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 December 31, 2002
                               -----------------

                                       OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the transition period from                       to
                               ---------------------    ------------------------
Commission file number 2-22791
                       -------

                                   AGWAY INC.
                              DEBTOR-IN-POSSESSION
                              AS OF OCTOBER 1, 2002
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


DELAWARE                                                              15-0277720
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)


333 Butternut Drive, DeWitt, New York                                      13214
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)


                                  315-449-6715
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)





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
    -----     -----

Indicated by check mark whether the registrant is an accelerated filer.
Yes        No   X
    -----     -----

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.





      Class                                      Outstanding at February 7, 2003
------------------------                         -------------------------------
Membership Common Stock,                                  96,447 shares
$25 par value per share




                                       1
<PAGE>


                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                             PAGE NO.
                                                                                             --------
PART I.    FINANCIAL INFORMATION
------     ---------------------

<S>        <C>                                                                                    <C>
           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of December 31, and June 30, 2002...........   3

           Condensed Consolidated Statements of Operations and Retained Earnings for
           the three months and six months ended December 31, 2002 and December 31, 2001........   4

           Consolidated Statements of Comprehensive Income for the three months and
           six months ended December 31, 2002 and December
           31, 2001.............................................................................   5

           Condensed Consolidated Cash Flow Statements for the six months ended
           December 31, 2002 and December 31, 2001..............................................   6

           Notes to Condensed Consolidated Financial Statements.................................   7

           Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations................................................................  24

           Item 3.  Quantitative and Qualitative Disclosures About Market Risk..................  39

           Item 4.  Controls & Procedures.......................................................  40

PART II.   OTHER INFORMATION
-------    -----------------

           Item 1.   Legal Proceedings..........................................................  41

           Item 2.  Changes in Securities and Use of Proceeds...................................  41

           Item 3.   Defaults Upon Senior Indebtedness..........................................  41

           Item 4. Submission of Matters to a Vote of Security Holders..........................  42

           Item 6.  Exhibits and Reports on Form 8-K............................................  43

           SIGNATURES...........................................................................  50

           Certifications Under New Exchange Act Rules 13a-14 and 15d-14 of the
           Exchange Act of 1934.................................................................  51


</TABLE>















                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES
                                   (Unaudited)
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS                                                                               December 31,        June 30,
                                                                                        2002              2002
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
Current Assets:
     Cash.........................................................................  $      11,693    $            0
     Trade accounts receivable (including notes receivable of
         $2,270 and $1,988, respectively), less allowance for
         doubtful accounts of $5,431 and $4,723, respectively.....................         95,207            76,733
     Advances and other receivables...............................................         19,227             4,757
     Inventories:
         Raw materials............................................................            457               954
         Finished goods...........................................................         29,753            26,322
         Goods in transit and supplies............................................          1,281             1,902
                                                                                    -------------    --------------
              Total inventories...................................................         31,491            29,178
     Deferred tax assets..........................................................         27,527            27,056
     Prepaid expenses and other assets............................................         12,597             8,754
                                                                                    -------------    --------------
         Total current assets.....................................................        197,742           146,478
Restricted cash...................................................................         15,285                 0
Security investments, net.........................................................         10,823            11,125
Properties and equipment, net.....................................................        120,073           123,685
Net pension asset.................................................................        226,020           223,649
Other assets  ....................................................................         11,352            14,817
Total assets of discontinued operations...........................................        798,667         1,049,340
                                                                                    -------------    --------------
         Total assets.............................................................  $   1,379,962    $    1,569,094
                                                                                     ============    ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Notes payable................................................................  $           0            34,180
     Current installments of long-term debt.......................................            163             1,842
Current installments of subordinated debt.........................................           -               36,917
     Accounts payable.............................................................         34,121            49,015
     Trade receivables with credit balances.......................................         33,897            28,079
     Other current liabilities....................................................         15,539            51,976
                                                                                    -------------    --------------
         Total current liabilities................................................         83,720           202,009
Long-term debt....................................................................          1,524            17,143
Subordinated debt.................................................................           -              388,449
Deferred tax liabilities..........................................................         22,239            31,987
Other liabilities.................................................................         15,090            60,260
Liabilities of discontinued operations (excluding $19,731 at December 31 in
     liabilities subject to compromise............................................        669,355           805,144
                                                                                    -------------    --------------
         Total liabilities not subject to compromise..............................        791,928         1,504,992
Liabilities subject to compromise.................................................        556,036                 0
Commitments and contingencies.....................................................
Shareholders' equity:
     Preferred stock, net.........................................................         31,997            32,057
     Common stock, net............................................................          2,411             2,413
     Accumulated other comprehensive income (loss)................................          3,848             1,195
     Retained earnings (deficit)..................................................         (6,258)           28,437
                                                                                    --------------   --------------
         Total shareholders' equity...............................................         31,998            64,102
                                                                                    -------------    --------------
              Total liabilities and shareholders' equity..........................  $   1,379,962    $    1,569,094
                                                                                    =============    ==============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

  Item 1. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                       Three Months Ended                 Six Months Ended
                                                 -------------------------------    -------------------------------
                                                  December 31,     December 31,      December 31,     December 31,
                                                     2002              2001             2002              2001
                                                 -------------    --------------    -------------    --------------
<S>                                              <C>              <C>               <C>              <C>
Net sales and revenues.........................  $     259,597    $      229,392    $     448,537    $      431,023

Cost and expenses from:
     Products and plant operations.............        232,874           208,458          418,280           404,769
     Selling, general and administrative
       activities..............................         17,627            15,914           36,662            31,206
                                                 -------------    --------------    -------------    --------------
         Total operating costs and expenses....        250,501           224,372          454,942           435,975

Operating income (loss)........................          9,096             5,020           (6,405)           (4,952)
Interest expense, net..........................            (10)           (4,808)          (4,874)           (9,809)

Other income (expense), net....................         (2,513)              371              405             1,958
                                                 -------------    --------------    -------------    --------------
Earnings (loss) from continuing operations
  before reorganization expenses and income
  taxes........................................          6,573               583          (10,874)          (12,803)

Reorganization expenses .......................          2,977                 0            2,977                 0

Income tax expense (benefit)...................             64             1,911              127            (4,646)
                                                 -------------    --------------    -------------    --------------

Earnings (loss) from continuing operations.....          3,532            (1,328)         (13,978)           (8,157)

Discontinued operations:
     Loss from operations, net of tax expense
       (benefit) of $125, $(652), $250,
         and $(2,053), respectively............          1,064            (2,260)          (3,281)           (5,673)
     Loss on disposal, net of tax expense
       (benefit) of $0, $0, $0 and $0..........        (16,518)                0          (17,436)                0
                                                 -------------    --------------    -------------    --------------
     Loss from discontinued operations.........        (15,454)           (2,260)         (20,717)           (5,673)

Net loss ......................................        (11,922)           (3,588)         (34,695)          (13,830)
                                                 -------------    --------------    -------------    --------------
Retained earnings, beginning of period.........          5,664           119,101           28,437           129,343
                                                 -------------    --------------    -------------    --------------        --
Dividends......................................              0            (1,352)               0            (1,352)
                                                 -------------    --------------    -------------    --------------
Retained (deficit) earnings, end of period.....  $      (6,258)   $      114,161    $      (6,258)   $      114,161
                                                 =============    ==============    =============    ==============
</TABLE>











     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

        Item 1. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                       Three Months Ended                 Six Months Ended
                                                 -------------------------------    -------------------------------
                                                  December 31,     December 31,      December 31,     December 31,
                                                     2002              2001             2002              2001
                                                 -------------    --------------    -------------    --------------
<S>                                              <C>              <C>               <C>              <C>
Net earnings (loss)............................  $     (11,922)   $       (3,588)   $     (34,695)   $      (13,830)

Other comprehensive income (loss), net of tax:

     Unrealized gains (losses) on
         available-for-sale securities
         held in discontinued operations.......              0              (388)               0               434
     Reclassification adjustment for
         gains (losses) included in net
         earnings..............................              0               (15)            (570)              (20)

     Deferred gains (losses) on cash flow
         hedges, net of tax:
         Holding gains (losses) arising
         during period.........................          1,194            (1,058)           5,179              (976)
         Reclassification adjustment for
         gains (losses) included in net
         earnings..............................         (1,494)            1,224           (1,956)            1,197
                                                 -------------    --------------    -------------    --------------

Other comprehensive income (loss)..............           (300)             (237)           2,653               635
                                                 -------------    --------------    -------------    --------------

Comprehensive income (loss)....................  $     (12,222)   $       (3,825)   $     (32,042)   $      (13,195)
                                                 =============    ==============     ============    ==============

</TABLE>





















     See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

               Item 1. CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                    -------------------------------
                                                                                     December 31,     December 31,
                                                                                        2002              2001
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
Net cash flows provided by (used in) continuing operations before reorganization
     items........................................................................  $     (39,241)   $       34,794
Reorganization items (excluding non-cash changes of $990).........................         (1,987)                0
                                                                                    -------------    --------------
Net cash flows provided by (used in) continuing operating activities..............        (41,228)           34,794

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment...................................         (5,916)           (3,495)
     Proceeds from disposal of property, plant and equipment......................          2,663               483
     Net purchase (sale) of other security investments............................             (5)           (1,643)
     Proceeds from disposal of discontinued operations............................         99,100           -
                                                                                    -------------    --------------

Net cash flows provided by (used in) investing activities:........................         95,842            (4,655)

Cash flows provided by (used in) financial activities:
     Net change in short-term notes payable.......................................        (34,180)          (54,462)
     Proceeds from long-term debt.................................................            235                 0
     Repayment of long-term debt..................................................            (42)             (463)
     Proceeds from sale of subordinated debt......................................              0            65,053
     Maturity and redemption of subordinated debt.................................         (1,856)          (68,908)
     Net change in capital leases.................................................           (779)              563
     Redemption of stock, net.....................................................            (62)           (1,716)
     Cash dividends paid..........................................................         (1,307)           (2,874)
                                                                                    -------------    --------------

Net cash flows provided by (used in) financing activities.........................        (37,991)          (62,807)

Net cash flows provided by (used in) discontinued operations......................         (4,930)           32,668
                                                                                    -------------    --------------

Net increase (decrease) in cash and equivalents...................................         11,693                 0
Cash and equivalents at beginning of period.......................................              0                 0
                                                                                    -------------    --------------

Cash and equivalents at end of period.............................................  $      11,693    $            0
                                                                                    =============    ==============


</TABLE>











     See accompanying notes to condensed consolidated financial statements.


                                       6
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

          Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the "Company" or "Agway") have been prepared in accordance with
     generally accepted accounting  principles for interim financial information
     and with the  instructions  to Form 10-Q and Article 10 of Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements,  or those normally made in the Company's  annual report on Form
     10-K.  Accordingly,  the  reader of this Form 10-Q may wish to refer to the
     Company's  annual  report on Form 10-K for the  fiscal  year ended June 30,
     2002 for further information. In the opinion of management, all adjustments
     (consisting of normal recurring accruals)  considered  necessary for a fair
     presentation have been included. Operating results for the six-month period
     ended December 31, 2002, are not necessarily indicative of the results that
     may be  expected  for the year ending June 30,  2003,  due to the  seasonal
     nature of certain major segments of our business.

     On October 1, 2002, Agway Inc. and five of its  subsidiaries  (collectively
     the "Debtors") filed voluntary  petitions to reorganize under Chapter 11 of
     the U.S.  Bankruptcy  Code in order to  allow it to  continue  running  its
     businesses  without   interruption  while  it  gains  the  time  needed  to
     reorganize its financial  obligations and strengthen its balance sheet. See
     Note 2 for further details of the Chapter 11 filings.

     The accompanying consolidated financial statements as of and for the period
     ended December 31, 2002 have been prepared on a going concern  basis.  As a
     result of the Debtors  entering into Chapter 11  Proceedings  on October 1,
     2002, Agway's unaudited condensed consolidated financial statements for the
     quarter ended December 31, 2002 have been prepared in accordance with AICPA
     Statement of Position  ("SOP")  90-7,  "Financial  Reporting by Entities in
     Reorganization  under the  Bankruptcy  Code,"  and will  continue  to apply
     generally accepted  accounting  principles as a going concern which assumes
     the  realization  of assets and the payment of  liabilities in the ordinary
     course of business.

     SOP  90-7  requires  that  pre-petition  liabilities  that are  subject  to
     compromise  be  segregated  in  Agway's  unaudited  Condensed  Consolidated
     Balance  Sheet as  "Liabilities  Subject  to  Compromise"  (which  are more
     specifically  detailed  in Note 2) and that  revenues,  expenses,  interest
     income, realized gains and losses, and provisions for losses resulting from
     the reorganization of the Debtors be reported  separately as reorganization
     items,  except for those  revenues and expenses  required to be reported as
     discontinued operations, in the unaudited Condensed Consolidated Statements
     of  Operations.  Finally,  a condensed  combined  financial  statement that
     includes all Debtors in the Bankruptcy has been presented in Note 2.

     As  debtors-in-possession,  the  Debtors,  subject  to any  required  court
     approval,  may elect to assume or reject  real  estate  leases,  employment
     contracts, personal property leases, service contracts, and other unexpired
     executory  pre-petition  contracts.  We  cannot  presently  determine  with
     certainty the ultimate aggregate liability that will result from the filing
     and  settlement  of claims  related  to any  rejected  contracts,  and as a
     result, no allowance has been record for these items.




                                       7
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

          Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     -----------------------------------------------------

     Basis of Presentation (continued)
     On March 6, 2002, the Company  announced  details of a  comprehensive  plan
     designed to refocus capital resources on four selected  businesses:  Animal
     Feed  and  Nutrition  (the  principal   operation  within  the  Agriculture
     segment),  Energy Products  (Energy  segment),  Produce,  and  Agricultural
     Technologies  (operations within the Country Products Group segment).  This
     plan also disclosed our  intentions to divest of four business  operations:
     Telmark (Leasing segment),  Agway Insurance (the principal operation within
     the  Insurance  segment),  and  Agronomy  and  Seedway  (components  of the
     Agriculture segment). After this plan was announced, as part of its ongoing
     strategic assessment of remaining Agway businesses, including its sunflower
     business (an operation included within the Country Products Group segment),
     Agway  engaged  an  investment  advisor  to  assist in the  exploration  of
     strategic  alternatives  involving  the sunflower  business.  In June 2002,
     after  reviewing a number of written  indications  of  interest,  the Agway
     Board of Directors  affirmed  management's  intentions to actively pursue a
     sale of  this  business.  As  required  by  generally  accepted  accounting
     principles,  the  financial  statements  separately  reflect  the  business
     operations planned for divestiture,  or actually divested,  as discontinued
     operations  for  all  periods  reported.  For  further  information  on the
     discontinued operations, refer to Note 4.

     To date,  significant  progress  has been made  regarding  all  divestiture
     plans.  On August 28, 2002,  Agway  announced the completion of the sale of
     its wholly owned insurance  subsidiary,  Agway Insurance Company, to United
     Farm  Family  Mutual  Insurance  Company.  On  September  16,  2002,  Agway
     completed  the sale of its sunflower  business (an  operation  historically
     included within the Country Products Group segment) to Cenex Harvest States
     Cooperatives.  On December 3, 2002,  Agway  announced the completion of the
     sale of its Agronomy and Seedway businesses and related assets to GROWMARK.
     On December 23, 2002,  Agway,  Telmark and Wells Fargo  Financial  Leasing,
     Inc., ("Wells Fargo") announced that they had signed a definitive agreement
     regarding the sale of  substantially  all of the assets of Telmark to Wells
     Fargo. Pursuant to a letter agreement amongst Agway,  Telmark,  Wells Fargo
     and the unsecured  creditors'  committee for Agway's Chapter 11 Proceedings
     (Creditors'  Committee),  the parties have agreed to auction procedures and
     to amend certain  provisions of the definitive  agreement at the request of
     the   Creditors'   Committee  in  conjunction   with  Agway's   Chapter  11
     Proceedings.  The auction procedures set forth in the definitive agreement,
     as amended in accordance  with the letter  agreement,  were approved by the
     Bankruptcy  Court on February 5, 2003.  The auction is scheduled to be held
     on  Thursday,  February  27,  2003 at 2 p.m.  and a hearing to confirm  the
     successful  bidder is set for 3 p.m. on that same day. On February 6, 2003,
     Agway filed a motion with the Bankruptcy  Court for approval of the sale in
     accordance  with  the  definitive   agreement  as  amended  by  the  letter
     agreement. The Creditors' Committee has reserved the right to object to the
     sale in the  event it  concludes  the sale is not in the best  interest  of
     Agway's  creditors.  If the sale to Wells Fargo is uncontested,  management
     expects  the  sale  to  close  on  or  about  March  1,  2003,  subject  to
     satisfaction of customary closing conditions as set forth in the agreement.
     A copy of the  definitive  agreement,  as  amended,  along  with the letter
     agreement reflecting changes to be made to the definitive agreement and the
     Bankruptcy Court order authorizing and scheduling an auction and hearing to
     consider  approval  of  proposed  sale  resulting  from the  auction,  were
     attached as exhibits to an 8-K filing on February 6, 2003.

     Basis of Consolidation
     The consolidated  financial  statements  include the accounts of all wholly
     owned subsidiaries.  All significant intercompany transactions and balances
     have  been  eliminated  in  consolidation  except  for  certain  items  for
     intercompany  transactions  between continuing and discontinued  operations
     principally  related  to  leases  between  Telmark   (discontinued  Leasing
     segment) and the continuing operations or other discontinued operations.





                                       8
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     ------------------------------------------------------

     Restricted Cash
     Certain  continuing  operations  cash is held in  segregated  cash accounts
     pending  distribution  and is  restricted in its use. At December 31, 2002,
     restricted  cash  principally  relates to collateral  requirements  per the
     terms of the DIP Facility to support the Company's  outstanding  letters of
     credit.

     Restricted  discontinued  operations cash relates to Telmark and amounts to
     $8,298 and $6,014 at  December  31,  2002 and June 30,  2002  respectively,
     which collateralize certain Telmark lease-backed note payable. This cash is
     held in a segregated Telmark cash account. Also included in restricted cash
     of  discontinued  operations  at December 31, 2002 is $1,000 of  segregated
     cash  accounts  per the  terms  of the  sale of the  Agronomy  and  Seedway
     businesses.

     Income Taxes
     Agway is subject to income taxes on all income not  distributed  to patrons
     as patronage  refunds and provides for income taxes in accordance  with the
     provisions  of SFAS No.  109,  "Accounting  for  Income  Taxes."  Under the
     liability  method  specified  by SFAS No.  109,  deferred  tax  assets  and
     liabilities are based on the difference between the financial statement and
     tax basis of assets and  liabilities  as measured by the tax rates that are
     anticipated to be in effect when these  differences  reverse.  The deferred
     tax  provision  generally  represents  the net  change  in the  assets  and
     liabilities for deferred tax. A valuation  allowance is established when it
     is necessary to reduce deferred tax assets to amounts for which realization
     is more likely than not. The provision for income taxes has been  allocated
     between continuing and discontinued operations for all periods presented.

     For the six months ended December 31, 2002, an assessment of the changes in
     tax timing items and income or losses in both  continuing and  discontinued
     operations generated additional deferred tax assets. Due to the uncertainty
     of sufficient  future taxable income being  generated to reasonably  assure
     realization of these deferred tax assets,  additional  valuation  allowance
     adjustments  of $6,800 and  $13,100  for the three- and  six-month  periods
     ended  December 31, 2002 were recorded in continuing  operations and $1,900
     and $(10,300)  were recorded in  discontinued  operations for the three and
     six months ended December 31, 2002, respectively.  Additionally, $27,200 of
     tax timing items in discontinued  operations  were considered  realized for
     tax purposes and transferred to continuing operations as an increase to the
     NOL  deferred  tax asset at December  31,  2002.  Tax  valuation  allowance
     related  to the  transferred  items  of  $10,300  was also  transferred  to
     continuing operations.

     Reclassifications
     Certain  reclassifications  have been made to conform prior year  financial
     statements with the current year presentation.

     Comprehensive Income
     Comprehensive  income  consists of net earnings  (loss)  related to the net
     change in  unrealized  gains and  losses on  available-for-sale  securities
     (relating to Agway Insurance and included in discontinued operations),  net
     of tax,  and the net  change  in  deferred  gains  and  losses on cash flow
     hedges,  net of tax. The  deferred  gains and losses on cash flow hedges in
     the statement of comprehensive  income are net of tax expense  (benefit) of
     $(199) and $111 for the three months and $2,149 and $147 for the six months
     ended December 31, 2002 and December 31, 2001, respectively.




                                       9
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     ------------------------------------------------------

     New Financial Accounting Standards

     SFAS No. 142,  "Goodwill and Other  Intangible  Assets," was issued in June
     -------------------------------------------------------
     2001. Under SFAS No. 142, amortization of goodwill,  including goodwill and
     intangible   assets  with  indefinite   lives  recorded  in  past  business
     combinations, will discontinue upon adoption of this standard. In addition,
     goodwill recorded as a result of business combinations completed after July
     1, 2001, will not be amortized. Instead, all goodwill and intangible assets
     with  indefinite  lives will be tested  for  impairment  annually,  or more
     frequently  if  circumstances  indicate  potential  impairment,  through  a
     comparison of fair value to its carrying  amount.  We adopted this standard
     on July 1, 2002, and completed the first step impairment test under the new
     standard.  The first step impairment test requires the determination of the
     fair value of the  reporting  unit which is then  compared to the  carrying
     value of that reporting unit. If the carrying value exceeds the fair value,
     a second  step  impairment  test is  required  to  measure  the  amount  of
     impairment.  The  results  of our  first  step  impairment  test  indicated
     potential  impairment in our Feed reporting unit. We expect to complete the
     step two impairment  test and record any resulting  impairment loss by June
     30, 2003.

     As of December 31, 2002,  the Company had acquired  amortizable  intangible
     assets  consisting of customer lists,  trademarks,  and non-competes with a
     carrying amount of $1,800. The aggregate  amortization of intangible assets
     with finite lives for the three- and six-month  periods ended  December 31,
     2002  totaled $33 and $138,  respectively.  As of December  31,  2002,  the
     estimated  amortization  expense  in each of the next  five  years  will be
     immaterial.  At December 31, 2002, the carrying  amount of goodwill  totals
     $6,000,  which consists of $4,500 in our Agriculture  segment and $1,500 in
     our CPG segment. The adjusted net income for the three and six months ended
     December 31, 2001, if no amortization would have been deducted, would be as
     follows:

                                                    Three Months     Six Months
                                                   -------------    ------------
     As originally reported......................  $      (3,588)   $   (13,830)
     Amortization................................            419            837
                                                   -------------    ------------
     As adjusted.................................  $      (3,169)   $   (12,993)
                                                   =============    ============

     SFAS No.  146,  "Accounting  for Costs  Associated  with  Exit or  Disposal
     ---------------------------------------------------------------------------
     Activities,"  was issued  June 2002 and is  effective  for exit or disposal
     ----------
     activities  initiated  after  December  31,  2002.  SFAS No. 146  addresses
     financial  accounting  and  reporting  for  costs  associated  with exit or
     disposal  activities and nullified  Emerging Issues Task Force (EITF) Issue
     No. 94-3, "Liability  Recognition for Certain Employee Termination Benefits
     and Other Costs to Exit an Activity  Including  Certain Costs Incurred in a
     Restructuring."  The Company will  implement this statement for all exit or
     disposal activities initiated after December 31, 2002.

2.   CHAPTER 11 FILINGS
     ------------------

     Background
     On  October  1, 2002 (the  "Petition  Date"),  Agway  Inc.  and five of its
     subsidiaries  (collectively,  the "Debtors")  filed voluntary  petitions to
     reorganize  under  Chapter 11 of the  United  States  Bankruptcy  Code (the
     "Chapter 11  Proceedings")  in the United States  Bankruptcy  Court for the
     Northern District of New York in Utica, New York (the "Bankruptcy  Court").
     The Chapter 11 Proceedings have been  consolidated for procedural  purposes
     only and are being administered jointly under case numbers 02-65872 through
     02-65877 pursuant to an order of the Bankruptcy Court entered on October 1,
     2002.  The  subsidiaries  that were included in the Chapter 11  Proceedings
     were Feed Commodities  International LLC, Country Best-DeBerry LLC, Country
     Best Adams,  LLC,  Brubaker  Agronomic  Consulting  Service  LLC, and Agway
     General Agency, Inc.





                                       10
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   CHAPTER 11 FILINGS (continued)
     ------------------------------

     Background  (continued)
     Four wholly owned Agway Inc.  subsidiaries  ARE NOT included in the Chapter
     11  Proceedings:  Agway Energy Products LLC, Agway Energy  Services,  Inc.,
     Agway  Energy  Services-PA,  Inc.  and Telmark  LLC. In  addition,  Telmark
     debenture   holders  ARE  NOT  subject  to  the  Chapter  11   Proceedings.
     Cooperative  Milling,  Inc., a company 50% owned by Agway Inc. was also not
     included in the Chapter 11  Proceedings.  Finally,  the Agway dealer stores
     ARE  NOT  included  in  the  Chapter  11  Proceedings,   because  they  are
     independently owned and are not affiliated with Agway Inc. in any way.

     Agway  Energy  Products is a separate  subsidiary  which  historically  has
     generated, and is expected to continue to generate, sufficient cash to meet
     its needs.  Agway Energy Products requires  short-term  borrowings from the
     Company's   lines  of  credit  to  meet   seasonal   and  working   capital
     requirements.  Such  short-term  financing  will be made available to Agway
     Energy Products as a non-debtor  borrower on an ongoing basis by our senior
     lenders  as part of a  $125,000  Debtor-in-Possession  financing  agreement
     ("DIP Facility").  The details of the DIP Facility are discussed in Note 3.
     However,  Agway Energy  Products  will continue to operate as it has in the
     past and IS NOT included in the Agway Inc. Chapter 11 Proceedings.

     Telmark LLC is a separately financed subsidiary with an appropriate capital
     structure for its industry. Telmark LLC will continue to be financed and to
     be  operated  separately  from Agway Inc.  as it has in the past and IS NOT
     included in the Agway Inc. Chapter 11 Proceedings.  As discussed in Note 1,
     Telmark has entered a contract to sell substantially all of its assets in a
     transaction that has been submitted to the Bankruptcy Court for approval.

     Chapter 11 Process
     Each of the  Debtors  continues  to  operate  its  business  and manage its
     property as a Debtor-in-Possession pursuant to sections 1107(a) and 1108 of
     the Bankruptcy Code. As  Debtors-in-Possession,  the Debtors are authorized
     to operate their  business but may not engage in  transactions  outside the
     ordinary course of business  without the approval of the Bankruptcy  Court.
     The  Bankruptcy  Court entered  orders on October 1, 2002 granting  various
     initial requests of Agway, including payment of employee wages and salaries
     on schedule,  continuation  of Feed and Agronomy  customer  pre-pay product
     programs, and interim access to cash funding. Also, on October 1, 2002, the
     Bankruptcy Court entered an order authorizing the Company to pay vendors in
     the ordinary course for all goods and services received on or after October
     1, 2002. We also agreed to terms of a DIP Facility with our present  senior
     lender group to provide a $125,000 facility over a term of 18 months, which
     we believe will provide  adequate  cash  resources for Agway to meet future
     operating  requirements  while we restructure  the business.  On October 4,
     2002,  the  Bankruptcy  Court approved the DIP Facility on an interim basis
     and on October 22, 2002,  approved the Company's motion for final access to
     the full amount of the $125,000 DIP Facility. Upon obtaining final approval
     from the  Bankruptcy  Court,  the DIP Facility  replaced  Agway's  existing
     senior debt and the credit  agreement.  See Note 3 for terms and conditions
     including covenants under the DIP Facility.

     On  October 9,  2002,  the United  States  Trustee  appointed  an  official
     committee  of  unsecured  creditors  (the  "Creditors'   Committee").   The
     Creditors'  Committee and its legal  representatives  may take positions on
     matters that come before the Bankruptcy Court and, at the appropriate time,
     will negotiate with Agway the terms of a plan of reorganization. On October
     11, 2002, the Creditors'  Committee filed a motion seeking  reconsideration
     of all the first day motions entered by the Bankruptcy  Court on October 1,
     2002.  The  reconsideration  motion  has not yet been  finalized  and it is
     possible  that one of the first day orders will be modified.  Agway and the
     Creditors'  Committee and their respective advisors are holding discussions
     in an  effort to  resolve  the  reconsideration  motion  and other  related
     matters.  The outcome of these  discussions  cannot be  determined  at this
     time.



                                       11
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES
    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

2.   CHAPTER 11 FILINGS (continued)
     ------------------------------
     Chapter 11 Process (continued)
     On January 30, 2003, the  Bankruptcy  Court granted a motion by the Company
     to extend the exclusivity period for filing a plan or reorganization by 120
     days to May 30, 2003. This reserves the right under  bankruptcy law for the
     Company to be the only party allowed to file a plan of reorganization  with
     the Bankruptcy Court.

     At this stage,  we cannot  predict the impact of the Chapter 11 Proceedings
     on our financial condition and results of operations. However, until a plan
     of reorganization is developed and approved by the Bankruptcy Court and our
     creditors, we will be prohibited from paying all pre-petition indebtedness,
     including  principal,  interest,  and  maturities on our  outstanding  debt
     securities and various other obligations or claims against the Company such
     as pending  litigation and  environmental  claims without  Bankruptcy Court
     approval.  Accordingly,  the  $33,100  maturity  and  related  interest  on
     subordinated  debt  due  on  November  1,  2002  was  not  paid.  Following
     confirmation by the Bankruptcy Court of a plan of reorganization, treatment
     of our  pre-petition  obligations  will be  determined by the terms of that
     plan.

     Historically,   the  Company   voluntarily   repurchased   certain  of  its
     securities,  including its subordinated debentures. The Company ceased that
     practice in June 2002 and initiated the Chapter 11  Proceedings  on October
     1, 2002.  To the  Company's  knowledge,  the  Company's  securities  do not
     currently  have an  established  trading  market.  Fair market value of the
     Company's securities is not presently  determinable and it is not presently
     known when such fair  market  value  will be  determined.  Even  though the
     ultimate  impact  on  the  value  of the  Company's  securities  cannot  be
     determined  currently,  it is likely  that,  as a result of the  Chapter 11
     Proceedings,  the  value  of the  Company's  securities  will be  adversely
     impacted and this impact could be material.

     Reorganization Costs
     Under SOP 90-7,  once a company  has filed  petitions  with the  Bankruptcy
     Court, any revenues,  expenses,  interest income, realized gains and losses
     and provisions for losses resulting from the  reorganization of the Debtors
     should be reported  separately as  reorganization  items,  except for those
     required to be reported as  discontinued  operations,  on the  statement of
     operations.  During the  three-month  period ended  September  30, 2002, we
     recorded $2,200 in pre-petition  reorganization  expenses which is recorded
     in the  selling,  general and  administrative  activities  line item of our
     statement of operations.  Pre-petition  reorganization expenses principally
     related to  professional  services  fees  associated  with the  contingency
     planning which  ultimately  resulted in the Chapter 11 Proceedings.  During
     the three  months  ended  December  31,  2002,  we  recorded  post-petition
     reorganization  expenses of $2,977 which is disclosed as a separate line in
     our statement of operations, as required by SOP 90-7.

     Liabilities Subject to Compromise
     As a result of the Chapter 11 Proceedings,  substantially  all pre-petition
     indebtedness  of the Debtors is subject to  compromise  or other  treatment
     under  the  plan  of  reorganization.  Generally,  actions  to  enforce  or
     otherwise  effect payment of  pre-petition  liabilities  are stayed.  These
     claims are  reflected  in the  December  31,  2002  unaudited  consolidated
     balance sheet as liabilities subject to compromise.  Although  pre-petition
     claims are generally stayed, as part of the first day orders and subsequent
     motions  granted by the Bankruptcy  Court,  the  Bankruptcy  Court approved
     Debtors' motions to pay certain pre-petition  obligations essential for the
     ongoing  operation  of  the  Debtors'  business.  Certain  employee  wages,
     benefits and  reimbursements,  which were approved for payment as a part of
     first  day  orders,  have not been  reflected  as  liabilities  subject  to
     compromise. Certain of these benefits are the subject of discussion between
     the  Company  and  the  Creditors'   Committee  and,   depending  upon  the
     resolution,  may be  reclassified.  The  Debtors  have  been and  intend to
     continue  to  pay  undisputed  post-petition  claims  of  all  vendors  and
     suppliers in the ordinary course of business.

                                       12
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   CHAPTER 11 FILINGS (continued)
     ------------------------------

     Liabilities Subject to Compromise
     As of December 31, 2002, the Debtors have liabilities subject to compromise
     of  $556,036,   which  includes   liabilities   subject  to  compromise  of
     discontinued  operations  of  $19,731.  The  major  classifications  are as
     follows:
<TABLE>
<S>                                                                           <C>
     Subordinated debt......................................................  $      423,510
     Miscellaneous liabilities subject to compromise........................          55,934
     Self-insurance reserves................................................          29,784
     Medical liabilities....................................................          20,205
     Deferred employee benefits.............................................          11,856
     Accounts payable - trade...............................................           7,343
     Accrued liabilities - interest.........................................           7,404
                                                                              --------------
                                                                              $      556,036
                                                                              ==============

</TABLE>

     Due to the Chapter 11  Proceedings,  contractual  interest  on  liabilities
     subject to  compromise  of  approximately  $7,500 was not  accrued  for the
     three-month period ended December 31, 2002.

     The unaudited  condensed combined  financial  statements of the Debtors are
     presented below. These statements reflect the financial  position,  results
     of operations and cash flows of the combined debtor subsidiaries, including
     certain amounts and activities between debtors and non-debtor  subsidiaries
     of the Company which are eliminated in the unaudited condensed consolidated
     financial statements.
<TABLE>
<CAPTION>
                    Debtors' Condensed Combined Balance Sheet

                                                                                    December 31,
                                                                                       2002
                                                                                  --------------
<S>                                                                               <C>
     Current assets.............................................................  $      113,004
     Property, plant and equipment, net.........................................          45,771
     Other long-term assets.....................................................         161,332
     Intercompany operating advance receivable..................................          49,069
     Pension asset..............................................................         226,020
     Assets of discontinued operations..........................................          42,498
                                                                                  --------------
         Total assets...........................................................  $      637,694
                                                                                  ==============

     Current liabilities........................................................          16,368
     Liabilities subject to compromise..........................................         556,036
     Long-term liabilities......................................................          17,951
     Liabilities of discontinued operations.....................................          16,389
     Preferred stock............................................................          31,997
     Common equity..............................................................          (1,047)
                                                                                  --------------
         Total liabilities and shareholders' equity.............................  $      637,694

                                                                                  ==============
</TABLE>

                                       13
<PAGE>






                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   CHAPTER 11 FILINGS (continued)
     ------------------------------
<TABLE>
<CAPTION>
               Debtors' Condensed Combined Statement of Operations

                                                                                  For the Period
                                                                                  October 1, 2002
                                                                                     through
                                                                                    December 31,
                                                                                       2002
                                                                                  --------------
<S>                                                                               <C>
     Net sales and revenues.....................................................  $       81,129
     Total operating costs and expenses.........................................          85,436
                                                                                  --------------
         Operating income (loss)................................................          (4,307)
     Other operating, non-operating expenses (revenues) and tax
      (benefit) expense.........................................................          (3,331)
     Reorganization expenses....................................................           2,977
                                                                                  --------------
     Income (loss) from debtor continuing operations............................          (3,954)
     Equity earnings of continuing non-debtor subsidiaries......................           7,485
     Loss from discontinued operations..........................................         (15,454)
                                                                                  --------------
     Net income (loss)..........................................................  $      (11,922)
                                                                                  ==============
</TABLE>

<TABLE>
<CAPTION>
               Debtors' Condensed Combined Statement of Cash Flows

                                                                                       For the Period
                                                                                       October 1, 2002
                                                                                           through
                                                                                        December 31,
                                                                                            2002
                                                                                       ---------------
<S>                                                                                    <C>
     Net cash flows provided by (used in) continuing operations......................  $      (18,056)
     Reorganization items (excluding non-cash charges of $990).......................          (1,987)
                                                                                       --------------
     Net cash flows provide by (used in) operating activities........................         (20,043)

     Cash flows provided by (used in) investing activities:
         Purchases of property, plant and equipment..................................            (713)
         Proceeds from disposal of property, plant and equipment.....................           1,450
         Proceeds from disposal of discontinued operations...........................          99,100
         Net purchase (sale) of other security investments...........................              (4)
                                                                                       --------------

     Net cash flows provided by (used in) investing activities:......................          99,833

     Cash flows provided by (used in) financial activities:
         Net change in short-term notes payable......................................         (30,233)
         Maturity and redemption of subordinated debt................................          (1,856)
         Net change in capital leases................................................            (395)
                                                                                       --------------

     Net cash flows provided by (used in) financing activities.......................         (32,484)

     Net cash flows provided by (used in) discontinued operations....................         (47,764)
                                                                                       --------------

     Net increase (decrease) in cash and equivalents.................................            (458)
     Cash and equivalents at beginning of period.....................................           7,025
                                                                                       --------------

     Cash and equivalents at end of period...........................................  $        6,567
                                                                                        =============
</TABLE>




                                       14
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.   BORROWINGS
     ----------

     Notes Payable
     Agway has  available  under its DIP Facility  (described  below) a $125,000
     short-term  line of credit,  up to $85,000 of which can be used for letters
     of credit.  At December 31, 2002,  there were no outstanding  borrowings on
     the  line of  credit;  as of that  date,  the  letters  of  credit  issued,
     primarily to back Agway insurance programs, totaled approximately $30,560.
<TABLE>
<CAPTION>
                                                            December 31,                June 30,
                                                                2002                      2002
                                                         -----------------         -----------------
<S>                                                      <C>                       <C>
     Borrowings on line of credit......................  $               0         $          34,180
                                                         =================         =================
     Weighted average interest rate....................           -                            5.89%
                                                         =================         =================
</TABLE>

     Agway Senior Debt
     As more fully  described  below,  as a result of the  Company's  Chapter 11
     Proceedings,  the Agway  Senior  Debt  Agreement  ("Senior  Debt") has been
     replaced by the DIP Facility.  During the first quarter ended September 30,
     2002,  the Company had  available  under its Senior  Debt,  an  asset-based
     revolving  line of credit  for up to  $150,000  pursuant  to the terms of a
     credit  agreement  dated  March  28,  2001  between  Agway  Inc.,   certain
     subsidiaries,  and a syndicated group of lenders (the "Credit  Agreement").
     During  the first  quarter,  we sold the Agway  Insurance  Company  and the
     Sunflower  division of our CPG segment for gross proceeds of  approximately
     $42,100,  which had the  impact  of  reducing  the  commitment  level  from
     $150,000  to  $125,000.  The  Credit  Agreement  had a number of  financial
     covenants which had restricted capital spending and required us to maintain
     minimum  levels of  earnings  before  interest,  taxes,  depreciation,  and
     amortization  (EBITDA),  as  defined in the Credit  Agreement  and  minimum
     ratios of EBITDA to fixed  charges and  interest of Senior  Debt.  Prior to
     June 30,  2002,  this  Credit  Agreement  had been  amended  three times in
     response to violations  of financial  covenants.  In connection  with those
     amendments,  those  violations  were  waived  and  certain  covenants  were
     modified.  As of September 30, 2002,  Agway was in default under the Credit
     Agreement, and it was necessary to obtain a waiver regarding those covenant
     violations.  Those covenant  violations were permanently waived on November
     14, 2002, and as a result,  Agway no longer has any  obligations  under the
     Credit  Agreement.  The Senior Debt was  collateralized by a variety of our
     assets,  including the outstanding  limited  liability  company  membership
     interest of Telmark.  Interest  rates were  determined as either prime rate
     plus 2.5% or the London Interbank Offered Rate (LIBOR) plus 4%.

     On October  22,  2002,  the  Bankruptcy  Court  granted  Agway and  certain
     subsidiaries  including the non-debtor  borrowers,  final approval to enter
     into an 18-month term DIP Facility of $125,000 with its existing lenders to
     fund  working  capital  requirements  of the Debtors  during the Chapter 11
     Proceedings, and to fund the working capital requirements of the non-debtor
     borrowers.

     The DIP  Facility  line  is  collateralized  by a  variety  of our  assets,
     including the pledge of the limited liability company  membership  interest
     in  Telmark.  As  in  the  former  Credit  Agreement,  interest  rates  are
     determined,  at the option of Agway,  as either prime rate plus 2.5% or the
     London  Interbank  Offered rate  (LIBOR)  plus 4%. The amount  available to
     Agway  under  this  asset-based  line  of  credit  is  the  lesser  of  the
     "collateral  borrowing  base" or the  $125,000  upper  limit of the line of
     credit.



                                       15
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.   BORROWINGS (continued)
     ---------------------

     Agway Senior Debt (continued)
     In the event of the sale of certain assets, as defined in the DIP Facility,
     the upper  limit of the line of  credit  will  decrease  from  $125,000  to
     $100,000.  The  collateral  borrowing  base  consists of certain of Agway's
     eligible accounts receivable,  inventory and cash collateral (as defined in
     the DIP  Facility).  In addition,  the  collateral  borrowing base includes
     other assets  pledged as collateral up to the lesser of $25,000 or $125,000
     less the eligible  accounts  receivable and inventory.  In the event that a
     sale of certain assets, as defined in the DIP Facility, is not completed on
     or before December 31, 2002, the $25,000  additional  collateral  borrowing
     base related to those  assets is reduced by $10,000 and is further  reduced
     by $5,000 in each  succeeding  month to zero by March 31, 2003 in the event
     the assets are not sold by then.  At that time,  the  collateral  borrowing
     base will consist  solely of eligible  accounts  receivable,  inventory and
     cash collateral. The sale of certain assets as defined in the DIP, however,
     had  not  been  completed  as of  January  31,  2003,  and  therefore,  the
     additional  collateral  borrowing  base  related  to those  assets has been
     reduced by $15,000.  As of January 31,  2003,  Agway had $78,400  available
     under the DIP Facility.

     On December 3, 2002,  Agway  announced  the  completion  of the sale of its
     Agronomy  and  Seedway  business  to GROWMARK  Inc.  for gross  proceeds of
     approximately  $57,000,  which  reduced to zero the  outstanding  revolving
     credit  balance  with our  secured  lender  and  provided  $15,000  of cash
     collateral  to  support  the  Company's  outstanding  letters  of credit as
     required per the terms of the DIP Facility.

     The DIP  Facility has a number of financial  covenants  which  restrict our
     capital  spending  and  require us to maintain  minimum  levels of earnings
     before  interest,  taxes,  depreciation,  amortization,  and  restructuring
     charges,  as  well as a  maximum  level  of  restructuring  charges.  As of
     December 31, 2002,  the Company is in compliance  with all  covenants  with
     regard to the DIP Facility.

     Agway Subordinated Debt
     Agway  previously  registered  with the Securities and Exchange  Commission
     (SEC) to offer debentures and money market  certificates to the public.  As
     previously  disclosed,   since  March  6,  2002,  the  Company  temporarily
     suspended its active capital  raising  efforts  through the sale of Company
     securities pending the filing of certain financial  information  related to
     its decision to sell certain  subsidiaries.  However, due to the unexpected
     failed  sale of Telmark in May 2002 and the related  uncertainty  caused by
     the  failed  sale,  Agway did not  recommence  its active  capital  raising
     efforts even though the relevant  financial  information had been filed. At
     this stage, we do not expect to sell any additional  securities in the near
     future,  if at all.  The  debentures  and  money  market  certificates  are
     unsecured and subordinated to all senior debt of Agway.  Furthermore,  as a
     result of the Chapter 11 Proceedings, payment of interest and maturities on
     these  securities  are  prohibited.  Accordingly,  the $33,100  maturity of
     subordinated debt due on November 1, 2002 was not paid.

4.   DISCONTINUED OPERATIONS
     -----------------------

     On March 6, 2002, the Company  announced  details of a  comprehensive  plan
     designed to strengthen our capital structure and reduce our debt. This plan
     focuses our capital resources on four selected businesses:  Animal Feed and
     Nutrition (the principal operation within the Agriculture segment),  Energy
     Products  (Energy   segment),   Produce,   and  Agricultural   Technologies
     (operations  within the Country  Products  Group  segment).  This plan also
     disclosed our intentions to divest four business  operations:  Telmark (the
     former Leasing segment),  Agway Insurance Company (the principal  operation
     within the former Insurance  segment),  and Agronomy and Seedway  (formerly
     components of the Agriculture segment).  After this plan was announced,  as
     part of its ongoing strategic assessment of remaining Agway businesses,  in
     June 2002, the Agway Board of Directors affirmed management's intentions to
     actively pursue a sale of Agway's sunflower business (an operation formerly
     included within the Country Products Group segment).



                                       16
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


4.   DISCONTINUED OPERATIONS (continued)
     -----------------------------------

     With the announcement of our March 6, 2002 restructuring  plan, our ongoing
     strategic assessment,  and our adoption of SFAS No. 144, we are required to
     separately  report the combined  results of  businesses  that we are taking
     steps to sell as discontinued  operations and to immediately  recognize any
     estimated losses directly related to the sales of those businesses.  Actual
     gains, if any, realized on sale of discontinued operations are not reported
     until realized.  The results of operations of all  discontinued  businesses
     are reported in discontinued operations in the periods in which they occur.
     Discontinued  business  operations  results  are  reported  in  the  income
     statement,  net of tax, in earnings  (loss) from operations of discontinued
     operations. The recognition of any estimated losses directly related to the
     sales of these  businesses  are  reported in the income  statement,  net of
     taxes,  in gain (loss) on disposal of  discontinued  operations.  The total
     assets of  discontinued  operations and total  liabilities of  discontinued
     operations are separately reported on the face of the consolidated  balance
     sheet.

     For  the  businesses   noted  above  that  are  reflected  in  discontinued
     operations,  a summary  of net sales and  revenues  and  pre-tax  operating
     results for the three  months and six months  ended  December  31, 2002 and
     December  31,  2001,   respectively,   and  total  assets  of  discontinued
     operations and total liabilities of discontinued operations at December 31,
     2002 and June 30, 2002 are  detailed  below.  These  amounts  also  include
     assets and  liabilities  remaining  from the former Agway  retail  services
     business,  which  was  discontinued  prior  to  the  March  6,  2002  plan.
     Furthermore, a portion of the Company's interest expense has been allocated
     to discontinued  operations based on the outstanding  debt  attributable to
     holding  these  discontinued  operations.  Finally,  income taxes have been
     allocated  between  continuing and discontinued  operations for all periods
     presented.
<TABLE>
<CAPTION>
                                                       Three Months Ended                  Six Months Ended
                                                 -------------------------------    -----------------------------
                                                 December 31,     December 31,      December 31,    December 31,
                                                    2002              2001             2002              2001
                                                 -----------      ------------      -----------     -------------
<S>                                              <C>              <C>               <C>             <C>
Total sales and revenues......................   $    31,834      $     61,363      $    99,405     $     136,863
Pre-tax income (loss) before interest
  and taxes ..................................         1,189               477             (507)           (1,179)
Interest expense allocated to discontinued
  operations .................................             0             3,389            2,524             6,547
Income (loss) from operations, before tax.....         1,189            (2,912)          (3,031)           (7,726)

</TABLE>




                                       17
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

4.   DISCONTINUED OPERATIONS (continued)
     -----------------------------------
<TABLE>
<CAPTION>
                                                                            Discontinued Operations
                                                                        -------------------------------
                                                                         December 31,       June 30,
                                                                            2002              2002
                                                                        -------------    --------------
<S>                                                                     <C>              <C>
     Discontinued Assets:
       Cash...........................................................  $       3,365    $        5,932
       Restricted cash................................................          9,298             6,014
       Accounts receivable and notes receivable, net..................          3,028           102,425
       Total lease receivables, net...................................        696,744           716,499
       Inventories....................................................              0            42,909
       Prepaid and other current assets...............................         64,135            51,199
       Marketable securities available for sale.......................              0            39,826
       Other security investments.....................................         15,784            41,483
       Property, plant and equipment..................................          5,945            35,342
       Other assets...................................................            368             7,711
                                                                        -------------    --------------
           Total assets of discontinued operations....................  $     798,667    $    1,049,340
                                                                        =============    ==============

     Discontinued Liabilities:
       Notes payable..................................................  $     106,700    $      204,263
       Current portion of long-term debt..............................        118,289           126,485
       Accounts payable...............................................          9,014            22,909
       Other current liabilities......................................         67,495           161,232
       Long-term debt.................................................        330,972           258,569
       Other long-term liabilities....................................         36,885            31,686
                                                                        -------------    --------------
           Total liabilities of discontinued operations...............  $     669,355    $      805,144
                                                                        =============    ==============
       Liabilities subject to compromise..............................         19,731                 0
                                                                        -------------    --------------
                 Total liabilities....................................  $     689,086    $      805,144
                                                                        =============    ==============
</TABLE>

     The loss on  disposal  of  discontinued  operations,  net of tax,  has been
     adjusted to the current estimated loss at December 31, 2002 as follows:
<TABLE>
<CAPTION>
                                                                           Adjustments
                                                                  --------------------------------
                                                                   Three Months      Six Months
                                                                      Ended            Ended         Life-to-Date
                                                     June 30,     --------------------------------    December 31,
                                                      2002               December 31, 2002                2002
                                                 --------------   --------------------------------   ---------------
<S>                                              <C>              <C>               <C>              <C>
     Impairment on long-lived assets and
       other reserves..........................  $     (71,633)   $      (13,971)   $     (13,040)   $      (84,673)
     Direct costs of sale......................        (18,181)             (691)          (2,541)          (20,722)
     Benefit plans curtailment/costs...........        (13,422)           (1,855)          (1,855)          (15,277)
                                                 -------------    --------------    -------------    --------------
     Pre-tax loss..............................       (103,236)          (16,518)         (17,436)         (120,672)
     Income tax benefit........................         17,800                 0                0            17,800
                                                 -------------    --------------    -------------    --------------
     Net loss on disposal of discontinued
       operations..............................  $     (85,436)   $      (16,518)   $     (17,436)   $     (102,872)
                                                 ==============   ==============    ==============   ===============
</TABLE>

     The  adjustments  during the three months ended  December 31, 2002 were the
     result of the ongoing negotiations for the sale of substantially all of the
     assets of Telmark LLC,  finalization of the impacts relating to the sale of
     the  Agronomy  and  Seedway  businesses,  and changes in estimate of direct
     transaction  costs,  principally  pay-to-stay  program costs that are being
     recognized over their expected terms.

     The above net loss on disposal of discontinued  operations could be further
     adjusted  (either  increased or  decreased)  in future  periods for changes
     experienced  from  the  current  estimate  for  net  loss  on  disposal  of
     discontinued operations.

                                       18
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.   ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
     -------------------------------------------------

     The Company's  Energy segment enters into a combination of  exchange-traded
     futures  and options  contracts  and,  in certain  circumstances,  over the
     counter  options  (collectively  "derivatives")  to manage  the price  risk
     associated with future purchases of the commodities used in its operations,
     principally  heating  oil  and  propane.   Energy  has  fair  value  hedges
     associated with its fixed price purchase contracts and cash flow hedges for
     its variable priced purchase  contracts.  The derivatives are  specifically
     matched in volume and maturity with the various purchase commitments of the
     business and generally  expire within a year. Under SFAS No. 133, the value
     of option  contracts that Energy enters into has two  components:  time and
     intrinsic  value.  The intrinsic  value is the value by which the option is
     "in the money." The  remaining  amount of option value is  attributable  to
     time value.  Energy does not include the time value of option  contracts in
     its assessment of hedge  effectiveness and therefore records changes in the
     time value component of its options currently in earnings.  At December 31,
     2002, Energy had a derivative asset of $7,400. An after-tax total of $4,100
     of deferred net unrealized gains on derivatives instruments was accumulated
     in other  comprehensive  income and is  expected  to be  reclassified  into
     earnings during the next twelve months. The increase  (decrease) to cost of
     goods sold for the change in option  time value not used in the  assessment
     of hedge  effectiveness  was $(700)  and  $1,500  for the three  months and
     $1,200 and $2,300 for the six  months,  ended  December  31, 2002 and 2001,
     respectively.

     In the Agriculture  segment,  the purchase of corn, soy complex,  and oats,
     which can be sold directly as ingredients or included in feed products sold
     by Agriculture,  creates price risk for this business.  Agriculture intends
     to match its purchase and sales contracts  whenever possible to hedge price
     risk; however,  exchange-traded  commodity instruments are used principally
     to manage the price risk associated with unmatched  commodity  purchases or
     sales.  Agriculture matches all derivative  contracts with their underlying
     purchase or sale contracts;  however, due to the differences in the changes
     in the commodity cash price at an Agriculture  location  versus the Chicago
     Board of Trade, a highly effective hedging relationship (as defined by SFAS
     No.  133)  has  not  been  achieved.  Therefore,  the  derivatives  used in
     Agriculture  are  marked to market  currently  in  earnings.  The impact of
     marking  these  derivatives  to market for the three and six  months  ended
     December 31, 2002, was immaterial.

6.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

     As of the  October 1, 2002  bankruptcy  petition  date,  substantially  all
     pending litigation against the debtors was stayed and, absent further order
     of the  Bankruptcy  Court,  no party  may take any  action  to  recover  on
     pre-petition  claims against the debtors. We cannot predict what action, if
     any,  the  Bankruptcy  Court may take with  respect to pending  litigation.
     Litigation  against  the  Company's  non-debtor  subsidiaries  has not been
     stayed.

     Insurance Coverage
     The Company uses various insurance companies to insure its primary casualty
     insurance  risks as well as to  obtain  various  umbrella/excess  liability
     coverages.  On October  3, 2001,  the  Commonwealth  Court of  Pennsylvania
     approved the petition of the  Pennsylvania  Insurance  Commissioner  for an
     Order of  Liquidation  for  Reliance  Insurance  Company  (RIC).  Agway has
     obtained  insurance  coverage from RIC in various segments of its insurance
     programs  since  1991.  Presently,  Agway has four  claims  which  could be
     affected by this liquidation.  Total covered amounts by RIC on these claims
     as of December 31, 2002 are estimated at $3,200. In addition, future claims
     could be affected by this liquidation.  The liquidation statute establishes
     certain priorities for payment of claims.  Direct  policyholders are one of
     the top  priorities  for payment.  To the extent,  if any, RIC is unable to
     meet its  claim  obligations  to its  policyholders  and  other  creditors,
     certain state insurance  guarantee funds may provide  additional sources of
     claim  payments.  The Company  cannot at this time  determine  the ultimate
     outcome of this  liquidation,  its impact on outstanding  and future claims
     against RIC policies held by



                                       19
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


6.   COMMITMENTS AND CONTINGENCIES (continued)
     -----------------------------------------

     Insurance Coverage (continued)
     Agway, or the impact on the Company's  financial  results.  However,  it is
     anticipated that due to this  proceeding,  the Company,  at a minimum,  can
     expect delays in receiving cash settlement for claims outstanding under RIC
     policies  and  that we  will  not  receive  full  value  for  such  claims.
     Therefore,  the  Company has  established  a $1,500  allowance  for loss on
     amounts reimbursable from RIC.

     In July 2002,  our surety  bond  provider  ("Surety")  issued  cancellation
     notices  relative  to  $23,900 of surety  bonds  supporting  our  insurance
     programs.  This has no impact on our insurance  coverage,  but it does give
     our insurance carriers the right to demand payment of the collateral amount
     provided by the bonds from the issuer of the bonds.  If our Surety  chooses
     to pay cash to our  insurers  rather than reissue  bonds,  our Surety would
     have a right to make a claim  against us for such amounts in the Chapter 11
     Proceedings.  Because of the cancellation notices issued, our insurers have
     a right to make  demand on our Surety for $4,625  starting  late  September
     2002 and for $6,000 starting late October 2002. We dispute the right of the
     Surety to cancel the  remaining  $13,275 at this time but  recognize  their
     right to cancel  coverage  in the spring of 2003 at the  scheduled  renewal
     dates.

     On October 11, 2003, one of our insurers charged Agway $355 for retroactive
     premium  adjustments  for  prior  years'  claims  in  accordance  with  our
     contractual  arrangements and $100 to fund a claim payment account. Because
     the charges were related to pre-petition claim years, the bills were stayed
     and Agway was unable to pay it at this time.  The  insurance  carrier  made
     claim against  Agway's  Surety for these amounts.  In addition,  due to the
     cancellation  notices  sent by Agway's  Surety  referred  to above,  one of
     Agway's  insurance  providers  also made a demand against the Surety in the
     amount of $7,500.  In response  to these  demands  and in  anticipation  of
     further demands by other insurance  providers  relative to cancelled bonds,
     on January 29, 2003, the Surety filed a suit demanding $3,176 against Agway
     Energy   Products,   LLC,  Agway  Energy   Services,   Inc.,  Agway  Energy
     Services-Pa,  Inc.  and  Telmark,  LLC.  The  complaint  alleges that these
     non-debtor  subsidiaries  of  Agway  are  indemnitors  under  an  indemnity
     agreement  signed by Agway Inc.  in relation  to the surety  bonds  against
     which  demands are being made.  It is too early to determine  the merits of
     these claims and the impact, if any, on the financial  statements.  Agway's
     and these  subsidiaries'  anticipated  claim losses are fully reserved on a
     discounted  basis by Agway  and are  included  in  Liabilities  Subject  to
     Compromise.  The  resolution of this Surety claim will  determine,  to some
     degree,  the timing of when cash gets paid and how much gets paid  relative
     to these claims.

     Other Assets
     The sale of the Company's  former  wholesale  procurement and supply system
     was  completed  on  July  31,  2000  and  was  paid  for in  part by a note
     receivable  in the  original  amount of  $13,300  that was due and  payable
     January 2003. In connection  with a refinancing  of the obligor in December
     2001,  we agreed to extend the  $12,500  remaining  outstanding  balance to
     February  15,  2003,  with a possible  extension  to August 12,  2003 under
     certain conditions.  In connection with this agreement, we became a secured
     party in an  intercreditor  agreement  with the obligor's  bank group.  The
     December  31,  2002  outstanding  balance of $11,500 is  included  in other
     assets on the balance  sheet.  The January  2003 obligor  renegotiated  its
     entire  financial  obligations  with its secured bank group and Agway Inc.,
     extending the due date to October 31, 2003 of the bank and Agway debt.  The
     collectibility of that note receivable is subject to the ongoing successful
     operation of the obligor or our ability,  if  necessary,  to realize  value
     from the security  under the  intercreditor  agreement.  As a result of the
     most recent renegotiation, during the three months ended December 31, 2002,
     we have provided a bad-debt reserve of $3,000 related to this note.




                                       20
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


6.   COMMITMENTS AND CONTINGENCIES (continued)
     -----------------------------------------

     Environmental
     We are  subject to various  laws and  governmental  regulations  concerning
     environmental  matters.  We  expect  to be  required  to  expend  funds  to
     participate in the  remediation of certain sites,  including sites where we
     have been  designated  by the  Environmental  Protection  Agency (EPA) as a
     potentially  responsible party (PRP) under the Comprehensive  Environmental
     Response,  Compensation,  and  Liability  Act  (CERCLA)  and at sites  with
     underground   fuel  storage  tanks.  We  will  also  incur  other  expenses
     associated with environmental compliance.

     We are designated as a PRP under CERCLA or as a third party by the original
     PRPs in several  Superfund  sites.  The liability under CERCLA is joint and
     several, meaning that we could be required to pay in excess of our pro rata
     share  of  remediation  costs.  As a  result  of the  use and  handling  of
     hazardous substances in our normal operations,  an unexpected environmental
     event or significant changes in environmental compliance requirements could
     have a material  adverse  impact on our financial  condition and results of
     operations.

     We   continually   monitor  our   operations   with  respect  to  potential
     environmental   issues,   including  changes  in  legal   requirements  and
     remediation   technologies.   Our  recorded   liability  in  our  financial
     statements  reflects  those  specific  issues  where we  think  remediation
     activities  are likely and where we can estimate  the cost of  remediation.
     Estimating the extent of our  responsibility  for a particular site and the
     method and ultimate cost of remediation of that site require that we make a
     number of assumptions.  As a result, the ultimate outcome of remediation of
     a site may differ from our  estimates.  However,  we believe  that our past
     experience   provides  us  with  a  reasonable  basis  for  estimating  our
     liability. When we receive additional information,  we adjust our estimates
     as necessary.  While we do not anticipate  that any such adjustment will be
     material to our financial  statements,  the result of ongoing and/or future
     environmental  studies or other  factors could alter this  expectation  and
     require that we record additional liabilities. We currently can't determine
     whether we will incur  additional  liabilities  in the future or, if we do,
     the extent or amount of such additional liabilities.

     Other
     Agway  is  also  subject  to  various  investigations,  claims,  and  legal
     proceedings  covering a wide range of  matters  that arise in the  ordinary
     course of its  business  activities.  Each of these  matters  is subject to
     various uncertainties, and it is possible that some of these matters may be
     resolved  unfavorably to Agway. Agway has established  accruals for matters
     for which payment is probable and amounts reasonably estimable.  Management
     believes any liability  that may  ultimately  result from the resolution of
     these matters in excess of amounts  provided  under the above stated policy
     will not have a  material  adverse  effect on the  results  of  operations,
     financial position, or liquidity of Agway.





                                       21
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

7. FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
   --------------------------------------------------
     Agway is an agricultural  cooperative  directly  engaged in  manufacturing,
     processing,  marketing and direct  distribution of various animal feeds and
     services  for its  farmer-members  and other  customers,  primarily  in the
     northeastern United States. In addition, Agway is involved in fresh produce
     repacking  operations,  the exploration and development of new technologies
     to benefit agricultural and food businesses;  the sale and delivery of fuel
     oil,  kerosene,  propane,  gasoline  and diesel  fuel;  the  marketing  and
     servicing  of heating,  ventilation,  and  air-conditioning  equipment  and
     marketing of natural gas and  electricity,  where  deregulation  makes that
     possible.  Agway reports its  continuing  operations  principally  in three
     business  segments.  Total  sales and  revenues  of each  industry  segment
     include the sale of products and  services to  unaffiliated  customers,  as
     reported in the Agway  consolidated  statements of  operations,  as well as
     sales to other segments of Agway which are competitively priced.

     The Other  category  within the summary of business  segments  includes net
     corporate expenses, the Agway General Agency, pension income,  intersegment
     eliminations,  and  interest.  Total assets in the Other  category  consist
     principally  of  discontinued  assets,  as  detailed  in Note 4, and  other
     corporate assets, including the pension asset.

     As  discussed  in Note 4, as a result  of the  discontinuation  of  certain
     businesses, the following changes to segments, as previously reported, have
     been made:  The  Agriculture  segment  no longer  includes  the  results of
     Agronomy and Seedway;  the Leasing segment has been removed;  the Insurance
     segment  (Agway  Insurance)  was  removed,  and the  General  Agency is now
     combined in the Other segment.

<TABLE>
<CAPTION>
                                                                     Three Months Ended December 31, 2002
                                           -----------------------------------------------------------------------------------
                                                               Country
                                                               Products
                                             Agriculture        Group            Energy             Other        Consolidated
                                           --------------    --------------   --------------   ---------------  --------------
<S>                                        <C>               <C>              <C>              <C>              <C>
       Net sales and revenues to
         unaffiliated customers.......     $        58,320   $       22,696   $      178,468   $         113    $      259,597
       Intersegment sales and revenues                   0              668                0            (668)                0
                                           ---------------   --------------   --------------   --------------   --------------
              Total sales and revenues     $        58,320   $       23,364   $      178,468   $        (555)   $      259,597
                                           ===============   ==============   ==============   ==============   ==============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....     $          (195)  $       (1,057)  $       12,668    $      (4,843)   $        6,573
                                           ===============   ==============   ==============    ==============   ==============

       Total assets...................     $        84,961   $       27,446   $      176,754    $   1,090,801    $    1,379,962
                                           ===============   ==============   ==============    =============    ==============

</TABLE>
<TABLE>
<CAPTION>
                                                                     Three Months Ended December 31, 2001
                                           -----------------------------------------------------------------------------------
                                                               Country
                                                               Products
                                             Agriculture        Group            Energy             Other        Consolidated
                                           --------------    --------------   --------------   ---------------  --------------
<S>                                        <C>               <C>              <C>              <C>              <C>
       Net sales and revenues to
         unaffiliated customers.......     $        58,822   $       33,280   $      137,135   $         155    $      229,392
       Intersegment sales and revenues                   0              970              (10)           (960)                0
                                           ---------------   --------------   --------------   --------------   --------------
              Total sales and revenues     $        58,822   $       34,250   $      137,125   $        (805)   $      229,392
                                           ===============   ==============   ==============   ==============   ==============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....     $        (1,060)  $         (570)  $        4,113    $      (1,900)   $          583
                                           ===============   ==============   ==============    =============    ==============

       Total assets...................     $        86,378   $       44,898   $      161,747    $   1,274,456    $    1,567,479
                                           ===============   ==============   ==============    =============    ==============

</TABLE>
                                       22
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                  (Unaudited)
                             (Thousands of Dollars)

7. FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (continued
   -------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     Six Months Ended December 31, 2002
                                           -----------------------------------------------------------------------------------
                                                               Country
                                                               Products
                                             Agriculture        Group            Energy             Other        Consolidated
                                           --------------    --------------   --------------   ---------------  --------------
<S>                                        <C>               <C>              <C>              <C>              <C>
       Net sales and revenues to
         unaffiliated customers.......     $       114,468   $       56,801   $      277,065   $         203    $      448,537
       Intersegment sales and revenues                   0            1,555                1          (1,556)                0
                                           ---------------   --------------   --------------   --------------   --------------
              Total sales and revenues     $       114,468   $       58,356   $      277,066   $      (1,353)   $      448,537
                                           ===============   ==============   ==============   ==============   ==============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....     $          (860)  $          509   $         585    $     (11,108)   $      (10,874)
                                           ===============   ==============   =============    ==============   ==============

       Total assets...................     $        84,961   $       27,446   $     176,754    $   1,090,801    $    1,379,962
                                           ===============   ==============   =============    =============    ==============

</TABLE>

<TABLE>
<CAPTION>

                                                                        Six Months Ended December 31, 2001
                                           ----------------------------------------------------------------------------------
                                                               Country
                                                               Products
                                             Agriculture        Group            Energy             Other         Consolidated
                                           --------------    --------------   --------------   ---------------   --------------
<S>                                        <C>               <C>              <C>              <C>               <C>
       Net sales and revenues to
         unaffiliated customers.......     $       118,169   $       66,664   $      245,899   $           291   $      431,023
       Intersegment sales and revenues                   0            2,033               67            (2,100)               0
                                           ---------------   --------------   --------------   ---------------   --------------
              Total sales and revenues     $       118,169   $       68,697   $      245,966   $        (1,809)  $      431,023
                                           ===============   ==============   ==============   ===============   ==============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....     $        (1,911)  $       (1,021)  $       (5,939)  $        (3,932)  $      (12,803)
                                           ===============   ==============   ==============   ===============   ==============

       Total assets...................     $        86,378   $       44,898   $      161,747   $     1,274,456   $    1,567,479
                                           ===============   ==============   ==============   ===============   ==============
</TABLE>





                                       23
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Agway is including the following  cautionary statement in this Form 10-Q to make
applicable  and take  advantage of the "safe  harbor"  provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking  statement made
by, or on behalf of, Agway. Where any such forward-looking  statement includes a
statement of the assumptions or basis underlying such forward-looking statement,
Agway  cautions  that,  while  it  believes  such  assumptions  or  basis  to be
reasonable  and makes them in good faith,  assumed  facts or basis almost always
vary from actual results, and the differences between assumed facts or basis and
actual  results  can be  material,  depending  upon the  circumstances.  Certain
factors  that  could  cause  actual  results  to differ  materially  from  those
projected  have been  discussed in this report and include the factors set forth
below.  Other  factors  that could  cause  actual  results to differ  materially
include uncertainties of economic, competitive, and market conditions and future
business  decisions,  all of  which  are  difficult  or  impossible  to  predict
accurately   and  many  of  which  are  beyond  our  control.   Where,   in  any
forward-looking statement, Agway, or its management, expresses an expectation or
belief as to future  results,  such  expectation  or belief is expressed in good
faith and  believed to have a  reasonable  basis,  but there can be no assurance
that the  statement  of  expectation  or belief  will  result or be  achieved or
accomplished.  The words "intend,"  "believe,"  "expect," and  "anticipate"  and
phrases  "it is  probable"  and "it is  possible"  or  similar  words or phrases
identify forward-looking statements.

Background
On  October  1,  2002  (the  "Petition  Date"),  Agway  Inc.  and  five  of  its
subsidiaries   (collectively,   the  "Debtors")  filed  voluntary  petitions  to
reorganize  under Chapter 11 of the United States  Bankruptcy Code (the "Chapter
11 Proceedings") in the United States Bankruptcy Court for the Northern District
of New  York in  Utica,  New York  (the  "Bankruptcy  Court").  The  Chapter  11
Proceedings have been  consolidated  for procedural  purposes only and are being
administered jointly under case numbers 02-65872 through 02-65877 pursuant to an
order of the Bankruptcy Court entered on October 1, 2002. The subsidiaries  that
were included in the Chapter 11 Proceedings were Feed Commodities  International
LLC, Country  Best-DeBerry  LLC,  Country Best Adams,  LLC,  Brubaker  Agronomic
Consulting Service LLC, and Agway General Agency, Inc.

Four wholly  owned Agway Inc.  subsidiaries  ARE NOT  included in the Chapter 11
Proceedings:  Agway Energy  Products LLC,  Agway Energy  Services,  Inc.,  Agway
Energy Services-PA, Inc. and Telmark LLC. In addition, Telmark debenture holders
ARE NOT subject to the Chapter 11  Proceedings.  Cooperative  Milling,  Inc.,  a
company  50%  owned  by Agway  Inc.  was also not  included  in the  Chapter  11
Proceedings. Finally, the Agway dealer stores ARE NOT included in the Chapter 11
Proceedings,  because they are  independently  owned and are not affiliated with
Agway Inc. in any way.

Agway Energy Products is a separate subsidiary which historically has generated,
and is  expected to continue  to  generate,  sufficient  cash to meet its needs.
Agway Energy Products requires short-term borrowings from the Company's lines of
credit to meet  seasonal  and  working  capital  requirements.  Such  short-term
financing  will be made  available  to Agway  Energy  Products  as a  non-debtor
borrower  on an  ongoing  basis  by our  senior  lenders  as part of a  $125,000
Debtor-in-Possession  financing  agreement ("DIP Facility").  The details of the
DIP Facility are  discussed in Note 3 to the  condensed  consolidated  financial
statements. However, Agway Energy Products will continue to operate as it has in
the past and IS NOT included in the Agway Inc. Chapter 11 Proceedings.

Telmark LLC is a separately  financed  subsidiary  with an  appropriate  capital
structure for its  industry.  Telmark LLC will continue to be financed and to be
operated separately from Agway Inc. as it has in the past and IS NOT included in
the Agway Inc.  Chapter 11 Proceedings.  As discussed in Note 1 to the condensed
consolidated  financial  statements,  Telmark  has  entered  into  a  definitive
agreement to sell substantially all of its assets.



                                       24
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Chapter 11 Process
------------------
Each of the Debtors continues to operate its business and manage its property as
a  Debtor-in-Possession  pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code.  As  Debtors-in-Possession,  the Debtors are  authorized  to operate their
business  but may not engage in  transactions  outside  the  ordinary  course of
business  without the approval of the Bankruptcy  Court.  The  Bankruptcy  Court
entered orders on October 1, 2002 granting  various  initial  requests of Agway,
including  payment of employee wages and salaries on schedule,  continuation  of
Feed and Agronomy customer pre-pay product programs,  and interim access to cash
funding.  Also,  on October  1,  2002,  the  Bankruptcy  Court  entered an order
authorizing  the Company to pay vendors in the ordinary course for all goods and
services  received on or after October 1, 2002. We also agreed to terms of a DIP
Facility  with our present  senior  lender group to provide a $125,000  facility
over a term of 18 months,  which we believe will provide adequate cash resources
for  Agway  to meet  future  operating  requirements  while we  restructure  the
business.  On October 4, 2002, the Bankruptcy Court approved the DIP Facility on
an interim  basis and on October 22,  2002,  approved the  Company's  motion for
final  access to the full amount of the $125,000 DIP  Facility.  Upon  obtaining
final  approval from the Bankruptcy  Court,  the DIP Facility  replaced  Agway's
existing  senior  debt and the  credit  agreement.  See Note 3 of the  condensed
consolidated  financial  statements for terms and conditions including covenants
under the DIP Facility.

On October 9, 2002, the United States Trustee appointed an official committee of
unsecured creditors (the "Creditors'  Committee").  The Creditors' Committee and
its legal  representatives  may take  positions  on matters that come before the
Bankruptcy  Court and, at the  appropriate  time,  will negotiate with Agway the
terms of a plan of reorganization. On October 11, 2002, the Creditors' Committee
filed a motion seeking  reconsideration  of all the first day motions entered by
the Bankruptcy Court on October 1, 2002. The reconsideration  motion has not yet
been  finalized  and it is  possible  that one of the first day  orders  will be
modified.  Agway and the Creditors'  Committee and their respective advisors are
holding discussions in an effort to resolve the reconsideration motion and other
related matters.  The outcome of these discussions  cannot be determined at this
time.

On January 30, 2003,  the  Bankruptcy  Court  granted a motion by the Company to
extend the exclusivity period for filing a plan or reorganization by 120 days to
May 30, 2003. This reserves the right under bankruptcy law for the Company to be
the only party  allowed  to file a plan of  reorganization  with the  Bankruptcy
Court.

At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our
financial  condition  and  results  of  operations.  However,  until  a plan  of
reorganization  is  developed  and  approved  by the  Bankruptcy  Court  and our
creditors,  we will be  prohibited  from paying all  pre-petition  indebtedness,
including principal, interest, and maturities on our outstanding debt securities
and various  other  obligations  or claims  against the Company  such as pending
litigation  and   environmental   claims  without   Bankruptcy  Court  approval.
Accordingly,  the $33,100 maturity and related interest on subordinated debt due
on November 1, 2002 was not paid. Following confirmation by the Bankruptcy Court
of a plan of reorganization,  treatment of our pre-petition  obligations will be
determined by the terms of that plan.

Historically,  the Company  voluntarily  repurchased  certain of its securities,
including its subordinated debentures.  The Company ceased that practice in June
2002 and  initiated  the  Chapter 11  Proceedings  on  October  1, 2002.  To the
Company's  knowledge,   the  Company's  securities  do  not  currently  have  an
established trading market. Fair market value of the Company's securities is not
presently determinable and it is not presently known when such fair market value
will be  determined.  Even  though  the  ultimate  impact  on the  value  of the
Company's  securities  cannot be determined  currently,  it is likely that, as a
result of the Chapter 11 Proceedings, the value of the Company's securities will
be adversely impacted and this impact could be material.


                                       25
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)


RESULTS OF OPERATIONS
---------------------
Agway's  continuing  operations net sales and revenues and operating results are
significantly  impacted  by  seasonal  fluctuations  due  to the  nature  of its
operations and the geographic  location of its service area,  which is primarily
the northeastern United States.  Energy generally realizes  significantly higher
net sales and  revenues  in the winter  months due to the higher  demand for its
products from cold winter conditions.  The Agriculture feed business and Country
Products  Group net sales and revenues and operating  results are not materially
impacted by seasonal fluctuations.

On March 6, 2002, the Company announced details of a comprehensive plan designed
to refocus  capital  resources  on four  selected  businesses:  Animal  Feed and
Nutrition (the  principal  operation  within the  Agriculture  segment),  Energy
Products (Energy segment),  Produce, and Agricultural  Technologies  (operations
within  the  Country  Products  Group  segment).  This plan also  disclosed  our
intentions to divest of four business  operations:  Telmark  (Leasing  segment),
Agway  Insurance (the principal  operation  within the Insurance  segment),  and
Agronomy and Seedway  (components of the Agriculture  segment).  After this plan
was announced,  as part of its ongoing  strategic  assessment of remaining Agway
businesses,  including its sunflower  business (an operation included within the
Country Products Group segment),  Agway engaged an investment  advisor to assist
in the exploration of strategic  alternatives  involving the sunflower business.
In June 2002, after reviewing a number of written  indications of interest,  the
Agway Board of Directors affirmed  management's  intentions to actively pursue a
sale of this business. As required by generally accepted accounting  principles,
the financial statements  separately reflect the business operations planned for
divestiture,  or actually divested,  as discontinued  operations for all periods
reported. For further information on the discontinued operations,  refer to Note
4 of the condensed consolidated financial statements.

To date,  significant progress has been made regarding all divestiture plans. On
August 28, 2002,  Agway announced the completion of the sale of its wholly owned
insurance  subsidiary,  Agway  Insurance  Company,  to United Farm Family Mutual
Insurance  Company.  On September  16,  2002,  Agway  completed  the sale of its
sunflower  business  (an  operation  historically  included  within the  Country
Products  Group segment) to Cenex Harvest  States  Cooperatives.  On December 3,
2002,  Agway  announced  the  completion of the sale of its Agronomy and Seedway
businesses and related assets to GROWMARK. On December 23, 2002, Agway and Wells
Fargo Financial Leasing,  Inc., ("Wells Fargo") announced that they had signed a
definitive  agreement  regarding the sale of substantially  all of the assets of
Telmark to Wells Fargo.  Pursuant to a letter agreement amongst Agway,  Telmark,
Wells Fargo and the unsecured  creditors'  committee for Agway Inc.'s Chapter 11
Proceedings  (Creditors'   Committee),   the  parties  have  agreed  to  auction
procedures and to amend certain  provisions of the  definitive  agreement at the
request of the  Creditors'  Committee in  conjunction  with  Agway's  Chapter 11
Proceedings.  The auction procedures set forth in the definitive  agreement,  as
amended in accordance with the letter agreement, were approved by the Bankruptcy
Court on February  5, 2003.  The auction is  scheduled  to be held on  Thursday,
February  27, 2003 at 2 p.m. and a hearing to confirm the  successful  bidder is
set for 3 p.m. on that same day. On February 6, 2003,  Agway filed a motion with
the Bankruptcy  Court for approval of the sale in accordance with the definitive
agreement  as amended by the letter  agreement.  The  Creditors'  Committee  has
reserved the right to object to the sale in the event it  concludes  the sale is
not in the best  interest  of Agway's  creditors.  If the sale to Wells Fargo is
uncontested,  management  expects  the sale to close on or about  March 1, 2003,
subject to  satisfaction  of customary  closing  conditions  as set forth in the
agreement. A copy of the definitive agreement, as amended, along with the letter
agreement  reflecting  changes to be made to the  definitive  agreement  and the
Bankruptcy  Court order  authorizing  and  scheduling  an auction and hearing to
consider approval of proposed sale resulting from the auction,  were attached as
exhibits to an 8-K filing on February 6, 2003.

                                       26
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Amounts in the  following  narrative  have been  rounded to the nearest  hundred
thousand.

Consolidated Results
--------------------
Consolidated  continuing  operations  net sales and  revenues  of  $259,600  and
$448,500 for the three- and six-month  periods ended December 31, 2002 increased
$30,200 (13%) and $17,500 (4%), respectively, as compared to the same periods in
the prior year.  The  increases  in both the three- and  six-month  periods were
substantially  the result of increased  sales in Energy as more fully  discussed
below.

The  consolidated  final net losses of $11,900  and  $34,700  for the three- and
six-month  periods ended December 31, 2002  increased  $8,400 (232%) and $20,900
(150%),  respectively,  as compared to the same periods in the prior year.  This
increase in losses includes the following (increases) decreases:

                                                            Periods
                                                    Ended December 31, 2002
                                                 -------------------------------
                                                   Three Months     Six Months
                                                 --------------  ---------------
Net discontinued operations...................  $     (13,200)   $      (15,000)
Pre-tax continuing operations.................          6,000             1,900
Reorganization expenses.......................         (3,000)           (3,000)
Change in continuing operations taxes.........          1,800            (4,800)
                                                 -------------    --------------
     Increase in final net loss...............  $      (8,400)   $      (20,900)
                                                 =============    ==============

Consolidated pre-tax earnings from continuing operations of $7,100 for the three
months  ended  December 31, 2002 have  increased  $6,500 and the pre-tax loss of
continuing  operations of $10,300 for the six months ended December 31, 2002 has
decreased $2,500. The improvements in both periods are due to increased earnings
in Energy and in  Agriculture  were offset by  increased  corporate  costs.  The
Country Products Group earnings declined in the three-month  period but improved
over the six-month  period as compared to the prior year. Net corporate costs of
$4,200 and $10,400 have increased $2,300 (121%) and $6,400 (164%), respectively,
as  compared  to the same  periods in the prior  year.  The net  corporate  cost
increases  are  primarily  related to a reduction  in the pension  income and an
increase in  professional  services  compared  to the same  periods in the prior
year. The pension plan amendments made last fiscal year, as previously disclosed
in the Agway Form 10-K as of June 30,  2002,  have reduced  pension  income from
historical levels. The professional service expense increase related to services
rendered in connection with the Chapter 11 Proceedings.  The increased loss from
discontinued operations is more fully discussed below.

Agriculture
-----------
Total  Agriculture  sales and revenues of $58,300 and $114,500 for the three and
six months  ended  December  31, 2002  decreased  by $500 (1%) and $3,700  (3%),
respectively, as compared to the same periods in the prior year.

The feed business sales and revenues decreased $900 (2%) and $3,300 (3%) for the
three and six months ended December 31, 2002. The decline was  substantially the
result of  reduced  volumes  in  manufactured  dairy and  poultry  feeds.  These
reductions  are a result of the overall  general  decrease  in the farm  economy
compared to the same periods in the prior year.  Additionally,  sales  decreased
$1,300  (100%) for the six months ended  December 31, 2002 as a result of closed
Agriculture farm stores that were part of the planned business realignment which
began in  mid-fiscal  2001.  The  declines in sales  noted above were  partially
offset by increased  tested  specific  pathogen  free  ("TSPF")  heifer  rearing
service  revenues  of  $400  (21%)  and  $900  (28%)  for  the  three-  and  six
month-periods  ended  December 31, 2002 compared to the same period in the prior
year from the  result  of  increased  utilization  of the  facilities  this year
compared to the same periods in the prior year.


                                       27
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Agriculture (continued)
-----------------------
Agriculture  pre-tax loss of $200 and $900 for the three- and six-month  periods
ended December 31, 2002 decreased $900 (82%) and $1,100 (55%), respectively,  as
compared to the same  periods in the prior year.  The  decrease in pre-tax  loss
resulted from a combination of factors. For the six-month period, Agway received
a royalty  payment of $900 for the use of Agway's  name in  connection  with the
sale  of  agricultural  products.   Additionally,   there  was  a  reduction  in
administration expenses for the three- and six-month periods ending December 31,
2002 from the  impact of the  planned  closing  of  Agriculture  locations.  The
pre-tax loss for the TSPF heifer rearing facilities decreased $200 (21%) for the
three months and remained the same for the six-month  period ended  December 31,
2002. The decrease in the three-month  period was a result of an increase in the
utilization of the  facilities,  along with an increase in service  revenue fees
earned per heifer. The above improvements were partially offset by a decrease in
pre-tax  results  within the feed  business of $500 and $1,500 for the three and
six months, respectively.  These reductions consisted of a negotiated settlement
of $900 reported in the second quarter of the prior year. Additionally,  for the
six-month  period ended  December  31,  2002,  there was an increase in bad debt
expense of $600 due to the  bankruptcy of a dairy  customer,  and an increase in
interest  expense of $200  compared  to the prior year as a result of  increased
working capital in the current year.

Country Products Group
----------------------
Country Products Group (CPG) total sales and revenues of $23,400 and $58,400 for
the three and six months ended  December 31, 2002  decreased  $10,900  (32%) and
$10,300 (15%), respectively,  as compared to the same periods in the prior year.
Sales in CPG ongoing  operations  decreased $7,900 (25%) and $4,300 (7%) for the
three and six months ended December 31, 2002 and sales  decreased  $2,800 (100%)
and $6,000 (87%) for the three and six months  ended  December 31, 2002 from the
closing or selling of a number of CPG business  operations.  A decrease in sales
in the  continuing  operations  of the Produce  Group of $8,100 (27%) and $4,600
(8%), for the three and six months ended December 31, 2002, resulted principally
from a decrease in the volume of potatoes and empire  sweet onions sold.  Potato
volume was down due to competitive  conditions and empire sweet onion volume was
down due to a planned  reduction in acres  planted.  The above decrease in sales
were partially offset by an increase in sales in CPG Nutrients of $200 (18%) and
$300 (15%) for the three and six months ending December 31, 2002, as compared to
the prior year.

CPG  pre-tax  loss of $1,100  for the  three  months  ended  December  31,  2002
increased $500 (86%) over the same period in the prior year. Pre-tax earnings of
$500  increased  $1,500 (150%) for the six months ended  December 31, 2002.  The
ongoing CPG operations generated pre-tax losses of $1,100 and $500 for the three
and six months ended December 31, 2002.  These losses were primarily a result of
decreased  produce  sales  mentioned  above in both  the  three-  and  six-month
periods.  In the three-month  period,  we also incurred a decrease in margins in
potatoes due to  competition in the market.  Additionally,  Apex Bag was sold in
August  2002  generating  a gain on the  sale of  $1,000  which  created  a $800
favorable variance in the pre-tax earnings for the six months ended December 31,
2002. The remaining  combination of closed business  locations and operations to
be divested  generated pre-tax income for the six months ended December 31, 2002
of $100 compared to a pre-tax loss of $100 in the prior year.


                                       28
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Energy
------
Energy  sales and revenues of $178,500 and $277,100 for the three and six months
ended   December  31,  2002,   increased   $41,300  (30%)  and  $31,100   (13%),
respectively,  as compared to the same periods in the prior year.  Overall sales
dollar  increases  from liquid  product volume were $13,200 (10%) and $800 (0%),
respectively,  as  compared to the same  periods in the prior  year.  The volume
increases were primarily the result of higher  wholesale  volumes in heating oil
and propane,  which are a result of colder  winter  weather in the  Northeast as
compared  to the same  periods in the prior  year.  The  heating oil and propane
volume  increases were partially  offset by a decrease in volume for power fuels
(gasoline and diesel).  The generally weaker economic conditions compared to the
same periods in the prior year have  lowered the demand for power  fuels.  Sales
dollar increases relating to price in liquid products,  substantially the result
of an increase in commodity prices during the three- and six-month periods, were
$22,200 (16%) and $20,200 (8%), respectively, as compared to the same periods in
the prior year.  Additionally,  sales and revenues from the electric and natural
gas marketing  business  improved  $4,600 (3%) and $5,300 (2%) for the three and
six months ended  December 31, 2002.  These  increases are primarily a result of
increase volume in these businesses.  Finally, the heating,  ventilation and air
conditioning  installation and service increased sales by $1,300 (1%) and $4,800
(2%) for the three and six months ended December 31, 2002,  compared to the same
periods in the prior year.

Energy  pre-tax  earnings of $12,700 and $600 for the three and six months ended
December 31, 2002, increased $8,600 (208%) and $6,500 (110%),  respectively,  as
compared to the same periods in the prior year.  Overall  gross  margin  dollars
increased  $11,100 (23%) and $9,600 (12%)  primarily  from the  increased  sales
mentioned  above.  Pre-tax  earnings were  partially  offset from an increase in
operating  expenses  of $2,900 (7%) and $4,000 (5%) for the three and six months
ended  December 31,  2002.  These  increases  resulted  from higher  payroll and
insurance costs.  These items were partially offset from a reduction in interest
expense of $400 (27%) and $900 (27%) for the three and six months ended December
31,  2002,  as  compared  to the same  periods  in the prior year as a result of
reduced working capital.

Discontinued Operations
-----------------------
The  following   discussion   represents  the  operational  results  of  Agway's
discontinued operations for the three and six months ended December 31, 2002 and
2001, respectively.

<TABLE>
<CAPTION>
                                                              Three Months Ended
                         ------------------------------------------------------------------------------------------
December 31, 2002           Leasing        Insurance      Sunflower     Agronomy(1)      Other (2)        Total
-----------------        -------------  -------------  --------------  ------------   -------------  --------------
<S>                      <C>            <C>            <C>             <C>            <C>            <C>

Total sales & revenue.   $      21,883  $           0  $            0  $      9,951   $          0   $       31,834
Pre-tax earnings (loss)
from operations.......   $       6,393  $           0  $          359  $     (6,457)  $        894   $        1,189

December 31, 2001

Total sales & revenue.   $      23,314  $       7,217  $       10,999  $     19,827   $          6   $       61,363
Pre-tax earnings (loss)
from operations.......   $       6,490  $         461  $          110  $     (6,585)  $     (3,388)  $       (2,912)


</TABLE>


                                       29
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Discontinued Operations (continued)
-----------------------------------
<TABLE>
<CAPTION>

                                                              Six  Months Ended
                         ------------------------------------------------------------------------------------------
December 31, 2002           Leasing        Insurance      Sunflower     Agronomy(1)      Other (2)        Total
-----------------        -------------  -------------  --------------  -------------  -------------  --------------
<S>                      <C>            <C>            <C>             <C>            <C>            <C>
Total sales & revenue.   $      44,179  $       4,806  $      10,352   $     40,068   $          0   $       99,405
Pre-tax earnings (loss)
from operations.......   $      12,523  $         108  $        (485)  $    (13,269)  $     (1,908)  $       (3,031)

December 31, 2001

Total sales & revenue.   $      45,832  $      14,292  $      21,258   $     55,482   $         (1)  $      136,863
Pre-tax earnings (loss)
from operations.......   $      11,789  $         789  $         190   $    (13,948)  $     (6,546)  $       (7,726)

</TABLE>

(1)      Includes the  Agronomy,  Seedway,  and Brubaker  Consulting  businesses
         formerly part of the Agriculture business segment.

(2)      The Other column  includes the  elimination of  intercompany  sales and
         revenues between discontinued  operations  components and other pre-tax
         earnings  (loss) impacts of the  discontinued  operations,  principally
         interest allocated to the net investment in discontinued operations.

Leasing (Telmark)
-----------------
Leasing total revenues of $21,900 and $44,200 for the three and six months ended
December  31,  2002  decreased  $1,400  (6%) and $1,600  (4%)  compared to total
revenues of $23,300 and $45,800, respectively, for the same periods in the prior
year.  The decrease in revenues is primarily due to a lower average  income rate
on the outstanding portfolio caused by lower interest rates.

Pre-tax  earnings from  continuing  operations of $6,400 and $12,500,  decreased
$100 (2%) for the three months ended  December 31, 2002 and increased  $700 (6%)
for the six months ended December 31, 2002. The increase in pre-tax earnings for
the six months  ended  December  31,  2002 is  primarily  due to  overall  lower
interest rates on the outstanding debt compared to the prior year. Additionally,
a decrease in the  provision for credit  losses  contributed  to the increase in
pre-tax earnings.  Telmark's  allowance for credit losses is based on a periodic
review of the collection  history of past leases,  current credit practices,  an
analysis of delinquent accounts, and current economic conditions.

Insurance
---------
Agway  Insurance  Company  net  revenues  of $0 and $4,800 for the three and six
months ended  December  31,  2002,  decreased  $7,200  (100%) and $9,500  (66%),
respectively,  as  compared  to the same  periods in the prior  year.  The Agway
Insurance  Company was sold on August 28,  2002 to United Farm Mutual  Insurance
Company,  and therefore,  there was no activity for the three-month period ended
December 31, 2002.  For the  six-month  period,  the decrease in sales is due to
only two  months  of  activity  prior to the  date of sale in the  current  year
compared to six months of activity in the same period in the prior year.

Pre-tax earnings of the Agway Insurance Company of $0 and $100 for the three and
six months ended December 31, 2002 decreased $500 (100%) and $200 (66%) compared
to the same periods in the prior year due principally to the sale of the company
noted above.


                                       30
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Sunflower (Operation of the Country Products Group)
---------------------------------------------------
The Sunflower operation was previously a component of the Country Products Group
segment.  Total sales and revenue of $0 and $10,400 for the three and six months
ended  December 31, 2002,  decreased  $11,000  (100%) and $10,900  (51%) for the
three- and six-month periods,  respectively,  as compared to the same periods in
the prior year. The sunflower  operation was sold on September 16, 2002 to Cenex
Harvest States Cooperative.

Sunflower's  pre-tax earnings of $400 increased $300 (226%) for the three months
ended  December  31,  2002,  compared to the same period in the prior year.  The
pre-tax loss of $500 was a deterioration of $700 (350%) from pre-tax earnings of
$200 for the six months ended  December 31, 2002, as compared to the same period
in the prior year.

Discontinued Agriculture Components
-----------------------------------
Agronomy,  Seedway and Brubaker Consulting services were all previously reported
as part of the  Agriculture  segment.  Total  sales and  revenue of $10,000  and
$40,100 for the three and six months ended  December 31, 2002  decreased  $9,900
(50%) and $15,400 (28%), respectively, compared to the same periods in the prior
year.  The  decrease in sales  resulted  from a decrease in sales in Agronomy of
$7,000  (49%) and $9,600  (23%),  a decrease in sales in Seedway of $2,600 (49%)
and $5,200  (40%) and a decrease  in sales in  Brubaker  of $300 (100%) and $700
(100%) for the three- and six-month periods ended December 31, 2002, compared to
the sales in Agronomy, Seedway, and Brubaker,  respectively,  during in the same
periods  in the prior  year.  Sales  decreased  for the  three-month  period due
principally  to the sale of the  agriculture  components  on December 3, 2002 to
GROWMARK  Inc,  therefore  only  reporting  two  months of sales in the  current
quarter.  In addition,  the decreases in sales for the six months ended December
31, 2002 are  attributable  to dryer than normal  conditions that existed in the
summer of 2002 which  caused a reduction  in the number of acres  planted by our
customers.  When normal summer  conditions  exist,  many customers that purchase
both the Agronomy and Seedway products are able to plant a second crop; however,
due to the  drought  conditions  in the  summer of 2002,  this  second  planting
generally  did not occur.  The Brubaker  Consulting  operation  was shut down in
fiscal 2001.

Agriculture's discontinued components pre-tax loss of $6,900 increased $300 (5%)
for the three  months ended  December 31, 2002.  Pre-tax loss of $13,700 for the
six months ended  December  31, 2002  decreased  $200 (2%)  compared to the same
period in the prior  year.  The  decrease  in pre-tax  losses for the six months
ended  December  31,  2002 is  related to a  reduction  in  expenses  related to
packaging and distribution of Agronomy related  products.  These reductions were
partially  offset by inventory  write-downs  of seasonal seed products that were
not sold due to the adverse weather conditions noted above.


                                       31
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As discussed in more detail below, due to the Company's  projected level of cash
from  operations  and the  status  of its  previously  announced  plan to divest
certain of its businesses, the Company determined in the quarter ended September
30, 2002 that it would have difficulty in satisfying its anticipated  short-term
and long-term  liquidity  needs. As described in more detail below,  the Company
agreed to terms of a DIP Facility with its then existing  lender group and filed
for an order of protection under Chapter 11 of the United States Bankruptcy Code
on October 1, 2002.  It is  currently  expected  that the DIP  Facility  will be
sufficient  to meet the  liquidity  needs of the  Company  during the Chapter 11
Proceedings.

At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our
financial  condition  and  results  of  operations.  However,  until  a plan  of
reorganization  is  developed  and  approved  by the  Bankruptcy  Court  and our
creditors,  we will be  prohibited  from paying all  pre-petition  indebtedness,
including principal, interest, and maturities on our outstanding debt securities
and various  other  obligations  or claims  against the Company  such as pending
litigation  and   environmental   claims  without   Bankruptcy  Court  approval.
Accordingly,  the $33,100 maturity and related interest on subordinated debt due
on November 1, 2002 was not paid. Following confirmation by the Bankruptcy Court
of a plan of reorganization,  treatment of our pre-petition  obligations will be
determined by the terms of that plan.

Cash Flows for Six Months Ended December 31, 2002 and 2001
During the six months ended December 31, 2002 and 2001, cash generated from sale
of  discontinued  operations and from sale of assets was a major source of funds
to finance capital  improvements,  redemption of debt,  redemption of stock, and
shareholder  dividends.  During the six months ended December 31, 2002, the cash
flows generated also provided for increased  working  capital needs.  During the
six months ended December 31, 2001,  reduced  working capital  provided  another
major source of funds.
<TABLE>
<CAPTION>

                                               December 31,               December 31,                Increase
                                                   2002                       2001                   (Decrease)
                                            ------------------         -----------------         ------------------
<S>                                         <C>                        <C>                       <C>
Net cash flows provided by (used in):
     Continuing operating activities......  $          (41,228)        $          34,794         $          (76,022)
     Investing activities of continuing
       operations.........................              95,842                    (4,655)                   100,497


     Financing activities of continuing
       operations.........................             (37,991)                  (62,807)                    24,816
     Discontinued operating activities....              (4,930)                   32,668                    (37,598)
                                            ------------------         -----------------         ------------------


Net increase (decrease) in cash
     and equivalents......................  $           11,693         $               0         $           11,683
                                            ==================         =================         ===================
</TABLE>

Cash Flows from Continuing Operating Activities
Cash flows from  continuing  operations  for the three months ended December 31,
2002 used cash of $41,200,  compared to generation  cash of $34,800 for the same
period in the prior year. The  fluctuations in continuing  operations cash flows
are  substantially  the  result of  fluctuations  in the cash  required  to fund
working  capital.  Due to the  commodities  used in our Energy  and  Agriculture
businesses,  inventory,  receivables and payables are significantly  impacted by
changes in the commodity  prices.  The increased energy commodity prices and the
colder  winter  weather in the Northeast  during the quarter ended  December 31,
2002, as compared to the same period in the prior year, has increased the use of
cash in the Energy business to fund working capital. Additionally, cash used for
pre-petition  services associated with the contingency planning which ultimately
resulted  in the Chapter 11  Proceedings,  as well as  post-petition  Chapter 11
reorganization  activities,  totaled $4,200 during the six months ended December
31, 2002.


                                       32
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Cash Flows from Investing Activities of Continuing Operations
Capital  expenditures  required  cash of $5,900 and $3,500 for the three  months
ended  December  31,  2002 and  2001,  respectively.  The  increase  in  capital
expenditures  in the  current  year  reflects  a decline in the amount of Energy
assets  leased  under  operating  leases.  Cash  flows  used in  investing  were
partially  funded by cash  generated  from the  proceeds  from the  disposal  of
property and  equipment,  which amounted to $2,700 and $500 for the three months
ended  December  31,  2002 and  2001,  respectively.  Additionally,  the sale of
certain  discontinued  operations  generated  cash of $99,100 for the six months
ended December 31, 2002.

Cash Flows from Financing Activities of Continuing Operations
For the three months ended December 31, 2002,  the financing  obligations of the
Company,  including short-term notes payable and subordinated  debentures,  were
reduced  principally  through  net  cash  proceeds  received  from  discontinued
operations  activities,  principally sale of assets.  The following  details the
Company's current financing activities:

 Agway Senior Debt
 As more  fully  described  below,  as a  result  of the  Company's  Chapter  11
 Proceedings,  the Agway Senior Debt Agreement ("Senior Debt") has been replaced
 by the DIP Facility.  During the first quarter  ended  September 30, 2002,  the
 Company had available  under its Senior Debt, an asset-based  revolving line of
 credit for up to  $150,000  pursuant to the terms of a credit  agreement  dated
 March 28, 2001 between Agway Inc., certain subsidiaries, and a syndicated group
 of lenders  (the "Credit  Agreement").  During the first  quarter,  we sold the
 Agway Insurance Company and the Sunflower division of our CPG segment for gross
 proceeds  of  approximately  $42,100,  which  had the  impact of  reducing  the
 commitment  level from $150,000 to $125,000.  The Credit Agreement had a number
 of financial covenants which had restricted capital spending and required us to
 maintain minimum levels of earnings before interest, taxes,  depreciation,  and
 amortization (EBITDA), as defined in the Credit Agreement and minimum ratios of
 EBITDA to fixed  charges and interest of Senior  Debt.  Prior to June 30, 2002,
 this Credit Agreement had been amended three times in response to violations of
 financial covenants. In connection with those amendments, those violations were
 waived.  As of  September  30,  2002,  Agway was in  default  under the  Credit
 Agreement,  and it was necessary to obtain a waiver  regarding  those  covenant
 violations.  Those covenant  violations were permanently waived on November 14,
 2002,  and as a result,  Agway no longer has any  obligations  under the Credit
 Agreement.  The Senior  Debt was  collateralized  by a variety  of our  assets,
 including the outstanding  limited  liability  company  membership  interest of
 Telmark.  Interest rates were  determined as either prime rate plus 2.5% or the
 London Interbank Offered Rate (LIBOR) plus 4%.

 On  October  22,  2002,  the   Bankruptcy   Court  granted  Agway  and  certain
 subsidiaries  including the non-debtor borrowers,  final approval to enter into
 an 18-month  term DIP Facility of $125,000  with its  existing  lenders to fund
 working capital  requirements of the Debtors during the Chapter 11 Proceedings,
 and to fund the working capital requirements of the non-debtor borrowers.

 The DIP Facility line is collateralized  by a variety of our assets,  including
 the pledge of the limited liability company membership  interest in Telmark. As
 in the former Credit Agreement, interest rates are determined, at the option of
 Agway,  as either  prime rate plus 2.5% or the London  Interbank  Offered  rate
 (LIBOR) plus 4%. The amount  available to Agway under this  asset-based line of
 credit is the lesser of the  "collateral  borrowing base" or the $125,000 upper
 limit of the line of credit.


                                       33
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Cash Flows from Financing Activities of Continuing Operations (continued)

 Agway Senior Debt (continued)
 In the event of the sale of certain assets, as defined in the DIP Facility, the
 upper limit of the line of credit will decrease from $125,000 to $100,000.  The
 collateral  borrowing  base  consists of certain of Agway's  eligible  accounts
 receivable,  inventory and cash collateral (as defined in the DIP Facility). In
 addition,  the  collateral  borrowing  base  includes  other assets  pledged as
 collateral up to the lesser of $25,000 or $125,000  less the eligible  accounts
 receivable  and  inventory.  In the event  that a sale of  certain  assets,  as
 defined in the DIP Facility,  is not completed on or before  December 31, 2002,
 the $25,000  additional  collateral  borrowing  base related to those assets is
 reduced by $10,000 and is further reduced by $5,000 in each succeeding month to
 zero by March 31,  2003 in the event the assets  are not sold by then.  At that
 time,  the collateral  borrowing base will consist solely of eligible  accounts
 receivable,  inventory  and cash  collateral.  The sale of  certain  assets  as
 defined in the DIP, however, had not been completed as of January 31, 2003, and
 therefore, the additional collateral borrowing base related to those assets has
 been reduced by $15,000.  As of January 31, 2003,  Agway had $78,400  available
 under the DIP Facility.

 On December 3, 2002, Agway announced the completion of the sale of its Agronomy
 and Seedway  business  to GROWMARK  Inc.  for gross  proceeds of  approximately
 $57,000,  which reduced to zero the outstanding  revolving  credit balance with
 our  secured  lender and  provided  $15,000 of cash  collateral  to support the
 Company's  outstanding  letters of credit as required  per the terms of the DIP
 Facility.

 The DIP Facility has a number of financial covenants which restrict our capital
 spending and require us to maintain minimum levels of earnings before interest,
 taxes,  depreciation,  amortization,  and restructuring  charges,  as well as a
 maximum level of restructuring charges. As of December 31, 2002, the Company is
 in compliance with all covenants with regard to the DIP Facility.

 Agway Subordinated Debt
 Agway previously  registered with the Securities and Exchange  Commission (SEC)
 to offer debentures and money market  certificates to the public. As previously
 disclosed,  since March 6, 2002, the Company  temporarily  suspended its active
 capital  raising  efforts  through the sale of Company  securities  pending the
 filing of certain financial information related to its decision to sell certain
 subsidiaries. However, due to the unexpected failed sale of Telmark in May 2002
 and the related uncertainty caused by the failed sale, Agway did not recommence
 its  active  capital  raising  efforts  even  though  the  relevant   financial
 information  had  been  filed.  At this  stage,  we do not  expect  to sell any
 additional  securities in the near future,  if at all. The debentures and money
 market certificates are unsecured and subordinated to all senior debt of Agway.
 Furthermore, as a result of the Chapter 11 Proceedings, payment of interest and
 maturities  on  these  securities  are  prohibited.  Accordingly,  the  $33,100
 maturity of subordinated debt due on November 1, 2002 was not paid.

Cash Flows from Discontinued Operating Activities
The increase in cash flows from discontinued  operations  activities for the six
months  ending  December 31, 2002  compared to the same period in the prior year
resulted  from the sale of the Agronomy and Seedway  businesses  and sale of our
investment in CF Industries and Allied Seed LLC.


                                       34
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Cash Flows from Discontinued Operating Activities (continued)

Telmark
Virtually all of the cash flows from operations have  historically been invested
in growth of the Telmark  lease  portfolio,  repayment of debt and  dividends to
Agway.  Telmark has been  successful in arranging its past  financing  needs and
believes  that its  current  financing  arrangements  are  adequate  to meet its
operating  requirements  through  March 31,  2003.  Due to the  ongoing  process
relating to the potential sale of Telmark and to Agway's Chapter 11 Proceedings,
there can be no assurance  that Telmark will be able to obtain future  financing
in amounts,  or on terms,  that are  favorable.  Telmark's  inability  to obtain
financing  and continue its  operations  would  adversely  impact its ability to
provide dividends to Agway or meet any of its obligations to Agway.

Surety Liquidity Risk
In July  2002,  our  surety  provider  ("Surety")  issued  cancellation  notices
relative to $23,900 of surety bonds supporting our insurance programs.  This has
no impact on our insurance coverage, but it does give our insurance carriers the
right to demand payment of the collateral  amount provided by the bonds from the
issuer of the bonds.  If our Surety  chooses to pay cash to our insurers  rather
than reissue bonds, our Surety would have a right to make a claim against us for
such amounts in the Chapter 11 Proceedings.  Because of the cancellation notices
issued,  our  insurers  have a right to make  demand on our  Surety  for  $4,625
starting  late  September  2002 and for $6,000  starting  late October  2002. We
dispute the right of the Surety to cancel the remaining $13,275 at this time but
recognize  their right to cancel coverage in the spring of 2003 at the scheduled
renewal dates.

On October 11, 2003,  one of our  insurers  charged  Agway $355 for  retroactive
premium  adjustments  for prior years' claims in accordance with our contractual
arrangements and $100 to fund a claim payment account.  Because the charges were
related to pre-petition  claim years, the bills were stayed and Agway was unable
to pay it at this time. The insurance  carrier made claim against Agway's Surety
for these amounts. In addition,  due to the cancellation notices sent by Agway's
Surety  referred  to above,  one of Agway's  insurance  providers  made a demand
against the Surety in the amount of $7,500.  In response to these demands and in
anticipation  of  further  demands  by other  insurance  providers  relative  to
cancelled  bonds, on January 29, 2003, the Surety filed a suit demanding  $3,176
against Agway Energy Products,  LLC, Agway Energy  Services,  Inc., Agway Energy
Services-Pa,  Inc. and Telmark, LLC. The complaint alleges that these non-debtor
subsidiaries of Agway are  indemnitors  under an indemnity  agreement  signed by
Agway Inc. in relation to the surety bonds against which demands are being made.
It is too early to determine the merits of these claims and the impact,  if any,
on the financial statements.  Agway's and these subsidiaries'  anticipated claim
losses are fully  reserved on a  discounted  basis by Agway and are  included in
Liabilities  Subject to  Compromise.  The  resolution  of this Surety claim will
determine,  to some degree,  the timing of when cash gets paid and how much gets
paid relative to these claims.


                                       35
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

CRITICAL ACCOUNTING POLICIES
----------------------------
Critical  accounting  policies  are  those  accounting  policies  that  are very
important to the  portrayal of the  Company's  financial  condition  and results
which require  management's  most  difficult,  subjective or complex  judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.  The Company believes the following to be critical and
could result in materially  different  amounts being  reported  under  different
conditions or using different assumptions.

Financial Reporting by Entities in Reorganization Under the Bankruptcy Code
SOP 90-7 requires that  pre-petition  liabilities that are subject to compromise
be  segregated  in Agway's  unaudited  Condensed  Consolidated  Balance Sheet as
"Liabilities  Subject  to  Compromise"  and that  revenues,  expenses,  interest
income,  realized gains and losses, and provisions for losses resulting from the
reorganization of the Debtors be reported  separately as  reorganization  items,
except for those revenues and expenses  required to be reported as  discontinued
operations, in the unaudited Condensed Consolidated Statements of Operations.

Disposal of Long-Lived Assets/Discontinued Operations
With  the  announcement  of our  March  6,  2002  plan,  our  ongoing  strategic
assessment,  and our  adoption of SFAS No. 144,  we are  required to  separately
report the combined  results of  businesses  that we are taking steps to sell as
discontinued  operations  and to  immediately  recognize  any  estimated  losses
directly  related  to the  sales  of those  businesses.  Actual  gains,  if any,
realized on sale of discontinued operations are not reported until realized. The
results  of  operations  of  all   discontinued   businesses   are  reported  in
discontinued  operations  in the  periods  in  which  they  occur.  Discontinued
business operations results are reported in the income statement, net of tax, in
earnings (loss) from operations of discontinued  operations.  The recognition of
any  estimated  losses  directly  related to the sales of these  businesses  are
reported in the income  statement,  net of taxes,  in gain (loss) on disposal of
discontinued operations.  The estimation of any loss on disposal,  including the
direct costs to sell, is dependent on numerous factors that continuously  change
as we  proceed in our  negotiations  to sell these  operations.  This  creates a
situation   where  our   estimate  can  change   frequently   and  could  differ
significantly from period to period.

Commodity Instruments
SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities,"
requires  that all  derivative  instruments  be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge  transaction and, if it is, the type
of hedge transaction.  For fair-value hedge transactions in which the Company is
hedging  changes  in fair  value of an  asset,  liability,  or firm  commitment,
changes in the fair value of the derivative  instrument are generally  offset in
the income  statement by changes in the hedged item's fair value.  For cash-flow
hedge  transactions,  in which the  Company is hedging the  variability  of cash
flows  related  to  a  variable-priced   asset,   liability,   or  a  forecasted
transaction, changes in the fair value of the derivative instrument are reported
in other comprehensive income. The gains and losses on the derivative instrument
that are reported in other comprehensive  income are reclassified as earnings in
the periods in which earnings are impacted by the  variability of the cash flows
of the hedged item.  The  ineffective  portion of all hedges are  recognized  in
current-period earnings.


                                       36
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

CRITICAL ACCOUNTING POLICIES (continued)
----------------------------------------
Commodity Instruments (continued)
The  Company's  Energy  segment  enters into a  combination  of  exchange-traded
futures and options  contracts and, in certain  circumstances,  over-the-counter
options  (collectively  "derivatives")  to manage the price risk associated with
future purchases of the commodities used in its operations,  principally heating
oil and propane.  Energy has fair value hedges  associated  with its fixed price
purchase  contracts  and cash  flow  hedges  for its  variable  priced  purchase
contracts.  The derivatives are specifically matched in volume and maturity with
the various  purchase  commitments of the business and generally expire within a
year.  Under SFAS No. 133, the value of option contracts that Energy enters into
has two components:  time and intrinsic  value. The intrinsic value is the value
by which the option is in the money.  The  remaining  amount of option  value is
attributable  to time  value.  Energy  does not include the time value of option
contracts in its assessment of hedge effectiveness and therefore records changes
in the time value component of its options currently in earnings.

In the Agriculture  segment,  the purchase of corn, soy complex, and oats, which
can be sold  directly  as  ingredients  or  included  in feed  products  sold by
Agriculture,  creates price risk for this business. Agriculture intends to match
its purchase and sales contracts whenever possible to hedge price risk; however,
exchange-traded  commodity  instruments are used principally to manage the price
risk associated with unmatched commodity purchases or sales. Agriculture matches
all  derivative  contracts  with their  underlying  purchase  or sale  contract;
however, due to the differences in the changes in the commodity cash price at an
Agriculture  location  versus the  Chicago  Board of Trade,  a highly  effective
hedging  relationship  (as  defined  by SFAS No.  133)  has not  been  achieved.
Therefore, the derivatives used in Agriculture are marked to market currently in
earnings.

Liability for Self-Insurance
The Company is primarily self-insured for workers compensation, general and auto
liability and certain group health and welfare costs. Self-insurance liabilities
are  actuarially  calculated  based on claims  filed and an  estimate  of claims
incurred but not yet reported. Projection of losses concerning these liabilities
is  subject  to a high  degree  of  variability  due to  factors  such as  claim
settlement patterns, litigation trends, legal interpretations,  future levels of
health care costs and the selection of discount rates.

Employee Benefit Plans
The   actuarial   determination   of  Agway's   obligations   and   expense  for
Company-sponsored  pension  and  postretirement  benefits  is  dependent  on the
Company's  selection  of  assumptions  including  the  discount  rate,  expected
long-term  rate of return on plan  assets,  rates of  compensation  increase and
health  care  cost  trend  rate.  Significant  differences  between  our  actual
experience or significant  changes in our assumptions may materially  affect our
pension income and net periodic postretirement obligation expense.

Revenue Recognition
We record revenue from product sales when the goods are shipped,  title and risk
of loss passes to the  customer,  and when  collection  is  reasonably  assured.
Revenue from service contracts is accounted for when the services are provided.


                                       37
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

CRITICAL ACCOUNTING POLICIES (continued)
----------------------------------------
Income Taxes
Agway is subject to income  taxes on all  income not  distributed  to patrons as
patronage  refunds  and  provides  for  income  taxes  in  accordance  with  the
provisions of SFAS No. 109,  "Accounting  for Income Taxes." Under the liability
method specified by SFAS No. 109,  deferred tax assets and liabilities are based
on the  difference  between the financial  statement and tax basis of assets and
liabilities  as measured by the tax rates that are  anticipated  to be in effect
when these differences  reverse. The deferred tax provision generally represents
the net change in the assets and  liabilities  for  deferred  tax.  The  Company
records a valuation allowance when it is necessary to reduce deferred tax assets
to amounts for which  realization  is more likely than not.  The  provision  for
income taxes has been allocated between  continuing and discontinued  operations
for all years presented.

Environmental Remediation Costs
Agway accrues for losses associated with environmental  remediation  obligations
when such losses are probable and reasonably  estimable.  Accruals for estimated
losses from environmental  remediation  obligations  generally are recognized no
later than  completion  of the remedial  feasibility  study.  Such  accruals are
adjusted as further  information  develops  or  circumstances  change.  Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties (primarily other PRPs and state  environmental  funds) are considered in
determining the Company's accrual for these losses.


                                       38
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                   (Unaudited)
                             (Thousands of Dollars)

COMMODITY PRICE EXPOSURE
------------------------
In the normal course of our  continuing  operations,  we have exposure to market
risk from price  fluctuations  associated  with  commodities  such as corn,  soy
complex, oats, gasoline, distillate and propane. These price fluctuations impact
commodity  inventories,  product gross margins, and anticipated  transactions in
our  Agriculture  and  Energy  businesses.  We manage  the risk of market  price
fluctuations  of  some  of  these  commodities  by  using  commodity  derivative
instruments.  Commodity derivative instruments include  exchange-traded  futures
and option contracts and, in limited circumstances,  over-the-counter  contracts
with third  parties.  We have  policies  that specify what we can use  commodity
derivative  instruments for and set limits on the maturity of contracts we enter
into and the level of exposure to market price  fluctuations  that we are trying
to protect  ourselves  against (or  hedge).  However,  because  the  commodities
markets  are very  volatile,  our gains or losses on these  contracts  might not
fully offset the corresponding change in the prices of the underlying commodity,
which could lower our earnings.

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity instrument positions as of December 31, 2002 and 2001. The
fair value of such  position is a summation  of the fair values  calculated  for
each commodity  instrument by valuing each position at quoted futures prices or,
in the case of options,  a delta-adjusted  calculated  price. The market risk of
the  commodity  position  is  estimated  as the  potential  loss in  fair  value
resulting  from a  hypothetical  10%  adverse  change  in  market  prices of the
underlying  commodities.  This estimated loss in fair value does not reflect the
offsetting  impact of market price  changes to the  underlying  commodities  for
which the commodity  instruments are managing the price risk. As of December 31,
2002 and 2001,  assuming a 10%  hypothetical  adverse  change in the  underlying
commodity  price,  the potential  decrease in fair value of our Energy  business
commodity instruments was $3,800 and $1,600, respectively. The potential loss in
fair value of commodity  instruments  for  Agriculture  was  immaterial for both
periods.


                                       39
<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

                         Item 4. CONTROLS AND PROCEDURES


CONTROLS AND PROCEDURES
-----------------------
Within the 90-day period prior to the filing date of this quarterly report,  the
chief  executive  officer and chief  financial  officer of Agway Inc.  evaluated
Agway's disclosure controls and procedures related to the recording, processing,
summarization and reporting of information in Agway's reports that it files with
the Securities and Exchange  Commission  (SEC).  These  disclosure  controls and
procedures have been designed to ensure that (a) material  information  relating
to Agway,  including  its  consolidated  subsidiaries,  is made known to Agway's
management,  including  their  officers,  by other  employees  of Agway  and its
subsidiaries,  and (b) this  information  is  recorded,  processed,  summarized,
evaluated and reported, as applicable,  within the time periods specified in the
SEC's rules and forms. Based upon this evaluation, these officers concluded that
the design of the disclosure controls and procedures is sufficient to accomplish
their purpose.

There have been no  significant  changes in Agway's  internal  controls or other
factors that could significantly affect these controls subsequent to the date of
their  evaluation,  including any corrective  actions with regard to significant
deficiencies and material weaknesses.


                                       40
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 1.  Legal Proceedings
--------------------------
On October 11, 2003,  one of our  insurers  charged  Agway $355 for  retroactive
premium  adjustments  for prior years' claims in accordance with our contractual
arrangements and $100 to fund a claim payment account.  Because the charges were
related to pre-petition  claim years, the bills were stayed and Agway was unable
to pay it at this time. The insurance  carrier made claim against Agway's Surety
for these amounts. In addition,  due to the cancellation notices sent by Agway's
Surety referred to above, one of Agway's insurance  providers also made a demand
against the Surety in the amount of $7,500.  In response to these demands and in
anticipation  of  further  demands  by other  insurance  providers  relative  to
cancelled  bonds, on January 29, 2003, the Surety filed a suit demanding  $3,176
against Agway Energy Products,  LLC, Agway Energy  Services,  Inc., Agway Energy
Services-Pa,  Inc. and Telmark, LLC. The complaint alleges that these non-debtor
subsidiaries of Agway are  indemnitors  under an indemnity  agreement  signed by
Agway in relation to the surety bonds  against  which demands are being made. It
is too early to determine the merits of these claims and the impact,  if any, on
the financial  statements.  Agway's and these  subsidiaries'  anticipated  claim
losses are fully  reserved on a  discounted  basis by Agway and are  included in
Liabilities  Subject to  Compromise.  The  resolution  of this Surety claim will
determine,  to some degree,  the timing of when cash gets paid and how much gets
paid relative to these claims.

Item 2.  Changes in Securities and Use of Proceeds
--------------------------------------------------
As noted  elsewhere  in this  report  on Form  10-Q,  Agway and  certain  of its
subsidiaries  have filed for Chapter 11 under the U.S.  Bankruptcy Code. At this
stage, the impact of the Chapter 11 Proceedings on existing securities cannot be
determined.

Item 3.  Default Upon Senior Indebtedness
-----------------------------------------
As of September 30, 2002, Agway had violated various  covenants under its Credit
Agreement.  These covenants were permanently waived effective November 14, 2002,
with the first amendment to the DIP facility.

On October 1, 2002, Agway Inc. and certain of its  subsidiaries  filed voluntary
petitions to reorganize under Chapter 11 of the U. S. Bankruptcy Code. Under the
Chapter  11  Proceedings,   we  are  prohibited  from  paying  all  pre-petition
indebtedness,  including principal,  interest, and maturities on our outstanding
debt  securities  and various other  obligations  or claims against the Company.
Accordingly,  the $33,100 maturity of subordinated  debt due on November 1, 2002
was not paid.


                                       41
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual  meeting of  shareholders  on November 20, 2002,  at
which a quorum was present in person or by proxy.  The following  Directors were
elected:

         Nominee                     In Favor                   Opposed
         -------                     --------                   -------
Stanley J. Burkholder                 45,232                     1,821
Donald P. Cardarelli                  45,232                     1,821
Jeffrey B. Martin                     45,232                     1,821
Richard H. Skellie                    45,232                     1,821

Eligible  additional  votes totaling 17,090 were not received at the time of the
annual  meeting  and are not  included  as  either  votes in  favor or  opposed.
Additionally,   these  17,090  eligible   additional  votes  may  be  considered
abstentions  and were not included for purposes of  determining  a quorum at the
annual meeting.

The following is a list of Directors  whose terms as Directors  continued  after
the November 20, 2002, Annual Meeting:

        Gary K. Van Slyke              - Chairman of the Board and Director
        Andrew J. Gilbert              - Vice Chairman of the Board and Director
        Stanley J. Burkholder          - Director
        Donald P. Cardarelli           - Director
        John R. Ligo                   - Director.
        Jeffrey B. Martin              - Director
        Samuel F. Minor                - Director
        Matt E. Rogers                 - Director
        Richard H. Skellie             - Director
        Edwin C. Whitehead             - Director
        Dennis C. Wolff                - Director
        William W. Young               - Director

Note: As disclosed on Form 8-Ks filed  subsequent to the annual meeting,  Donald
P. Cardarelli  announced his resignation as director and chief executive officer
of Agway  effective  April 1, 2003,  and Dennis C.  Wolff was  nominated  as the
Secretary of Agriculture for the Commonwealth of Pennsylvania and,  accordingly,
announced his resignation as an Agway director effective January 21, 2003.


                                       42
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

(A)  EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K

     (i) The following required exhibits are hereby incorporated by reference to
         previously filed Registration Statements on Forms S-1, S-2, S-3, or S-7
         or on Form 10-K, 10-Q, or 8-K filed on the dates as specified:

         PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION, OR
         SUCCESSION

         2(a)     - Certificate of Ownership and Merger merging Agway  Financial
                  Corporation  with and into Agway Inc.,  filed by  reference to
                  Exhibit 2(a) of Form 8-K, dated July 2, 2001.

         2(b)     - Asset Purchase  Agreement  Between Agway,  Inc. (Seller) And
                  GROWMARK,  INC.  (Buyer) dated  September  27, 2002,  filed by
                  reference to Exhibit 2.1 of Form 8-K, dated December 18, 2002.

         2(c)     - Amendment to Asset Purchase  Agreement  Between Agway,  Inc.
                  (Seller) And  GROWMARK,  INC.  (Buyer),  filed by reference to
                  Exhibit 2.2 of Form 8-K, dated December 18, 2002.

         2(d)     - Approval of Schedules  and Exhibits and Second  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.3 of
                  Form 8-K, dated December 18, 2002.

         2(e)     - Approval of Schedules  and  Exhibits and Third  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.4 of
                  Form 8-K, dated December 18, 2002.

         2(f)     - Approval of Schedules  and Exhibits and Fourth  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.5 of
                  Form 8-K, dated December 18, 2002.

         2(g)     - Asset  Purchase  Agreement  dated as of December 20, 2002 By
                  and Among Wells Fargo  Financial  Leasing,  Inc.,  Agway Inc.,
                  Telmark,  LLC,  Telmark Lease  Funding II, LLC,  Telmark Lease
                  Funding III, LLC and Telease Financial  Services,  Ltd., filed
                  by reference to Exhibit  2(a) of Form 8-K,  dated  February 6,
                  2003.

         2(h)     - Amendment To Asset Purchase Agreement dated January 8, 2003,
                  filed by reference to Exhibit 2(b) of Form 8-K, dated
                  February 6, 2003.

         2(i)     - Second Amendment To Asset Purchase Agreement dated January
                  10, 2003, filed by reference to Exhibit 2(c) of Form 8-K,
                  dated February 6, 2003.

         2(j)     - Addendum To Asset Purchase Agreement dated January 15, 2003,
                  filed by reference to Exhibit 2(d) of Form 8-K, dated
                  February 6, 2003.

         2(k)     - Letter agreement  amongst counsel to Agway,  Telmark,  Wells
                  Fargo Financial Leasing and the Creditors' Committee regarding
                  changes to be made to the Telmark  Asset  Purchase  Agreement,
                  filed by reference to Exhibit 2(e) of Form 8-K, dated February
                  6, 2003.

         2(l)     - Bankruptcy Court Order authorizing and scheduling an auction
                  and hearing to consider  approval of proposed  sale  resulting
                  from the  auction,  filed by reference to Exhibit 2(f) of Form
                  8-K, dated February 6, 2003.


                                       43
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(A) EXHIBITS  REQUIRED BY  SECURITIES  AND EXCHANGE  COMMISSION  REGULATION  S-K
(CONTINUED)

         ARTICLES OF INCORPORATION AND BY-LAWS

         3(a)     - Certificate creating series of preferred stock of Agway Inc.
                  dated July 5, 1977,  filed by reference to Exhibit  3(a)(5) of
                  Registration  Statement on Form S-1, File No.  2-59896,  dated
                  September 16, 1977.

         3(b)     - Certificate  creating  series of Honorary  Member  Preferred
                  Stock of Agway Inc. dated June 15, 1981, filed by reference to
                  Exhibit 1(c) of the  Registration  Statement on Form S-1, File
                  No. 2-73928, dated September 3, 1981.

         3(c)     - Agway Inc. By-Laws, as amended to January 24, 2003, filed by
                  reference to Exhibit 3 of Form 8-K, dated February 6,
                  2003.

         3(d)     - Restated Certificate of Incorporation dated October 3, 1989,
                  filed by reference to Exhibit 3(d) of Form10-K as of
                  June 30, 2002, dated.

         INSTRUMENTS   DEFINING  THE  RIGHTS  OF  SECURITY  HOLDERS,   INCLUDING
         INDENTURES. (SEE ALSO 3(A), (B) AND (C) ABOVE.)

         4(a)     - The  Indenture  dated as of September 1, 1978 between  Agway
                  Inc.  and First Trust and  Deposit  Company of  Syracuse,  New
                  York,  Trustee,  including  forms of  Subordinated  Debentures
                  (Minimum  8.0% per annum) due July 1, 2003,  and  Subordinated
                  Debentures (Minimum 7.5% per annum) due July 1, 2003, filed by
                  reference  to Exhibit 4 of the  Registration  Statement  (Form
                  S-1), File No. 2-62549, dated September 8, 1978.

         4(b)     - The Indenture  dated as of September 1, 1985,  between Agway
                  Inc. and Key Bank of Central New York of  Syracuse,  New York,
                  Trustee,  including forms of Subordinated  Member Money Market
                  Certificates  (Minimum 8% per annum) due October 31, 2005, and
                  Subordinated  Money  Market  Certificates  (Minimum  7.5%  per
                  annum) due October 31,  2005,  filed by reference to Exhibit 4
                  of the  Registration  Statement  (Form S-2), File No. 2-99905,
                  dated August 27, 1985.

         4(c)     - The Indenture dated as of September 1, 1986, between AFC and
                  Key Bank of Central New York of Syracuse,  New York,  Trustee,
                  including   forms  of   Subordinated   Member   Money   Market
                  Certificates  (Minimum 6% per annum) due October 31, 2006, and
                  Subordinated  Money  Market  Certificates  (Minimum  5.5%  per
                  annum) due October 31,  2006,  filed by reference to Exhibit 4
                  of the  Registration  Statement  (Form S-3), File No. 33-8676,
                  dated September 11, 1986.

         4(d)     - The  Supplemental  Indenture  dated as of  October  1, 1986,
                  among  AFC,  Agway Inc.  and Key Bank of  Central  New York of
                  Syracuse,  New York, Trustee,  including forms of subordinated
                  debt  securities  filed  by  reference  to  Exhibit  4 of  the
                  Registration  Statement (Form S-3),  File No.  33-8676,  dated
                  September 11, 1986.

         4(e)     - The Indenture  dated as of August 24, 1987,  between AFC and
                  Key Bank of Central New York of Syracuse,  New York,  Trustee,
                  including   forms  of   Subordinated   Member   Money   Market
                  Certificates  (Minimum  6.5% per annum) due October 31,  2008,
                  and  Subordinated  Money Market  Certificates  (Minimum 6% per
                  annum) due October 31,  2008,  filed by reference to Exhibit 4
                  of the  Registration  Statement (Form S-3), File No. 33-16734,
                  dated August 31, 1987.



                                       44
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(A) EXHIBITS  REQUIRED BY  SECURITIES  AND EXCHANGE  COMMISSION  REGULATION  S-K
(CONTINUED)

         INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
         INDENTURES.  (SEE ALSO 3(A), (B) AND (C) ABOVE.)(CONTINUED)

         4(f)     - The Indenture  dated as of August 23, 1988,  between AFC and
                  Key Bank of Central New York of Syracuse,  New York,  Trustee,
                  including   forms  of   Subordinated   Member   Money   Market
                  Certificates  (Minimum 9% per annum) due October 31, 2008, and
                  Subordinated  Money  Market  Certificates  (Minimum  8.5%  per
                  annum) due October 31,  2008,  filed by reference to Exhibit 4
                  of the  Registration  Statement (Form S-3), File No. 33-24093,
                  dated August 31, 1988.

         4(g)     - The  Supplemental  Indenture  dated as of October 14,  1988,
                  among  AFC,  Agway  Inc.  and Key Bank of  Central  New  York,
                  National Association,  Trustee,  amending the Indentures dated
                  as of August 23, 1988,  and August 24, 1988,  filed on October
                  18, 1988.

         4(h)     - The Indenture dated as of August 23, 1989,  among AFC, Agway
                  Inc. and Key Bank of Central New York of  Syracuse,  New York,
                  Trustee,   including  forms  of   Subordinated   Money  Market
                  Certificates    and    Subordinated    Member   Money   Market
                  Certificates,   filed  by   reference  to  Exhibit  4  of  the
                  Registration  Statement (Form S-3), File No.  33-30808,  dated
                  August 30, 1989.

         4(i)     - The  Supplemental  Indenture  dated as of August  24,  1992,
                  among  AFC,  Agway  Inc.  and Key Bank of New  York,  Trustee,
                  amending the Indenture  dated as of August 23, 1989,  filed by
                  reference  to Exhibit 4 of the  Registration  Statement  (Form
                  S-3), File No. 33-52418, dated September 25, 1992.

         4(j)     - Agreement of Resignation,  Appointment and Acceptance  among
                  KeyCorp,  Key Bank of New York,  AFC and Mellon Bank,  F.S.B.,
                  dated as of  September  3,  1996,  five  agreements,  filed by
                  reference to Exhibit 4(o) of the Registration  Statement (Form
                  S-3), File No. 333-34781, dated September 2, 1997.

         4(k)     - Letter dated November 14, 1997 from Chase Manhattan Bank, as
                  Successor Trustee, to Mellon Bank, F.S.B.,  filed by reference
                  to  Exhibit  4(a) of the  Annual  Report on Form  10-K,  dated
                  September 21, 2000.

         4(l)     - The Supplemental  Indenture dated as of July 1, 2001 between
                  Agway  Financial  Corporation,   Agway  Inc.,  and  The  Chase
                  Manhattan Bank,  amending the Indentures dated as of September
                  1,  1986,  August 24,  1987,  August 23,  1988  (amended  by a
                  supplemental  indenture  dated as of  October  14,  1988)  and
                  August 23, 1989 (as amended by a supplemental  indenture dated
                  as of August 24, 1992),  filed by reference to Exhibit 4(a) of
                  Form 8-K, dated July 2, 2001.

         MATERIAL CONTRACTS

         10(a)    - Senior Secured,  Super-Priority  Debtor-in-Possession Credit
                  Agreement  with  lenders  dated  October  4,  2002,  filed  by
                  reference to Exhibit 99.4 of Form 8-K, dated October 15, 2002.

         10(b)    - Security Agreement with lenders dated October 4, 2002, filed
                  by reference to Exhibit  99.5 of Form 8-K,  dated  October 15,
                  2002.

         10(c)    - Pledge  Agreement with lenders dated October 4, 2002,  filed
                  by reference to Exhibit  99.6 of Form 8-K,  dated  October 15,
                  2002.


                                       45
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(A) EXHIBITS  REQUIRED BY  SECURITIES  AND EXCHANGE  COMMISSION  REGULATION  S-K
(CONTINUED)

          MATERIAL CONTRACTS (CONTINUED)

         10(d)    - Intellectual  Property Security Agreement with lenders dated
                  October 4, 2002,  filed by  reference  to Exhibit 99.7 of Form
                  8-K, dated October 15, 2002.

         10(e)    - Credit Agreement with lenders dated March 28, 2001, filed by
                  reference to Exhibit  10(a) of Form 10-Q as of March 24, 2001,
                  dated May 8, 2001.

         10(f)    - Security  Agreement with lenders dated March 28, 2001, filed
                  by  reference  to  Exhibit  10(b) of Form 10-Q as of March 24,
                  2001, dated May 8, 2001.

         10(g)    - Pledge Agreement with lenders dated March 28, 2001, filed by
                  reference to Exhibit  10(c) of Form 10-Q as of March 24, 2001,
                  dated May 8, 2001.

         10(h)    - Intellectual  Property Security Agreement with lenders dated
                  March 28, 2001,  filed by  reference to Exhibit  10(d) of Form
                  10-Q as of March 24, 2001, dated May 8, 2001.

         10(i)    - First  Amendment  and  Waiver  to  Credit  Agreement,  dated
                  September  14, 2001,  filed by  reference to Exhibit  10(e) of
                  Form 10-K as of June 30, 2001, dated September 14, 2001.

         10(j)    - First Amendment to Security  Agreement,  dated September 14,
                  2001,  filed by reference to Exhibit  10(f) of Form 10-K as of
                  June 30, 2001, dated September 14, 2001.

         10(k)    - Pledge  Amendment  with lenders,  dated  September 14, 2001,
                  filed by  reference  to Exhibit  10(g) of Form 10-K as of June
                  30, 2001, dated September 14, 2001.

         10(l)    - Vehicle  Security and Escrow  Agreement with lenders,  dated
                  September  14, 2001,  filed by  reference to Exhibit  10(h) of
                  Form 10-K as of June 30, 2001, dated September 14, 2001.

         10(m)    - Second  Amendment  and  Waiver  to Credit  Agreement,  dated
                  January 31, 2002,  filed by reference to Exhibit 10(k) of Form
                  10-Q as of December 31, 2001, dated February 4, 2002.

         10(n)    - Third Amendment and Waiver to Credit Agreement,  dated April
                  3, 2002,  filed by reference to Exhibit  10(l) of Form 10-Q as
                  of March 31, 2002, dated May 15, 2002.

         10(o)    - Waiver to Credit  Agreement,  dated May 13,  2002,  filed by
                  reference to Exhibit  10(m) of form 10-Q as of March 31, 2002,
                  dated May 15, 2002.

         10(p)    - Consent and Fourth Amendment to Credit Agreement, dated July
                  30, 2002,  filed by reference to Exhibit 10(l) of Form 10-K as
                  of June 30, 2002, dated September 30, 2002.

         10(q)    - Consent  and Fifth  Amendment  to  Credit  Agreement,  dated
                  September  13, 2002,  filed by  reference to Exhibit  10(m) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(r)    -  Directors  -  Deferred  Compensation  Agreement,  filed  by
                  reference  to Exhibit  10(n) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

         10(s)    - Board Officers - Deferred Compensation  Agreement,  filed by
                  reference  to Exhibit  10(o) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.


                                       46
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6. Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(A) EXHIBITS  REQUIRED BY  SECURITIES  AND EXCHANGE  COMMISSION  REGULATION  S-K
(CONTINUED)

          MATERIAL CONTRACTS (CONTINUED)

           10(t)  - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(p) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(u)  - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(q) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(v)  - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Michael R.  Hopsicker,  filed by reference to Exhibit 10(r) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(w)  - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Michael R.  Hopsicker,  filed by reference to Exhibit 10(s) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(x)  - Letter  dated  October  26,  2001  between  Mr.  Michael  R.
                  Hopsicker and Mr. Donald P. Cardarelli,  filed by reference to
                  Exhibit  10(t)  of  Form  10-K  as of  June  30,  2002,  dated
                  September 30, 2002.

           10(y)  - Letter dated April 20, 2001 between Mr. Roy Lubetkin and Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(u) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(z)  - Indemnification agreement dated April 30, 2001 between Agway
                  and Mr. Roy  Lubetkin,  filed by reference to Exhibit 10(v) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

           10(aa) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Roy Lubetkin, filed by reference to Exhibit 10(w) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

           10(ab) - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Roy Lubetkin, filed by reference to Exhibit 10(x) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

           10(ac) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Dan Edinger,  filed by reference to Exhibit 10(y) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

           10(ad) - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Dan Edinger,  filed by reference to Exhibit 10(z) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

           10(ae) - Letter  dated  September  26, 2002 to Mr. D. J. Edinger from
                  Mr.  Donald  P.  Cardarelli  concerning  stay  pay,  filed  by
                  reference to Exhibit  10(aa) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

           10(af) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Jerry  Seeber,  filed by reference  to Exhibit  10(ab) of Form
                  10-K as of June 30, 2002, dated September 30, 2002.

           10(ag) - Letter  dated  January 14, 2002 to Mr. G. R. Seeber from Mr.
                  Donald P.  Cardarelli  concerning stay pay, filed by reference
                  to  Exhibit  10(ac)  of Form 10-K as of June 30,  2002,  dated
                  September 30, 2002.

           10(ah) - Stock Purchase  Agreement Between Agway Inc. and United Farm
                  Family Mutual Insurance Company, dated June 14, 2002, filed by
                  reference to Exhibit  10(ad) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.


                                       47
<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(A) EXHIBITS  REQUIRED BY  SECURITIES  AND EXCHANGE  COMMISSION  REGULATION  S-K
(CONTINUED)

         MATERIAL CONTRACTS (CONTINUED)

         10(ai)   - Asset  Purchase  Agreement  By and Between  Agway,  Inc. and
                  Cenex Harvest States  Cooperatives,  dated as of September 10,
                  2002,  filed by reference to Exhibit 10(ae) of Form 10-K as of
                  June 30, 2002, dated September 30, 2002.

         10(aj)   -  First   amendment   to   Senior   Secured,   Super-Priority
                  Debtor-in-Possession   Credit  Agreement  with  lenders  dated
                  November 14, 2002, filed herewith.

         10(ak)   - License Agreement Between Agway, Inc. (Seller) And GROWMARK,
                  INC.  (Buyer) dated September 27, 2002,  filed by reference to
                  Exhibit 10 of Form 8-K, dated December 18, 2002.

     (ii)The following exhibits are filed as a separate section of this report:

           10(al) -  Second   Amendment   to  Senior   Secured,   Super-Priority
                  Debtor-in-Possession   Credit  Agreement  with  lenders  dated
                  January 23, 2003, filed herewith.

             99   - Sarbanes-Oxley Act of 2002 Certifications
                    - - 99.1 Certification of Chief Executive Officer
                    - - 99.2 Certification of Chief Financial Officer

                                       48

<PAGE>

                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------

(B)  REPORTS ON FORM 8-K

     AGWAY FILED REPORTS ON FORM 8-K DURING THE THREE MONTHS ENDED DECEMBER 31,
     2002, AS FOLLOWS:

     October 15, 2002
     ----------------
     To announce  that Agway Inc. and certain of its wholly  owned  subsidiaries
     filed  voluntary  petitions to  reorganize  under  Chapter 11 of the United
     States  Bankruptcy  Code on October 1, 2002.  The  disclosure  listed  some
     details as to the case numbers  assigned,  judge presiding over cases,  and
     discussion  of  the  granting  of  various   initial   requests  of  Agway.
     Additionally,  announced  that the  Company  had  agreed to terms of a $125
     million  debtor-in-possession  (DIP)  financing  facility  and that interim
     approval to obtain $80 million of the DIP  financing  had been  received by
     the Bankruptcy Court on October 4, 2002.

     October 24, 2002
     ----------------
     To announce  the approval by the  Bankruptcy  Court on October 22, 2002 for
     access to the full amount of the $125 million  debtor-in-possession  credit
     facility.  Additionally,  announced  the  details of an auction  within the
     Chapter 11 Proceedings of the Company's Agronomy and Seedway businesses and
     related assets.

     November 21, 2002
     -----------------
     To announce the highlights of Agway's Annual Meeting and Board of Directors
     meeting,  held on November 20, 2002, which included (1) Agway's expectation
     to close  shortly on the sale of  Agronomy  and  Seedway to  GROWMARK;  (2)
     Agway's  targeting of December 2003 for its emergence  from Chapter 11; (3)
     election of four incumbent  directors;  (4) and the re-election of Gary Van
     Slyke and Andrew  Gilbert as  chairman  and vice  chairman  of the board of
     directors, respectively.

     December 18, 2002
     -----------------
     To  announce  that on  December 3, 2002,  Agway  completed  the sale of its
     Agronomy  and  Seedway  businesses,  as well as its  stock  interest  in CF
     Industries and its ownership interest in Allied Seed LLC, to GROWMARK, Inc.

     December 24, 2002
     -----------------
     To announce that Agway Inc., Telmark LLC and Wells Fargo Financial Leasing,
     Inc.  signed a  definitive  agreement  in which Wells  Fargo will  purchase
     approximately $650 million in lease receivables, which is substantially all
     of  the  assets  of  Telmark  LLC,  Agway's  agricultural  lease  financing
     subsidiaries.

     AGWAY FILED REPORTS ON FORM 8-K SUBSEQUENT TO DECEMBER 31, 2002, BUT PRIOR
     TO FILING OF THIS FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2002, AS
     FOLLOWS:

     January 17, 2003
     ----------------
     To announce  that Donald P.  Cardarelli  will  resign as  President,  Chief
     Executive Officer and a Director of Agway Inc.  effective April 1, 2003 and
     to  announce  that  Michael R.  Hopsicker  has been named  Chief  Operating
     Officer  effective  immediately  and will succeed Mr.  Cardarelli  upon his
     resignation..

     February 6, 2002
     ----------------
     To announce the  resignation  of Dennis Wolff as a member of the Agway Inc.
     Board of  Directors  and the  Company's  decision  to amend its  by-laws to
     decrease the minimum  required  board  members from 12 to 10 and to suspend
     the Board of Director nomination procedures for 2003.

     February 6, 2002
     ----------------
     To file a copy of the  definitive  agreement, including amendments thereto,
     between  Agway  Inc.,  Telmark LLC and Wells Fargo Financial Leasing, Inc.,
     dated December 23, 2002.




                                       49
<PAGE>

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.

                                                       AGWAY INC.
                                              ----------------------------------
                                                       (Registrant)





Date   February 14, 2003                         /s/ PETER J. O'NEILL
     ------------------------                 ----------------------------------
                                                      Peter J. O'Neill
                                                   Senior Vice President,
                                                     Finance & Control
                                               (Principal Financial Officer and
                                                 Chief Accounting Officer)





                                       50
<PAGE>

               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14
               --------------------------------------------------
                     AND 15D-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------

I, Donald P. Cardarelli, certify that:

1.   I have reviewed this quarterly report on Form 10-Q for the period ended
     December 31, 2002 of Agway Inc.;

2.   Based on my knowledge,  this  quarterly  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 quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  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
     quarterly 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-14 and 15d-14) for the registrant and we have:

     a)  Designed  such  disclosure  controls  and  procedures  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)  Evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)  all  significant  deficiencies  in the design or  operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves  management  or other
         employees who have a significant  role  in  the  registrant's  internal
         controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:    February 14, 2003
      ----------------------------------------
         /s/  Donald P. Cardarelli
      ----------------------------------------
         Donald P. Cardarelli
         President and Chief Executive Officer


                                       51
<PAGE>

               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14
               --------------------------------------------------
                     AND 15D-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------
I, Peter J. O'Neill, certify that:

1.   I have reviewed this quarterly report on Form 10-Q for the period ended
     December 31, 2002 of Agway Inc.;

2.   Based on my knowledge,  this  quarterly  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 quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  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
     quarterly 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-14 and 15d-14) for the registrant and we have:

     a)  Designed  such  disclosure  controls  and  procedures  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)  Evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)  all  significant  deficiencies  in the design or  operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves  management  or other
         employees who have a significant  role  in  the  registrant's  internal
         controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:    February  14, 2003
     ---------------------------------------------
         /s/  Peter J. O'Neill
     ---------------------------------------------
         Peter J. O'Neill
         Senior Vice President, Finance and Control


                                       52