Tenant hereby represent, warrant, and covenant with and to Landlord as follows:  the individual(s) acting as signatory on behalf of Tenant is(are) duly authorized to execute this Lease; Tenant has procured (whether from its members, partners or board of directors, as the case may be), the requisite authority to enter into this Lease; this Lease is and shall be fully and completely binding upon Tenant; and Tenant shall timely and completely perform all of its obligations hereunder.

24.10.         WAIVER OF TRIAL BY JURY.  LANDLORD AND TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES.

24.11.         intentionally omitted.

24.12.         Confidential Information.  Tenant and Landlord agree to maintain in strict confidence the economic terms of this Lease and any or all other materials, data and information delivered to or received by any or all of Landlord, Tenant and Tenants’ Parties either prior to or during the Term in connection with the negotiation and execution hereof (the “Confidential Information”); provided, however, Landlord may share any Confidential Information with any of its attorneys, accountants, agents, representatives, and prospective purchasers or lenders of the Property.  The provisions of this Section 24.12 shall survive the termination of this Lease.

24.13.         Submission of Lease.  Submission of this Lease to Tenant for signature does not constitute a reservation of space or an option to lease.  This Lease is not effective until execution by and delivery to both Landlord and Tenant.

24.14.         Lien Prohibition.  Tenant shall not permit any mechanics or materialmen’s liens to attach to the Premises.  Tenant, at its expense, shall procure the satisfaction or discharge of record of all such liens and encumbrances within 30 days after the filing thereof; or, within such thirty (30) day period, Tenant shall provide Landlord, at Tenant’s sole expense, with endorsements (satisfactory, both in form and substance, to Landlord and the holder of any mortgage or deed of trust) to the existing title insurance policies of Landlord and the holder of any mortgage or deed of trust, insuring against the existence of, and any attempted enforcement of, such lien or encumbrance.  In the event Tenant has not so performed, Landlord may, at its option, pay and discharge such liens and Tenant shall be responsible to reimburse Landlord, on demand and as Additional Rent under this Lease, for all costs and expenses incurred in connection therewith, together with Default Interest thereon, which expenses shall include reasonable fees of attorneys of Landlord’s choosing, and any costs in posting bond to effect discharge or release of the lien as an encumbrance against the Premises.

24.15.         Counterparts.  This Lease may be executed in multiple counterparts, but all such counterparts shall together constitute a single, complete and fully-executed document.

[Signature Pages Follow]

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the day and year first above written.

LANDLORD:
FR YORK PROPERTY HOLDING, LP, a Delaware limited partnership
By:	FR York General Partner, LP, a Delaware limited partnership, its general partner
By:	FR York Second, LLC, a Delaware limited liability company, its general partner
By:	FR York, LLC, a Delaware limited liability company, its sole member
By:	First Industrial Investment, Inc., a Maryland corporation, its sole member
By:		/s/ Richard Czerwinski
Name:		Richard Czerwinski
Its:		National Director Leasing & Asset Management
DATE: __________________________________
TENANT:
UNITED NATURAL FOODS, INC., a Delaware corporation
By:	/s/ Mark E. Shamber
Its:	Vice-President, CFO and Treasurer

Landlord’s Addresses for Notices:	Tenant’s Addresses for Notices:
c/o First Industrial Realty Trust, Inc.	United Natural Foods, Inc.
311 South Wacker Drive, Suite 4000	260 Lake Road
Chicago, Illinois  60606	Dayville, Connecticut 06241
Attn: Executive Vice President-Operations	Attn: Thomas A. Dziki, Vice President
With a copy to:	With a copy (which shall not constitute notice) to:
c/o First Industrial Realty Trust, Inc.	Joseph A. Anesta, Esq.
2780 Commerce Drive, Suite 100	Cameron & Mittleman LLP
Middletown, Pennsylvania  17057	56 Exchange Terrace
Attn:  Regional Director	Providence, Rhode Island 02903
With a copy to:
Barack Ferrazzano Kirschbaum & Nagelberg, LLP
200 West Madison Street, Suite 3900
Chicago, Illinois  60606
Attn:  Suzanne Bessette-Smith

EXHIBIT A

Premises

ATTACH APPROPRIATE LEGAL DESCRIPTION

A-1 

LEASE EXHIBIT B

TENANT OPERATIONS INQUIRY FORM

1. Name of Company/Contact_______________________________________________________________________

2. Address/Phone________________________________________________________________________________

____________________________________________________________________________________________

3. Provide a brief description of your business and operations: ______________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

4. Will you be required to make filings and notices or obtain permits as required by Federal and/or State regulations for the operations at the proposed facility?  Specifically:

a. SARA Title III Section 312 (Tier II) reports                                                                                                YES           NO

(> 10,000lbs. of hazardous materials STORED at any one time)

b. SARA Title III Section 313 (Tier III) Form R reports                                                                                 YES           NO

(> 10,000lbs. of hazardous materials USED per year)

c. NPDES or SPDES Stormwater Discharge permit                                                                                        YES           NO

(answer “No” if “No-Exposure Certification” filed)

d. EPA Hazardous Waste Generator ID Number                                                                                           YES           NO

5.           Provide a list of chemicals and wastes that will be used and/or generated at the proposed location. Routine office and cleaning supplies are not included. Make additional copies if required.

Chemical/Waste Approximate Annual Quantity Used or Generated Storage Container(s) (i.e. Drums, Cartons, Totes, Bags, ASTs, USTs, etc)

B-1 

LEASE EXHIBIT C

Tenant Improvements

This Exhibit C sets forth the rights and obligations of Landlord and Tenant with respect to the construction of the Tenant Improvements.  Capitalized terms used herein, unless otherwise defined in this Exhibit C, shall have the respective meanings ascribed to them in the Lease.  The initial floor plan for the Tenant Improvements is attached hereto as Exhibit C-1.

1.           Tenant Improvements.

Tenant shall engage a duly licensed and reputable contractor (the “Contractor”) to construct and install the Tenant Improvements in the Premises provided for in the Approved Plans (defined below), all at Tenant’s sole cost and expense.

2.           Pre-Construction Activities.

(a)           On or before Tenant commences any work in the Premises, Tenant shall submit the following information and items to Landlord for Landlord's review and approval:

(i)           Certified copies of insurance policies or certificates of insurance as hereinafter described.  Tenant shall not permit the Contractor or any of Tenant’s Contractors to commence work until the required insurance has been obtained and certified copies of policies of insurance or certificates thereof have been delivered to Landlord.

(ii)           The Plans (defined below) for the Tenant Improvements, which Plans shall be subject to Landlord's approval in accordance with Paragraph 2(b) below.

(iii)           All necessary building permits have been applied for and obtained by Tenant.

Tenant will update such information and items by written notice to Landlord of any changes.

(b)           As used herein the term “Approved Plans” shall mean the Plans (defined below), as and when approved in writing by Landlord.  As used herein, the term “Plans” shall mean the full and detailed architectural and engineering plans and specifications covering the Tenant Improvements (including, without limitation, architectural, mechanical and electrical working drawings for the Tenant Improvements).  The Plans shall be subject to Landlord's approval and the approval of all local governmental authorities requiring approval of the Tenant Improvements and the Approved Plans.  Landlord agrees not to unreasonably withhold, delay or condition its approval of said Plans and to provide with reasonable specificity the basis for any disapproval.  If Landlord notifies Tenant that changes are required to the final Plans submitted by Tenant, Tenant shall submit to Landlord, for its approval, the Plans amended in accordance with the changes so required.  The Plans shall also be revised, and the Tenant Improvements shall be changed, all at Tenant's cost and expense, to incorporate any work required in the Premises by any local governmental field inspector.  Landlord's approval of the Plans shall in no way be deemed to be (x) an acceptance or approval of any element therein contained which is in violation of any applicable laws, ordinances, regulations or other governmental requirements, or (y) an assurance that work done pursuant to the Approved Plans will comply with all applicable law (or with the interpretations thereof) or satisfy Tenant's objectives and needs.

3.           Change Orders.

All changes to the Approved Plans requested by Tenant must be approved by Landlord in advance of the implementation of such changes as part of the Tenant Improvements.

4.           Standards Of Design and Construction and Conditions of Tenant’s Performance.

All Tenant Improvements done in or upon the Premises by Tenant shall be done according to the standards set forth in this Exhibit C, except as the same may be modified in the Approved Plans.

(a)           Tenant's Approved Plans and all design and construction of the Tenant Improvements shall comply with all legal requirements and industry standards, including, but not limited to, requirements of Landlord's fire insurance underwriters.

C-1

(b)           Tenant shall use only new, first-class materials in the Tenant Improvements, except where explicitly shown in the Approved Plans. All Tenant Improvements shall be constructed and installed in a good and workmanlike manner.

(c)           Tenant shall permit Landlord to have access to the Premises, and the Tenant Improvements shall be subject to inspection by Landlord and Landlord's architects, engineers, contractors and other representatives, at all times during the period in which the Tenant Improvements is being constructed and installed and following completion of the Tenant Improvements.

Tenant shall impose on and enforce all applicable terms of this Exhibit C against Tenant's architect and the Contractor.

5.           Insurance and Indemnification.

(a)           In addition to any insurance which may be required under the Lease, Tenant shall secure, pay for and maintain or cause the Contractor and all subcontractors (collectively, “Tenant’s Contractors”) to secure, pay for and maintain during the continuance of construction and fixturing work within the Premises, insurance in the following minimum coverages and the following minimum limits of liability:

(i)           Worker's Compensation and Employer's Liability Insurance with limits of not less than $500,000.00, or such higher amounts as may be required from time to time by any Employee Benefits Act or other statutes applicable where the work is to be performed, and in any event sufficient to protect Tenant's Contractors from liability under the aforementioned acts.

(ii)           Comprehensive General Liability Insurance (including Contractor's Protective Liability) in commercially reasonable amounts given the scope of the work to be performed by each of Tenant’s Contractors.  Such insurance shall provide for explosion and collapse, completed operations coverage and broad form blanket contractual liability coverage and shall insure Tenant's Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others and arising from its operations under the contracts whether such operations are performed by Tenant's Contractors or by anyone directly or indirectly employed by any of them.

(iii)           Comprehensive Automobile Liability Insurance, including the ownership, maintenance and operation of any automotive equipment, owned, hired, or non-owned in an amount not less than $500,000.00 for each person in one accident, and $1,000,000.00 for injuries sustained by two or more persons in any one accident and property damage liability in an amount not less than $1,000,000.00 for each accident.  Such insurance shall insure Tenant's Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others arising from its operations under the contracts, whether such operations are performed by Tenant's Contractors, or by anyone directly or indirectly employed by any of them.

(iv)           “All-risk” builder's risk insurance covering the Tenant Improvements to the full insurable value thereof. This insurance shall include the interests of Landlord and Tenant (and their respective contractors and subcontractors to the extent of any insurable interest therein) in the Tenant Improvements and shall insure against the perils of fire and extended coverage and shall include “all-risk” builder's risk insurance for physical loss or damage including, without duplication of coverage, theft vandalism and malicious mischief.  Any loss insured under said “all-risk” builder's risk insurance is to be adjusted with Landlord and Tenant and made payable to Landlord, as trustee for the insureds, as their interests may appear.

All policies (except the worker's compensation policy) shall be endorsed to include Landlord as an additional insured.  The waiver of subrogation provisions contained in the Lease shall apply to all insurance policies (except the workmen's compensation policy) to be obtained by Tenant pursuant to this paragraph. The insurance policy endorsements shall also provide that all additional insured parties shall be given thirty (30) days' prior written notice of any reduction, cancellation or non-renewal of coverage (except that ten (10) days' notice shall be sufficient in the case of cancellation for non-payment of premium) and shall provide that the insurance coverage afforded to the additional insured parties thereunder shall be primary to any insurance carried independently by said additional insured parties. Additionally, where applicable. each policy shall contain a cross-liability and severability of interest clause.

(b)           Without limiting the indemnification provisions in the Lease, to the fullest extent permitted by law, Tenant agrees to indemnify, protect, defend and hold harmless Landlord, the parties listed, or required by, the Lease to be named as additional insureds, and their respective beneficiaries, partners, directors, officers, employees and agents, from and against all claims, liabilities, losses,

C-2

damages and expenses of whatever nature arising out of or in connection with the Tenant Improvements or the entry of Tenant or Tenant's Contractors into the Building and the Premises, including, without limitation, mechanics liens, the cost of any repairs to the Premises or Building necessitated by activities of Tenant or Tenant's Contractors, bodily injury to persons or damage to the property of Tenant, its employees, agents, invitees. licensees or others. It is understood and agreed that the foregoing indemnity shall be in addition to the insurance requirements set forth above and shall not be in discharge of or in substitution for same or any other indemnity or insurance provision of the Lease.

6.           Lien Waivers.

Tenant shall cause the Contractor and Tenant’s Contractors to provide such contractor's affidavits, partial and final waivers of lien, architect's certificates and any additional documentation (including, without limitation, Contractor’s or Tenant’s Contractor’s personal undertakings) which may be reasonably requested by Landlord.  Upon completion of the Tenant Improvements, Tenant shall furnish Landlord with full and final waivers of liens and contractor's affidavits and statements, in such form as may be reasonably required by Landlord, Landlord's title insurance company and Landlord's construction or permanent lender, if any, from all parties performing labor or supplying materials or services in connection with the Tenant Improvements showing that all of said parties have been compensated in full and waiving all liens in connection with the Premises and Building. Tenant shall submit to Landlord a detailed breakdown of Tenant's total construction costs, together with such evidence of payment as is reasonably satisfactory to Landlord.

7.           Roof Work.

In the event any portion of the Tenant Improvements are to be performed on the roof of the Building (“Roof Work”), Tenant must first obtain Landlord shall written approval of such Roof Work and the proposed manner of such Roof Work, which shall not be unreasonably withheld. The installation of any Roof Work shall be performed by Landlord’s designated contractor(s), and any Roof Work related to roof penetration or patching of the roof shall be undertaken only by Landlord’s designated roofing contractor, all at Tenant’s sole cost and expense. Tenant shall not do or permit anything which would void any warranty of the roof.  Tenant shall not be permitted to have access to the roof of the Building without a representative of Landlord present. Tenant shall also be responsible, at Tenant’s sole cost and expense, for the purchase, installation, maintenance, repair, replacement and removal of the Roof Work and Tenant shall at all times, at Tenant’s sole cost and expense, maintain the Roof Work in good condition and repair utilizing Landlord’s designated contractor(s).  If any utilities or services are required for the operation of the Roof Work , all such utilities and services shall be arranged by Tenant (subject to Landlord’s prior written approval thereof) and shall be at Tenant’s sole cost and expense.  All costs and expenses of whatever nature under this Section 7 shall be borne by Tenant at it’s sole cost and expense. Notwithstanding anything to the contrary contained in this Lease, Tenant shall be solely responsible for any and all damage caused (whether to person or property) by the Roof Work and/or Tenant’s installation, operation, service, maintenance or removal thereof. In the event any provisions of this Lease conflict with or are inconstant with any terms of this Lease, the terms of this Section shall control.

C-3

LEASE EXHIBIT D

CONFIRMATION OF COMMENCEMENT DATE

[Date]

[Tenant’s Name and Address]

RE:           [Describe lease, by title and date (the “Lease”); name Landlord and Tenant]

Dear [Name of Contact Person at Tenant]:

This letter shall confirm that the Commencement Date for the above-referenced Lease is [specify Commencement Date].

[Name of Tenant], as Tenant, hereby acknowledges the following:  (i) Tenant is in possession of the Premises (as defined in the Lease); (ii) the Lease is in full force and effect; (iii) Landlord is not in default under the Lease; and (iv) possession of the Premises is accepted by Tenant as having been delivered in accordance with the terms and conditions of the Lease.

Our records indicate the following information for the [Number of square feet comprising Premises] square feet of space:

Commencement Date:	____________________ 200__
Base Rent Commencement Date:	____________________ 200__
Next Monthly Base Rent Due:	____________________ 200__
Operating Expense Commencement Date:	____________________ 200__
Lease Expiration Date:	____________________ 200__

Please sign two (2) copies of this letter in the space provided below acknowledging your agreement with the above and return them to me at my office.  I suggest you attach a copy of this letter to your copy of the Lease.

Thank you again for your cooperation and assistance regarding this matter.  Please contact me at any time should you have questions regarding the lease, building, or any related manner.

Sincerely,	Acknowledged and Agreed to this ___ day of __________________, 20____
[Name] Property Manager	[Name of Tenant] By:           ___________________________________ Title:        ___________________________________

D-1 

LEASE EXHIBIT E

Broom Clean Condition and Repair Requirements

Reasonable wear and tear excepted:

· All lighting is to be placed into good working order.  This includes replacement of bulbs, ballasts, and lenses as needed.

· All truck doors and dock levelers should be serviced and placed in good operating order (including, but not limited to, overhead door springs, rollers, tracks and motorized door operator).  This would include the necessary (a) replacement of any dented truck door panels, broken panels and cracked lumber, and (b) adjustment of door tension to insure proper operation.  All door panels that are replaced shall be painted to match the building standard.

· All structural steel columns in the warehouse and office should be inspected for damage, and must be repaired.  Repairs of this nature shall be pre-approved by the Landlord prior to implementation.

· HVAC system shall be in good working order, including the necessary replacement of any parts to return the unit to a well-maintained condition.  This includes, but is not limited to, filters, thermostats, warehouse heaters and exhaust fans.  Upon move-out, Landlord will have an exit inspection performed by a certified mechanical contractor to determine the condition of the HVAC system.

· All holes in the sheet rock walls shall be repaired prior to move-out.  All walls shall be clean.

· The carpets and vinyl tiles shall be in a clean condition and shall not have any holes or chips in them.  Flooring shall be free of excessive dust, dirt, grease, oil and stains.  Cracks in concrete and asphalt shall be acceptable as long as they are ordinary wear and tear, and are not the result of misuse.

· Facilities shall be returned in a clean condition, including, but not limited to, the cleaning of the coffee bar, restroom areas, windows, and other portions of the Premises.

· There shall be no protrusion of anchors from the warehouse floor and all holes shall be appropriately patched.  If machinery/equipment is removed, the electrical lines shall be properly terminated at the nearest junction box.

· All exterior windows with cracks or breakage shall be replaced.  All windows shall be clean.

· Tenant shall provide keys for all locks on the Premises, including front doors, rear doors, and interior doors.

· All mechanical and electrical systems shall be left in a safe condition that conforms to code.    Bare wires and dangerous installations shall be corrected to Landlord’s reasonable satisfaction.

· All plumbing fixtures shall be in good working order, including, but not limited to, the water heater.  Faucets and toilets shall not leak.

· All dock bumpers shall be left in place and well-secured.

· Drop grid ceiling shall be free of excessive dust from lack of changing filters.  No ceiling tiles may be missing or damaged.

· All trash shall be removed from both inside and outside of the building.

· All signs in front of building and on glass entry door and rear door shall be removed.

E-1 

LEASE EXHIBIT F

Signage Plan

[to be provided by Tenant]

F-1 

ADDENDUM 1

RENEWAL OPTION

1.      Tenant shall have the option (“Renewal Option”) to renew this Lease for two (2) consecutive terms of five (5) years each (each, a “Renewal Term”), on all the same terms and conditions set forth in this Lease, except that Base Rent during each Renewal Term shall be equal to Fair Market Rent (as defined in Section 2 below). Tenant shall deliver written notice to Landlord of Tenant’s election to exercise the Renewal Option (“Renewal Notice”) not less than nine (9) months, nor more than twelve (12) months, prior to the expiration date of the original Term or the then-current Renewal Term, as applicable; and if Tenant fails to timely deliver the Renewal Notice to Landlord, then Tenant shall automatically be deemed to have irrevocably waived and relinquished the Renewal Option.

2.       “Fair Market Rent” shall be determined by Landlord, in its sole, but good faith, discretion based upon the annual base rental rates then being charged (as of the date on which Tenant delivers the applicable Renewal Notice) in the industrial market sector of the geographic area where the Building is situated for comparable space (provided, however, that comparable space shall be deemed to be “dry” warehouse space and shall exclude the value of any Tenant improvements) and for a lease term commencing on or about the commencement date of the applicable Renewal Term and equal in duration to the applicable Renewal Term, taking into consideration:  the geographic location, quality and age of the building; the location and configuration of the relevant space within the applicable building; the extent of service to be provided to the proposed tenant thereunder; applicable distinctions between “gross” lease and “net” leases; the creditworthiness and quality of Tenant; leasing commissions; and any other relevant term or condition in making such evaluation, as reasonably determined by Landlord.  In no event, however (and notwithstanding any provision to the contrary in Section 3 below), shall the Fair Market Rent ever be less than the rate of Base Rent in effect as of the expiration date of the original Term or the first Renewal Term, as applicable (the “Renewal Rent Floor”).  Landlord shall notify Tenant of Landlord’s determination of Fair Market Rent for the Renewal Term, in writing (the “Base Rent Notice”) within thirty (30) days after receiving the applicable Renewal Notice.

3.      Tenant shall then have fifteen (15) days after Landlord’s delivery of the Base Rent Notice in which to advise Landlord, in writing (the “Base Rent Response Notice”) whether Tenant (i) is prepared to accept the Fair Market Rent established by Landlord in the Base Rent Notice and proceed to lease the Premises, during the Renewal Term, at that Fair Market Rent; or (ii) elects to withdraw and revoke its Renewal Notice, whereupon the Renewal Option shall automatically be rendered null and void; or (iii) elects to contest Landlord’s determination of Fair Market Rent.  In the event that Tenant fails to timely deliver the Base Rent Response Notice, then Tenant shall automatically be deemed to have elected (i) above.  Alternatively, if Tenant timely elects (ii), then this Lease shall expire on the original expiration date of the initial Term or the then current Renewal Term, as applicable.  If, however, Tenant timely elects (iii), then the following provisions shall apply:

a. The Fair Market Rent shall be determined by either the Independent Brokers or the Determining Broker, as provided and defined below, but in no event shall the Fair Market Rent be less than the Renewal Rent Floor.

b. Within fifteen (15) days after Tenant delivers its Base Rent Response Notice, electing (iii), each of Landlord and Tenant shall advise the other, in writing (the “Arbitration Notice”) of both (i) the identity of the individual that each of Landlord and Tenant, respectively, is designating to act as Landlord’s or Tenant’s, as the case may be, duly authorized representative for purposes of the determination of Fair Market Rent pursuant to this Section 3 (the “Representatives”); and (ii) a list of three (3) proposed licensed real estate brokers, any of which may serve as one of the Independent Brokers (collectively, the “Broker Candidates”).  Each Broker Candidate:

i. shall be duly licensed in the jurisdiction in which the Premises is located;

ii. shall have at least five (5) years’ experience, on a full-time basis, leasing industrial space (warehouse/distribution/ancillary office) in the same general geographic area as that in which the Premises is located, and at least three (3) of those five (5) years of experience shall have been consecutive and shall have elapsed immediately preceding the date on which Tenant delivers the Renewal Notice; and

Addendum 1-1

iii. shall be independent and have no then-pending (as of the date Landlord or Tenant designates the broker as a Broker Candidate) brokerage relationship, formal or informal, oral or written, with any or all of Landlord, Tenant, and any affiliates of either or both of Landlord and Tenant (“Brokerage Relationship”), nor may there have been any such Brokerage Relationship at any time during the two (2) year period immediately preceding the broker’s designation, by Landlord or Tenant, as a Broker Candidate.

c. Within fifteen (15) days after each of Landlord and Tenant delivers its Arbitration Notice to the other, Landlord and Tenant shall cause their respective Representatives to conduct a telephonic meeting at a mutually convenient time.  At that meeting, the two (2) Representatives shall examine the list of six (6) Broker Candidates and shall each eliminate two (2) names from the list on a peremptory basis.  In order to eliminate four (4) names, first, the Tenant’s Representative shall eliminate a name from the list and then the Landlord’s Representative shall eliminate a name therefrom.  The two (2) Representatives shall alternate in eliminating names from the list of six (6) Broker Candidates in this manner until each of them has eliminated two (2) names.  The two (2) Representatives shall immediately contact the remaining two (2) Broker Candidates (the “Independent Brokers”), and engage them, as behalf of Landlord and Tenant, to determine the Fair Market Rent in accordance with the provisions of this Section 3.

d. The Independent Brokers shall determine the Fair Market Rent within thirty (30) days of their appointment.  Landlord and Tenant shall each make a written submission to the Independent Brokers (no more than ten (10) pages in length, in the aggregate, per submitting party), advising of the rate that the submitting party believes should be the Fair Market Rate, together with whatever written evidence or supporting data that the submitting party desires in order to justify its desired rate of Fair Market Rent; provided, in all events, however, that the aggregate maximum length of each party’s submission shall not exceed ten (10) pages (each such submission package, a “FMR Submission”).  The Independent Brokers shall be obligated to choose one (1) of the parties’ specific proposed rates of Fair Market Rent, without being permitted to effectuate any compromise position.

e. In the event, however, that the Independent Brokers fail to reach agreement, within twenty (20) days after the date on which both Landlord and Tenant deliver the FMR Submissions to the Independent Brokers (the “Decision Period”), as to which of the two (2) proposed rates of Fair Market Rent should be selected, then, within five (5) days after the expiration of the Decision Period, the Independent Brokers shall jointly select a real estate broker who (x) meets all of the qualifications of a Broker Candidate, but was not included in the original list of six (6) Broker Candidates; and (y) is not affiliated with any or all of (A) either or both of the Independent Brokers and (B) the real estate brokerage companies with which either or both of the Independent Brokers is affiliated (the “Determining Broker”).  The Independent Brokers shall engage the Determining Broker on behalf of Landlord and Tenant (but without expense to the Independent Brokers), and shall deliver the FMR Submissions to the Determining Broker within five (5) days after the date on which the Independent Brokers select the Determining Broker pursuant to the preceding sentence (the “Submission Period”).

f. The Determining Broker shall make a determination of the Fair Market Rent within twenty (20) days after the date on which the Submission Period expires.  The Determining Broker shall be required to select one of the parties’ specific proposed rates of Fair Market Rent, without being permitted to effectuate any compromise position.

g. The decision of the Independent Brokers or the Determining Broker, as the case may be, shall be conclusive and binding on Landlord and Tenant, and neither party shall have any right to contest or appeal such decision.  Judgment may be entered, in a court of competent jurisdiction, upon the decision of the Independent Brokers or the Determining Broker, as the case may be.

Addendum 1-2

h. In the event that the initial Term expires and the Renewal Term commences prior to the date on which the Independent Brokers or the Determining Broker, as the case may be, renders their/its decision as to the Fair Market Rent, then from the commencement date of the Renewal Term through the date on which the Fair Market Rent is determined under this Section 3 (the “Determination Date”), Tenant shall pay monthly Base Rent to Landlord at a rate equal to 110% of the rate of monthly Base Rent in effect on the expiration date of the initial Term (the “Temporary Base Rent”).  Within ten (10) business days after the Determination Date, Landlord shall pay to Tenant, or Tenant shall pay to Landlord, depending on whether the Fair Market Rent is less than or greater than the Temporary Base Rent, whatever sum that Landlord or Tenant, as the case may be, owes the other (the “Catch-Up Payment”), based on the Temporary Base Rent actually paid and the Fair Market Rent due (as determined by the Independent Brokers or the Determining Broker, as the case may be) during that portion of the Renewal Term that elapses before the Catch-Up Payment is paid, in full (together with interest thereon, as provided below).  The Catch-Up Payment shall bear interest at the rate of Prime (defined below), plus five percent (5.0%) per annum from the date each monthly component of the Catch-Up Payment would have been due, had the Fair Market Rent been determined prior to the commencement of the Renewal Term, through the date on which the Catch-Up Payment is paid, in full (inclusive of interest thereon).  For purposes hereof, “Prime” shall mean the per annum rate of interest publicly announced by JPMorgan Chase Bank, N.A. (or its successor), from time to time, as its “prime” or “base” or “reference” rate of interest.

i. The party whose proposed rate of Fair Market Rent is not selected by the Independent Brokers or the Determining Broker, as the case may be, shall bear all costs of all counsel, experts or other representatives that are retained by both parties, together with all other costs of the arbitration proceeding described in this Section 3, including, without limitation, the fees, costs and expenses imposed or incurred by any or all of the Independent Brokers and the Determining Broker.

j. Unless otherwise expressly agreed in writing, during the period of time that any arbitration proceeding is pending under this Section 3, Landlord and Tenant shall continue to comply with all those terms and provisions of this Lease that are not the subject of their dispute and arbitration proceeding, most specifically including, but not limited to, Tenant’s monetary obligations under this Lease; and, with respect to the payment of Base Rent during that portion of the Renewal Term that elapses during the pendency of any arbitration proceeding under this Section 3, the provisions of Section 3(h) shall apply.

k. During any period of time that an arbitration is pending or proceeding under this Section 3, Tenant shall have no right to assign this Lease or enter into any sublease for all or any portion of the Premises, notwithstanding any provision to the contrary in this Lease.  Furthermore, if this Lease requires that Landlord perform any tenant improvement work in connection with the Renewal Term, Landlord shall be relieved of any such obligation during the pendency of any arbitration proceeding under this Section 3.

4. The Renewal Option is granted subject to all of the following conditions:

a. As of the date on which Tenant delivers its Renewal Notice and continuing through the commencement date of the Renewal Term, this Lease shall be in full force and effect and no act or omission shall occur which, with the giving of notice or the passage of time, or both, shall constitute a breach or default by Tenant under this Lease.

b. There shall be no further right of renewal after the expiration of the second Renewal Term.

c. The Renewal Option is personal to Tenant.  In the event that Tenant assigns its interest under this Lease or subleases all or any portion of the Premises, whether or not in accordance with the requirements of this Lease, and whether directly or indirectly, the provisions of this Addendum A, shall not be available to, or run to the benefit of, and may not be exercised by, any assignee or sublessee.

Addendum 1-3

ADDENDUM 2

PURCHASE OPTION

ADDENDUM TO INDUSTRIAL BUILDING LEASE
BY AND BETWEEN FR YORK PROPERTY HOLDING, LP (“LANDLORD”)
AND UNITED NATURAL FOODS, INC. (“TENANT”)

1.           Defined Terms.  Capitalized terms used in this Addendum and not otherwise defined shall have the meanings respectively ascribed to such terms in the Lease.

2.           Grant of Purchase Option.  Landlord hereby grants to Tenant a one time option to purchase (the “Purchase Option”) the Premises on the terms and conditions hereinafter set forth.  This Purchase Option shall expire, and the rights of Tenant hereunder shall irrevocably terminate, upon the sooner to occur of:  (i) December 31, 2009 (the “Option Exercise Date”) unless Tenant has delivered an Option Exercise Notice (as hereinafter defined) to Landlord on or prior to such date; (ii) the expiration or sooner termination of the Lease; (iii) any breach, default or failure of performance by Tenant pursuant to the Lease beyond any applicable notice and cure periods; or (iv) the failure by Tenant to proceed to the Option Closing (as hereinafter defined) after having exercised this Purchase Option.

3.           Exercise of Purchase Option.  Tenant may exercise this Purchase Option by delivery of written notice to Landlord (an “Option Exercise Notice”) on or prior to the Option Exercise Date.  If Tenant (x) fails to timely deliver an Option Exercise Notice on or prior to the Option Exercise Date, or (y) timely delivers an Option Exercise Notice but fails to simultaneously deposit the Earnest Money (as hereinafter defined) with Landlord, Tenant shall have no further right to exercise this Purchase Option.  Simultaneously with the delivery by Tenant to Landlord of an Option Exercise Notice, Tenant shall deposit with First American Title Insurance Company, 30 N. LaSalle Street, Suite 300, Chicago, IL  60602, Attn:  Dick Siedel (the “Title Company”)as its earnest money deposit, the sum of One Million Eight Hundred Thousand and No/100 Dollar ($1,800,000.00) (the “Earnest Money”) to be held by the Title Company and applied in accordance with this Addendum.  Tenant shall have no right to exercise this Purchase Option if Tenant is either in monetary or material non-monetary default pursuant to the Lease or any fact or condition exists that with the giving of notice, or passage of time, or both, would constitute a monetary or material non-monetary default pursuant to the Lease.  If Tenant is in monetary default or material non-monetary default pursuant to the Lease as of the Option Closing, Landlord may elect, in its sole discretion, to void Tenant’s exercise of this Purchase Option by delivery of written notice to Tenant, in which event this Purchase Option shall thereafter be forever null and void and the Title Company shall immediately deliver the Earnest Money to the Landlord.  If Tenant exercises this Purchase Option, Landlord and Tenant shall proceed to the Option Closing pursuant to this Addendum and shall not negotiate, execute and enter into a Purchase and Sale Agreement to govern the conveyance of the Premises by Landlord to Tenant.  Within ten (10) days after the delivery by Tenant to Landlord of an Option Exercise Notice, Tenant shall deliver to Landlord a title commitment, issued by a reputable, national title insurance company selected by the Title Company, for an owner’s title insurance policy (the “Title Policy”) in the full amount of the Option Purchase Price (as hereinafter defined), together with copies of all recorded documents representing title exceptions.

4.           Option Purchase Price.  The total purchase price to be paid by Tenant to Landlord for the Premises shall be (a) if the Option Closing Date is on or before May 31, 2009, THIRTY FIVE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($35,500,000.00), or (b) if the Option Closing Date is on or before May 31, 2010, THIRTY SIX MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($36,400,000.00) (as applicable, the “Option Purchase Price”), plus or minus any adjustments contemplated in Section 7 below.  The Earnest Money shall be retained by Landlord and applied against the Option Purchase Price.

5.           Option Closing.  The purchase of the Premises contemplated herein shall be consummated at a closing (the“Option Closing”) to take place by mail or at the offices of the Title Company.  The Option Closing shall occur on the sooner to occur of:  (i) such date as the parties shall mutually agree in writing; and (ii) one hundred fifty (150) days after the delivery by Tenant to Landlord of an Option Exercise Notice (the “Option Closing Date”).  The Option Closing shall be effective as of 11:59 p.m. on the Option Closing Date.

Addendum 2-1

5.1.           Landlord’s Option Closing Deliveries.  At the Option Closing, Landlord shall deliver, or cause to be delivered, to Tenant the following duly executed by Landlord where appropriate:  (i) aSpecial WarrantyDeed, in recordable form, conveying the Premises to Tenant subject to the Permitted Exceptions (as hereinafter defined); (ii) a Quitclaim Bill of Sale conveying all of Landlord’s interest in and to any tangible personal property located on the Premises which is owned by Landlord and used by Landlord solely in connection with the Premises; (iii) an Affidavit of Title in form and substance reasonably acceptable to the Title Company; (iv) a closing statement (the “Closing Statement”) conforming to the proration and other relevant provisions of this Addendum; (v) an Entity Transfer Certification confirming that Landlord is a “United States Person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended; and (vi) such evidence of the authority and good standing of Landlord as the Title Company shall reasonably require as a condition to the issuance of the Title Policy.

5.2.           Tenant’s Option Closing Deliveries.  At the Option Closing, Tenant shall deliver, or cause to be delivered, to Landlord the following duly executed by Tenant where appropriate:  (i) the Closing Statement; and (ii) the Option Purchase Price, plus or minus prorations and other adjustments, in immediately available funds.

5.3.           Title Condition.  It shall be a condition precedent to Tenant’s obligation to proceed to the Option Closing that, at the Option Closing, the Title Company shall issue the Title Policy (or a “marked” title commitment) to Tenant insuring, in the full amount of the Option Purchase Price, Tenant as the fee simple owner of the Premises, subject only to the Permitted Exceptions.  If the foregoing condition precedent fails for any reason other than the actions of Purchaser, the exercise of this Purchase Option by Tenant shall be null and void, in which event (i) the Earnest Money shall be returned by the Title Company to Tenant, and (ii) this Purchase Option shall be irrevocably terminated and of no further force and effect.  Landlord shall convey the Premises to Tenant subject to any and all liens, claims and encumbrances of record (“Permitted Exceptions”) other than the following:  (i) the liens of any mortgage, trust deed or deed of trust evidencing an indebtedness owed by Landlord; (ii) mechanic’s liens pursuant to a written agreement either between (x) the claimant (the “Contract Claimant”) and Landlord or (y) the Contract Claimant and any other contractor, materialman or supplier with which Landlord has a written agreement; and (iii) broker’s liens pursuant to a written agreement between the broker and Landlord (the “Mandatory Cure Items”).  Landlord shall, at Landlord’s sole cost, cure and remove any Mandatory Cure Items on or prior to the Option Closing.  If Landlord fails to cure and remove (whether by endorsement or otherwise) any Mandatory Cure Items on or prior to the Option Closing, Tenant may, at its option and as its sole remedy hereunder, at law, in equity or pursuant to the Lease, either (i) terminate its election to exercise this Purchase Option, in which event the Earnest Money shall be returned by the Title Company to Tenant and this Purchase Option shall thereafter become forever null and void, or (ii) proceed to close with title to the Premises as it then is with the right to deduct from the Option Purchase Price the amount reasonably necessary to cure and remove (by endorsement or otherwise, as mutually and reasonably determined by Tenant and Landlord) those Mandatory Cure Items that Landlord has failed to cure and remove.

6.           Premises Transferred “As Is”.  The sale of the Premises pursuant to this Purchase Option as provided for herein shall be made on a “AS IS,” “WHERE-IS” basis as of the Option Closing Date, without any representations or warranties, of any nature whatsoever from Landlord.  Landlord hereby specifically disclaims any warranty (oral or written) concerning:  (i) the nature and condition of the Premises and the suitability thereof for any and all activities and uses that Tenant may elect to conduct thereon, (ii) the manner, construction, condition and state of repair or lack of repair of any improvements located thereon, (iii) the nature and extent of any right-of-way, lien, encumbrance, license, reservation, condition or otherwise, (iv) the compliance of the Premises or its operation with any laws, rules, ordinances, or regulations of any government or other body; and (v) any other matter whatsoever. Tenant expressly acknowledges that, in consideration of the agreements of Landlord herein, LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF QUANTITY, QUALITY, CONDITION, HABITABILITY, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PREMISES, ANY IMPROVEMENTS LOCATED THEREON, OR ANY SOIL CONDITIONS RELATED THERETO.  TENANT, FOR TENANT AND TENANT’S SUCCESSORS AND ASSIGNS, HEREBY RELEASES LANDLORD FROM AND WAIVES ANY AND ALL CLAIMS AND LIABILITIES AGAINST LANDLORD FOR, RELATED TO, OR IN CONNECTION WITH, ANY ENVIRONMENTAL CONDITION AT THE PREMISES (OR THE PRESENCE OF ANY MATTER OR SUBSTANCE RELATING TO THE ENVIRONMENTAL CONDITION OF THE PREMISES), INCLUDING, BUT NOT LIMITED TO, CLAIMS AND/OR LIABILITIES RELATING TO (IN ANY MANNER WHATSOEVER) ANY HAZARDOUS, TOXIC OR DANGEROUS MATERIALS OR SUBSTANCES LOCATED IN, AT, ABOUT OR UNDER THE PREMISES, OR FOR ANY AND ALL CLAIMS OR CAUSES OF ACTION (ACTUAL OR THREATENED) BASED UPON, IN CONNECTION WITH OR ARISING OUT OF ANY AND ALL ENVIRONMENTAL LAWS.

7.           PRORATIONS.  Notwithstanding any local custom to the contrary, there shall be no prorations and adjustments between Landlord and Tenant at the Option Closing (including, but not limited to, any proration or adjustment of ad valorem real estate taxes or special assessments) except as hereinafter expressly provided.  Tenant shall receive a credit from Landlord at the Option Closing for that portion of any Rent paid by Tenant to Landlord for the month in which the Option Closing occurs (the “Closing Month”) that is allocable to the period from and after the Option Closing Date.  Tenant shall provide a credit to Landlord at

Addendum 2-2

the Option Closing for:  (i) any and all Rent and other sums due and owing from Tenant to Landlord pursuant to the Lease with respect to the period prior to the Option Closing Date that Tenant has not previously paid to Landlord, including, but not limited to, Rent for that portion of the Closing Month occurring prior to the Option Closing Date to the extent not paid by Tenant prior to the Option Closing; (ii) any and all operating expenses and costs related to the Premises that have been paid by Landlord and are related to the period from and after the Option Closing to the extent not previously reimbursed by Tenant; and (iii) any and all Taxes paid by Landlord for which Tenant has not reimbursed Landlord, whether related to the period prior to or after the Option Closing Date.  Landlord and Tenant hereby agree to re-prorate such amounts to the extent of any error, which obligation shall survive the Option Closing and the delivery of any conveyance documentation.

8.           Closing Expenses.  Tenant will pay the entire cost of the Title Policy (including the cost of any endorsements), any survey, the fees of Tenant’s attorney, one-half of all documentary and state, county and municipal transfer taxes relating to the instruments of conveyance contemplated herein, the cost of recording the deed and one-half of the cost of any escrows hereunder.  Landlord will pay the fees of Landlord’s attorney, one-half of all documentary and state, county and municipal transfer taxes relating to the instruments of conveyance contemplated herein and one-half of any escrow costs hereunder.

9.           Termination of Lease.  Upon the Option Closing and the transfer of the Premises pursuant to this Addendum, the Lease shall terminate except for those provisions under the Lease which by their terms specifically survive.  This Section 9 shall survive the Option Closing and the delivery of any conveyance documentation.

10.           Brokerage.  Each party hereto represents and warrants to the other that it has dealt with no brokers or finders in connection with this Purchase Option other than NAI Branner Goddard and CB Richard Ellis (“Broker”).  Landlord and Tenant each hereby indemnify, protect and defend and hold the other harmless from and against all losses, claims, costs, expenses, damages (including, but not limited to, reasonable fees of counsel selected by the indemnified party) resulting from the claims of any broker, finder, or other such party claiming a commission in connection with the sale of the Premises pursuant to this Purchase Option by, through or under the acts or agreements of the indemnifying party. The obligations of the parties pursuant to this Section 10 shall survive any transfer of the Premises and the delivery of any conveyance documentation.  It is the intention of the parties that there be a single commission arising from the initial leasing and sale of the Premises, and not two separate duplicative commissions.

11.           Absence of Contingencies. Tenant acknowledges and agrees that, except for the condition precedent relative to the issuance of the Title Policy contained in Section  5.3 above, there are no conditions precedent or other contingencies to Tenant’s obligation to proceed to the Option Closing if Tenant exercises this Purchase Option.  Without limitation of the foregoing, Tenant shall not be entitled to the benefit of any due diligence or other contingency period.  Prior to the exercise of this Purchase Option, Tenant may conduct normal and customary due diligence investigations and studies of the Premises (“Tenant’s Project Inspection”) subject to the terms and conditions set forth in this Section 11.  Tenant shall not conduct (or cause to be conducted) any physically intrusive investigation, examination or study of the Premises (any such investigation, examination or study, an “Intrusive Investigation”) as part of Tenant’s Project Inspection without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned.  In the event Tenant desires to conduct (or cause to be conducted) any Intrusive Investigation, such as sampling of soils, other media, building materials, or the other comparable investigation, Tenant will provide a written scope of work to Landlord describing exactly what procedures Tenant desires to perform.  Tenant and Tenant’s consultants, agents and employees shall, in performing any Tenant’s Project Inspections, comply with the agreed upon procedures and with any and all laws, ordinances, rules, and regulations applicable to such procedures or the Premises.  Tenant and Tenant’s consultants shall: (a) maintain comprehensive general liability (occurrence) insurance in an amount of not less than $2,000,000 covering any accident arising in connection with Tenant’s Project Inspections, and deliver a certificate of insurance (in form reasonably acceptable to Landlord), which names Landlord as additional insured thereunder verifying such coverage, to Landlord prior to the performance of any Tenant’s Project Inspections; (b) promptly pay when due any third party costs resulting from Tenant’s Project Inspections; and (c) restore the Premises to the condition in which the same were found before any such Tenant’s Project Inspections were undertaken and repair any damage to the Premises to the extent such condition was altered or the Premises were damaged (directly or indirectly) in connection with Tenant’s Project Inspections.  Tenant hereby indemnifies, protects, defends and holds Landlord, Landlord’s affiliates, their respective partners, shareholders, officers and directors, and all of their respective successors and assigns, harmless from and against any and all losses, damages, claims, causes of action, judgments, damages, costs and expenses (including reasonable attorneys’ fees and court costs) that any such party suffers or incurs as a result of, or in connection with, (i) any damage caused to, in, or at the Premises; (ii) injury or death to person; or (iii) mechanic’s liens or materialmen’s liens arising out of, or in connection with, Tenant’s Project Inspections.  Tenant’s undertakings pursuant to this Section 11 shall indefinitely survive the Option Closing and shall not be merged into any instrument of conveyance delivered at the Option Closing.

Addendum 2-3

12.           No Assignment.  The rights of Tenant pursuant to this Purchase Option are personal to Tenant and may not be assigned by Tenant; provided, however, Tenant may assign this Purchase Option to a wholly owned subsidiary of Tenant, provided Landlord is provided a written assignment in the form reasonably acceptable to Landlord.  In the event that Tenant assigns, transfers or conveys all or some portion of its interest in the Lease to anyone other than a wholly-owned subsidiary of Tenant, this Purchase Option shall be null, void and of no further force and effect irrespective of whether Landlord has consented to such assignment. For purposes of this Section 12, the term “assigns, transfers or conveys” shall not include a subleases of a portion of the Premise.

13.           Default by Landlord.  If Landlord shall be in material default of its obligations pursuant to this Purchase Option, Tenant may either (i) terminate Tenant’s election to exercise this Purchase Option by written notice to Landlord, in which event (a) the Earnest Money shall be returned by the Title Company to Tenant and (b) this Purchase Option shall thereafter be forever null and void; or (ii) Tenant may file an action for specific performance of Landlord’s obligation to proceed to the Option Closing.  Tenant shall have no other remedy for any default by Landlord pursuant to this Addendum.  Without limitation of the foregoing, a default by Landlord of its obligations pursuant to this Addendum shall not constitute a default by Landlord pursuant to the Lease and Tenant shall not be entitled to exercise any remedies it may have pursuant to the Lease on account of a default by Landlord pursuant to this Addendum.

14.           Default by Tenant.  In the event Tenant defaults in its obligations to close the purchase of the Premises, or in the event Tenant otherwise defaults pursuant to this Addendum, then (i) Landlord shall be entitled to obtain the Earnest Money from the Title Company as fixed and liquidated damages, this Purchase Option shall thereafter be forever void and of no further force and effect.  Landlord shall have no other remedy for any default by Tenant pursuant to this Addendum, including any right to damages or to exercise its rights pursuant to the Lease.  LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT (1) THE AMOUNT OF THE EARNEST MONEY IS A REASONABLE ESTIMATE OF AND BEARS A REASONABLE RELATIONSHIP TO THE DAMAGES THAT WOULD BE SUFFERED AND COSTS INCURRED BY LANDLORD AS A RESULT OF HAVING WITHDRAWN THE PREMISES FROM SALE AND THE FAILURE OF THE OPTION CLOSING TO HAVE OCCURRED DUE TO A DEFAULT OF TENANT UNDER THIS ADDENDUM; (2) THE ACTUAL DAMAGES SUFFERED AND COSTS INCURRED BY LANDLORD AS A RESULT OF SUCH WITHDRAWAL AND FAILURE TO CLOSE DUE TO A DEFAULT OF TENANT UNDER THIS ADDENDUM WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO DETERMINE; AND (3) THE AMOUNT OF THE EARNEST MONEY SHALL BE AND CONSTITUTE VALID LIQUIDATED DAMAGES.

15.           Conflict.  In the event of any conflict between the terms of this Addendum and the terms of the Lease, the terms of this Addendum shall prevail.

16.           No Recording.  Neither this Addendum nor any memorandum thereof shall be recorded and the act of recording by Tenant shall be deemed a default by Tenant pursuant to the Lease and this Addendum.

Addendum 2-4

EX-31.1

Exhibit 31.1

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

I, Michael S. Funk, certify that:

1. I have reviewed this report on Form 10-Q of United Natural Foods, Inc.;

2. Based on my knowledge, this 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 report;

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

/s/ Michael S. Funk
Michael S. Funk

Chief Executive Officer

June 5, 2008

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.

EX-31.2

Exhibit 31.2

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

I, Mark E. Shamber, certify that:

1. I have reviewed this report on Form 10-Q of United Natural Foods, Inc.;

2. Based on my knowledge, this 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 report;

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

/s/ Mark E. Shamber
Mark E. Shamber

Chief Financial Officer

June 5, 2008

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.

EX-32.1

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 Quarterly Report of the Company on Form 10-Q for the period ended April 26, 2008, 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 Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ Michael S. Funk
Michael S. Funk

Chief Executive Officer

June 5, 2008

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.

EX-32.2

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 Quarterly Report of the Company on Form 10-Q for the period ended April 26, 2008, 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 Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

/s/ Mark E. Shamber
Mark E. Shamber

Chief Financial Officer

June 5, 2008

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.