================================================================================


                                CREDIT AGREEMENT

                           Dated as of March 28, 2001

                                      among

                AGWAY, INC., AGWAY HOLDINGS INC., AGWAY FINANCIAL
            CORPORATION, FEED COMMODITIES INTERNATIONAL LLC, MILFORD
              FERTILIZER COMPANY LLC, BRUBAKER AGRONOMIC CONSULTING
              SERVICE LLC, AGWAY GENERAL AGENCY, INC. COUNTRY BEST
               ADAMS, LLC, COUNTRY BEST-DEBERRY LLC, AGWAY ENERGY
             PRODUCTS LLC, AGWAY ENERGY SERVICES-PA, INC., AND AGWAY
                              ENERGY SERVICES, INC.

                                  as Borrowers,

                   THE OTHER CREDIT PARTIES SIGNATORY HERETO,

                               as Credit Parties,


                          THE LENDERS SIGNATORY HERETO

                               FROM TIME TO TIME,

                                   as Lenders,

                                       and

                      GENERAL ELECTRIC CAPITAL CORPORATION,

                               as Agent and Lender


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<PAGE>
                                TABLE OF CONTENTS
<TABLE>
                                                                                                              Page
                                                                                                              ----
<S>      <C>                                                                                                    <C>
1.       AMOUNT AND TERMS OF CREDIT...........................................................................   2

         1.1      Credit Facilities...........................................................................   2

         1.2      Letters of Credit...........................................................................   5

         1.3      Prepayments.................................................................................   5

         1.4      Use of Proceeds.............................................................................   7

         1.5      Interest and Applicable Margins.............................................................   7

         1.6      Eligible Accounts...........................................................................   9

         1.7      Eligible Inventory..........................................................................  11

         1.8      Cash Management Systems.....................................................................  13

         1.9      Fees........................................................................................  13

         1.10     Receipt of Payments.........................................................................  14

         1.11     Application and Allocation of Payments......................................................  14

         1.12     Loan Account and Accounting.................................................................  15

         1.13     Indemnity...................................................................................  15

         1.14     Access......................................................................................  16

         1.15     Taxes.......................................................................................  17

         1.16     Capital Adequacy; Increased Costs; Illegality...............................................  17

         1.17     Single Loan.................................................................................  19

2.       CONDITIONS PRECEDENT.................................................................................  19

         2.1      Conditions to the Initial Loans.............................................................  19

         2.2      Further Conditions to Each Loan.............................................................  20

3.       REPRESENTATIONS AND WARRANTIES.......................................................................  22

         3.1      Corporate Existence; Compliance with Law....................................................  22

         3.2      Executive Offices, Collateral Locations, FEIN...............................................  22

         3.3      Corporate Power, Authorization, Enforceable Obligations.....................................  23

         3.4      Financial Statements and Projections........................................................  23

         3.5      Material Adverse Effect.....................................................................  24

         3.6      Ownership of Property; Liens................................................................  24

         3.7      Labor Matters...............................................................................  25

         3.8      Ventures, Subsidiaries and Affiliates; Outstanding Stock and
                  Indebtedness................................................................................  25

         3.9      Government Regulation.......................................................................  25
</TABLE>


                                        i
<PAGE>
<TABLE>

<S>      <C>                                                                                                    <C>
         3.10     Margin Regulations..........................................................................  26

         3.11     Taxes.......................................................................................  26

         3.12     ERISA.......................................................................................  26

         3.13     No Litigation...............................................................................  28

         3.14     Brokers.....................................................................................  28

         3.15     Intellectual Property.......................................................................  28

         3.16     Full Disclosure.............................................................................  28

         3.17     Environmental Matters.......................................................................  28

         3.18     Insurance...................................................................................  29

         3.19     Deposit and Disbursement Accounts...........................................................  29

         3.20     Government Contracts........................................................................  29

         3.21     Customer and Trade Relations................................................................  30

         3.22     Agreements and Other Documents..............................................................  30

         3.23     Solvency....................................................................................  30

         3.24     Subordinated Debt...........................................................................  30

         3.25     PACA; Farm Products.........................................................................  30

         3.26     Credit Card Providers.......................................................................  31

4.       FINANCIAL STATEMENTS AND INFORMATION.................................................................  31

         4.1      Reports and Notices.........................................................................  31

         4.2      Communication with Accountants..............................................................  31

5.       AFFIRMATIVE COVENANTS................................................................................  31

         5.1      Maintenance of Existence and Conduct of Business............................................  31

         5.2      Payment of Charges..........................................................................  32

         5.3      Books and Records...........................................................................  32

         5.4      Insurance; Damage to, Destruction or Condemnation of Collateral.............................  32

         5.5      Compliance with Laws........................................................................  34

         5.6      Supplemental Disclosure.....................................................................  35

         5.7      Intellectual Property.......................................................................  35

         5.8      Environmental Matters.......................................................................  35

         5.9      Landlords' Agreements, Mortgagee Agreements, Bailee Letters and
                  Real Estate Purchases.......................................................................  36

         5.10     Restructure Advisers........................................................................  37

         5.11     Subordinated Indebtedness and Preferred Stock...............................................  37

         5.12     Payment for Perishable Goods................................................................  37

</TABLE>

                                       ii
<PAGE>
<TABLE>
<S>      <C>                                                                                                    <C>
         5.13     CoBANK Equity Interests.....................................................................  37

         5.14     Further Assurances..........................................................................  38

6.       NEGATIVE COVENANTS...................................................................................  38

         6.1      Mergers, Subsidiaries, Etc..................................................................  38

         6.2      Investments; Loans and Advances.............................................................  38

         6.3      Indebtedness................................................................................  39

         6.4      Employee Loans and Affiliate Transactions...................................................  40

         6.5      Capital Structure and Business..............................................................  41

         6.6      Guaranteed Indebtedness.....................................................................  41

         6.7      Liens.......................................................................................  41

         6.8      Sale of Stock and Assets....................................................................  42

         6.9      ERISA.......................................................................................  42

         6.10     Financial Covenants.........................................................................  42

         6.11     Hazardous Materials.........................................................................  42

         6.12     Sale-Leasebacks.............................................................................  43

         6.13     Cancellation of Indebtedness................................................................  43

         6.14     Restricted Payments.........................................................................  43

         6.15     Change of Corporate Name or Location; Change of Fiscal Year.................................  43

         6.16     No Impairment of Intercompany Transfers.....................................................  44

         6.17     No Speculative Transactions.................................................................  44

         6.18     Leases......................................................................................  44

         6.19     Changes Relating to Subordinated Debt.......................................................  44

         6.20     Credit Card Notices.........................................................................  45

7.       TERM.................................................................................................  45

         7.1      Termination.................................................................................  45

         7.2      Survival of Obligations Upon Termination of Financing Arrangements..........................  45

8.       EVENTS OF DEFAULT; RIGHTS AND REMEDIES...............................................................  45

         8.1      Events of Default...........................................................................  45

         8.2      Remedies....................................................................................  47

         8.3      Waivers by Credit Parties...................................................................  48

9.       ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT..................................................  48

         9.1      Assignment and Participations...............................................................  48

         9.2      Appointment of Agent........................................................................  50

         9.3      Agent's Reliance, Etc.......................................................................  51

</TABLE>

                                       iii
<PAGE>
<TABLE>

<S>      <C>                                                                                                    <C>
         9.4      GE Capital and Affiliates...................................................................  52

         9.5      Lender Credit Decision......................................................................  52

         9.6      Indemnification.............................................................................  52

         9.7      Successor Agent.............................................................................  53

         9.8      Setoff and Sharing of Payments..............................................................  53

         9.9      Advances; Payments; Non-Funding Lenders; Information; Actions in
                  Concert.....................................................................................  54

10.      SUCCESSORS AND ASSIGNS...............................................................................  56

         10.1     Successors and Assigns......................................................................  56

11.      MISCELLANEOUS........................................................................................  56

         11.1     Complete Agreement; Modification of Agreement...............................................  56

         11.2     Amendments and Waivers......................................................................  57

         11.3     Fees and Expenses...........................................................................  59

         11.4     No Waiver...................................................................................  60

         11.5     Remedies....................................................................................  60

         11.6     Severability................................................................................  60

         11.7     Conflict of Terms...........................................................................  60

         11.8     Confidentiality.............................................................................  60

         11.9     GOVERNING LAW...............................................................................  61

         11.10    Notices.....................................................................................  62

         11.11    Section Titles..............................................................................  62

         11.12    Counterparts................................................................................  62

         11.13    WAIVER OF JURY TRIAL........................................................................  62

         11.14    Press Releases and Related Matters..........................................................  63

         11.15    Reinstatement...............................................................................  63

         11.16    Advice of Counsel...........................................................................  63

         11.17    No Strict Construction......................................................................  63

12.      CROSS-GUARANTY.......................................................................................  63

         12.1     Cross-Guaranty..............................................................................  63

         12.2     Waivers by Borrowers........................................................................  64

         12.3     Benefit of Guaranty.........................................................................  64

         12.4     Subordination of Subrogation, Etc...........................................................  64

         12.5     Election of Remedies........................................................................  65

         12.6     Limitation..................................................................................  65

</TABLE>
                                       iv
<PAGE>
<TABLE>

<S>      <C>                                                                                                    <C>
         12.7     Contribution with Respect to Guaranty Obligations...........................................  65

         12.8     Liability Cumulative........................................................................  66

         12.9     Subordination...............................................................................  66

</TABLE>












                                        v
<PAGE>



INDEX OF APPENDICES

Annex A (Recitals)              -     Definitions
Annex B (Section 1.2)           -     Letters of Credit
         -----------
Annex C (Section 1.8)           -     Cash Management System
         -----------
Annex D (Section 2.1(a))        -     Closing Checklist
         --------------
Annex D-1                             Mortgaged Properties
Annex E (Section 4.1(a))        -     Financial Statements and
         --------------
Projections--Reporting
Annex F (Section 4.1(b))        -     Collateral Reports
         --------------
Annex G (Section 6.10)          -     Financial Covenants
         ------------
Annex H (Section 9.9(a))        -     Lenders' Wire Transfer Information
         --------------
Annex I (Section 11.10)         -     Notice Addresses
         -------------
Annex J (from Annex A
Commitments definition)         -     Commitments as of Closing Date

Exhibit 1.1(a)(i)               -     Form of Notice of Revolving Credit
Advance
Exhibit 1.1(a)(ii)              -     Form of Revolving Note
Exhibit 1.1(b)(ii)              -     Form of Swing Line Note
Exhibit 1.5(e)                  -     Form of Notice of
Conversion/Continuation
Exhibit 4.1(b)                  -     Form of Borrowing Base Certificate
Exhibit 9.1(a)                  -     Form of Assignment Agreement
Exhibit B                       -     Application for Standby Letter of
Credit
Schedule  1.1                   -     Agent's Representatives
Disclosure Schedule  1.4        -     Sources and Uses; Funds Flow Memorandum
Disclosure Schedule  1.6(g)     -     Sales to Directors and Affiliates
Disclosure Schedule  3.1        -     Type of Entity; State of Organization
Disclosure Schedule  3.2        -     Executive Offices, Collateral
Locations, FEIN
Disclosure Schedule  3.4(A)     -     Financial Statements
Disclosure Schedule  3.4(B)     -     Projections
Disclosure Schedule  3.6        -     Real Estate and Leases
Disclosure Schedule  3.7        -     Labor Matters
Disclosure Schedule  3.8        -     Ventures, Subsidiaries and Affiliates;
                                      Outstanding Stock
Disclosure Schedule  3.11       -     Tax Matters
Disclosure Schedule  3.12       -     ERISA Plans
Disclosure Schedule  3.13       -     Litigation
Disclosure Schedule  3.15       -     Intellectual Property
Disclosure Schedule  3.17       -     Hazardous Materials
Disclosure Schedule  3.18       -     Insurance
Disclosure Schedule  3.19       -     Deposit and Disbursement Accounts
Disclosure Schedule  3.20       -     Government Contracts
Disclosure Schedule  3.22       -     Material Agreements
Disclosure Schedule  3.26       -     Credit Card Providers
Disclosure Schedule  5.1        -     Trade Names
Disclosure Schedule  6.2        -     Settled Accounts - Notes Receivables
Disclosure Schedule  6.3(a)     -     Indebtedness
Disclosure Schedule  6.4(a)     -     Transactions with Affiliates
Disclosure Schedule  6.7(a)     -     Existing Liens


                                       vi
<PAGE>

Disclosure Schedule  6.7(b)     -     Existing Capital Leases
Disclosure Schedule  6.8              Permitted Asset Dispositions
Disclosure Schedule  6.15       -     Accounting Periods











                                       vii
<PAGE>


                  This CREDIT  AGREEMENT (this  "Agreement"),  dated as of March
28, 2001 among  Agway,  Inc., a Delaware  corporation,  Agway  Holdings  Inc., a
Delaware corporation,  Agway Financial Corporation, a Delaware corporation, Feed
Commodities  International  LLC, a Delaware limited liability  company,  Milford
Fertilizer Company LLC, a Delaware limited liability company, Brubaker Agronomic
Consulting  Service LLC, a Delaware  limited  liability  company,  Agway General
Agency, Inc. a New York corporation, Country Best Adams, LLC, a Delaware limited
liability  company,  Country  Best-DeBerry  LLC,  a Delaware  limited  liability
company,  Agway Energy Products LLC, a Delaware limited liability company, Agway
Energy  Services-PA,  Inc., a Delaware  corporation,  and Agway Energy Services,
Inc. a Delaware corporation,  (the foregoing entities are sometimes collectively
referred to herein as the  "Borrowers" and  individually  as a "Borrower");  the
other Credit Parties signatory hereto;  GENERAL ELECTRIC CAPITAL CORPORATION,  a
New York corporation (in its individual capacity, "GE Capital"),  for itself, as
Lender,  and as Agent for Lenders,  and the other Lenders  signatory hereto from
time to time.

                                    RECITALS
                                    --------

                  WHEREAS,   Borrowers   have   requested  that  Lenders  extend
revolving  credit  facilities  to  Borrowers  of up to One Hundred  Seventy Five
Million  Dollars ($ 175,000,000) in the aggregate for the purpose of refinancing
certain  indebtedness of Borrowers and to provide (a) working capital  financing
for Borrowers,  (b) funds for other general corporate  purposes of Borrowers and
(c)  funds for  other  purposes  permitted  hereunder;  and for these  purposes,
Lenders  are willing to make  certain  loans and other  extensions  of credit to
Borrowers of up to such amount upon the terms and conditions set forth herein;

                  WHEREAS,   Borrowers  have  agreed  to  secure  all  of  their
obligations  under the Loan  Documents by granting to Agent,  for the benefit of
Agent and Lenders,  a security  interest in and lien upon all of their  existing
and after-acquired personal and certain real property, together with a pledge of
all of the Stock of each  Borrower  other  than Agway and in the case of Country
Best Adams LLC and Country Best DeBerry LLC,  eighty  percent (80%) of the Stock
of such entities, as well as cross-guaranties of each of Borrower's  obligations
under the Loan Documents; and

                  WHEREAS,  capitalized  terms used in this Agreement shall have
the meanings ascribed to them in Annex A and, for purposes of this Agreement and
the other Loan Documents,  the rules of construction  set forth in Annex A shall
govern.  All  Annexes,  Disclosure  Schedules,  Exhibits  and other  attachments
(collectively,  "Appendices") hereto, or expressly identified to this Agreement,
are  incorporated  herein by reference,  and taken together with this Agreement,
shall  constitute but a single  agreement.  These Recitals shall be construed as
part of the Agreement.

                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
mutual  covenants  hereinafter  contained,  and  for  other  good  and  valuable
consideration, the parties hereto agree as follows:
<PAGE>

1. AMOUNT AND TERMS OF CREDIT

         1.1 Credit Facilities.

                  (a) Revolving Credit Facility.
                      -------------------------

                        (i) Subject to the terms and conditions hereof, each
Revolving  Lender agrees to make  available to Borrowers from time to time until
the  Commitment  Termination  Date  its Pro  Rata  Share of  advances  (each,  a
"Revolving  Credit  Advance").  The Pro Rata Share of the Revolving  Loan of any
Revolving  Lender  shall not at any time  exceed  its  separate  Revolving  Loan
Commitment.  The obligations of each Revolving Lender hereunder shall be several
and not joint.  Until the  Commitment  Termination  Date,  Borrowers may borrow,
repay and reborrow  under this Section  1.1(a);  provided that the amount of any
Revolving  Credit  Advance  to be made at any time  shall not  exceed  Borrowing
Availability  at such time.  Borrowing  Availability  may be reduced by Reserves
imposed  by Agent in its  reasonable  credit  judgment.  Each  Revolving  Credit
Advance  shall  be made on  notice  by  Borrower  Representative  on  behalf  of
Borrowers to one of the  representatives  of Agent identified in Schedule 1.1 at
the address specified  therein.  Any such notice must be given no later than (1)
11:00 a.m. (New York time) on the Business Day of the proposed  Revolving Credit
Advance, in the case of an Index Rate Loan, or (2) 11:00 a.m. (New York time) on
the date  which  is 3  Business  Days  prior to the  proposed  Revolving  Credit
Advance,  in the case of a LIBOR Loan.  Each such notice (a "Notice of Revolving
Credit  Advance")  must be given in writing (by telecopy or  overnight  courier)
substantially  in  the  form  of  Exhibit  1.1(a)(i),   and  shall  include  the
information  required  in such  Exhibit  and such  other  information  as may be
required by Agent.  If Borrowers  desire to have the Revolving  Credit  Advances
bear interest by reference to a LIBOR Rate, Borrower  Representative must comply
with Section 1.5(e).

                        (ii) Except as provided in Section 1.12, each Borrower
shall  execute  and  deliver to each  Revolving  Lender a note to  evidence  the
Revolving Loan  Commitment of that Revolving  Lender.  Each note shall be in the
principal  amount of the Revolving Loan  Commitment of the applicable  Revolving
Lender,  dated  the  Closing  Date  and  substantially  in the  form of  Exhibit
1.1(a)(ii) (each a "Revolving Note" and,  collectively,  the "Revolving Notes").
Each Revolving Note shall represent the obligation of the applicable Borrower to
pay the amount of the applicable  Revolving  Lender's  Revolving Loan Commitment
or, if less,  such  Revolving  Lender's Pro Rata Share of the  aggregate  unpaid
principal amount of all Revolving Credit Advances to such Borrower together with
interest  thereon as prescribed in Section 1.5. The entire unpaid balance of the
aggregate  Revolving  Loan and all  other  non-contingent  Obligations  shall be
immediately  due and  payable  in full in  immediately  available  funds  on the
Commitment Termination Date.

                        (iii) Anything in this Agreement to the contrary
notwithstanding,  Agent may,  in its  discretion  to  preserve  or  protect  the
Collateral (but shall have  absolutely no obligation to), make Revolving  Credit
Advances to Borrowers  on behalf of Revolving  Lenders in amounts that cause the
outstanding balance of the aggregate Revolving Loan to exceed the Borrowing Base
(less the Swing Line Loan) (any such excess Revolving Credit Advances are herein
referred to collectively as "Overadvances");  provided that (A) no such event or
occurrence shall cause or constitute a waiver of Agent's, Swing Line Lender's or
Revolving Lenders' right to refuse to make any further Overadvances, Swing Line


                                        2
<PAGE>

Advances  or  Revolving  Credit   Advances,   or  incur  any  Letter  of  Credit
Obligations, as the case may be, at any time that an Overadvance exists, and (B)
no Overadvance shall result in a Default or Event of Default based on Borrowers'
failure to comply  with  Section  1.3(b)(i)  for so long as Agent  permits  such
Overadvance  to be  outstanding,  but solely with  respect to the amount of such
Overadvance.  In addition,  Overadvances  may be made even if the  conditions to
lending  set  forth in  Section  2 have not been  met.  All  Overadvances  shall
constitute  Index Rate Loans,  shall bear interest at the Default Rate and shall
be payable on demand.  Except as  otherwise  provided  in Section  1.11(b),  the
authority of Agent to make Overadvances is limited to an aggregate amount not to
exceed  Seven  Million  Dollars  ($7,000,000)  at any time,  shall not cause the
aggregate  Revolving  Loan to exceed  the  Maximum  Amount,  and may be  revoked
prospectively  by a written notice to Agent signed by Revolving  Lenders holding
more than 50% of the Revolving Loan Commitments.

                  (b) Swing Line Facility.
                      -------------------

                        (i) Agent shall notify the Swing Line Lender upon
Agent's receipt of any Notice of Revolving Credit Advance.  Subject to the terms
and  conditions  hereof,  the Swing Line  Lender may,  in its  discretion,  make
available  from time to time  until the  Commitment  Termination  Date  advances
(each,  a  "Swing  Line  Advance")  in  accordance  with any  such  notice.  The
provisions of this Section 1.1(b) shall not relieve  Revolving  Lenders of their
obligations to make Revolving  Credit  Advances under Section  1.1(a);  provided
that if the Swing Line Lender  makes a Swing Line  Advance  pursuant to any such
notice, such Swing Line Advance shall be in lieu of any Revolving Credit Advance
that otherwise may be made by Revolving  Credit Lenders pursuant to such notice.
The aggregate amount of Swing Line Advances  outstanding shall not exceed at any
time the  lesser  of (A) the Swing  Line  Commitment  and (B) the  lesser of the
Maximum Amount and (except for  Overadvances)  the Borrowing Base, in each case,
less the  outstanding  balance of the  Revolving  Loan at such time ("Swing Line
Availability").  Until the Commitment  Termination Date, Borrowers may from time
to time borrow,  repay and reborrow under this Section  1.1(b).  Each Swing Line
Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered
to Agent by Borrower  Representative  on behalf of Borrowers in accordance  with
Section 1.1(a).  Any such notice must be given no later than 1:00 p.m. (New York
time) on the Business Day of the proposed  Swing Line Advance.  Unless the Swing
Line Lender has received at least one Business  Day's prior written  notice from
Requisite  Lenders  instructing  it not to make a Swing Line Advance,  the Swing
Line Lender shall be entitled to fund that Swing Line Advance,  and to have each
Revolving  Lender make  Revolving  Credit  Advances in  accordance  with Section
1.1(b)(iii)  or purchase  participating  interests  in  accordance  with Section
1.1(b)(iv) provided that if all of the condition precedents set forth in Section
2.2 have not been met,  Swing Line Lender has received a written  waiver thereof
from Requisite Lenders. Notwithstanding any other provision of this Agreement or
the other Loan  Documents,  the Swing Line Loan shall  constitute  an Index Rate
Loan.  Borrowers shall repay the aggregate  outstanding  principal amount of the
Swing Line Loan upon demand therefor by Agent.

                        (ii) Each Borrower shall execute and deliver to the
Swing Line Lender a promissory note to evidence the Swing Line Commitment.  Each
note shall be in the principal  amount of the Swing Line Commitment of the Swing
Line  Lender,  dated the Closing Date and  substantially  in the form of Exhibit
1.1(b)(ii) (each a "Swing Line Note" and, collectively, the "Swing Line Notes").
Each Swing Line Note shall  represent the obligation of each Borrower to pay the
amount of the Swing Line Commitment or, if less, the aggregate unpaid principal


                                        3
<PAGE>

amount of all Swing Line Advances  made to such Borrower  together with interest
thereon as  prescribed  in Section 1.5. The entire  unpaid  balance of the Swing
Line Loan and all other  noncontingent  Obligations shall be immediately due and
payable in full in immediately  available  funds on the  Commitment  Termination
Date if not sooner paid in full.

                        (iii) The Swing Line Lender, at any time and from time
to time in its sole and absolute  discretion  may on behalf of any Borrower (and
each Borrower hereby  irrevocably  authorizes the Swing Line Lender to so act on
its behalf) request each Revolving  Lender  (including the Swing Line Lender) to
make a Revolving  Credit Advance to each Borrower  (which shall be an Index Rate
Loan)  in an  amount  equal to that  Revolving  Lender's  Pro Rata  Share of the
principal  amount of the  applicable  Borrower's  Swing Line Loan (the "Refunded
Swing Line Loan")  outstanding  on the date such notice is given.  Unless any of
the events  described in Sections  8.1(h) or 8.1(i) has occurred (in which event
the procedures of Section  1.1(b)(iv) shall apply) and regardless of whether the
conditions  precedent  set forth in this  Agreement to the making of a Revolving
Credit Advance are then satisfied, each Revolving Lender shall disburse directly
to Agent,  its Pro Rata  Share of a  Revolving  Credit  Advance on behalf of the
Swing Line Lender prior to 3:00 p.m.  (New York time) in  immediately  available
funds on the Business  Day next  succeeding  the date that notice is given.  The
proceeds of those  Revolving  Credit  Advances shall be immediately  paid to the
Swing Line Lender and applied to repay the Refunded Swing Line Loan.

                        (iv) If, prior to refunding a Swing Line Loan with a
Revolving  Credit  Advance  pursuant to Section  1.1(b)(iii),  one of the events
described  in  Sections  8.1(h) or 8.1(i)  has  occurred,  then,  subject to the
provisions of Section  1.1(b)(v) below, each Revolving Lender shall, on the date
such  Revolving  Credit  Advance  was to  have  been  made  for the  benefit  of
Borrowers,  purchase  from the  Swing  Line  Lender an  undivided  participation
interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such
Swing Line Loan. Upon request,  each Revolving Lender shall promptly transfer to
the Swing  Line  Lender,  in  immediately  available  funds,  the  amount of its
participation interest.

                        (v) Each Revolving Lender's obligation to make Revolving
Credit  Advances  in  accordance  with  Section   1.1(b)(iii)  and  to  purchase
participation  interests in accordance with Section 1.1(b)(iv) shall be absolute
and unconditional  and shall not be affected by any circumstance,  including (A)
any setoff, counterclaim, recoupment, defense or other right that such Revolving
Lender may have against the Swing Line Lender,  any Borrower or any other Person
for any reason  whatsoever;  (B) the occurrence or continuance of any Default or
Event of Default;  (C) any  inability of any Borrower to satisfy the  conditions
precedent to borrowing set forth in this  Agreement at any time or (D) any other
circumstance,  happening or event  whatsoever,  whether or not similar to any of
the foregoing.  If any Revolving  Lender does not make available to Agent or the
Swing Line  Lender,  as  applicable,  the amount  required  pursuant to Sections
1.1(b)(iii)  or  1.1(b)(iv),  as the case may be, the Swing Line Lender shall be
entitled to recover such amount on demand from such Revolving  Lender,  together
with  interest  thereon  for each day from the date of  non-payment  until  such
amount is paid in full at the Federal Funds Rate for the first two Business Days
and at the Index Rate thereafter.



                                        4
<PAGE>

                  (c)   Reliance   on   Notices;    Appointment    of   Borrower
Representative.  Agent  shall  be  entitled  to rely  upon,  and  shall be fully
protected in relying upon,  any Notice of Revolving  Credit  Advance,  Notice of
Conversion/Continuation or similar notice believed by Agent to be genuine. Agent
may assume that each Person  executing and  delivering  any notice in accordance
herewith was duly authorized,  unless the responsible  individual acting thereon
for Agent has actual knowledge to the contrary.  Each Borrower hereby designates
Agway as its  representative and agent on its behalf for the purposes of issuing
Notices of Revolving  Credit  Advances  and Notices of  Conversion/Continuation,
giving  instructions  with  respect to the  disbursement  of the proceeds of the
Loans, selecting interest rate options, requesting Letters of Credit, giving and
receiving  all other  notices and  consents  hereunder or under any of the other
Loan Documents and taking all other actions  (including in respect of compliance
with covenants) on behalf of any Borrower or Borrowers under the Loan Documents.
Borrower  Representative hereby accepts such appointment.  Agent and each Lender
may regard any notice or other communication  pursuant to any Loan Document from
Borrower Representative as a notice or communication from all Borrowers, and may
give any  notice  or  communication  required  or  permitted  to be given to any
Borrower or  Borrowers  hereunder to Borrower  Representative  on behalf of such
Borrower  or  Borrowers.  Each  Borrower  agrees  that  each  notice,  election,
representation  and warranty,  covenant,  agreement and undertaking  made on its
behalf by Borrower  Representative shall be deemed for all purposes to have been
made by such  Borrower  and shall be binding upon and  enforceable  against such
Borrower  to the same  extent  as if the same had  been  made  directly  by such
Borrower.

         1.2 Letters of Credit.  Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower  Representative,  on behalf
of the  applicable  Borrower,  shall have the right to  request,  and  Revolving
Lenders  agree to  incur,  or  purchase  participations  in,  Letter  of  Credit
Obligations in respect of each Borrower.

         1.3 Prepayments.

                  (a)  Voluntary  Prepayments;   Reductions  in  Revolving  Loan
Commitments.  Borrowers may at any time on at least 5 days' prior written notice
by Borrower  Representative to Agent permanently  reduce (but not terminate) the
Revolving Loan Commitment;  provided that (i) any such prepayments or reductions
shall be in a minimum amount of $2,000,000 and integral multiples of $250,000 in
excess of such amount,  (ii) the Revolving Loan Commitment  shall not be reduced
to an amount  less than  $150,000,000,  and (iii)  after  giving  effect to such
reductions,   Borrowers  shall  comply  with  Section  1.3(b)(i).  In  addition,
Borrowers may at any time on at least 10 days' prior written  notice by Borrower
Representative  to Agent terminate the Revolving Loan Commitment;  provided that
upon such termination,  all Loans and other Obligations shall be immediately due
and  payable  in  full  and all  Letter  of  Credit  Obligations  shall  be cash
collateralized  or otherwise  satisfied in accordance  with Annex B hereto.  Any
voluntary  prepayment  and any reduction or  termination  of the Revolving  Loan
Commitment must be accompanied by payment of the Fee required by Section 1.9(c),
if any, plus the payment of any LIBOR funding  breakage costs in accordance with
Section  1.13(b).  Upon any such  reduction or termination of the Revolving Loan
Commitment,  each Borrower's  right to request  Revolving  Credit  Advances,  or
request that Letter of Credit  Obligations be incurred on its behalf, or request
Swing Line Advances,  shall simultaneously be permanently reduced or terminated,
as the case may be; provided that a permanent reduction of the Revolving Loan


                                        5
<PAGE>

Commitment  shall not  require a  corresponding  pro rata  reduction  in the L/C
Sublimit.

                  (b) Mandatory Prepayments.

                        (i) If at any time the aggregate outstanding balances of
the Revolving  Loan and the Swing Line Loan exceed the lesser of (A) the Maximum
Amount  and (B) the  Borrowing  Base,  Borrowers  shall  immediately  repay  the
aggregate  outstanding  Revolving  Credit  Advances  to the extent  required  to
eliminate such excess. If any such excess remains after repayment in full of the
aggregate  outstanding  Revolving Credit Advances,  Borrowers shall provide cash
collateral for the Letter of Credit Obligations in the manner set forth in Annex
B  to  the  extent  required  to  eliminate  such  excess.  Notwithstanding  the
foregoing,  any Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid
only on demand.

                        (ii) Immediately upon receipt by any Credit Party of
proceeds of any asset  disposition  (excluding  proceeds  of asset  dispositions
permitted  by  Section  6.8 (a)) or any sale of Stock of any  Subsidiary  of any
Credit  Party,  Borrowers  shall prepay the Loans in an amount equal to all such
proceeds,  net of (A) commissions and other reasonable and customary transaction
costs, fees and expenses  properly  attributable to such transaction and payable
by Borrowers in connection therewith (in each case, paid to non-Affiliates), (B)
transfer  taxes,  (C) amounts  payable to holders of senior Liens (to the extent
such Liens  constitute  Permitted  Encumbrances  hereunder),  if any, and (D) an
appropriate  reserve  for income  taxes in  accordance  with GAAP in  connection
therewith.  Any such  prepayment  shall be applied in  accordance  with  Section
1.3(c).

                        (iii) If any Borrower issues Stock or any debt
securities,  no later than the Business Day following the date of receipt of the
proceeds thereof, the issuing Borrower shall prepay the Loans in an amount equal
to all such proceeds,  net of  underwriting  discounts and commissions and other
reasonable  costs  paid to  non-Affiliates  in  connection  therewith.  Any such
prepayment shall be applied in accordance with Section 1.3(c).

                  (c)  Application  of  Certain   Mandatory   Prepayments.   Any
prepayments  made by any Borrower  pursuant to Sections  1.3(b)(ii)  or (b)(iii)
above shall be applied as follows:  first, to Fees and reimbursable  expenses of
Agent then due and payable  pursuant to any of the Loan  Documents;  second,  to
interest  then due and payable on the Swing Line Loan;  third,  to the principal
balance of the Swing  Line Loan  outstanding  until the same has been  repaid in
full;  fourth,  to interest then due and payable on Revolving  Credit  Advances;
fifth, to the principal  balance of Revolving Credit Advances  outstanding until
the same has been paid in full; and last, to any Letter of Credit Obligations to
provide cash  collateral  therefor in the manner set forth in Annex B, until all
such Letter of Credit  Obligations  have been fully cash  collateralized  in the
manner set forth in Annex B. Neither the Revolving Loan Commitment nor the Swing
Line  Commitment  shall  be  permanently  reduced  by the  amount  of  any  such
prepayments.

                  (d) Application of Prepayments from Insurance and Condemnation
Proceeds. Prepayments from insurance or condemnation proceeds in accordance with
Section 5.4(c) and the Mortgage(s), respectively, shall be applied first, to the
Swing Line Loans and, second, to Revolving Credit Advances. Neither the


                                        6
<PAGE>

Revolving  Loan  Commitment  nor  the  Swing  Line  Loan  Commitment   shall  be
permanently reduced by the amount of any such prepayments.

                  (e) No Implied  Consent.  Nothing in this Section 1.3 shall be
construed to constitute  Agent's or any Lender's consent to any transaction that
is not  permitted  by other  provisions  of this  Agreement  or the  other  Loan
Documents.

         1.4 Use of  Proceeds.  Borrowers  shall  utilize  the  proceeds  of the
Revolving Loan and the Swing Line Advances  solely for the  Refinancing  (and to
pay any related  transaction  expenses),  and for the  financing  of  Borrowers'
ordinary  working capital and general  corporate  needs.  Borrowers shall not be
permitted to use the proceeds of the Revolving  Loan and the Swing Line Advances
for the payment of interest  and  principal  with respect to  Subordinated  Debt
unless (i) no Default or Event of Default  has  occurred  and is  continuing  or
would result after giving effect to such  payments,  and Borrowers  collectively
have Borrowing  Availability of at least $20,000,000 after giving effect to such
payments,  or  (ii) if a  Default  or  Event  of  Default  has  occurred  and is
continuing,  Borrowers'  collectively  have Borrowing  Availability  of at least
$25,000,000,  unless (A) Agent  provides  Borrower  Representative  with written
notice that such payments are no longer permitted,  (B) any Event of Default has
occurred and is continuing  under Section 8.1(a),  (C) any Credit Party fails or
neglects to perform,  keep or observe  any of the  provisions  set forth in this
Section 1.4 or Annex C, or (D) if the aggregate  principal amount outstanding in
Preferred Stock,  Subordinated Debt and notes outstanding under the Milford Note
Program is less than Four  Hundred  and Forty  Million  Dollars  ($440,000,000).
Disclosure  Schedule (1.4) contains a description of Borrowers' sources and uses
of  funds  as of  the  Closing  Date,  including  Loans  and  Letter  of  Credit
Obligations  to be made or  incurred on that date,  and a funds flow  memorandum
detailing how funds from each source are to be transferred to particular uses.

         1.5 Interest and Applicable Margins.

                  (a)  Borrowers  shall pay  interest to Agent,  for the ratable
benefit of Lenders  in  accordance  with the  various  Loans  being made by each
Lender,  in arrears on each applicable  Interest  Payment Date, at the following
rates: (i) with respect to the Revolving  Credit  Advances,  the Index Rate plus
the  Applicable  Revolver Index Margin per annum or, at the election of Borrower
Representative,  the applicable  LIBOR Rate plus the  Applicable  Revolver LIBOR
Margin per annum, based on the aggregate  Revolving Credit Advances  outstanding
from time to time;  and (ii) with respect to the Swing Line Loan, the Index Rate
plus the Applicable Revolver Index Margin per annum.

              The Applicable Margins are as follows:

          Applicable Revolver Index Margin                        1.75%

          Applicable Revolver LIBOR Margin                        3.25%

          Applicable L/C Margin                                   3.25%

          Applicable Unused Line Fee Margin                       0.375%



                                        7
<PAGE>

                  (b) If any  payment on any Loan  becomes  due and payable on a
day other than a Business Day, the maturity thereof will be extended to the next
succeeding  Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.

                  (c) All  computations  of Fees calculated on a per annum basis
and interest shall be made by Agent on the basis of a 360-day year, in each case
for the actual  number of days  occurring in the period for which such  interest
and Fees are payable. The Index Rate is a floating rate determined for each day.
Each  determination  by Agent of an interest  rate and Fees  hereunder  shall be
final, binding and conclusive on Borrowers, absent manifest error.

                  (d) So  long  as an  Event  of  Default  has  occurred  and is
continuing  under Section 8.1(a),  (h) or (i) or so long as any other Default or
Event of Default has occurred and is continuing and at the election of Agent (or
upon the written request of Requisite  Lenders) confirmed by written notice from
Agent to Borrower Representative, the interest rates applicable to the Loans and
the Letter of Credit Fees shall be increased by two  percentage  points (2%) per
annum above the rates of interest or the rate of such Fees otherwise  applicable
hereunder ("Default Rate"), and all outstanding  Obligations shall bear interest
at the Default  Rate  applicable  to such  Obligations.  Interest  and Letter of
Credit Fees at the  Default  Rate shall  accrue  from the  initial  date of such
Default or Event of Default  until that  Default or Event of Default is cured or
waived and shall be payable upon demand.

                  (e) Subject to the  conditions  precedent set forth in Section
2.2,  Borrower  Representative  shall  have the option to (i)  request  that any
Revolving  Credit Advance be made as a LIBOR Loan,  (ii) convert at any time all
or any part of  outstanding  Loans  (other  than the Swing Line Loan) from Index
Rate Loans to LIBOR Loans,  (iii)  convert any LIBOR Loan to an Index Rate Loan,
subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if
such  conversion is made prior to the expiration of the LIBOR Period  applicable
thereto,  or (iv)  continue all or any portion of any Loan (other than the Swing
Line Loan) as a LIBOR Loan upon the  expiration of the  applicable  LIBOR Period
and the  succeeding  LIBOR Period of that  continued  Loan shall commence on the
first day after  the last day of the LIBOR  Period of the Loan to be  continued.
Any Loan or group of Loans having the same  proposed  LIBOR Period to be made or
continued  as, or converted  into,  a LIBOR Loan must be in a minimum  amount of
$5,000,000.  Any such election must be made by 11:00 a.m. (New York time) on the
3rd Business Day prior to (1) the date of any proposed  Advance which is to bear
interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any
LIBOR  Loans  to be  continued  as  such,  or (3)  the  date on  which  Borrower
Representative wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR
Period designated by Borrower Representative in such election. If no election is
received  with respect to a LIBOR Loan by 11:00 a.m.  (New York time) on the 3rd
Business Day prior to the end of the LIBOR Period with respect  thereto (or if a
Default  or an  Event  of  Default  has  occurred  and is  continuing  or if the
additional  conditions  precedent  set forth in Section  2.2 shall not have been
satisfied),  that LIBOR Loan shall be converted to an Index Rate Loan at the end
of its LIBOR Period.  Borrower  Representative must make such election by notice
to Agent in  writing,  by  telecopy  or  overnight  courier.  In the case of any
conversion  or  continuation,  such  election must be made pursuant to a written
notice (a "Notice of Conversion/Continuation") in the form of Exhibit 1.5(e). No


                                        8
<PAGE>

Loan may be made as or  converted  into a LIBOR Loan until the earlier of (i) 45
days  after the  Closing  Date or (ii)  completion  of  primary  syndication  as
determined by Agent and after  notification  of such  completion to the Borrower
Representative.

                  (f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent  jurisdiction  determines  in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible  under law (the "Maximum Lawful Rate"),  then so long as the Maximum
Lawful Rate would be so exceeded,  the rate of interest payable  hereunder shall
be equal to the Maximum  Lawful  Rate;  provided,  however,  that if at any time
thereafter  the rate of  interest  payable  hereunder  is less than the  Maximum
Lawful Rate,  Borrowers shall continue to pay interest  hereunder at the Maximum
Lawful Rate until such time as the total interest  received by Agent,  on behalf
of Lenders, is equal to the total interest that would have been received had the
interest rate payable  hereunder been (but for the operation of this  paragraph)
the interest rate payable  since the Closing Date as otherwise  provided in this
Agreement.  Thereafter,  interest  hereunder  shall  be paid at the  rate(s)  of
interest and in the manner  provided in Sections  1.5(a) through (e), unless and
until the rate of interest  again exceeds the Maximum  Lawful Rate,  and at that
time this  paragraph  shall again  apply.  In no event shall the total  interest
received by any Lender  pursuant to the terms hereof exceed the amount that such
Lender  could  lawfully  have  received  had the  interest  due  hereunder  been
calculated  for the full term hereof at the Maximum  Lawful Rate. If the Maximum
Lawful Rate is calculated  pursuant to this  paragraph,  such interest  shall be
calculated  at a daily  rate equal to the  Maximum  Lawful  Rate  divided by the
number  of  days  in  the  year  in  which  such   calculation   is  made.   If,
notwithstanding  the  provisions  of this Section  1.5(f),  a court of competent
jurisdiction  shall  finally  determine  that a  Lender  has  received  interest
hereunder  in excess of the Maximum  Lawful  Rate,  Agent  shall,  to the extent
permitted by applicable  law,  promptly apply such excess in the order specified
in Section  1.11 and  thereafter  shall  refund any excess to  Borrowers or as a
court of competent jurisdiction may otherwise order.

         1.6 Eligible  Accounts.  All of the Accounts owned by each Borrower and
reflected  in the most  recent  Borrowing  Base  Certificate  delivered  by each
Borrower to Agent shall be "Eligible  Accounts" for purposes of this  Agreement,
except any  Account to which any of the  exclusionary  criteria  set forth below
applies.  Agent shall have the right to establish,  modify or eliminate Reserves
against Eligible  Accounts from time to time in its reasonable  credit judgment.
In addition,  Agent reserves the right,  at any time and from time to time after
the Closing  Date,  to adjust any of the criteria set forth below,  to establish
new criteria and to adjust advance rates with respect to Eligible  Accounts,  in
its  reasonable  credit  judgment,  subject  to the  approval  of  Supermajority
Revolving Lenders in the case of adjustments,  new criteria,  changes in advance
rates or the  elimination  of Reserves  (other than  elimination of the dilution
Reserve and any  additional  Reserves  established  after the Closing Date which
elimination shall be at Agent's sole discretion) which have the effect of making
more credit  available.  Eligible  Accounts shall not include any Account of any
Borrower:

                  (a) that does not arise from the sale of goods or the
performance of services by such Borrower in the ordinary course of its business;



                                        9
<PAGE>

(b) (i) upon which such  Borrower's  right to receive payment is not absolute or
is contingent  upon the  fulfillment  of any condition  whatsoever or (ii) as to
which such Borrower is not able to bring suit or otherwise  enforce its remedies
against  the Account  Debtor  through  judicial  process or (iii) if the Account
represents a progress billing consisting of an invoice for goods sold or used or
services  rendered  pursuant  to a contract  under  which the  Account  Debtor's
obligation  to pay that  invoice  is subject to such  Borrower's  completion  of
further performance under such contract or is subject to the equitable lien of a
surety bond issuer;

                  (c) to the extent that any defense, counterclaim, setoff or
dispute is asserted as to such Account but only to the amount disputed;

                  (d)  that is not a true and  correct  statement  of bona  fide
indebtedness  incurred in the amount of the Account for  merchandise  sold to or
services rendered and accepted by the applicable Account Debtor;

                  (e) with respect to which an invoice, reasonably acceptable to
Agent in form and substance, has not been sent to the applicable Account Debtor;

                  (f) that (i) is not owned by such  Borrower or (ii) is subject
to any right,  claim,  security  interest or other interest of any other Person,
other than Liens in favor of Agent, on behalf of itself and Lenders;

                  (g) that arises from a sale to any officer,  other employee or
Affiliate of any Credit Party,  or to any entity that has any common  officer or
director with any Credit Party, except with respect to sales to directors and to
those Affiliates identified on Disclosure Schedule 1.6(g);

                  (h) that is the  obligation  of an Account  Debtor that is the
United States  government or a political  subdivision  thereof,  or  department,
agency or  instrumentality  thereof unless Agent,  in its sole  discretion,  has
agreed to the contrary in writing and such Borrower,  if necessary or desirable,
has complied  with respect to such  obligation  with the Federal  Assignment  of
Claims Act of 1940;

                  (i) that is the  obligation of an Account  Debtor located in a
foreign country other than Canada  (excluding the province of Newfoundland,  the
Northwest  Territories  and the Territory of Nunavit)  unless payment thereof is
assured  by a letter of  credit  assigned  and  delivered  to Agent,  reasonably
satisfactory to Agent as to form, amount and issuer;

                  (j) to the extent such Borrower or any  Subsidiary  thereof is
liable for goods sold or services  rendered by the applicable  Account Debtor to
such Borrower or any Subsidiary  thereof but only to the extent of the potential
offset;

                  (k) that arises with respect to goods that are  delivered on a
bill-and-hold,  cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;

                  (l) that is in default;  provided,  that, without limiting the
generality  of the  foregoing,  an Account  shall be deemed in default  upon the
occurrence of any of the following:



                                       10
<PAGE>

                        (i) the Account is not paid within the earlier of: 60
days following its due date or 90 days following its original invoice date;

                        (ii) the Account Debtor obligated upon such Account
suspends business, makes a general assignment for the benefit of creditors or
fails to pay its debts generally as they come due; or

                        (iii) a petition is filed by or against any Account
Debtor  obligated  upon  such  Account  under  any  bankruptcy  law or any other
federal,  state or foreign (including any provincial)  receivership,  insolvency
relief or other law or laws for the relief of debtors;

                  (m) that is the obligation of an Account Debtor if 50% or more
of the Dollar amount of all Accounts owing by that Account Debtor are ineligible
under the other criteria set forth in this Section 1.6;

                  (n) as to which Agent's Lien thereon, on behalf of itself and
Lenders, is not a first priority perfected Lien;

                  (o) as to which any of the representations or warranties in
the Loan Documents are untrue;

                  (p) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper;

                  (q) to the  extent  such  Account  exceeds  any  credit  limit
established by Agent, in its reasonable credit judgment,  following prior notice
of such limit by Agent to Borrower Representative;

                  (r) to the extent that such  Account,  together with all other
Accounts  owing by such  Account  Debtor  and its  Affiliates  as of any date of
determination exceed 10% of all Eligible Accounts;

                  (s) that is payable in any currency other than Dollars; or

                  (t) that is otherwise unacceptable to Agent in its reasonable
credit judgment.

         1.7 Eligible Inventory. All of the Inventory owned by the Borrowers and
reflected  in the most  recent  Borrowing  Base  Certificate  delivered  by each
Borrower to Agent shall be "Eligible  Inventory" for purposes of this Agreement,
except any Inventory to which any of the  exclusionary  criteria set forth below
applies.  Agent shall have the right to establish,  modify or eliminate Reserves
against Eligible  Inventory from time to time in its reasonable credit judgment.
In addition,  Agent reserves the right,  at any time and from time to time after
the Closing  Date,  to adjust any of the criteria set forth below,  to establish
new criteria and to adjust advance rates with respect to Eligible Inventory,  in
its  reasonable  credit  judgment,  subject  to the  approval  of  Supermajority
Revolving Lenders in the case of adjustments,  new criteria,  changes in advance
rates or the  elimination  of Reserves  (other than the  elimination of Reserves
established  prior to the  Closing  Date  pursuant  to Section  5.9 in the event
Borrowers obtain landlord or mortgagee  agreements,  access agreements or bailee
letters, in form and substance satisfactory to Agent, after the Closing Date or


                                       11
<PAGE>

the  elimination  of  Reserves   established   after  the  Closing  Date,  which
elimination  in each case shall be at Agent's  sole  discretion)  which have the
effect of making more credit available. Eligible Inventory shall not include any
Inventory of any Borrower that:

                  (a) is not owned by such  Borrower free and clear of all Liens
and rights of any other  Person  (including  the rights of a purchaser  that has
made  progress  payments  and the  rights of a surety  that has issued a bond to
assure such Borrower's  performance with respect to that Inventory),  except the
Liens in favor of  Agent,  on  behalf  of  itself  and  Lenders,  and  Permitted
Encumbrances  in favor of  landlords  and  bailees  to the extent  permitted  in
Section 5.9 hereof (subject to Reserves  established by Agent in accordance with
Section 5.9 hereof);

                  (b) (i) other than with  respect to  Eligible  Energy  Product
Inventory,  is not located on premises owned,  leased or rented by such Borrower
and set forth in Disclosure Schedule (3.2), (ii) is stored at a leased location,
unless  Agent has given  its prior  consent  thereto  and  unless  either  (x) a
reasonably  satisfactory  landlord  waiver has been  delivered to Agent,  or (y)
Reserves  reasonably  satisfactory to Agent have been  established  with respect
thereto,  or (iii) is stored with a bailee or  warehouseman  unless a reasonably
satisfactory, acknowledged bailee letter has been received by Agent and Reserves
reasonably  satisfactory to Agent have been established with respect thereto, or
(iv) is located at an owned location  subject to a mortgage in favor of a lender
other than Agent  unless a  reasonably  satisfactory  mortgagee  waiver has been
delivered to Agent, or (v) is located at any site if the aggregate book value of
Inventory  at any such  location is less than  $100,000  (except with respect to
HVAC equipment, if the aggregate book value of Inventory at any such location is
less than $25,000);

                  (c) consists of perishable agricultural commodities subject to
PACA;

                  (d) is subject to Exchange Agreements, but only to the extent
such Inventory is subject to Exchange Agreements;

                  (e) is placed on consignment or is in transit except for
Eligible-in-Transit Inventory;

                  (f) is covered by a negotiable  document of title, unless such
document has been delivered to Agent with all necessary  endorsements,  free and
clear of all Liens except those in favor of Agent and Lenders;

                  (g)  is  excess,  obsolete,   unsalable,   shopworn,  seconds,
damaged, customized (but only with respect to customized Inventory consisting of
bags produced by the Apex Bag division) or unfit for sale;

                  (h)   consists  of  display   items  or  packing  or  shipping
materials,  manufacturing  supplies,  work-in-process  Inventory or  replacement
parts (except to the extent such replacement  parts are held out for sale in the
ordinary course of business of such Borrower's energy product business);

                  (i)  consists of goods which have been  returned by the buyer,
unless  such  goods  can be  sold in the  ordinary  course  of  such  Borrower's
business;



                                       12
<PAGE>

                  (j) is not of a type held for sale in the ordinary course of
such Borrower's business;

                  (k) is not subject to a first priority lien in favor of Agent
on behalf of itself and Lenders, subject to Permitted Encumbrances;

                  (l) breaches any of the representations or warranties
pertaining to Inventory set forth in the Loan Documents;

                  (m) consists of any costs associated with additional
"freight-in" charges;

                  (n) consists of Hazardous Materials or goods that can be
transported or sold only with licenses that are not readily available;

                  (o) is not covered by casualty insurance reasonably acceptable
to Agent; or

                  (p) is otherwise unacceptable to Agent in its reasonable
credit judgment.

         1.8 Cash Management Systems. On or prior to the Closing Date, Borrowers
will establish and will maintain until the Termination Date, the cash management
systems described in Annex C (the "Cash Management Systems").

         1.9 Fees.

                  (a) Borrowers shall pay to GE Capital,  individually, the Fees
specified  in that  certain  fee  letter  dated as of  January  17,  2001  among
Borrowers and GE Capital (the "GE Capital Fee Letter"),  at the times  specified
for payment therein.

                  (b) As  additional  compensation  for the  Revolving  Lenders,
Borrowers  shall pay to Agent,  for the  ratable  benefit  of such  Lenders,  in
arrears,  on the  first  Business  Day of each  month  prior  to the  Commitment
Termination  Date and on the Commitment  Termination  Date, a Fee for Borrowers'
non-use of available funds in an amount equal to the Applicable  Unused Line Fee
Margin  per annum  (calculated  on the basis of a 360 day year for  actual  days
elapsed)  multiplied by the difference between (x) the Maximum Amount (as it may
be reduced  from time to time) and (y) the average for the period for which such
Fee is due of the daily closing balances of the aggregate Revolving Loan and the
Swing Line Loan outstanding during such period.

                  (c)  If  Borrowers  pay  after   acceleration  or  prepay  the
Revolving  Loan and reduce or terminate the Revolving Loan  Commitment,  whether
voluntarily or  involuntarily  and whether before or after  acceleration  of the
Obligations,  or if any of the Commitments are otherwise  terminated,  Borrowers
shall pay to Agent,  for the  benefit  of  Lenders  as  liquidated  damages  and
compensation  for the costs of being prepared to make funds available  hereunder
an amount equal to the Applicable  Percentage  (as defined below)  multiplied by
the sum of the amount of the reduction of the Revolving Loan Commitment. As used
herein, the term "Applicable Percentage" shall mean one percent (1%) in the case
of a prepayment on or prior to the second  anniversary  of the Closing Date. The
Credit Parties agree that the Applicable Percentage is a reasonable  calculation
of Lenders'  lost  profits in view of the  difficulties  and  impracticality  of
determining actual damages resulting from an early termination of the


                                       13
<PAGE>

Commitments.  Notwithstanding the foregoing,  no prepayment fee shall be payable
by Borrowers  upon a mandatory  prepayment  made pursuant to Sections  1.3(b) or
1.16(c);  provided  that  Borrowers do not  permanently  reduce or terminate the
Revolving  Loan  Commitment  upon  any  such  prepayment  and,  in the  case  of
prepayments  made pursuant to Sections  1.3(b)(ii) or (b)(iii),  the transaction
giving rise to the applicable prepayment is expressly permitted under Section 6.

                  (d) Borrowers  shall pay to Agent,  for the ratable benefit of
Revolving Lenders, the Letter of Credit Fee as provided in Annex B.

         1.10 Receipt of Payments.  Borrowers shall make each payment under this
Agreement  not  later  than 2:00  p.m.  (New  York  time) on the day when due in
immediately  available funds in Dollars to the Collection Account.  For purposes
of computing interest and Fees and determining Borrowing  Availability as of any
date,  all  payments  shall be  deemed  received  on the  Business  Day on which
immediately  available  funds  therefor are received in the  Collection  Account
prior to 2:00 p.m.  New York time.  Payments  received  after 2:00 p.m. New York
time on any  Business Day or on a day that is not a Business Day shall be deemed
to have been received on the following Business Day.

         1.11 Application and Allocation of Payments.

                  (a) So long as no Default or Event of Default has occurred and
is continuing,  (i) payments  consisting of proceeds of Accounts received in the
ordinary course of business shall be applied, first, to the Swing Line Loan and,
second,  the Revolving  Loan;  (ii)  voluntary  prepayments  shall be applied as
determined  by Borrower  Representative,  subject to the  provisions  of Section
1.3(a);  and  (iii)  mandatory  prepayments  shall be  applied  as set  forth in
Sections 1.3(c) and 1.3(d). All payments and prepayments applied to a particular
Loan shall be applied  ratably to the  portion  thereof  held by each  Lender as
determined  by its  Pro  Rata  Share.  As to any  other  payment,  and as to all
payments  made when a Default or Event of Default has occurred and is continuing
or following the Commitment  Termination Date, each Borrower hereby  irrevocably
waives the right to direct the application of any and all payments received from
or on behalf of such Borrower,  and each Borrower hereby irrevocably agrees that
Agent  shall  have the  continuing  exclusive  right  to apply  any and all such
payments  against  the  Obligations  of  Borrowers  as Agent may deem  advisable
notwithstanding  any  previous  entry by Agent in the Loan  Account or any other
books and  records.  In the  absence of a specific  determination  by Agent with
respect  thereto,  payments  shall be applied to amounts then due and payable in
the following order: (1) to Fees and Agent's  expenses  reimbursable  hereunder;
(2) to interest on the Swing Line Loan;  (3) to principal  payments on the Swing
Line Loan;  (4) to interest on the other  Loans,  ratably in  proportion  to the
interest  accrued as to each Loan; (5) to principal  payments on the other Loans
and to provide cash  collateral  for Letter of Credit  Obligations in the manner
described in Annex B, ratably to the aggregate,  combined  principal  balance of
the other Loans and  outstanding  Letter of Credit  Obligations;  and (6) to all
other  Obligations,  including  expenses  of Lenders to the extent  reimbursable
under Section 11.3.

                  (b) Agent is  authorized  to,  and at its sole  election  may,
charge to the Revolving  Loan balance on behalf of each Borrower and cause to be
paid all  Fees,  expenses,  Charges,  costs  (including  insurance  premiums  in
accordance with Section 5.4(a)) and interest and principal, other than principal


                                       14
<PAGE>

of the Revolving  Loan,  owing by Borrowers  under this  Agreement or any of the
other Loan  Documents  if and to the extent  Borrowers  fail to pay promptly any
such amounts as and when due,  even if the amount of such  charges  would exceed
Borrowing  Availability  at such  time.  At  Agent's  option  and to the  extent
permitted by law,  any charges so made shall  constitute  part of the  Revolving
Loan hereunder.

         1.12 Loan Account and  Accounting.  Agent shall maintain a loan account
(the "Loan Account") on its books to record: all Revolving Credit Advances,  all
payments made by Borrowers, and all other debits and credits as provided in this
Agreement with respect to the Loans or any other Obligations. All entries in the
Loan  Account  shall be made in  accordance  with Agent's  customary  accounting
practices as in effect from time to time.  The balance in the Loan  Account,  as
recorded on Agent's  most recent  printout or other  written  statement,  shall,
absent manifest  error, be presumptive  evidence of the amounts due and owing to
Agent and Lenders by  Borrowers;  provided  that any failure to so record or any
error in so recording shall not limit or otherwise affect any Borrower's duty to
pay the  Obligations.  Agent shall render to Borrower  Representative  a monthly
accounting of  transactions  with respect to the Loans setting forth the balance
of the Loan Account as to Borrowers for the immediately  preceding month. Unless
Borrower  Representative  notifies Agent in writing of any objection to any such
accounting  (specifically  describing the basis for such  objection),  within 30
days  after the date  thereof,  each and every  such  accounting  shall  (absent
manifest  error) be deemed  final,  binding and  conclusive  on Borrowers in all
respects  as to all  matters  reflected  therein.  Only  those  items  expressly
objected  to in such  notice  shall  be  deemed  to be  disputed  by  Borrowers.
Notwithstanding  any provision herein contained to the contrary,  any Lender may
elect (which  election may be revoked) to dispense with the issuance of Notes to
that  Lender  and may rely on the Loan  Account  as  evidence  of the  amount of
Obligations from time to time owing to it.

         1.13 Indemnity.

                  (a) Each Credit Party that is a signatory hereto shall jointly
and  severally  indemnify  and hold  harmless  each of Agent,  Lenders and their
respective  Affiliates,  and each such Person's respective officers,  directors,
employees,   attorneys,   agents  and  representatives  (each,  an  "Indemnified
Person"),  from and against  any and all suits,  actions,  proceedings,  claims,
damages,  losses,  liabilities,  obligations,  penalties,  judgments,  costs and
expenses (including reasonable attorneys' fees and disbursements and other costs
of investigation or defense,  including those incurred upon any appeal) that may
be instituted or asserted against or incurred by any such Indemnified  Person as
the result of credit having been  extended,  suspended or terminated  under this
Agreement and the other Loan  Documents and the  administration  of such credit,
and in connection with or arising out of the transactions contemplated hereunder
and  thereunder  and any  actions or failures  to act in  connection  therewith,
including  any and all  Environmental  Liabilities  and legal costs and expenses
arising out of or  incurred in  connection  with  disputes  between or among any
parties to any of the Loan Documents (collectively,  "Indemnified Liabilities");
provided,  that no such Credit Party shall be liable for any  indemnification to
an  Indemnified  Person to the extent  that any such suit,  action,  proceeding,
claim, damage, loss, liability,  obligation,  penalty, judgment, cost or expense
results from that Indemnified  Person's gross negligence or willful  misconduct.
NO  INDEMNIFIED  PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON


                                       15
<PAGE>

OR ANY OTHER  PERSON  ASSERTING  CLAIMS  DERIVATIVELY  THROUGH  SUCH PARTY,  FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN  EXTENDED,  SUSPENDED OR TERMINATED  UNDER ANY LOAN
DOCUMENT  OR AS A RESULT  OF ANY OTHER  TRANSACTION  CONTEMPLATED  HEREUNDER  OR
THEREUNDER.

                  (b) To induce  Lenders to provide the LIBOR Rate option on the
terms  provided  herein,  if (i) any LIBOR  Loans are repaid in whole or in part
prior to the last day of any applicable  LIBOR Period (whether that repayment is
made pursuant to any  provision of this  Agreement or any other Loan Document or
occurs as a result of acceleration,  by operation of law or otherwise); (ii) any
Borrower  shall  default  in  payment  when due of the  principal  amount  of or
interest  on any LIBOR  Loan;  (iii) any  Borrower  shall  refuse to accept  any
borrowing of, or shall request a  termination  of, any borrowing of,  conversion
into or  continuation  of, LIBOR Loans after Borrower  Representative  has given
notice  requesting the same in accordance  herewith;  or (iv) any Borrower shall
fail to make any  prepayment of a LIBOR Loan after Borrower  Representative  has
given a notice thereof in accordance herewith,  then Borrowers shall jointly and
severally  indemnify  and hold harmless each Lender from and against all losses,
costs and expenses  resulting  from or arising from any of the  foregoing.  Such
indemnification  shall  include any loss  (including  loss of margin) or expense
arising from the  reemployment  of funds  obtained by it or from fees payable to
terminate  deposits  from which such funds  were  obtained.  For the  purpose of
calculating amounts payable to a Lender under this subsection, each Lender shall
be deemed to have actually  funded its relevant  LIBOR Loan through the purchase
of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount
of that  LIBOR  Loan and  having a maturity  comparable  to the  relevant  LIBOR
Period;  provided,  that each  Lender  may fund  each of its LIBOR  Loans in any
manner it sees fit, and the foregoing  assumption shall be utilized only for the
calculation  of amounts  payable  under this  subsection.  This  covenant  shall
survive the  termination  of this Agreement and the payment of the Notes and all
other  amounts  payable   hereunder.   As  promptly  as  practicable  under  the
circumstances,  each  Lender  shall  provide  Borrower  Representative  with its
written calculation of all amounts payable pursuant to this Section 1.13(b), and
such  calculation  shall  be  binding  on the  parties  hereto  unless  Borrower
Representative  shall  object in  writing  within 10  Business  Days of  receipt
thereof, specifying the basis for such objection in detail.

         1.14 Access.  Each Credit Party that is a party  hereto  shall,  during
normal business hours,  from time to time upon three Business Days' prior notice
as frequently as Agent  determines  to be  reasonably  appropriate:  (a) provide
Agent and any of its officers,  employees  and agents access to its  properties,
facilities, advisors and employees (including officers) of each Credit Party and
to the  Collateral,  (b) permit Agent,  and any of its  officers,  employees and
agents,  to inspect,  audit and make extracts from any Credit  Party's books and
records,  and (c) permit  Agent,  and its  officers,  employees  and agents,  to
inspect,  review,  evaluate  and  make  test  verifications  and  counts  of the
Accounts,  Inventory and other  Collateral of any Credit Party.  If a Default or
Event of Default has  occurred  and is  continuing  or if access is necessary to
preserve or protect the  Collateral  as  determined  by Agent,  each such Credit
Party  shall  provide  such  access to Agent and to each Lender at all times and
without  advance  notice.  Furthermore,  so long as any  Event  of  Default  has
occurred and is continuing,  Borrowers  shall provide Agent and each Lender with
access to their suppliers and customers. Each Credit Party shall make available


                                       16
<PAGE>

to Agent and its  counsel,  as quickly as is possible  under the  circumstances,
originals or copies of all books and records that Agent may reasonably  request.
Each Credit Party shall deliver any document or instrument  necessary for Agent,
as it may from  time to time  reasonably  request,  to obtain  records  from any
service bureau or other Person that maintains records for such Credit Party, and
shall maintain duplicate records or supporting documentation on media, including
computer tapes and discs owned by such Credit Party.  Agent will give Lenders at
least 3 Business  Days' prior  written  notice of  regularly  scheduled  audits.
Representatives  of other  Lenders  may  accompany  Agent's  representatives  on
regularly scheduled audits at no charge to Borrowers.

         1.15 Taxes.

                  (a) Any and all payments by each Borrower hereunder (including
any payments  made  pursuant to Section 12) or under the Notes shall be made, in
accordance with this Section 1.15,  free and clear of and without  deduction for
any and all present or future Taxes. If any Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder  (including any
sum  payable  pursuant  to Section  12) or under the Notes,  (i) the sum payable
shall be  increased  as much as shall be  necessary  so that  after  making  all
required deductions  (including deductions applicable to additional sums payable
under this  Section  1.15) Agent or Lenders,  as  applicable,  receive an amount
equal to the sum they would have received had no such deductions been made, (ii)
such Borrower shall make such deductions,  and (iii) such Borrower shall pay the
full amount  deducted to the relevant  taxing or other  authority in  accordance
with  applicable  law.  Within 30 days  after the date of any  payment of Taxes,
Borrower  Representative shall furnish to Agent the original or a certified copy
of a  receipt  evidencing  payment  thereof.  Agent  and  Lenders  shall  not be
obligated  to return or refund any amounts  received  pursuant  to this  Section
1.15.

                  (b) Each Credit Party that is a signatory hereto shall jointly
and severally  indemnify and, within 10 days of demand  therefor,  pay Agent and
each Lender for the full  amount of Taxes  (including  any Taxes  imposed by any
jurisdiction  on amounts  payable under this Section 1.15) paid by Agent or such
Lender, as appropriate,  and any liability  (including  penalties,  interest and
expenses) arising  therefrom or with respect thereto,  whether or not such Taxes
were correctly or legally asserted.

                  (c) Each  Lender  organized  under the laws of a  jurisdiction
outside the United States (a "Foreign  Lender") as to which  payments to be made
under  this  Agreement  or  under  the  Notes  are  exempt  from  United  States
withholding  tax under an  applicable  statute  or tax treaty  shall  provide to
Borrower  Representative  and Agent a properly  completed  and executed IRS Form
W-8ECI  or Form  W-8BEN  or  other  applicable  form,  certificate  or  document
prescribed  by the  IRS or the  United  States  certifying  as to  such  Foreign
Lender's  entitlement  to such exemption (a  "Certificate  of  Exemption").  Any
foreign Person that seeks to become a Lender under this Agreement  shall provide
a  Certificate  of  Exemption  to  Borrower  Representative  and Agent  prior to
becoming a Lender hereunder.  No foreign Person may become a Lender hereunder if
such Person fails to deliver a Certificate of Exemption in advance of becoming a
Lender.

         1.16 Capital Adequacy; Increased Costs; Illegality.



                                       17
<PAGE>

                  (a) If any Lender shall have determined that any law,  treaty,
governmental  (or  quasi-governmental)  rule,  regulation,  guideline  or  order
regarding  capital  adequacy,  reserve  requirements or similar  requirements or
compliance  by any  Lender  with any  request  or  directive  regarding  capital
adequacy,  reserve requirements or similar  requirements  (whether or not having
the force of law),  in each  case,  adopted  after the  Closing  Date,  from any
central bank or other Governmental  Authority increases or would have the effect
of  increasing  the amount of capital,  reserves  or other funds  required to be
maintained  by such  Lender  and  thereby  reducing  the rate of  return on such
Lender's capital as a consequence of its obligations  hereunder,  then Borrowers
shall from time to time upon demand by such  Lender  (with a copy of such demand
to Agent) pay to Agent,  for the  account  of such  Lender,  additional  amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount  of that  reduction  and  showing  the basis of the  computation  thereof
submitted by such Lender to Borrower  Representative and to Agent shall,  absent
manifest error, be final, conclusive and binding for all purposes.

                  (b) If, due to either (i) the introduction of or any change in
any law or regulation (or any change in the interpretation  thereof) or (ii) the
compliance  with  any  guideline  or  request  from  any  central  bank or other
Governmental  Authority  (whether or not having the force of law),  in each case
adopted after the Closing  Date,  there shall be any increase in the cost to any
Lender of  agreeing to make or making,  funding or  maintaining  any Loan,  then
Borrowers  shall from time to time,  upon demand by such Lender  (with a copy of
such demand to Agent),  pay to Agent for the  account of such Lender  additional
amounts  sufficient  to  compensate  such  Lender  for such  increased  cost.  A
certificate  as to the amount of such  increased  cost,  submitted  to  Borrower
Representative  and to Agent by such Lender,  shall be conclusive and binding on
Borrowers for all purposes,  absent manifest error.  Each Lender agrees that, as
promptly as practicable after it becomes aware of any circumstances  referred to
above which would result in any such increased  cost, the affected Lender shall,
to the extent not inconsistent  with such Lender's  internal policies of general
application,  use reasonable  commercial  efforts to minimize costs and expenses
incurred by it and payable to it by Borrowers pursuant to this Section 1.16(b).

                  (c) Notwithstanding anything to the contrary contained herein,
if the  introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to  continue to fund or  maintain  any LIBOR  Loan,  then,
unless that  Lender is able to make or to  continue to fund or to maintain  such
LIBOR Loan at another branch or office of that Lender without,  in that Lender's
opinion,  adversely  affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower  Representative
through Agent,  (i) the obligation of such Lender to agree to make or to make or
to  continue  to fund or maintain  LIBOR  Loans  shall  terminate  and (ii) each
Borrower shall  forthwith  prepay in full all  outstanding  LIBOR Loans owing by
such Borrower to such Lender,  together with interest  accrued  thereon,  unless
Borrower Representative on behalf of such Borrower, within 5 Business Days after
the delivery of such notice and demand, converts all LIBOR Loans into Index Rate
Loans.

                  (d) Within 15 days after receipt by Borrower Representative of
written notice and demand from any Lender (an "Affected  Lender") for payment of
additional  amounts or increased costs as provided in Sections 1.15(a),  1.16(a)
or 1.16(b),  Borrower  Representative may, at its option,  notify Agent and such
Affected Lender of its intention to replace the Affected Lender. So long as no


                                       18
<PAGE>

Default  or  Event  of  Default  has  occurred  and  is   continuing,   Borrower
Representative,  with the consent of Agent, may obtain, at Borrowers' expense, a
replacement  Lender  ("Replacement  Lender")  for  the  Affected  Lender,  which
Replacement Lender must be reasonably satisfactory to Agent. If Borrowers obtain
a Replacement  Lender within 90 days following  notice of their  intention to do
so, the Affected  Lender must sell and assign its Loans and  Commitments to such
Replacement  Lender for an amount  equal to the  principal  balance of all Loans
held by the  Affected  Lender and all  accrued  interest  and Fees with  respect
thereto  through  the date of such sale;  provided,  that  Borrowers  shall have
reimbursed  such Affected  Lender for the additional  amounts or increased costs
that it is entitled  to receive  under this  Agreement  through the date of such
sale and assignment. Notwithstanding the foregoing, Borrowers shall not have the
right to obtain a Replacement  Lender if the Affected Lender rescinds its demand
for increased  costs or additional  amounts within 15 days following its receipt
of Borrowers' notice of intention to replace such Affected Lender.  Furthermore,
if  Borrowers  give a notice of  intention to replace and do not so replace such
Affected Lender within 90 days thereafter,  Borrowers' rights under this Section
1.16(d) shall  terminate and Borrowers shall promptly pay all increased costs or
additional  amounts  demanded  by such  Affected  Lender  pursuant  to  Sections
1.15(a), 1.16(a) and 1.16(b).

         1.17  Single  Loan.  All  Loans to each  Borrower  and all of the other
Obligations  of each Borrower  arising  under this  Agreement and the other Loan
Documents  shall  constitute  one general  obligation of that Borrower  secured,
until the Termination  Date, by all of the Collateral,  except as may be limited
by any Mortgage.

2.       CONDITIONS PRECEDENT

         2.1  Conditions to the Initial  Loans.  No Lender shall be obligated to
make any Loan or incur any Letter of Credit  Obligations on the Closing Date, or
to take,  fulfill,  or perform any other action  hereunder,  until the following
conditions  have been  satisfied  or provided  for in a manner  satisfactory  to
Agent, or waived in writing by Agent and Lenders:

                  (a)  Credit  Agreement;  Loan  Documents.  This  Agreement  or
counterparts  hereof  shall  have been  duly  executed  by,  and  delivered  to,
Borrowers,  each other Credit  Party,  Agent and  Lenders;  and Agent shall have
received such  documents,  instruments,  agreements  and legal opinions as Agent
shall  reasonably  request in connection with the  transactions  contemplated by
this Agreement and the other Loan  Documents,  including all those listed in the
Closing  Checklist  attached  hereto  as  Annex D,  each in form  and  substance
reasonably satisfactory to Agent.

                  (b)  Repayment of Prior Lender  Obligations;  Satisfaction  of
Outstanding  L/Cs. (i) Agent shall have received a fully executed  original of a
pay-off letter reasonably satisfactory to Agent confirming that all of the Prior
Lender  Obligations  will be  repaid in full from the  proceeds  of the  initial
Revolving  Credit Advance and all Liens upon any of the property of Borrowers or
any of their  Subsidiaries in favor of Prior Lender shall be terminated by Prior
Lender  immediately upon such payment;  and (ii) all letters of credit issued or
guaranteed by Prior Lender shall have been cash  collateralized,  supported by a
guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B,
as mutually agreed upon by Agent, Borrowers and Prior Lender.



                                       19
<PAGE>

                  (c)  Approvals.  Agent shall have  received  (i)  satisfactory
evidence  that the Credit  Parties  have  obtained  all  required  consents  and
approvals of all Persons including all requisite  Governmental  Authorities,  to
the  execution,  delivery and  performance  of this Agreement and the other Loan
Documents and the consummation of the Related  Transactions or (ii) an officer's
certificate in form and substance  reasonably  satisfactory  to Agent  affirming
that no such consents or approvals are required.

                  (d) Opening  Availability.  The Eligible Accounts and Eligible
Inventory supporting the initial Revolving Credit Advance and the initial Letter
of Credit Obligations  incurred and the amount of the Reserves to be established
on the Closing Date shall be  sufficient in value,  as  determined by Agent,  to
provide  Borrowers  with  Borrowing  Availability,  after  giving  effect to the
initial Revolving Credit Advance, the incurrence of any initial Letter of Credit
Obligations  and the  consummation of the Related  Transactions  (on a pro forma
basis,  with trade payables being paid  currently,  and expenses and liabilities
being paid in the ordinary course of business and without acceleration of sales)
of at least Twenty Five Million Dollars ($25,000,000).

                  (e)  Payment  of  Fees.  Borrowers  shall  have  paid the Fees
required to be paid on the Closing Date in the respective  amounts  specified in
Section 1.9  (including  the Fees  specified in the GE Capital Fee Letter),  and
shall  have  reimbursed  Agent  for all  fees,  costs and  expenses  of  closing
presented as of the Closing Date.

                  (f)  Pre-Closing  Syndication.  Agent  shall  have  syndicated
Seventy Five Million  Dollars  ($75,000,000)  of the Revolving Loan  Commitment,
which  syndication  shall include Seventy Five Million Dollars  ($75,000,000) of
commitments from Rabo Bank and CoBANK.

                  (g) Restructuring Plan. Agent shall have received the
Agricultural Restructuring Plan, in form and substance acceptable to Agent.

                  (h) Capital Structure: Other Indebtedness. The capital
structure of each Credit Party and the terms and conditions of all Indebtedness
of each Credit Party shall be acceptable to Agent.

                  (i) Due Diligence. Agent shall have completed its business and
legal due  diligence,  including a roll  forward of its previous  February  2001
Borrowing  Base  and a review  of  Borrowers'  hedging  policies,  with  results
reasonably satisfactory to Agent.

                  (j)  Consummation  of Related  Transactions.  Agent shall have
received fully executed copies of the Related  Transactions  Documents,  each of
which shall be in form and substance  reasonably  satisfactory  to Agent and its
counsel. The Related Transactions shall have been consummated in accordance with
the terms of the Related Transactions Documents.

         2.2 Further  Conditions  to Each Loan.  Except as  otherwise  expressly
provided  herein,  no Lender shall be obligated to fund any Advance,  convert or
continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation,  if,
as of the date thereof:



                                       20
<PAGE>

                  (a)  any  representation  or  warranty  by  any  Credit  Party
contained herein or in any other Loan Document is untrue or incorrect as of such
date,  except to the  extent  that such  representation  or  warranty  expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly  contemplated  by this  Agreement and Agent or Requisite  Lenders have
determined not to make such Advance,  convert or continue any Loan as LIBOR Loan
or incur  such  Letter  of Credit  Obligation  as a result of the fact that such
warranty or representation is untrue or incorrect;

                  (b) any event or circumstance having a Material Adverse Effect
has occurred  since the date hereof as determined  by the Requisite  Lenders and
Agent or Requisite Lenders have determined not to make such Advance,  convert or
continue any Loan as a LIBOR Loan or incur such Letter of Credit Obligation as a
result of the fact that such event or circumstance has occurred;

                  (c) any  Default  or  Event of  Default  has  occurred  and is
continuing or would result after giving effect to any Advance (or the incurrence
of any Letter of Credit  Obligation),  and Agent or Requisite Lenders shall have
determined not to make any Advance, convert or continue any Loan as a LIBOR Loan
or incur any Letter of Credit Obligation as a result of that Default or Event of
Default;

                  (d) after giving  effect to any Advance (or the  incurrence of
any Letter of Credit Obligations),  (i) the outstanding  principal amount of the
aggregate  Revolving  Loan would exceed the lesser of the Borrowing Base and the
Maximum Amount, in each case, less the then outstanding  principal amount of the
Swing Line Loan;

                  (e)  the  outstanding   principal  balance  of  the  aggregate
Revolving  Loan is not  less  than $  8,000,000  unless  prior  to the  proposed
Advance,  conversion or continuation,  Borrowers have paid or otherwise escrowed
with Agent all  applicable  mortgage  recording  taxes  which  Agent  reasonably
believes  may result  from  Borrowers'  failure  to  maintain  such  outstanding
principal balance; or

                  (f) the  proceeds  of any  Advance,  Loan or  Letter of Credit
Obligations  are intended to be used by Borrowers to pay interest and  principal
with respect to Subordinated Debt (i) a Default or Event of Default has occurred
and is  continuing  or would result after giving  effect to such  payments,  and
Borrowers   collectively  do  not  have  Borrowing   Availability  of  at  least
$20,000,000 after giving effect to such payments,  or (ii) if a Default or Event
of Default has occurred and is continuing,  Borrowers'  collectively do not have
Borrowing Availability of at least $25,000,000,  and (A) Agent provides Borrower
Representative  with written notice that such payments are no longer  permitted,
(B) any Event of Default has occurred and is continuing  under  Section  8.1(a),
(C) any Credit  Party fails or  neglects to perform,  keep or observe any of the
provisions  set forth in Section 1.4 or Annex C, or (D) the aggregate  principal
amount  outstanding in Preferred Stock,  Subordinated Debt and notes outstanding
under the  Milford  Note  Program is less than Four  Hundred  and Forty  Million
Dollars ($440,000,000).

The request and  acceptance by any Borrower of the proceeds of any Advance,  the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan shall be deemed to  constitute,  as of the
date thereof, (i) a representation and warranty by Borrowers that the conditions


                                       21
<PAGE>

in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrowers of
the  cross-guaranty  provisions  set forth in Section 12 and of the granting and
continuance of Agent's Liens,  on behalf of itself and Lenders,  pursuant to the
Collateral Documents.

3.       REPRESENTATIONS AND WARRANTIES

     To  induce  Lenders  to make  the  Loans  and to  incur  Letter  of  Credit
     Obligations,  the Credit  Parties  executing  this  Agreement,  jointly and
     severally,  make the following  representations and warranties to Agent and
     each Lender with respect to all Credit Parties, each and all of which shall
     survive the execution and delivery of this Agreement.

         3.1 Corporate Existence;  Compliance with Law. Each Credit Party (a) is
a corporation,  limited liability company or limited partnership duly organized,
validly  existing  and in  good  standing  under  the  laws  of  its  respective
jurisdiction of incorporation  or organization set forth in Disclosure  Schedule
(3.1); (b) is duly qualified to conduct business and is in good standing in each
other  jurisdiction  where its  ownership or lease of property or the conduct of
its  business  requires  such  qualification,  except where the failure to be so
qualified  would not result in exposure  to losses,  damages or  liabilities  in
excess of $250,000;  (c) has the  requisite  power and  authority  and the legal
right to own, pledge, mortgage or otherwise encumber and operate its properties,
to lease the  property  it operates  under lease and to conduct its  business as
now,  heretofore  and  proposed  to  be  conducted;   (d)  subject  to  specific
representations   regarding  Environmental  Laws,  has  all  material  licenses,
permits,  consents or approvals  from or by, and has made all  material  filings
with, and has given all material notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership,  operation and conduct;
(e) is in  compliance  with its charter and bylaws or  partnership  or operating
agreement, as applicable;  and (f) subject to specific representations set forth
herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance
with all  applicable  provisions  of law,  except  where the  failure to comply,
individually  or in the  aggregate,  could not  reasonably be expected to have a
Material Adverse Effect.

         3.2 Executive Offices,  Collateral  Locations,  FEIN. As of the Closing
Date, the current location of each Credit Party's chief executive office and the
warehouses  and  premises  at which any  Collateral  (other  than (a)  Inventory
consisting  of propane which is located in propane tanks located on the property
of  consumer  purchasers  of propane  from  Borrowers,  and (b)  Energy  Product
Inventory  purchased in bulk by  Borrowers  from  terminal or railcar  locations
which  Inventory  is not  subject  to  bailee  waivers  and is not  deemed to be
Eligible  Inventory) is located  (including a description of the pipeline routes
through  which  any  Collateral  is  transported)  are set  forth in  Disclosure
Schedule  (3.2),  and none of such  locations  has  changed  within the 6 months
preceding  the  Closing  Date.  As of the Closing  Date,  (x) AEP has a place of
business in more than one county in each of the following  states:  New York and
Pennsylvania,  (y) Agway has a place of business in more than one county in each
of the  following  states:  Massachusetts,  New  Hampshire,  New York,  Ohio and
Pennsylvania,  and (z) Milford Fertilizer Company LLC has a place of business in
more than one county in the state of  Pennsylvania.  Disclosure  Schedule  (3.2)
also lists the federal employer identification number of each Credit Party.



                                       22
<PAGE>

         3.3  Corporate  Power,  Authorization,   Enforceable  Obligations.  The
execution,  delivery and  performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens  provided for therein:  (a)
are within such Person's  power;  (b) have been duly authorized by all necessary
corporate,  limited liability company or limited  partnership action; (c) do not
contravene  any provision of such Person's  charter,  bylaws or  partnership  or
operating agreement as applicable;  (d) do not violate any law or regulation, or
any order or decree of any court or Governmental Authority;  (e) do not conflict
with or result in the breach or  termination  of,  constitute a default under or
accelerate  or permit  the  acceleration  of any  performance  required  by, any
indenture,  mortgage,  deed of trust,  lease,  agreement or other  instrument to
which such Person is a party or by which such  Person or any of its  property is
bound;  (f) do not result in the creation or  imposition of any Lien upon any of
the  property  of such Person  other than those in favor of Agent,  on behalf of
itself and Lenders,  pursuant to the Loan Documents;  and (g) do not require the
consent or approval of any  Governmental  Authority or any other Person,  except
those referred to in Section 2.1(c),  all of which will have been duly obtained,
made or complied  with prior to the  Closing  Date.  Each of the Loan  Documents
shall be duly  executed  and  delivered  by each  Credit  Party  that is a party
thereto and each such Loan Document shall constitute a legal,  valid and binding
obligation of such Credit Party  enforceable  against it in accordance  with its
terms.

         3.4 Financial  Statements and Projections.  Except for the Projections,
all Financial Statements concerning Borrowers and their respective  Subsidiaries
that  are  referred  to  below  have  been  prepared  in  accordance  with  GAAP
consistently applied throughout the periods covered (except as disclosed therein
and except, with respect to unaudited Financial  Statements,  for the absence of
footnotes  and normal  year-end  audit  adjustments)  and present  fairly in all
material  respects the financial  position of the Persons  covered thereby as at
the dates  thereof  and the results of their  operations  and cash flows for the
periods then ended.

                  (a) Financial Statements. The following Financial Statements
attached hereto as Disclosure Schedule (3.4(a)) have been delivered on the date
hereof:

                        (i) The audited consolidated balance sheet at June 24,
2000 and the related  statements of income and cash flows of Agway, Inc. and its
Subsidiaries,  which  include all  Borrowers,  for the Fiscal  Years then ended,
certified by  PricewaterhouseCoopers  LLP, as well as the consolidating  balance
sheets at June 24, 2000 and the related  consolidating  statements of income and
cash flow which make up the consolidated statements.

                        (ii) The 10-Q for the six months ended December 23,
2000, including the Agway, Inc. consolidated unaudited balance sheet and related
statements of income and cash flows, which include the statements of all
Borrowers.

                        (iii) The internal consolidated and consolidating
unaudited  monthly  financial  statements for the month ended February 24, 2001,
which  have  been  commonly  referred  to  as  the  Agway  Operations  Financial
Statements and are broken down by Borrowers' three business segments.

                  (b) Projections. The Projections delivered on the date hereof
and attached hereto as Disclosure Schedule (3.4(b)) have been prepared by
Borrowers in light of the past operations of their businesses, but including


                                       23
<PAGE>

future payments of known contingent liabilities, and reflect projections for the
three year period beginning on March 1, 2001 on a  month-by-month  basis for the
seventeen  month  period  beginning  on February 1, 2001 and on an annual  basis
thereafter.  The  Projections  are based upon estimates and  assumptions  stated
therein,  all of which  Borrowers  believe to be reasonable and fair in light of
current  conditions  and current facts known to Borrowers and, as of the Closing
Date,  reflect  Borrowers'  good faith and  reasonable  estimates  of the future
financial  performance  of  Borrowers  and of the  other  information  projected
therein for the period set forth therein.

         3.5  Material  Adverse  Effect.  Between  June 24, 2000 and the Closing
Date:  (a)  no  Credit  Party  has  incurred  any  obligations,   contingent  or
noncontingent liabilities,  liabilities for Charges, long-term leases or unusual
forward or long-term  commitments  and that,  alone or in the  aggregate,  could
reasonably be expected to have a Material Adverse Effect, (b) no contract, lease
or other  agreement or  instrument  has been entered into by any Credit Party or
has become  binding  upon any  Credit  Party's  assets and no law or  regulation
applicable to any Credit Party has been adopted that has had or could reasonably
be expected to have a Material  Adverse  Effect,  and (c) no Credit  Party is in
default  and to the best of  Borrowers'  knowledge  no third party is in default
under any material contract, lease or other agreement or instrument,  that alone
or in the  aggregate  could  reasonably  be expected to have a Material  Adverse
Effect.  Between June 24, 2000 and the Closing Date no event has occurred,  that
alone or together  with other  events,  could  reasonably  be expected to have a
Material Adverse Effect.

         3.6  Ownership of Property;  Liens.  As of the Closing  Date,  the real
estate ("Real  Estate") listed in Disclosure  Schedule (3.6)  constitutes all of
the real property owned,  leased,  subleased,  or used by any Credit Party. Each
Credit  Party owns good fee simple  title to all of its owned Real  Estate,  and
valid leasehold  interests in all of its leased Real Estate, all as described on
Disclosure  Schedule (3.6),  and copies of all such leases or a summary of terms
thereof reasonably  satisfactory to Agent have been delivered, or otherwise been
made available,  to Agent.  Disclosure Schedule (3.6) further describes any Real
Estate with respect to which any Credit Party is a lessor, sublessor or assignor
as of the  Closing  Date.  Each  Credit  Party  also has good title to, or valid
leasehold  interests  in, all of its  personal  property  and assets.  As of the
Closing Date,  none of the properties and assets of any Credit Party are subject
to any  Liens  other  than  Permitted  Encumbrances,  and  there  are no  facts,
circumstances  or  conditions  known to any Credit  Party that may result in any
Liens  (including Liens arising under  Environmental  Laws) other than Permitted
Encumbrances.  Each Credit Party has received all deeds,  assignments,  waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party's right, title and
interest in and to all (i) Mortgaged Properties,  and (ii) all other Real Estate
and other  properties  and  assets to the  extent  such  Real  Estate  and other
properties  and assets  are  material  to the  conduct  of such  Credit  Party's
business.  Disclosure Schedule (3.6) also describes any purchase options, rights
of first refusal or other similar contractual rights pertaining to any Mortgaged
Properties. As of the Closing Date, no portion of any Credit Party's Real Estate
that is material to the conduct of such Credit Party's business has suffered any
material  damage by fire or other  casualty  loss that has not  heretofore  been
repaired  and restored in all  material  respects to its  original  condition or
otherwise  remedied.  As of the Closing Date, all material  permits  required to
have been issued or appropriate to enable the Real Estate to be lawfully


                                       24
<PAGE>

occupied and used for all of the purposes for which it is currently occupied and
used have been lawfully issued and are in full force and effect.

         3.7 Labor  Matters.  As of the  Closing  Date (a) no  strikes  or other
material labor  disputes  against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit  Party  comply with the Fair Labor  Standards  Act and each other
federal,  state,  local or  foreign  law  applicable  to such  matters;  (c) all
payments  due from any Credit Party for  employee  health and welfare  insurance
(including  plans and programs  covering  directors,  former  directors,  former
employees and retirees) have been paid or accrued as a liability on the books of
such Credit Party;  (d) except as set forth in  Disclosure  Schedule  (3.7),  no
Credit  Party is a party to or bound  by any  collective  bargaining  agreement,
material  management   agreement,   material  consulting   agreement,   material
employment   agreement,   bonus,   restricted  stock,  stock  option,  or  stock
appreciation  plan or agreement or any similar  plan,  agreement or  arrangement
(and true and complete copies of any agreements described on Disclosure Schedule
(3.7)  have  been  delivered  to  Agent);  (e) there is no  organizing  activity
involving  any  Credit  Party  pending  or,  to any  Credit  Party's  knowledge,
threatened  by  any  labor  union  or  group  of  employees;  (f)  there  are no
representation   proceedings  pending  or,  to  any  Credit  Party's  knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group  of  employees  of  any  Credit  Party  has  made  a  pending  demand  for
recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are
no material  complaints  or charges  against any Credit Party pending or, to the
knowledge  of any Credit  Party,  threatened  to be filed with any  Governmental
Authority  or  arbitrator  based on,  arising  out of, in  connection  with,  or
otherwise  relating to the employment or termination of employment by any Credit
Party of any individual.

         3.8  Ventures,  Subsidiaries  and  Affiliates;  Outstanding  Stock  and
Indebtedness.  Except  as set  forth in  Disclosure  Schedule  (3.8),  as of the
Closing  Date,  no Credit  Party has any  Subsidiaries,  is engaged in any joint
venture or  partnership  with any other Person,  or is an Affiliate of any other
Person.  All of the issued and outstanding Stock of each Credit Party other than
Agway is owned  by each of the  Stockholders  and in the  amounts  set  forth in
Disclosure  Schedule  (3.8).  Except as set forth in Disclosure  Schedule (3.8),
there are no outstanding rights to purchase, options, warrants or similar rights
or agreements pursuant to which any Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities or any Stock or
other equity  securities of its Subsidiaries.  All outstanding  Indebtedness and
Guaranteed  Indebtedness of each Credit Party as of the Closing Date (except for
the  Obligations)  is described in Section 6.3  (including  Disclosure  Schedule
(6.3(a))).  None of the  Credit  Parties  other  than  Borrowers  has any assets
(except  Stock  of  their   Subsidiaries)  or  any  Indebtedness  or  Guaranteed
Indebtedness (except the Obligations).

         3.9 Government  Regulation.  No Credit Party is an "investment company"
or an "affiliated  person" of, or "promoter" or "principal  underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. No Credit Party is subject to regulation  under the Public Utility Holding
Company  Act of 1935,  the  Federal  Power  Act,  or any other  federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder.  The making of the Loans by Lenders to Borrowers, the
incurrence  of the  Letter of Credit  Obligations  on behalf of  Borrowers,  the
application of the proceeds  thereof and repayment  thereof and the consummation
of the Related Transactions will not violate any provision of any such statute


                                       25
<PAGE>

or any rule, regulation or order issued by the Securities and Exchange
Commission.

         3.10  Margin  Regulations.  No  Credit  Party is  engaged,  nor will it
engage,  principally or as one of its important  activities,  in the business of
extending  credit for the  purpose of  "purchasing"  or  "carrying"  any "margin
stock" as such terms are defined in Regulation U of the Federal Reserve Board as
now and from time to time hereafter in effect (such securities being referred to
herein as "Margin  Stock").  No Credit Party owns any Margin Stock,  and none of
the proceeds of the Loans or other  extensions  of credit  under this  Agreement
will be used, directly or indirectly,  for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness  that
was  originally  incurred to purchase or carry any Margin Stock or for any other
purpose  that might cause any of the Loans or other  extensions  of credit under
this  Agreement  to be  considered  a "purpose  credit"  within  the  meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or
permit to be taken any action that might cause any Loan  Document to violate any
regulation of the Federal Reserve Board.

         3.11  Taxes.  All  tax  returns,  reports  and  statements,   including
information returns,  required by any Governmental  Authority to be filed by any
Credit Party have been filed with the appropriate  Governmental Authority except
where the failure to so file would not result in damages,  costs or  liabilities
in excess of $250,000  and all Charges have been paid prior to the date on which
any fine,  penalty,  interest or late charge may be added thereto for nonpayment
thereof  (or any such  fine,  penalty,  interest,  late  charge or loss has been
paid),  excluding  Charges or other amounts being  contested in accordance  with
Section  5.2(b).  Proper and accurate  amounts have been withheld by each Credit
Party  from its  respective  employees  for all  periods  in full  and  complete
compliance with all applicable  federal,  state, local and foreign laws and such
withholdings have been timely paid to the respective  Governmental  Authorities.
Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years
for which any Credit Party's tax returns are currently  being audited by the IRS
or  any  other  applicable  Governmental  Authority,   and  any  assessments  or
threatened  assessments in connection  with such audit,  or otherwise  currently
outstanding.  Except as described in Disclosure Schedule (3.11), no Credit Party
has  executed  or filed  with the IRS or any other  Governmental  Authority  any
agreement or other document  extending,  or having the effect of extending,  the
period for  assessment or collection of any Charges.  None of the Credit Parties
and their  respective  predecessors  are liable for any  Charges:  (a) under any
agreement  (including any tax sharing  agreements) or (b) to each Credit Party's
knowledge,  as a transferee.  As of the Closing Date, no Credit Party has agreed
or been requested to make any adjustment under IRC Section 481(a),  by reason of
a change in accounting method or otherwise,  which would have a Material Adverse
Effect.

         3.12 ERISA.

                  (a) Disclosure  Schedule (3.12) lists (i) all ERISA Affiliates
and (ii) all Plans and separately identifies all Pension Plans,  including Title
IV Plans,  Multiemployer  Plans, ESOPs and Welfare Plans,  including all Retiree
Welfare Plans.  Copies of all such listed Plans or summaries  thereof,  together
with a copy of the latest IRS/DOL 5500-series form for each such Plan, have been
delivered to Agent.  Except with respect to Multiemployer  Plans, each Qualified
Plan (including any Qualified Plan terminated after 1995) has been determined by
the IRS to qualify under Section 401 of the IRC, the trusts created thereunder


                                       26
<PAGE>

have been  determined to be exempt from tax under the  provisions of Section 501
of the IRC (with the scope of such determinations not excluding consideration of
any of the  requirements or matters referred to in Sections 4.02 through 4.04 of
Revenue Procedure 93-39),  and nothing has occurred that would cause the loss of
such  qualification  or tax-exempt  status.  Each Plan is in compliance with the
applicable  provisions of ERISA and the IRC,  including the timely filing of all
reports required under the IRC or ERISA,  including the statement required by 29
CFR Section 2520.104-23. Neither any Credit Party nor ERISA Affiliate has failed
to make any contribution or pay any amount due as required by either Section 412
of the IRC or  Section  302 of ERISA  or the  terms  of any  such  Plan,  and no
Qualified  Plan has at any time been subject to (i) a lien under Section  302(f)
of  ERISA  or  Section  412(n)  of the IRC,  or (ii) to an  accumulated  funding
deficiency (whether or not waived) within the meaning of Section 412 of the IRC.
Neither  any Credit  Party nor ERISA  Affiliate  has  engaged  in a  "prohibited
transaction," as defined in Section 406 of ERISA and Section 4975 of the IRC, in
connection  with any Plan, that would subject any Credit Party to a material tax
on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of
the IRC. No event has  occurred  that has or would  result in excise taxes under
Sections 4971, 4972, 4976, 4977 or 4979 of the IRC.

                  (b) Except as set forth in Disclosure  Schedule (3.12): (i) no
Title IV Plan has any Unfunded Pension  Liability;  (ii) no ERISA Event or event
described  in Section  4062(e)  of ERISA  with  respect to any Title IV Plan has
occurred or is reasonably  expected to occur; (iii) there are no pending,  or to
the  knowledge of any Credit  Party,  threatened  claims  (other than claims for
benefits in the normal  course),  sanctions,  actions or  lawsuits,  asserted or
instituted  against any Plan or any Person as  fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA  Affiliate has incurred or  reasonably  expects to
incur any  liability  as a result of a  complete  or partial  withdrawal  from a
Multiemployer  Plan;  (v)  within  the last  five  years no Title IV Plan of any
Credit  Party  or  ERISA  Affiliate  has been  terminated,  whether  or not in a
"standard  termination" as that term is used in Section 4041(b)(1) of ERISA, nor
has any Title IV Plan of any Credit Party or any ERISA Affiliate  (determined at
any time within the last five  years) with  Unfunded  Pension  Liabilities  been
transferred  outside of the  "controlled  group"  (within the meaning of Section
4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate (determined at such
time);  (vi)  except in the case of any ESOP,  Stock of all Credit  Parties  and
their  ERISA  Affiliates  makes up, in the  aggregate,  no more than 10% of fair
market  value of the  assets of any Plan  measured  on the basis of fair  market
value as of the latest  valuation date of any Plan; and (vii) no liability under
any Title IV Plan has been  satisfied  with the  purchase of a contract  from an
insurance company that is not rated AAA by the Standard & Poor's  Corporation or
an equivalent rating by another nationally recognized rating agency.

                  (c) Each Credit Party has been and is in  compliance  with all
requirements of Section 4980B of the IRC (COBRA),  and the Health  Insurance and
Portability Act of 1996, as amended (HIPPA).

                  (d)  No  Credit   Party  has  a  liability   under  any  Plan,
non-qualified  or foreign  plan  (including  any  deferred  compensation,  stock
compensation,  supplemental retirement, or incentive compensation plan, program,
or arrangement for present or former employees,  directors or consultants) that,
to the extent required under GAAP, is not reflected on their most recent


                                       27
<PAGE>

Financial  Statements,  and there has been no subsequent  material  amendment or
material increase in cost or benefits.

         3.13 No Litigation. No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the  knowledge of any Credit Party,  threatened
against  any Credit  Party,  before  any  Governmental  Authority  or before any
arbitrator  or  panel  of  arbitrators  (collectively,  "Litigation"),  (a) that
challenges any Credit Party's right or power to enter into or perform any of its
obligations  under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder,  or (b) that
has a reasonable risk of being determined adversely to any Credit Party and that
, if so determined,  could be reasonably be expected to have a Material  Adverse
Effect.  Except as set forth on Disclosure  Schedule  (3.13),  as of the Closing
Date  there is no  Litigation  pending  or,  to any  Credit  Party's  knowledge,
threatened,  that  seeks  damages in excess of  $500,000  or  injunctive  relief
against, or alleges criminal misconduct of, any Credit Party.

         3.14  Brokers.  Except  with  respect to  payments  being made to Zolfo
Cooper LLC, no broker or finder brought about the  obtaining,  making or closing
of the  Loans or the  Related  Transactions,  and no Credit  Party or  Affiliate
thereof has any obligation to any Person in respect of any finder's or brokerage
fees in connection therewith.

         3.15 Intellectual  Property.  As of the Closing Date, each Credit Party
owns or has rights to use all  Intellectual  Property  necessary  to continue to
conduct its  business  as now or  heretofore  conducted  by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License registered or
applied for is listed,  together with  application or registration  numbers,  as
applicable,  in  Disclosure  Schedule  (3.15).  Each Credit  Party  conducts its
business  and  affairs  without   infringement  of  or  interference   with  any
Intellectual Property of any other Person in any material respect. Except as set
forth  in  Disclosure   Schedule  (3.15),  no  Credit  Party  is  aware  of  any
infringement claim by any other Person with respect to any Intellectual Property
owned or used by it.

         3.16 Full  Disclosure.  No  information  contained  in this
Agreement,  any  of  the  other  Loan  Documents,  any  Projections,   Financial
Statements  or  Collateral  Reports or other  written  reports from time to time
delivered  hereunder or any written  statement  furnished by or on behalf of any
Credit  Party to Agent or any  Lender  pursuant  to the terms of this  Agreement
contains or will  contain any untrue  statement  of a material  fact or omits or
will omit to state a material fact  necessary to make the  statements  contained
herein or therein not misleading in light of the circumstances  under which they
were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant
to the Collateral  Documents will at all times be fully perfected first priority
Liens in and to the Collateral described therein,  subject, as to priority, only
to Permitted Encumbrances.

         3.17 Environmental Matters.

                  (a) Except as set forth in Disclosure  Schedule (3.17),  as of
the  Closing  Date:  (i) the  Real  Estate  is free of  contamination  from  any
Hazardous Material except for such contamination that would not adversely impact
the value or  marketability  of such Real  Estate  and that  would not result in
Environmental Liabilities that could reasonably be expected to exceed $250,000;


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<PAGE>

(ii) no Credit  Party has caused or suffered  to occur any Release of  Hazardous
Materials  on, at, in, under,  above,  to, from or about any of its Real Estate;
(iii) the Credit Parties are and have been in compliance with all  Environmental
Laws,  except for such  noncompliance  that  would not  result in  Environmental
Liabilities  which could  reasonably  be expected to exceed  $250,000;  (iv) the
Credit Parties have  obtained,  and are in compliance  with,  all  Environmental
Permits  required by  Environmental  Laws for the operations of their respective
businesses as presently  conducted or as proposed to be conducted,  except where
the failure to so obtain or comply  with such  Environmental  Permits  would not
result in Environmental  Liabilities that could reasonably be expected to exceed
$250,000, and all such Environmental Permits are valid,  uncontested and in good
standing;  (v) no Credit Party is involved in  operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party which
could  reasonably  be  expected  to exceed  $250,000,  and no  Credit  Party has
permitted  any current or former tenant or occupant of the Real Estate to engage
in any such operations;  (vi) there is no Litigation arising under or related to
any Environmental Laws,  Environmental  Permits or Hazardous Material that seeks
damages, penalties, fines, costs or expenses in excess of $250,000 or injunctive
relief against,  or that alleges criminal misconduct by, any Credit Party; (vii)
no notice has been received by any Credit Party identifying it as a "potentially
responsible party under CERCLA or analogous state statutes, and to the knowledge
of the Credit Parties, there are no facts,  circumstances or conditions that may
result in any Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous  state  statutes;  and (viii) the Credit  Parties have
provided to Agent copies of, or access to, all existing  environmental  reports,
reviews and audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Credit Party.

                  (b) Each  Credit  Party  hereby  acknowledges  and agrees that
Agent (i) except as set forth on Disclosure  Schedule (3.17) is not now, and has
not ever  been,  in  control  of any of the Real  Estate or any  Credit  Party's
affairs,  and (ii) does not have the capacity through the provisions of the Loan
Documents or otherwise to influence any Credit  Party's  conduct with respect to
the  ownership,  operation or management of any of its Real Estate or compliance
with Environmental Laws or Environmental Permits.

         3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies
of any nature  maintained,  as of the Closing Date,  for current  occurrences by
each Credit Party, as well as a schedule and types of coverage.

         3.19 Deposit and  Disbursement  Accounts.  Disclosure  Schedule  (3.19)
lists all  banks and other  financial  institutions  at which any  Credit  Party
maintains lock box,  blocked,  concentration or other accounts as of the Closing
Date,  including  any  Disbursement   Accounts,   and  such  Schedule  correctly
identifies the name,  address and telephone number of each depository,  the name
in which the account is held, a description  of the purpose of the account,  and
the complete account number therefor.

         3.20 Government  Contracts.  Except as set forth in Disclosure Schedule
(3.20),  as of the Closing  Date,  no Credit Party is a party to any contract or
agreement with any  Governmental  Authority having a value in excess of $500,000
and no Credit Party's  Accounts are subject to the Federal  Assignment of Claims
Act (31 U.S.C. Section 3727) or any similar state or local law.



                                       29
<PAGE>

         3.21 Customer and Trade Relations. As of the Closing Date, there exists
no actual or, to the knowledge of any Credit Party,  threatened  termination  or
cancellation of, or any material adverse  modification or change in the business
relationship of any Credit Party with any supplier material to its operations.

         3.22  Agreements  and Other  Documents.  As of the Closing  Date,  each
Credit  Party has  provided  to Agent or its  counsel,  on  behalf  of  Lenders,
accurate and complete  copies (or summaries) of all of the following  agreements
or  documents  to which it is subject and each of which is listed in  Disclosure
Schedule  (3.22):  supply  agreements and purchase  agreements not terminable by
such Credit Party within 60 days following  written notice issued by such Credit
Party and involving  transactions  in excess of $2,000,000 per annum;  leases of
Equipment having a remaining term of one year or longer and requiring  aggregate
rental and other payments in excess of $500,000 per annum;  licenses and permits
held by the Credit Parties,  the absence of which could be reasonably  likely to
have a  Material  Adverse  Effect;  instruments  and  documents  evidencing  any
Indebtedness  or  Guaranteed  Indebtedness  of such  Credit  Party  and any Lien
granted  by  such  Credit  Party  with  respect  thereto;  and  instruments  and
agreements evidencing the issuance of any equity securities, warrants, rights or
options to purchase equity securities of such Credit Party.

         3.23 Solvency. Both before and after giving effect to (a) the Loans and
Letter of Credit  Obligations to be made or incurred on the Closing Date or such
other date as Loans and Letter of Credit  Obligations  requested  hereunder  are
made or incurred, (b) the disbursement of the proceeds of such Loans pursuant to
the  instructions  of  Borrower  Representative;  (c)  the  Refinancing  and the
consummation of the other Related Transactions;  and (d) the payment and accrual
of all transaction costs in connection with the foregoing,  each Credit Party is
and will be Solvent,  except with respect to  Holdings,  Agway  General  Agency,
Inc.,  Country  Best-DeBerry  LLC,  Country  Best  Adams,  LLC and Agway  Energy
Services-PA,  Inc., provided however, Agway and its Subsidiaries  (excluding the
Telmark   Entities,   Agway  Insurance  Company  and  all  of  their  respective
Subsidiaries) as a whole are and will be Solvent on a consolidated basis.

         3.24  Subordinated  Debt.  As  of  the  Closing  Date,  Borrowers  have
delivered to Agent a complete and correct copy of the  Indentures  providing for
the issuance of the  Subordinated  Notes  (including  all  schedules,  exhibits,
amendments,  supplements,  modifications,  assignments  and all other  documents
delivered  pursuant thereto or in connection  therewith).  AFC has the corporate
power and  authority to incur the  Indebtedness  evidenced  by the  Subordinated
Notes.  After  reasonable  inquiry  and to the  best  of  AFC's  knowledge,  the
subordination  provisions of the Subordinated Notes are enforceable  against the
holders  of the  Subordinated  Notes  by Agent  and  Lenders.  All  Obligations,
including  the  Letter of Credit  Obligations,  constitute  senior  Indebtedness
entitled  to the  benefits  of the  subordination  provisions  contained  in the
Subordinated  Notes.  Borrowers  acknowledge  that  Agent  and each  Lender  are
entering into this Agreement and are extending the  Commitments in reliance upon
the subordination provisions of the Subordinated Notes and this Section 3.24.

         3.25 PACA; Farm Products.

                  (a) Each Credit Party hereby  acknowledges and agrees that (i)
sunflower  seeds are not  perishable  agricultural  commodities  (as  defined in
PACA), and (ii) in the event any Credit Party receives notification from any


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<PAGE>

vendor of  sunflower  seeds of its intent to enforce its rights  under PACA with
respect  to  sunflower  seeds  sold  to any  Credit  Party,  such  Credit  Party
immediately  shall  provide  Agent  with a copy of such  notice,  and  Agent may
establish a Reserve  against the Borrowing Base with respect any sunflower seeds
which otherwise had been deemed Eligible Inventory.

                  (b)  Except  as set forth on  Disclosure  Schedule  3.2,  each
Credit Party hereby acknowledges and agrees that no Inventory is "Farm Products"
as such term is defined in the New York Uniform Commercial Code.

         3.26 Credit Card Providers.  Disclosure  Schedule 3.26 lists all Credit
Card Providers  engaged by Borrowers to process its credit card receipts and all
agreements executed by Borrowers with such Credit Card Providers.

4.       FINANCIAL STATEMENTS AND INFORMATION

         4.1 Reports and Notices.

                  (a) Each Credit Party  executing this Agreement  hereby agrees
that from and after the Closing Date and until the  Termination  Date,  it shall
deliver to Agent or to Agent and Lenders, as required, the Financial Statements,
notices,  Projections and other  information at the times, to the Persons and in
the manner set forth in Annex E.

                  (b) Each Credit Party  executing this Agreement  hereby agrees
that, from and after the Closing Date and until the  Termination  Date, it shall
deliver to Agent or to Agent and Lenders,  as required,  the various  Collateral
Reports (including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at
the times, to the Persons and in the manner set forth in Annex F.

         4.2 Communication  with  Accountants.  Each Credit Party executing this
Agreement  authorizes  (a)  Agent  and (b) so long as an  Event of  Default  has
occurred  and is  continuing,  each Lender,  to  communicate  directly  with its
independent certified public accountants,  including PricewaterhouseCoopers LLP,
and authorizes  and, at Agent's  request,  shall instruct those  accountants and
advisors to  disclose  and make  available  to Agent and each Lender any and all
Financial  Statements and other supporting  financial  documents,  schedules and
information  (excluding any work papers) relating to any Credit Party (including
copies of any issued management letters) with respect to the business, financial
condition and other affairs of any Credit Party.

5.       AFFIRMATIVE COVENANTS

     Each Credit Party  executing  this Credit  Agreement  jointly and severally
     agrees as to all  Credit  Parties  that from and after the date  hereof and
     until the Termination Date:

         5.1 Maintenance of Existence and Conduct of Business. Each Credit Party
shall: do or cause to be done all things  necessary to preserve and keep in full
force and effect its corporate existence and its rights and franchises; continue
to conduct its business substantially as now conducted or as otherwise permitted
hereunder;  at all times  maintain,  preserve  and protect all of its assets and
properties  used or useful in the conduct of its business,  and keep the same in
good repair, working order and condition in all material respects (taking into


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<PAGE>

consideration ordinary wear and tear) and from time to time make, or cause to be
made,  all  necessary or  appropriate  repairs,  replacements  and  improvements
thereto consistent with industry  practices;  and transact business only in such
corporate and trade names as are set forth in Disclosure Schedule (5.1).

         5.2 Payment of Charges.

                  (a) Subject to Section 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all Charges payable by it,
including  (i) Charges  imposed upon it, its income and  profits,  or any of its
property  (real,  personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, (ii) lawful
claims for labor, materials,  supplies and services or otherwise,  and (iii) all
storage or rental  charges  payable to  warehousemen  or bailees,  in each case,
before any thereof shall become past due.

                  (b)  Each  Credit  Party  may  in  good  faith   contest,   by
appropriate proceedings,  the validity or amount of any Charges, Taxes or claims
described in Section 5.2(a);  provided,  that (i) adequate reserves with respect
to such contest are maintained on the books of such Credit Party,  in accordance
with  GAAP;  (ii) no Lien shall be  imposed  to secure  payment of such  Charges
(other than payments to warehousemen  and/or bailees) that is superior to any of
the Liens securing the Obligations and such contest is maintained and prosecuted
continuously   and  with  diligence  and  operates  to  suspend   collection  or
enforcement  of such Charges;  (iii) none of the Collateral  becomes  subject to
forfeiture  or loss as a result of such  contest;  (iv) such Credit  Party shall
promptly  pay or  discharge  such  contested  Charges,  Taxes or claims  and all
additional charges, interest,  penalties and expenses, if any, and shall deliver
to Agent evidence reasonably acceptable to Agent of such compliance,  payment or
discharge,  if such  contest is  terminated  or  discontinued  adversely to such
Credit Party or the  conditions  set forth in this Section  5.2(b) are no longer
met; and (v) Agent has not advised  Borrowers  in writing that Agent  reasonably
believes  that  nonpayment  or  nondischarge  thereof  could have or result in a
Material Adverse Effect.

         5.3 Books and Records.  Each Credit Party shall keep adequate books and
records  with  respect  to its  business  activities  in which  proper  entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial  Statements  attached as Disclosure Schedule
(3.4(a)).

         5.4 Insurance; Damage to, Destruction or Condemnation of Collateral.

                  (a) The Credit Parties shall,  at their sole cost and expense,
maintain the types of insurance  described on Disclosure  Schedule  (3.18) as in
effect on the date hereof or  otherwise  in form and  amounts and with  insurers
reasonably  acceptable to Agent. Such policies of insurance (or the loss payable
and additional insured endorsements delivered to Agent) shall contain provisions
pursuant to which the insurer  agrees to provide 30 days prior written notice to
Agent in the event of any  non-renewal  or  cancellation  of any such  insurance
policy.  If any Credit Party at any time or times hereafter shall fail to obtain
or maintain  any of the  policies of  insurance  required  above,  or to pay all
premiums relating thereto,  Agent may at any time or times thereafter obtain and
maintain such policies of insurance and pay such premiums and take any other


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<PAGE>

action with  respect  thereto  that Agent deems  advisable.  Agent shall have no
obligation  to  obtain  insurance  for any  Credit  Party  or pay  any  premiums
therefor.  By doing so,  Agent shall not be deemed to have waived any Default or
Event of Default  arising  from any Credit  Party's  failure  to  maintain  such
insurance  or pay  any  premiums  therefor.  All  sums so  disbursed,  including
reasonable attorneys' fees, court costs and other charges related thereto, shall
be payable on demand by Borrowers to Agent and shall be  additional  Obligations
hereunder secured by the Collateral.

                  (b) Agent  reserves  the right at any time upon any  change in
any  Credit  Party's  risk  profile  (including  any change in the  product  mix
maintained by any Credit Party or any laws affecting the potential  liability of
such Credit  Party) to require  additional  forms and limits of insurance to, in
Agent's opinion,  adequately  protect both Agent's and Lender's interests in all
or any  portion  of the  Collateral  and to  ensure  that each  Credit  Party is
protected by insurance in amounts and with coverage  customary for its industry.
If reasonably  requested by Agent, each Credit Party shall deliver to Agent from
time to time a report of a reputable insurance broker,  reasonably  satisfactory
to Agent, with respect to its insurance policies.

                  (c)  Each  Borrower  shall  deliver  to  Agent,  in  form  and
substance reasonably  satisfactory to Agent,  endorsements to (i) all "All Risk"
and business interruption insurance naming General Electric Capital Corporation,
as Agent,  as loss payee,  and (ii) all general  liability  and other  liability
policies  naming General  Electric  Capital  Corporation as Agent, as additional
insured.  Each Borrower  irrevocably makes,  constitutes and appoints Agent (and
all officers,  employees or agents  designated by Agent), so long as any Default
or Event of Default has occurred and is continuing or the anticipated  insurance
proceeds  exceed  $3,000,000,  as such  Borrower's  true and  lawful  agent  and
attorney-in-fact for the purpose of making,  settling and adjusting claims under
such "All Risk"  policies of  insurance,  endorsing the name of such Borrower on
any check or other item of payment for the proceeds  ("Insurance  Proceeds")  of
such "All Risk"  policies of  insurance  and for making all  determinations  and
decisions  with respect to such "All Risk"  policies of  insurance.  Agent shall
have no duty to  exercise  any rights or powers  granted to it  pursuant  to the
foregoing  power-of-attorney,  provided  however in the event Agent  declines to
exercise the foregoing power-of-attorney with respect to the making, settling or
adjusting  of claims,  any  settlement  or  adjustment  of such  claims  made by
Borrowers in good faith which are upon fair and reasonable terms shall be deemed
to be acceptable and binding on Agent and Lenders. Borrower Representative shall
promptly notify Agent of any loss,  damage,  or destruction to the Collateral in
the amount of  $500,000  or more,  whether or not  covered by  insurance.  After
deducting from such Insurance  Proceeds the expenses,  if any, incurred by Agent
in the  collection  or handling  thereof,  Agent may, at its option,  apply such
Insurance  Proceeds to the  reduction  of the  Obligations  in  accordance  with
Section  1.3(d),  or permit  or  require  the  applicable  Borrower  to use such
Insurance Proceeds, or any part thereof, to replace,  repair, restore or rebuild
the  Collateral  in  a  diligent  and  expeditious  manner  with  materials  and
workmanship of substantially the same quality as existed before the loss, damage
or destruction.

                  (d)  Condemnation.  As of the date  hereof,  no  Borrower  has
received any notice of any  proceeding for the  condemnation  or other taking of
any of the Mortgaged  Properties  or any part thereof and has no knowledge  that
any  such  proceeding  is  contemplated  with  respect  to any of the  Mortgaged
Properties.  Borrower  Representative  shall,  promptly  upon  learning  of  the
institution of any such proceeding in the amount of $500,000 or more, notify


                                       33
<PAGE>

Agent of the pendency of such proceeding,  and agrees that Agent may participate
in any such  proceeding  and  Borrower  Representative  from  time to time  will
deliver to Agent all  instruments  reasonably  requested by Agent to permit such
participation.  Agent shall have no duty to participate in any such  proceeding,
provided  however  in  the  event  Agent  declines  to  exercise  its  right  to
participate, any settlement, judgment or award obtained in such proceeding shall
be deemed to be acceptable and binding on Agent and Lenders.  Subject to Section
1.3(b),  Agent shall (and is hereby  authorized  to) collect any and all awards,
payments or other  proceeds of any such  condemnation  or taking  ("Condemnation
Proceeds") and after deducting from such Condemnation  Proceeds the expenses, if
any, incurred by Agent in the collection or handling thereof,  Agent may, at its
option, apply such Condemnation  Proceeds to the reduction of the Obligations in
accordance  with Section 1.3(d) or permit or require the applicable  Borrower to
use Condemnation  Proceeds,  or any part thereof, to replace,  repair or restore
the applicable Mortgaged Property.

                  (e) Notwithstanding the foregoing, if the casualty giving rise
to such Insurance Proceeds or the condemnation  giving rise to such Condemnation
Proceeds (A) could not reasonably be expected to have a Material  Adverse Effect
and such Insurance Proceeds or Condemnation Proceeds, as the case may be, do not
exceed  $500,000 in the  aggregate,  or (B) covers  Real  Estate  which is not a
Mortgaged  Property,  Agent  shall  permit the  applicable  Borrower to replace,
restore,  repair or rebuild the property;  provided that if such Borrower  shall
not  have  completed  or  entered  into  binding  agreements  to  complete  such
replacement, restoration, repair or rebuilding within 180 days of the receipt of
proceeds  relating to such casualty or  condemnation,  as the case may be, Agent
may apply such Insurance Proceeds or Condemnation  Proceeds, as the case may be,
to the Obligations in accordance with Section 1.3(d).  All Insurance Proceeds or
Condemnation  Proceeds, as the case may be, that are to be made available to any
Borrower to replace, repair, restore or rebuild the property shall be applied by
Agent to reduce the outstanding  principal  balance of the Revolving Loan (which
application  shall not result in a permanent  reduction  of the  Revolving  Loan
Commitment) and upon such  application,  Agent shall establish a Reserve against
the Borrowing Base in an amount equal to the amount of such  Insurance  Proceeds
or Condemnation Proceeds, as the case may be, so applied. Thereafter, such funds
shall be made  available to that Borrower to provide  funds to replace,  repair,
restore or rebuild the property as follows:  (i) Borrower  Representative  shall
request a  Revolving  Credit  Advance  be made to such  Borrower  in the  amount
requested to be released;  (ii) so long as the  conditions  set forth in Section
2.2 have been met,  Revolving  Lenders shall make such Revolving Credit Advance;
and (iii) in the case of Insurance  Proceeds or  Condemnation  Proceeds,  as the
case may be, applied  against the Revolving Loan, the Reserve  established  with
respect to such Insurance Proceeds or Condemnation Proceeds, as the case may be,
shall be reduced by the amount of such Revolving  Credit Advance.  To the extent
not used to replace,  repair,  restore or rebuild the property,  such  Insurance
Proceeds  or  Condemnation  Proceeds,  as the case may be,  shall be  applied in
accordance with Section 1.3(d).

         5.5  Compliance  with Laws.  Each Credit  Party  shall  comply with all
federal,  state,  local  and  foreign  laws and  regulations  applicable  to it,
including those relating to PACA, ERISA and labor matters and Environmental Laws
and  Environmental  Permits,  except to the extent  that the  failure to comply,
individually  or in the  aggregate,  could not  reasonably be expected to have a
Material Adverse Effect.



                                       34
<PAGE>

         5.6  Supplemental  Disclosure.  From time to time as may be  reasonably
requested by Agent (which  request  will not be made more  frequently  than once
each year  absent the  occurrence  and  continuance  of a Default or an Event of
Default),  the Credit  Parties shall  supplement  within 10 Business Days of the
request each Disclosure Schedule hereto, or any representation  herein or in any
other Loan  Document,  with respect to any matter  hereafter  arising  that,  if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in such Disclosure Schedule or as an exception to such
representation  or  that  is  necessary  to  correct  any  information  in  such
Disclosure Schedule or representation which has been rendered inaccurate thereby
(and, in the case of any supplements to any Disclosure Schedule, such Disclosure
Schedule  shall be  appropriately  marked  to show the  changes  made  therein);
provided  that  (a) no  such  supplement  to any  such  Disclosure  Schedule  or
representation  shall  amend,  supplement  or  otherwise  modify any  Disclosure
Schedule or representation,  or be or be deemed a waiver of any Default or Event
of Default resulting from the matters disclosed therein,  except as consented to
by Agent and  Requisite  Lenders  in  writing,  and (b) no  supplement  shall be
required or permitted as to representations and warranties that relate solely to
the Closing Date.

         5.7 Intellectual Property. Each Credit Party will conduct its business
and affairs without infringement of or interference with any Intellectual
Property of any other Person in any material respect.

         5.8 Environmental Matters. Each Credit Party shall and shall cause each
Person within its control to: (a) conduct its  operations  and keep and maintain
its Real Estate in  compliance  with all  Environmental  Laws and  Environmental
Permits other than noncompliance that could not reasonably be expected to have a
Material Adverse Effect; (b) implement any and all  investigation,  remediation,
removal and response  actions that are  appropriate or necessary to maintain the
value  and  marketability  of  the  Real  Estate  or to  otherwise  comply  with
Environmental  Laws  and  Environmental  Permits  pertaining  to  the  presence,
generation,  treatment, storage, use, disposal, transportation or Release of any
Hazardous  Material on, at, in, under,  above, to, from or about any of its Real
Estate;  (c) notify Agent  promptly after such Credit Party becomes aware of any
violation of Environmental Laws or Environmental  Permits or any Release on, at,
in, under, above, to, from or about any Real Estate that is reasonably likely to
result in  Environmental  Liabilities  in excess of  $250,000;  and (d) promptly
forward to Agent a copy of any order,  notice,  request for  information  or any
communication  or report  received by such Credit Party in  connection  with any
such violation or Release or any other matter relating to any Environmental Laws
or  Environmental  Permits  that  could  reasonably  be  expected  to  result in
Environmental  Liabilities in excess of $25,000, in each case whether or not the
Environmental  Protection  Agency  or any  Governmental  Authority  has taken or
threatened any action in connection  with any such  violation,  Release or other
matter. If Agent at any time has a reasonable basis to believe that there may be
a violation of any  Environmental  Laws or  Environmental  Permits by any Credit
Party  or any  Environmental  Liability  arising  thereunder,  or a  Release  of
Hazardous  Materials on, at, in, under, above, to, from or about any of its Real
Estate,  that,  in each case,  could  reasonably  be expected to have a Material
Adverse Effect,  then each Credit Party shall,  upon Agent's written request (i)
cause the performance of such environmental audits including subsurface sampling
of soil and  groundwater,  and  preparation of such  environmental  reports,  at
Borrowers'  expense,  as Agent may from time to time reasonably  request,  which
shall be conducted by reputable environmental consulting firms reasonably


                                       35
<PAGE>

acceptable to Agent and shall be in form and substance reasonably  acceptable to
Agent, and (ii) permit Agent or its  representatives  to have access to all Real
Estate for the purpose of conducting  such  environmental  audits and testing as
Agent deems appropriate,  including subsurface sampling of soil and groundwater.
Borrowers  shall  reimburse Agent for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.

         5.9 Landlords'  Agreements,  Mortgagee  Agreements,  Bailee Letters and
Real Estate Purchases.  Each Credit Party shall use its best efforts to obtain a
landlord's agreement, mortgagee agreement, access agreement or bailee letter, as
applicable, from the lessor of each leased property, mortgagee of owned property
or bailee with respect to any  warehouse,  processor  or  converter  facility or
other location where  Collateral is stored or located,  except to the extent and
at the time such Collateral  consists of (i) propane which is located in propane
tanks located on the property of consumer  purchasers of propane from Borrowers,
(ii) Energy  Product  Inventory  purchased in bulk by Borrowers from terminal or
railcar  locations  which is not  deemed  to be  Eligible  Inventory,  and (iii)
locations  where the  aggregate  book value of Inventory at any such location at
all times is less than  $100,000,  which  agreement  or letter  shall  contain a
waiver or subordination  of all Liens or claims that the landlord,  mortgagee or
bailee may assert against the Collateral at that location,  and shall  otherwise
be reasonably  satisfactory in form and substance to Agent. With respect to such
locations  or  warehouse  space  leased  or  owned  as of the  Closing  Date and
thereafter, if Agent has not received a landlord or mortgagee agreement,  access
agreement or bailee letter as of the Closing Date (or, if later,  as of the date
such  location is acquired or leased or such  agreement or waiver is  obtained),
any of  Borrower's  Eligible  Inventory  at  that  location  shall,  in  Agent's
discretion,  be excluded from the Borrowing  Base or be subject to such Reserves
as may be  established  by Agent in its reasonable  credit  judgment.  After the
Closing  Date except as permitted  above,  no real  property or warehouse  space
shall be leased by any  Credit  Party and no  Inventory  shall be  shipped  to a
processor or converter  under  arrangements  established  after the Closing Date
without  the  prior  written  consent  of  Agent  (which  consent,   in  Agent's
discretion,  may be  conditioned  upon the exclusion  from the Borrowing Base of
Eligible Inventory at that location or the establishment of Reserves  acceptable
to Agent) unless and until a reasonably satisfactory landlord agreement,  access
letter or bailee  letter,  as  appropriate,  shall first have been obtained with
respect to such  location.  Each  Credit  Party  shall  timely and fully pay and
perform its  obligations  under all leases and other  agreements with respect to
each  leased  location or public  warehouse  where any  Collateral  is or may be
located.  To the extent  otherwise  permitted  hereunder,  if any  Credit  Party
acquires a fee  ownership  interest in Real Estate  after the Closing  Date,  it
shall  simultaneously  with such acquisition provide to Agent a mortgage or deed
of trust granting Agent a first priority Lien on such Real Estate, together with
environmental audits, mortgage title insurance commitment, real property survey,
local  counsel  opinion(s),  and, if required  by Agent,  supplemental  casualty
insurance  and  flood  insurance,  and  such  other  documents,  instruments  or
agreements  reasonably  requested by Agent,  in each case, in form and substance
reasonably satisfactory to Agent.



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<PAGE>

         5.10  Restructure  Advisers.  Borrowers  shall continue to retain Zolfo
Cooper LLC as  restructuring  advisers  until (i) Borrowers  have  substantially
consummated,  in  Agent's  and  Zolfo  Cooper's  reasonable  determination,  the
Agricultural Restructuring Plan, or (ii) an earlier date at Agent's discretion.

         5.11  Subordinated  Indebtedness and Preferred  Stock.  Borrowers shall
have at the following times outstanding  Preferred Stock,  Subordinated Debt and
outstanding  notes under the Milford Note Program no less than, in the aggregate
principal amount, (i) Four Hundred Fifty Million Dollars  ($450,000,000) for the
period February 1 through October 31 of any Fiscal Year, (ii) Four Hundred Forty
Million Dollars  ($440,000,000) for the period November 1 through December 31 of
any Fiscal Year,  and (iii) Four Hundred Forty Five Million  ($445,000,000)  for
the period January 1 through January 31 of any Fiscal Year.

         5.12 Payment for Perishable Goods.

                  (a) Borrowers shall pay, not later than the date on which such
invoice is due,  the amount of any  outstanding  invoices  for the  purchase  of
perishable  agricultural  commodities  (as defined in PACA) unless such Borrower
has  obtained  from the seller of such  commodities  a waiver of it rights under
PACA in form and substance acceptable to Agent;  provided,  however, that in the
event that any such invoice  requires  payment upon  delivery,  payment shall be
made on such date of delivery.  Borrowers acknowledge that Agent shall establish
a Reserve  against the Borrowing  Base in the amount of, at any given time,  all
accounts payable to sellers of perishable  agricultural  commodities  unless any
Borrower has obtained from any such seller a waiver of its rights under PACA, in
form and substance acceptable to the Agent.

                  (b) Borrower shall pay, in the event that written notification
other than on an invoice is received from any vendor of perishable  agricultural
commodities  of its intent to enforce its rights  under PACA,  or to establish a
federal  statutory lien or trust under the Food Security Act, 7 U.S.C. ss. 1631,
the related  invoice within one Business Day of receipt and notify Agent of such
receipt; provided,  however, that such invoice may remain unpaid if, and only so
long as (i) appropriate legal or administrative action has been commenced and is
being  diligently  pursued or  defended  by  Borrowers,  (ii) the ability of the
vendor to pursue any rights or enforce any liens or trusts  provided  under PACA
has been stayed or  otherwise  legally  prohibited  during the  pendency of such
action and (iii) Agent shall have  established  a reserve  against the Borrowing
Base in an amount at least equal to the amount  claimed to be due by such vendor
under the relevant invoice (but without  duplication of any reserve  established
under paragraph (a) above).

         5.13 CoBANK  Equity  Interests.  AFC shall,  for so long as CoBANK is a
Lender hereunder,  acquire and maintain such equity interests in CoBANK ("CoBANK
Equity  Interests")  as CoBANK may from time to time require in accordance  with
its bylaws and capital plan in effect as of the date hereof.  In connection with
the foregoing,  AFC hereby acknowledges receipt,  prior to the execution of this
Agreement,  of the  following  with  respect to CoBANK:  (a) the  bylaws,  (b) a
written  description of the terms and  conditions  under which the CoBANK Equity
Interests are issued,  (c) the most recent annual report, and (d) if more recent
than the latest  annual  report,  the latest  quarterly  report.  The rights and
obligations of the parties with respect to the CoBANK Equity Interests and any


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<PAGE>

patronage or other distributions shall be governed by CoBANK's bylaws and
capital plan.

         5.14 Further  Assurances.  Each Credit Party  executing  this Agreement
agrees that it shall and shall cause each other  Credit Party to, at such Credit
Party's expense and upon request of Agent, duly execute and deliver, or cause to
be duly executed and  delivered,  to Agent such further  instruments  and do and
cause  to be  done  such  further  acts as may be  necessary  or  proper  in the
reasonable  opinion of Agent to carry out more  effectively  the  provisions and
purposes of this Agreement or any other Loan Document.

6.       NEGATIVE COVENANTS

     Each Credit Party executing this Agreement  jointly and severally agrees as
     to all  Credit  Parties  that  from and  after  the date  hereof  until the
     Termination Date:

         6.1  Mergers,  Subsidiaries,  Etc. No Credit  Party  shall  directly or
indirectly,  by  operation  of  law  or  otherwise,  (a)  form  or  acquire  any
Subsidiary,  or (b) merge with,  consolidate with,  acquire all or substantially
all of the assets or Stock of, or otherwise combine with or acquire, any Person,
except that (i) Holdings shall be permitted to transfer the Stock of the Telmark
Entities and Agway Insurance  Company to Agway, (ii) any Borrower may merge with
any other Borrower,  provided that Borrower Representative shall be the survivor
of any such merger to which it is a party,  and (iii) Agway  Energy  Product LLC
may acquire all or  substantially  all of the assets of the Lebanon  division of
The  SICO  Company  ("SICO")  subject  to  the  satisfaction  of  the  following
conditions:  (A) Agent  shall have  received  at least 10  Business  Days' prior
written  notice of such proposed  acquisition;  (B) no additional  Indebtedness,
Guaranteed  Indebtedness,  contingent  obligations or other liabilities shall be
incurred, assumed or otherwise be reflected on the consolidated balance sheet of
Borrowers  after  giving  effect to such  acquisition,  except  (i)  Loans  made
hereunder,  and (ii)  ordinary  course  trade  payables,  accrued  expenses  and
unsecured  Indebtedness;  (C) the sum of all amounts payable in connections with
the acquisition of SICO (including all transaction  costs and all  Indebtedness,
liabilities  and  contingent  obligations  incurred  or  assumed  in  connection
therewith or otherwise  reflected in a consolidated  balance sheet of Borrowers)
shall  not  exceed  $850,000;  (D) the  business  and  assets  acquired  in such
acquisition  shall  be  free  and  clear  of all  Liens  (other  than  Permitted
Encumbrances); (E) at or prior to the closing of such acquisition, Agent will be
granted a first priority  perfected Lien (subject to Permitted  Encumbrances) in
the assets purchased from SICO, and Borrowers shall have executed such documents
and taken such actions as may be required by Agent in connection therewith;  and
(F) at the time of such acquisition and after giving effect thereto,  no Default
or Event of Default has occurred and is continuing.

         6.2 Investments;  Loans and Advances. Except as scheduled on Disclosure
Schedule  (6.2) or  otherwise  expressly  permitted by this Section 6, no Credit
Party shall make or permit to exist any investment in, or make, accrue or permit
to exist  loans or  advances  of money to,  any  Person,  through  the direct or
indirect lending of money, holding of securities or otherwise,  except that: (a)
Borrowers may hold  investments  comprised of notes  payable,  or stock or other
securities  issued by Account  Debtors to any  Borrower  pursuant to  negotiated
agreements with respect to settlement of such Account  Debtor's  Accounts in the
ordinary course of business in addition to (i) those certain Accounts settled by
Borrowers  prior to the Closing Date and described in Disclosure  Schedule (6.2)
and (ii) those certain notes payable received by Borrowers in connection with


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<PAGE>

the  disposition  of assets  pursuant to Section 6.8(e) and (f); (b) each Credit
Party may (i) maintain its existing investments, receive additional investments,
and make investments in those certain entities described in Disclosure  Schedule
(6.2) of not more than $1,000,000,  in addition to the amount of investments set
forth on Disclosure  Schedule (6.2),  (ii) make  investments in any other Credit
Party; and (iii) make advances to growers of agricultural products provided such
advances are: (A) consistent  with such Credit Party's prior  practices and made
solely for the purpose of  financing  inputs  required by such  growers to grow,
harvest and ship crops,  (B) each grower shall have  executed  and  delivered to
such Credit Party an agreement  evidencing  such  Indebtedness  which  agreement
shall be in form and  substance  reasonably  satisfactory  to Agent and shall be
pledged and delivered to Agent  pursuant to the applicable  Pledge  Agreement or
Security Agreement as additional  collateral  security for the Obligations,  and
(C) not more than  $10,000,000 in the aggregate at any time, of which,  not more
than $4,000,000 at any time shall be made by Country  Best-DeBerry  LLC, and (c)
so long as no Default or Event of Default has  occurred  and is  continuing  and
there is no outstanding Revolving Loan balance,  Borrowers may make investments,
subject  to  Control  Letters  in favor of Agent for the  benefit  of Lenders or
otherwise  subject to a  perfected  security  interest in favor of Agent for the
benefit  of  Lenders,   in  (i)   marketable   direct   obligations   issued  or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within one year from the date of acquisition  thereof,  (ii) commercial
paper  maturing  no more than one year  from the date of  creation  thereof  and
currently  having the highest rating  obtainable  from either  Standard & Poor's
Ratings Group or Moody's Investors Service,  Inc., (iii) certificates of deposit
maturing  no more  than one year  from the date of  creation  thereof  issued by
commercial  banks  incorporated  under the laws of the United States of America,
each having  combined  capital,  surplus and undivided  profits of not less than
$300,000,000  and  having  a  senior  unsecured  rating  of "A" or  better  by a
nationally  recognized  rating  agency (an "A Rated  Bank"),  (iv) time deposits
maturing  no more than 30 days from the date of  creation  thereof  with A Rated
Banks and (v) mutual funds that invest solely in one or more of the  investments
described  in clauses (i)  through  (iv) above,  and (e) other  investments  not
exceeding $100,000 in the aggregate at any time outstanding.

         6.3 Indebtedness.

                  (a) No Credit Party shall create,  incur,  assume or permit to
exist any Indebtedness, except (without duplication) (i) Indebtedness secured by
purchase  money  security  interests  and Capital  Leases  permitted  in Section
6.7(c),  (ii) the Loans and the other  Obligations,  (iii) unfunded pension fund
and other employee  benefit plan  obligations and liabilities to the extent they
are  permitted  to  remain   unfunded  under   applicable   law,  (iv)  existing
Indebtedness  described in Disclosure Schedule (6.3(a)) and refinancings thereof
or amendments or modifications thereto that do not have the effect of increasing
the principal amount thereof or changing the amortization thereof (other than to
extend  the  same)  and  that are  otherwise  on terms  and  conditions  no less
favorable to any Credit Party, Agent or any Lender, as determined by Agent, than
the  terms of the  Indebtedness  being  refinanced,  amended  or  modified,  (v)
Indebtedness specifically permitted under Section 6.17; (vi) with respect to the
Subordinated  Notes, new issuances of money market certificates which have terms
and are subject to conditions  substantially  similar to the Subordinated  Notes
outstanding as of the Closing Date provided  that,  (A) the applicable  interest
rate of any  Subordinated  Notes issued after the Closing  Date,  at the time of
such  issuance,  shall  not be  greater  than  the  interest  rate  for  federal
government  notes of comparable  maturity plus 6%, and (B) the maturities of any
Subordinated Notes issued after the Closing Date shall be more than three years


                                       39
<PAGE>

following the Closing Date;  (vii) with respect to the Milford  Fertilizer  Note
Program,  provided such program continues to be conducted in a manner consistent
with prior practices,  and the principal amount of Indebtedness pursuant to such
program  does not at any one time exceed  $12,000,000;  and (viii)  Indebtedness
consisting of intercompany  loans and advances made by any Borrower to any other
Borrower; provided, that: (A) each Borrower shall have executed and delivered to
each other  Borrower,  on the Closing  Date,  a demand note  (collectively,  the
"Intercompany  Notes") to evidence any such intercompany  Indebtedness  owing at
any time by such Borrower to such other Borrowers which Intercompany Notes shall
be in form and substance  reasonably  satisfactory to Agent and shall be pledged
and delivered to Agent pursuant to the applicable  Pledge  Agreement or Security
Agreement  as  additional  collateral  security  for the  Obligations;  (B) each
Borrower shall record all intercompany  transactions on its books and records in
a manner reasonably  satisfactory to Agent; (C) the obligations of each Borrower
under any such  Intercompany  Notes shall be  subordinated to the Obligations of
such Borrower hereunder in a manner reasonably satisfactory to Agent; (D) at the
time any such  intercompany loan or advance is made by any Borrower to any other
Borrower and after giving effect  thereto,  each such Borrower shall be Solvent,
except  with  respect  to  Holdings,   Agway  General  Agency,   Inc.,   Country
Best-DeBerry  LLC, Country Best Adams, LLC and Agway Energy  Services-PA,  Inc.,
provided  however,  Agway and its Subsidiaries  (excluding all Telmark Entities,
Agway Insurance Company and all of their respective Subsidiaries) as a whole are
and shall be Solvent  on a  consolidated  basis,  and (E) no Default or Event of
Default would occur and be  continuing  after giving effect to any such proposed
intercompany loan.

                  (b) No Credit Party shall, directly or indirectly, voluntarily
purchase,  redeem, defease or prepay any principal of, premium, if any, interest
or other  amount  payable  in respect  of any  Indebtedness,  other than (i) the
Obligations;  (ii) Indebtedness secured by a Permitted  Encumbrance if the asset
securing such Indebtedness has been sold or otherwise  disposed of in accordance
with Sections 6.8(b) or (c); (iii) Indebtedness  permitted by Section 6.3(a)(iv)
upon any  refinancing  thereof in accordance  with Section  6.3(a)(iv);  (iv) as
otherwise  permitted in Section  6.14,  and (v)  Indebtedness  up to  $2,000,000
secured by that  certain  mortgage  encumbering  the  Country  Best-Adams'  real
property located at 936 Bankhead Highway, Winder, Georgia,  provided that at the
time such  Indebtedness  is repaid and after giving effect thereto (A) Borrowers
shall  have  Borrowing  Availability  of not less than  $40,000,000,  and (B) no
Default or Event of Default has occurred and is  continuing  after giving effect
to any such proposed repayment.

         6.4 Employee Loans and Affiliate Transactions.

                  (a) Except as otherwise  expressly permitted in this Section 6
with  respect to  Affiliates,  no Credit Party shall enter into or be a party to
any transaction  with any other Credit Party or any Affiliate  thereof except in
the  ordinary  course of and  pursuant to the  reasonable  requirements  of such
Credit  Party's  business  and upon fair and  reasonable  terms that are no less
favorable  to such Credit  Party than would be obtained  in a  comparable  arm's
length  transaction  with a Person not an  Affiliate  of such Credit  Party.  In
addition,  if any such transaction or series of related transactions (other than
Permitted Telmark  Sale-Leaseback  Transactions) between any Credit Party and an
Affiliate  (which  is  not a  Credit  Party)  involves  payments  in  excess  of
$1,000,000 in the aggregate,  the terms of these  transactions must be disclosed
in advance to Agent and Lenders. All such transactions existing as of the date


                                       40
<PAGE>

hereof are described in Disclosure Schedule (6.4(a)).

                  (b) No Credit  Party shall enter into any lending or borrowing
transaction  with  any  employees  of any  Credit  Party,  except  loans  to its
respective  employees in the ordinary  course of business  consistent  with past
practices for travel and  entertainment  expenses,  relocation costs and similar
purposes  up to a maximum of  $400,000  to any  employee  and up to a maximum of
$2,000,000 in the aggregate at any one time outstanding.

         6.5 Capital Structure and Business.  No Credit Party shall (a) make any
changes in any of its business objectives,  purposes or operations that could in
any  way  adversely  affect  the  repayment  of the  Loans  or any of the  other
Obligations  or could  reasonably  be  expected  to have or result in a Material
Adverse  Effect,  (b) make any change in its capital  structure  as described in
Disclosure  Schedule  (3.8),  including  the  issuance  or sale of any shares of
Stock,  warrants or other  securities  convertible into Stock or any revision of
the terms of its  outstanding  Stock;  provided that Agway may (i) issue or sell
shares of its Stock for cash or (ii) issue Preferred Stock to Agway's 401K Plan,
in each  case,  so long as no Change  of  Control  occurs  after  giving  effect
thereto,  or (c) amend its  charter or bylaws in a manner  that would  adversely
affect  Agent or Lenders  or such  Credit  Party's  duty or ability to repay the
Obligations.  No Credit  Party  shall  engage  in any  business  other  than the
businesses currently engaged in by it or related business.

         6.6  Guaranteed  Indebtedness.  No Credit  Party shall  create,  incur,
assume or permit to exist any Guaranteed  Indebtedness except (a) by endorsement
of  instruments  or items of payment for  deposit to the general  account of any
Credit Party,  and (b) for Guaranteed  Indebtedness  incurred for the benefit of
any other Credit Party if the primary obligation is expressly  permitted by this
Agreement.

         6.7 Liens.  No Credit Party shall  create,  incur,  assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets  (whether now owned or hereafter  acquired)  except for (a)  Permitted
Encumbrances;  (b) Liens in  existence  on the date  hereof  and  summarized  on
Disclosure  Schedule (6.7(a)) securing the Indebtedness  described on Disclosure
Schedule (6.3(a)) and permitted  refinancings,  extensions and renewals thereof,
including extensions or renewals of any such Liens;  provided that the principal
amount of the  Indebtedness  so secured is not  increased  and the Lien does not
attach  to any  other  property;  (c) Liens  created  after  the date  hereof by
conditional sale or other title retention agreements  (including Capital Leases)
or in connection with purchase money  Indebtedness with respect to Equipment and
Fixtures  acquired  by any  Credit  Party in the  ordinary  course of  business,
involving  the  incurrence  of  an  aggregate   amount  of  (i)  purchase  money
Indebtedness  of not more than  $1,000,000 at any one time  outstanding and (ii)
Capital Lease Obligations of not more than $5,000,000, in addition to the amount
of obligations under Capital Lease Obligations set forth on Disclosure  Schedule
(6.7(b))  outstanding  at any one time  (provided that such Liens attach only to
the assets  subject  to such  purchase  money,  Indebtedness  or  Capital  Lease
Obligations,  and such  Indebtedness  is incurred  within 20 days following such
purchase and does not exceed 100% of the purchase price of the subject  assets),
and (d) Liens  created  in  connection  with  Permitted  Telmark  Sale-Leaseback
Transactions.  In  addition,  no  Credit  Party  shall  become  a  party  to any
agreement,  note, indenture or instrument,  or take any other action, that would
prohibit  the  creation of a Lien on any of its  properties  or other  assets in
favor of Agent, on behalf of itself and Lenders, as additional collateral for


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<PAGE>

the Obligations,  except purchase money security  interests,  operating  leases,
Capital Leases or Licenses which prohibit Liens upon the assets that are subject
thereto.

         6.8 Sale of Stock and Assets.  No Credit  Party  shall sell,  transfer,
convey,  assign or otherwise  dispose of any of its  properties or other assets,
including the Stock of any of its Subsidiaries (whether in a public or a private
offering  or  otherwise)  or any of its  Accounts,  other  than  (a) the sale of
Inventory in the ordinary course of business; (b) the sale, transfer, conveyance
or other  disposition by a Credit Party of assets that are obsolete or no longer
used or useful in such Credit  Party's  business and having a net book value not
exceeding  $250,000 in any single  transaction or $2,000,000 in the aggregate in
any Fiscal Year; (c) other  Equipment and Fixtures  having a value not exceeding
$250,000 in any single  transaction or $1,000,000 in the aggregate in any Fiscal
Year;  (d) sale of assets in connection  with Permitted  Telmark  Sale-Leaseback
Transactions; (e) dispositions in accordance with the Agricultural Restructuring
Plan provided  that on an aggregate  basis,  for any rolling 6 month period,  at
least  seventy-five  percent (75%) of the proceeds of such  dispositions  are in
cash; (f) the  disposition  of assets in connection  with the closing of Agway's
retail  operations  identified in the Projections  attached hereto as Disclosure
Schedule  (3.4(B))  provided  that  (i) at  least  ninety  percent  (90%) of the
proceeds  of  such  sales  of  Real  Estate  are in  cash,  and  (ii)  at  least
seventy-five  percent  (75%) of the  proceeds of such sales of assets other than
Real Estate are in cash;  (g) the transfer of the Stock of the Telmark  Entities
and Agway Insurance  Company to Agway; and (h) asset  dispositions  described in
Disclosure  Schedule (6.8).  With respect to any disposition of assets permitted
above other than any disposition  pursuant to clause (a), (b), (e), (f) and (h),
(A) no such  disposition  shall be  permitted if any Default or Event of Default
shall have  occurred and be  continuing  or would result after giving  effect to
such disposition;  (B) all proceeds of any such dispositions shall be applied by
Agent in accordance with Section 1.3(c),  and Section 1.11 hereof.  With respect
to any disposition of assets or other properties  permitted  pursuant to clauses
(b), (c),  (d), (e) and (f) above,  subject to Section  1.3(c),  Agent agrees on
reasonable  prior  written  notice to release  its Lien on such  assets or other
properties  in order to  permit  the  applicable  Credit  Party to  effect  such
disposition and shall execute and deliver to Borrowers,  at Borrowers'  expense,
appropriate  UCC-3  termination  statements  and other  releases  as  reasonably
requested by Borrowers.

         6.9 ERISA.  No Credit Party  shall,  or shall cause or permit any ERISA
Affiliate  to,  cause or  permit  to occur an event  that  could  result  in the
imposition  of a Lien under  Section  412 of the IRC or  Section  302 or 4068 of
ERISA or cause or permit to occur an ERISA  Event to the extent such ERISA Event
could reasonably be expected to have a Material Adverse Effect.

         6.10 Financial Covenants. Borrowers shall not breach or fail to comply
with any of the Financial Covenants.

         6.11  Hazardous  Materials.  No Credit  Party  shall  cause or permit a
Release of any Hazardous  Material on, at, in, under,  above,  to, from or about
any of the Real Estate where such Release  would (a) violate in any respect,  or
form the basis for any Environmental  Liabilities  under, any Environmental Laws
or  Environmental  Permits  or (b)  otherwise  adversely  impact  the  value  or
marketability  of any of the Real  Estate or any of the  Collateral,  other than
such  violations  or  Environmental  Liabilities  that could not  reasonably  be
expected to have a Material Adverse Effect.



                                       42
<PAGE>

         6.12   Sale-Leasebacks.   No   Credit   Party   shall   engage  in  any
sale-leaseback,  synthetic  lease or similar  transaction  involving  any of its
assets,   other  than  Permitted   Telmark   Sale-Leaseback   Transactions   and
sale-leasebacks in connection with permitted Capital Lease Obligations.

         6.13  Cancellation  of  Indebtedness.  No Credit Party shall cancel any
claim or debt owing to it, except for reasonable  consideration negotiated on an
arm's length basis and in the ordinary  course of its business  consistent  with
past practices.

         6.14  Restricted  Payments.  No Credit Party shall make any  Restricted
Payment,  except (a) intercompany  loans and advances  between  Borrowers to the
extent permitted by Section 6.3, (b) dividends and distributions by Subsidiaries
of any Borrower  paid to such  Borrower,  (c)  employee  loans  permitted  under
Section  6.4(b),  (d) payments of principal and interest of  Intercompany  Notes
issued in accordance  with Section 6.3, (e) dividends to preferred  shareholders
of Agway with respect to Preferred Stock of Agway provided that such payments do
not  exceed  more than  $3,800,000  in the  aggregate  in any Fiscal  Year,  (f)
redemptions of Common Stock of Agway in an amount not to exceed  $250,000 in any
Fiscal Year; (g)  redemptions of Preferred  Stock;  (h) payments by Country Best
Adams,  LLC or Agway Holdings Inc. with respect to any put options  exercised by
A. Smoot Langston,  Jr. ("Mr Langston") or any affiliate of Mr. Langston to whom
Mr. Langston has transferred his interest pursuant to the operating agreement of
Country Best Adams, LLC dated as of August 6, 1997 in an amount not to exceed in
the aggregate $1,200,000.00; (i) dividends of Common Stock of Agway in an amount
not to exceed  $200,000 in any single Fiscal Year; (j) Honorary Member Series HM
Preferred  Stock of Agway issued to retired members of Agway in an amount not to
exceed  $100,000 in any single Fiscal Year;  and (k) cash  distributions  to the
members of Country  Best  Adams,  LLC and Country  Best-DeBerry  LLC as required
under the operating  agreements  governing such entities,  provided Country Best
Adams,  LLC and  Country  Best-DeBerry  LLC hereby  each agree that it shall not
modify, amend or change the provisions of this operating agreements which relate
to the calculation and payment of such  distributions,  provided,  that (i) with
respect to clauses  (e),  (f),  (g) and (h),  no Default or Event of Default has
occurred and is continuing or would result after giving effect to such payments,
and Borrowers  collectively have Borrowing  Availability of at least $20,000,000
after giving effect to such payments,  or (ii) with respect to clauses (e), (f),
(g) and (h), if a Default or Event of Default has  occurred  and is  continuing,
and Borrowers' collectively have Borrowing Availability of at least $25,000,000,
Borrowers may continue to make  payments of interest and principal  with respect
to  Subordinated  Debt unless (A) Agent provides  Borrower  Representative  with
written  notice that such  payments  are no longer  permitted,  (B) any Event of
Default has occurred and is  continuing  under  Section  8.1(a),  (C) any Credit
Party fails or neglects to perform,  keep or observe any of the  provisions  set
forth  in  Section  1.4 or  Annex  C,  or (D)  the  aggregate  principal  amount
outstanding in Preferred Stock,  Subordinated  Debt and notes  outstanding under
the Milford  Note Program is less than Four  Hundred and Forty  Million  Dollars
($440,000,000).

         6.15 Change of Corporate  Name or Location;  Change of Fiscal Year.  No
Credit Party shall (a) change its  corporate  name or use any new trade name, or
(b) except with respect to Collateral which is not required under Section 3.2 to
be identified by location, change its chief executive office, principal place of
business,  corporate  offices or warehouses or locations at which  Collateral is
held or stored,  or the location of its records  concerning the  Collateral,  in
each case without at least 30 days prior written notice to Agent and after


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<PAGE>

Agent's written  acknowledgment that any reasonable action requested by Agent in
connection therewith, including to continue the perfection of any Liens in favor
of Agent, on behalf of Lenders, in any Collateral,  has been completed or taken,
and  provided  that any such new  location  shall be in the  continental  United
States.  Without limiting the foregoing,  no Credit Party shall change its name,
identity or corporate  structure in any manner that might make any  financing or
continuation  statement filed in connection herewith seriously misleading within
the  meaning  of  Section  9-402(7)  of the Code or any  other  then  applicable
provision of the Code except upon prior written  notice to Agent and Lenders and
after Agent's written  acknowledgment  that any reasonable  action  requested by
Agent in connection therewith, including to continue the perfection of any Liens
in favor of Agent, on behalf of Lenders,  in any Collateral,  has been completed
or taken.  No Credit Party shall change its Fiscal Year,  except that the Credit
Parties may,  upon notice to the Agent,  change their Fiscal Year end to June 30
beginning with the Fiscal Year ending June 30, 2002.

         6.16 No Impairment  of  Intercompany  Transfers.  No Credit Party shall
directly or indirectly enter into or become bound by any agreement,  instrument,
indenture  or other  obligation  (other than this  Agreement  and the other Loan
Documents) that could directly or indirectly  restrict,  prohibit or require the
consent of any Person with respect to the payment of dividends or  distributions
or the making or repayment of intercompany loans by a Subsidiary of any Borrower
to any Borrower or between Borrowers.

         6.17 No Speculative  Transactions.  No Credit Party shall engage in any
transaction   involving   commodity   options,   futures  contracts  or  similar
transactions,  except  solely to hedge  against  fluctuations  in the  prices of
commodities owned or purchased by it provided any such transaction is consistent
with Credit  Parties'  hedging  policies  existing as of the Closing  Date,  and
provided  further  no Credit  Party  shall  change any of its  hedging  policies
existing as of the Closing Date.

         6.18 Leases.  No Credit Party shall enter into any operating  lease for
Equipment or Real Estate,  if the aggregate of all such operating lease payments
payable for all Credit Parties on a consolidated  basis would exceed the amounts
set forth below opposite each of such periods:

                          Period                              Maximum
                          ------                              -------
             Fiscal Year ending June 30, 2001               $16,500,000
             Fiscal Year ending June 30, 2002               $18,000,000
             Fiscal Year ending June 30, 2003               $18,500,000
             Fiscal Year ending June 30, 2004               $19,000,000


         6.19  Changes  Relating to  Subordinated  Debt.  No Credit  Party shall
change  or  amend  the  terms of any  Subordinated  Debt  (or any  indenture  or
agreement in connection  therewith)  if the effect of such  amendment is to: (a)
increase the interest rate on such Subordinated  Debt; (b) change the dates upon
which payments of principal or interest are due on such  Subordinated Debt other
than to extend such dates; (c) change any default or event of default other than
to delete or make less  restrictive any default  provision  therein,  or add any
covenant with respect to such  Subordinated  Debt;  (d) change the redemption or
prepayment provisions of such Subordinated Debt other than to extend the dates


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<PAGE>

therefor or to reduce the premiums  payable in connection  therewith;  (e) grant
any security or collateral to secure payment of such  Subordinated  Debt; or (f)
change or amend any other  term if such  change or  amendment  would  materially
increase the  obligations  of the Credit Party  thereunder or confer  additional
material rights on the holder of such  Subordinated  Debt in a manner adverse to
any Credit Party, Agent or any Lender,  provided however, AFC shall be permitted
to issue new money market certificates in accordance with Section 6.3(a).

         6.20 Credit Card  Notices.  No Credit Party shall deliver to the Credit
Card Providers any instructions which modify or amend the Credit Card Notices or
in any manner attempt to change the delivery of Borrowers'  credit card receipts
to Agent.  Additionally,  Borrowers shall not materially amend, modify or change
any of their  agreements  with the Credit Card Providers  without  Agent's prior
written consent.

7.       TERM

         7.1 Termination.  The financing arrangements  contemplated hereby shall
be in effect until the Commitment  Termination Date, and the Loans and all other
Obligations shall be automatically due and payable in full on such date.

         7.2 Survival of Obligations Upon Termination of Financing Arrangements.
Except as otherwise expressly provided for in the Loan Documents, no termination
or cancellation  (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the  obligations,  duties
and  liabilities  of the  Credit  Parties  or the  rights of Agent  and  Lenders
relating to any unpaid portion of the Loans or any other Obligations, due or not
due,  liquidated,  contingent  or  unliquidated,  or any  transaction  or  event
occurring  prior  to  such  termination,   or  any  transaction  or  event,  the
performance of which is required after the Commitment  Termination  Date. Except
as  otherwise  expressly  provided  herein or in any other  Loan  Document,  all
undertakings,  agreements,  covenants,  warranties  and  representations  of  or
binding upon the Credit Parties, and all rights of Agent and each Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive any such  termination or  cancellation  and shall continue in full force
and effect until the Termination Date; provided,  that the provisions of Section
11, the payment  obligations  under Sections 1.15 and 1.16, and the  indemnities
contained in the Loan Documents shall survive the Termination Date.

8.       EVENTS OF DEFAULT; RIGHTS AND REMEDIES

         8.1  Events  of  Default.  The  occurrence  of any  one or  more of the
following events  (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:

                  (a) Any  Borrower  (i) fails to make any payment of  principal
of,  or  interest  on the  Loans or any of the  other  Obligations  when due and
payable, (ii) fails to make any payment of Fees within 3 days after the same are
due and  payable,  or (iii) fails to pay or  reimburse  Agent or Lenders for any
expense  reimbursable  hereunder or under any other Loan Document within 10 days
following Agent's demand for such reimbursement or payment of expenses.



                                       45
<PAGE>

                  (b) Any Credit  Party fails or  neglects  to perform,  keep or
observe any of the  provisions of Sections 1.4, 1.8,  5.4(a) or 6, or any of the
provisions set forth in Annexes C or G, respectively.

                  (c) Any Borrower fails or neglects to perform, keep or observe
any of the  provisions of Section 4 or any  provisions set forth in Annexes E or
F,  respectively,  and the same shall remain  unremedied  for 3 Business Days or
more.

                  (d) Any Credit  Party fails or  neglects  to perform,  keep or
observe  any other  provision  of this  Agreement  or of any of the  other  Loan
Documents  (other than any provision  embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for 20 days or more.

                  (e) A default  or  breach  occurs  under any other  agreement,
document or  instrument  to which any Credit  Party is a party that is not cured
within any  applicable  grace  period  therefor,  and such default or breach (i)
involves the failure to make any payment when due in respect of any Indebtedness
or Guaranteed  Indebtedness  (other than the Obligations) of any Credit Party in
excess of  $1,000,000  in the  aggregate  (including  (x) undrawn  committed  or
available  amounts and (y) amounts owing to all creditors  under any combined or
syndicated credit  arrangements),  or (ii) causes, or permits any holder of such
Indebtedness or Guaranteed  Indebtedness or a trustee to cause,  Indebtedness or
Guaranteed  Indebtedness  or a portion  thereof in excess of  $3,000,000  in the
aggregate to become due prior to its stated  maturity or prior to its  regularly
scheduled  dates  of  payment,  or cash  collateral  in  respect  thereof  to be
demanded,  in each case,  regardless of whether such default is waived,  or such
right is exercised, by such holder or trustee.

                  (f)  Any   information   contained  in  any   Borrowing   Base
Certificate  is untrue or  incorrect  in any respect  (other  than  inadvertent,
immaterial errors not exceeding  $250,000 in the aggregate in any Borrowing Base
Certificate),  or any  representation or warranty herein or in any Loan Document
or in any written statement,  report,  financial statement or certificate (other
than a Borrowing Base  Certificate)  made or delivered to Agent or any Lender by
any Credit Party is untrue or  incorrect in any material  respect as of the date
when made or deemed made.

                  (g) Assets of any Credit  Party  with a fair  market  value of
$500,000 or more are  attached,  seized,  levied upon or  subjected to a writ or
distress  warrant,  or come  within the  possession  of any  receiver,  trustee,
custodian  or assignee for the benefit of creditors of any Credit Party and such
condition continues for 45 days or more.

                  (h) A case or proceeding is commenced against any Credit Party
seeking  a decree  or order in  respect  of such  Credit  Party  (i)  under  the
Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) appointing a custodian, receiver, liquidator,  assignee,
trustee or sequestrator  (or similar  official) for such Credit Party or for any
substantial  part of any such  Credit  Party's  assets,  or (iii)  ordering  the
winding-up or liquidation of the affairs of such Credit Party,  and such case or
proceeding shall remain  undismissed or unstayed for 60 days or more or a decree
or order granting the relief sought in such case or proceeding  shall be entered
by a court of competent jurisdiction.



                                       46
<PAGE>

                  (i) Any Credit Party (i) files a petition seeking relief under
the  Bankruptcy  Code,  or  any  other  applicable  federal,  state  or  foreign
bankruptcy  or other  similar  law,  (ii)  consents  to or fails to contest in a
timely and appropriate  manner the institution of proceedings  thereunder or the
filing of any such  petition or the  appointment  of or taking  possession  by a
custodian, receiver,  liquidator,  assignee, trustee or sequestrator (or similar
official) for such Credit Party or for any  substantial  part of any such Credit
Party's  assets,  (iii) makes an assignment  for the benefit of creditors,  (iv)
takes any  action  in  furtherance  of any of the  foregoing;  or (v)  admits in
writing its inability to, or is generally unable to, pay its debts as such debts
become due.

                  (j) A final  judgment or judgments for the payment of money in
excess of $500,000 in the aggregate at any time are  outstanding  against one or
more of the Credit Parties and the same are not,  within 45 days after the entry
thereof,  discharged or execution  thereof stayed or bonded pending  appeal,  or
such judgments are not discharged prior to the expiration of any such stay.

                  (k) Any material provision of any Loan Document for any reason
ceases to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall  challenge the  enforceability  of any Loan Document or shall
assert  in  writing,  or  engage in any  action  or  inaction  based on any such
assertion,  that any provision of any of the Loan  Documents has ceased to be or
otherwise is not valid,  binding and  enforceable in accordance with its terms),
or any Lien created under any Loan  Document  ceases to be a valid and perfected
first priority Lien (except as otherwise  permitted herein or therein) in any of
the Collateral purported to be covered thereby.

                  (l) Any Change of Control occurs.

                  (m) Any event occurs, whether or not insured or insurable,  as
a  result  of which  revenue-producing  activities  cease  or are  substantially
curtailed at any facility or facilities of Borrowers generating more than 10% of
Borrowers'  consolidated  revenues for the Fiscal Year  preceding such event and
such cessation or curtailment continues for more than 20 days.

                  (n) Any "Event of Default" under and as defined in any
Mortgage shall occur.

         8.2 Remedies.

                  (a) If any  Default or Event of Default  has  occurred  and is
continuing,  Agent may (and at the  written  request  of the  Requisite  Lenders
shall),  without  notice,  suspend the  Revolving  Loan facility with respect to
additional  Advances  and/or  the  incurrence  of  additional  Letter  of Credit
Obligations,  whereupon any additional  Advances and additional Letter of Credit
Obligations shall be made or incurred in Agent's sole discretion (or in the sole
discretion  of the  Requisite  Lenders,  if such  suspension  occurred  at their
direction)  so long as such  Default or Event of Default is  continuing.  If any
Default or Event of Default has  occurred and is  continuing,  Agent may (and at
the written  request of  Requisite  Lenders  shall),  without  notice  except as
otherwise expressly provided herein, increase the rate of interest applicable to
the Loans and the Letter of Credit Fees to the Default Rate.



                                       47
<PAGE>

                  (b) If any Event of Default has  occurred  and is  continuing,
Agent may (and at the written request of the Requisite  Lenders shall),  without
notice:  (i)  terminate  the  Revolving  Loan  facility  with respect to further
Advances or the incurrence of further Letter of Credit Obligations; (ii) declare
all or any portion of the Obligations,  including all or any portion of any Loan
to be  forthwith  due and  payable,  and  require  that  the  Letter  of  Credit
Obligations  be  cash  collateralized  as  provided  in  Annex  B,  all  without
presentment,  demand,  protest or further  notice of any kind,  all of which are
expressly waived by Borrowers and each other Credit Party; or (iii) exercise any
rights and  remedies  provided  to Agent under the Loan  Documents  or at law or
equity,  including all remedies provided under the Code; provided, that upon the
occurrence  of an Event of Default  specified  in  Sections  8.1(h) or (i),  the
Revolving  Loan  facility  shall  be  immediately  terminated  and  all  of  the
Obligations,  including the aggregate  Revolving Loan, shall become  immediately
due and payable without declaration, notice or demand by any Person.

         8.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement,  any other Loan  Document or by  applicable  law,  each Credit  Party
waives  (including  for  purposes of Section 12):  (a)  presentment,  demand and
protest and notice of  presentment,  dishonor,  notice of intent to  accelerate,
notice  of  acceleration,   protest,  default,  nonpayment,  maturity,  release,
compromise,  settlement,  extension or renewal of any or all  commercial  paper,
accounts, contract rights, documents,  instruments, chattel paper and guaranties
at any time held by Agent on which any  Credit  Party may in any way be  liable,
and hereby ratifies and confirms  whatever Agent may do in this regard,  (b) all
rights to notice and a hearing prior to Agent's taking possession or control of,
or to Agent's  replevy,  attachment or levy upon,  the Collateral or any bond or
security that might be required by any court prior to allowing Agent to exercise
any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling
and exemption laws.

9.       ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

         9.1 Assignment and Participations.

                  (a) Subject to the terms of this  Section  9.1, any Lender may
make an  assignment  to a Person of, or sell  participations  in, at any time or
times,  the  Loan  Documents,  Loans,  Letter  of  Credit  Obligations  and  any
Commitment or any portion  thereof or interest  therein,  including any Lender's
rights, title, interests,  remedies, powers or duties thereunder. Any assignment
by a Lender shall:  (i) require the consent of Agent (which consent shall not be
unreasonably  withheld or delayed with respect to a Qualified  Assignee) and the
execution of an assignment agreement (an "Assignment  Agreement")  substantially
in the  form  attached  hereto  as  Exhibit  9.1(a)  and  otherwise  in form and
substance  reasonably  satisfactory  to, and  acknowledged  by,  Agent;  (ii) be
conditioned on such assignee  Lender  representing  to the assigning  Lender and
Agent that it is purchasing  the  applicable  Loans to be assigned to it for its
own account,  for  investment  purposes and not with a view to the  distribution
thereof; (iii) after giving effect to any such partial assignment,  the assignee
Lender shall have  Commitments in an amount at least equal to $5,000,000 and the
assigning Lender shall have retained  Commitments in an amount at least equal to
$5,000,000;  (iv) include a payment to Agent of an assignment fee of $3,500; and
(v) so long as no Event of Default has occurred and is  continuing,  require the
consent of Borrower Representative,  which shall not be unreasonably withheld or
delayed;  provided that no such consent shall be required for an assignment to a
Qualified Assignee.  In the case of an assignment by a Lender under this Section
9.1, the assignee shall have, to the extent of such assignment, the same rights,


                                       48
<PAGE>

benefits and obligations as all other Lenders  hereunder.  The assigning  Lender
shall be relieved of its  obligations  hereunder with respect to its Commitments
or assigned  portion  thereof from and after the date of such  assignment.  Each
Borrower hereby acknowledges and agrees that any assignment shall give rise to a
direct  obligation  of Borrowers to the assignee and that the assignee  shall be
considered to be a "Lender".  In all instances,  each Lender's liability to make
Loans  hereunder  shall be  several  and not joint and shall be  limited to such
Lender's Pro Rata Share of the applicable Commitment.  In the event Agent or any
Lender assigns or otherwise transfers all or any part of the Obligations,  Agent
or any such Lender  shall so notify  Borrowers  and  Borrowers  shall,  upon the
request of Agent or such Lender, execute new Notes in exchange for the Notes, if
any, being assigned.  Notwithstanding  the foregoing  provisions of this Section
9.1(a),  any Lender may at any time pledge the  Obligations  held by it and such
Lender's  rights under this  Agreement and the other Loan Documents to a Federal
Reserve  Bank,  and any  Lender  that  is an  investment  fund  may  assign  the
Obligations  held by it and such  Lender's  rights under this  Agreement and the
other Loan Documents to another  investment  fund managed by the same investment
advisor;  provided,  that no such pledge to a Federal Reserve Bank shall release
such Lender from such  Lender's  obligations  hereunder  or under any other Loan
Document.

                  (b) Any  participation  by a Lender  of all or any part of its
Commitments  shall be made with the  understanding  that all amounts  payable by
Borrowers  hereunder  shall be  determined  as if that  Lender had not sold such
participation,  and  that the  holder  of any such  participation  shall  not be
entitled  to require  such  Lender to take or omit to take any action  hereunder
except actions directly  affecting (i) any reduction in the principal amount of,
or interest  rate or Fees payable with respect to, any Loan in which such holder
participates,  (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder  participates or the final maturity date
thereof,  and (iii) any release of all or  substantially  all of the  Collateral
(other  than in  accordance  with the terms of this  Agreement,  the  Collateral
Documents or the other Loan  Documents).  Solely for purposes of Sections  1.13,
1.15, 1.16 and 9.8, each Borrower  acknowledges  and agrees that a participation
shall give rise to a direct  obligation of Borrowers to the  participant and the
participant  shall be  considered  to be a "Lender".  Except as set forth in the
preceding sentence no Borrower or Credit Party shall have any obligation or duty
to any participant.  Neither Agent nor any Lender (other than the Lender selling
a participation) shall have any duty to any participant and may continue to deal
solely with the Lender selling a participation as if no such sale had occurred.

                  (c) Except as  expressly  provided  in this  Section  9.1,  no
Lender shall, as between Borrowers and that Lender, or Agent and that Lender, be
relieved  of  any  of  its  obligations  hereunder  as a  result  of  any  sale,
assignment,  transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.

                  (d) Each Credit Party  executing this  Agreement  shall assist
any Lender  permitted to sell assignments or  participations  under this Section
9.1 as reasonably  required to enable the assigning or selling  Lender to effect
any such  assignment or  participation,  including the execution and delivery of
any and all  agreements,  notes and other  documents and instruments as shall be
reasonably   requested   and,  if  requested  by  Agent,   the   preparation  of
informational  materials  for, and the  participation  of management in meetings
with,  potential  assignees or  participants.  Each Credit Party  executing this
Agreement shall certify the correctness, completeness and accuracy of all


                                       49
<PAGE>

descriptions of the Credit Parties and their respective affairs contained in any
selling materials  provided by them and all other  information  provided by them
and  included  in such  materials,  except  that any  Projections  delivered  by
Borrowers  shall only be  certified  by  Borrowers  as having  been  prepared by
Borrowers in compliance with the representations contained in Section 3.4(c).

                  (e) Any Lender may furnish any information  concerning  Credit
Parties in the  possession  of such  Lender from time to time to  assignees  and
participants  (including prospective assignees and participants);  provided that
such  Lender  shall  obtain  from  assignees  or  participants   confidentiality
covenants substantially equivalent to those contained in Section 11.8.

                  (f) So  long  as no  Event  of  Default  has  occurred  and is
continuing,  no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant, if, as of the date of
the proposed  assignment or sale, the assignee  Lender or  participant  would be
subject to capital  adequacy  or similar  requirements  under  Section  1.16(a),
increased  costs under Section  1.16(b),  an inability to fund LIBOR Loans under
Section 1.16(c), or withholding taxes in accordance with Section 1.15(a).

                  (g) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Lender"), may grant to a special purpose funding vehicle
(an "SPC"),  identified  as such in writing by the Granting  Lender to Agent and
Borrowers,  the option to provide to Borrowers all or any part of any Loans that
such Granting Lender would otherwise be obligated to make to Borrowers  pursuant
to  this  Agreement;  provided  that  (i)  nothing  herein  shall  constitute  a
commitment  by any SPC to make  any  Loan;  and  (ii)  if an SPC  elects  not to
exercise such option or otherwise fails to provide all or any part of such Loan,
the Granting  Lender shall be obligated to make such Loan  pursuant to the terms
hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of
the Granting  Lender to the same  extent,  and as if such Loan were made by such
Granting  Lender.  No SPC shall be liable for any  indemnity or similar  payment
obligation  under this  Agreement (all liability for which shall remain with the
Granting Lender).  Any SPC may (i) with notice to, but without the prior written
consent of, Borrowers and Agent, and without paying any processing fee therefor,
assign all or a portion of its interests in any Loans to the Granting  Lender or
to any financial  institutions  providing  liquidity and/or credit support to or
for the account of such SPC to support the funding or  maintenance  of Loans and
(ii) disclose on a confidential basis any non-public information relating to its
Loans to any rating agency,  commercial  paper dealer or provider of any surety,
guarantee or credit or liquidity  enhancement  to such SPC. This Section  9.1(g)
may not be amended  without the prior written  consent of each Granting  Lender,
all or any of  whose  Loans  are  being  funded  by an SPC at the  time  of such
amendment.  For the  avoidance  of  doubt,  the  Granting  Lender  shall for all
purposes,  including without limitation, the approval of any amendment or waiver
of any  provision  of any Loan  Document  or the  obligation  to pay any  amount
otherwise  payable by the Granting Lender under the Loan Documents,  continue to
be the Lender of record hereunder.

         9.2  Appointment  of Agent.  GE Capital is hereby  appointed  to act on
behalf  of all  Lenders  as  Agent  under  this  Agreement  and the  other  Loan
Documents.  The  provisions  of this  Section  9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions  hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent


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<PAGE>

shall act  solely as an agent of  Lenders  and does not  assume and shall not be
deemed to have assumed any obligation  toward or relationship of agency or trust
with or for any Credit Party or any other Person.  Agent shall have no duties or
responsibilities  except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature  and Agent  shall  not have,  or be deemed to have,  by reason of this
Agreement,  any other Loan  Document or  otherwise a fiduciary  relationship  in
respect of any Lender.  Except as expressly set forth in this  Agreement and the
other Loan Documents,  Agent shall not have any duty to disclose,  and shall not
be liable for failure to disclose,  any information relating to any Credit Party
or  any  of  their  respective  Subsidiaries  or  any  Account  Debtor  that  is
communicated  to or  obtained  by GE  Capital  or any of its  Affiliates  in any
capacity.  Neither Agent nor any of its Affiliates  nor any of their  respective
officers, directors, employees, agents or representatives shall be liable to any
Lender for any action  taken or omitted to be taken by it hereunder or under any
other Loan Document, or in connection herewith or therewith,  except for damages
caused by its or their own gross negligence or willful misconduct.

         If  Agent  shall   request   instructions   from   Requisite   Lenders,
         Supermajority Revolving Lenders or all affected Lenders with respect to
         any act or action  (including  failure to act) in connection  with this
         Agreement or any other Loan  Document,  then Agent shall be entitled to
         refrain  from such act or taking  such  action  unless and until  Agent
         shall have received instructions from Requisite Lenders,  Supermajority
         Revolving  Lenders  or all  affected  Lenders,  as the case may be, and
         Agent  shall  not  incur  liability  to  any  Person  by  reason  of so
         refraining.  Agent shall be fully  justified  in failing or refusing to
         take any action  hereunder or under any other Loan Document (a) if such
         action would,  in the opinion of Agent, be contrary to law or the terms
         of this Agreement or any other Loan Document, (b) if such action would,
         in the opinion of Agent,  expose Agent to Environmental  Liabilities or
         (c) if Agent shall not first be indemnified to its satisfaction against
         any and all liability and expense which may be incurred by it by reason
         of taking or continuing to take any such action.  Without  limiting the
         foregoing,  no Lender shall have any right of action whatsoever against
         Agent as a result of Agent acting or refraining  from acting  hereunder
         or under any other Loan Document in accordance with the instructions of
         Requisite  Lenders,  Supermajority  Revolving  Lenders or all  affected
         Lenders, as applicable.

         9.3 Agent's Reliance,  Etc. Neither Agent nor any of its Affiliates nor
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this  Agreement or the other Loan  Documents,  except for damages caused by
its or their own gross  negligence or willful  misconduct.  Without limiting the
generality of the foregoing,  Agent:  (a) may treat the payee of any Note as the
holder thereof until Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form reasonably  satisfactory to Agent;  (b)
may consult with legal counsel, independent public accountants and other experts
selected  by it and shall not be liable  for any  action  taken or omitted to be
taken  by it in good  faith  in  accordance  with the  advice  of such  counsel,
accountants or experts;  (c) makes no warranty or  representation  to any Lender
and shall not be  responsible  to any Lender for any  statements,  warranties or
representations  made in or in connection  with this Agreement or the other Loan
Documents;  (d) shall not have any duty to  ascertain  or to  inquire  as to the
performance  or observance of any of the terms,  covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to


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<PAGE>

inspect the  Collateral  (including  the books and records) of any Credit Party;
(e) shall not be  responsible  to any  Lender for the due  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document  furnished pursuant
hereto or thereto;  and (f) shall incur no liability under or in respect of this
Agreement  or the other  Loan  Documents  by acting  upon any  notice,  consent,
certificate or other instrument or writing (which may be by telecopy,  telegram,
cable or telex)  believed  by it to be genuine  and signed or sent by the proper
party or parties.

         9.4  GE  Capital  and  Affiliates.  With  respect  to  its  Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan  Documents  as any other  Lender and may exercise the same as
though it were not Agent;  and the term  "Lender"  or  "Lenders"  shall,  unless
otherwise expressly indicated, include GE Capital in its individual capacity. GE
Capital and its Affiliates may lend money to, invest in, and generally engage in
any kind of business  with,  any Credit Party,  any of their  Affiliates and any
Person who may do business  with or own  securities  of any Credit  Party or any
such  Affiliate,  all as if GE Capital  were not Agent and  without  any duty to
account  therefor to Lenders.  GE Capital and its Affiliates may accept fees and
other  consideration  from any Credit Party for services in connection with this
Agreement or otherwise  without having to account for the same to Lenders.  Each
Lender  acknowledges the potential  conflict of interest between GE Capital as a
Lender holding disproportionate interests in the Loans and GE Capital as Agent.

         9.5 Lender  Credit  Decision.  Each  Lender  acknowledges  that it has,
independently  and without  reliance upon Agent or any other Lender and based on
the Financial  Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate,  made its own credit and financial
analysis  of the  Credit  Parties  and its  own  decision  to  enter  into  this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance  upon  Agent  or any  other  Lender  and  based on such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit  decisions  in taking or not taking  action  under this  Agreement.  Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

         9.6  Indemnification.  Lenders agree to indemnify  Agent (to the extent
not  reimbursed  by Credit  Parties  and without  limiting  the  obligations  of
Borrowers  hereunder),  ratably  according to their  respective Pro Rata Shares,
from  and  against  any  and  all  liabilities,  obligations,  losses,  damages,
penalties,  actions,  proceedings,  claims, judgments, suits, costs, expenses or
disbursements of any kind or nature  whatsoever that may be imposed on, incurred
by, or  asserted  against  Agent in any way  relating  to or arising out of this
Agreement or any other Loan  Document or any action taken or omitted to be taken
by Agent in connection therewith;  provided,  that no Lender shall be liable for
any  portion  of such  liabilities,  obligations,  losses,  damages,  penalties,
actions, proceedings, claims, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence or willful misconduct.  Without limiting
the  foregoing,  each Lender agrees to reimburse  Agent promptly upon demand for
its ratable share of any out-of-pocket  expenses  (including  reasonable counsel
fees) incurred by Agent in connection with the preparation, execution, delivery,
administration,   modification,   amendment  or  enforcement   (whether  through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of


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<PAGE>

rights or  responsibilities  under, this Agreement and each other Loan Document,
to the extent that Agent is not reimbursed for such expenses by Credit Parties.

         9.7  Successor  Agent.  Agent may resign at any time by giving not less
than  30  days'  prior   written   notice   thereof  to  Lenders  and   Borrower
Representative.  Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor  Agent.  If no  successor  Agent shall have been so
appointed by the  Requisite  Lenders and shall have  accepted  such  appointment
within 30 days after the resigning  Agent's giving notice of  resignation,  then
the resigning Agent may, on behalf of Lenders,  appoint a successor Agent, which
shall be a  Lender,  if a Lender  is  willing  to accept  such  appointment,  or
otherwise shall be a commercial bank or financial institution or a subsidiary of
a commercial bank or financial  institution if such commercial bank or financial
institution  is organized  under the laws of the United  States of America or of
any  State  thereof  and  has  a  combined  capital  and  surplus  of  at  least
$300,000,000.  If  no  successor  Agent  has  been  appointed  pursuant  to  the
foregoing, within 30 days after the date such notice of resignation was given by
the resigning Agent,  such resignation  shall become effective and the Requisite
Lenders shall  thereafter  perform all the duties of Agent  hereunder until such
time, if any, as the  Requisite  Lenders  appoint a successor  Agent as provided
above.  Any successor  Agent appointed by Requisite  Lenders  hereunder shall be
subject to the  approval of Borrower  Representative,  such  approval  not to be
unreasonably  withheld  or delayed;  provided  that such  approval  shall not be
required if a Default or an Event of Default  has  occurred  and is  continuing.
Upon the acceptance of any appointment as Agent hereunder by a successor  Agent,
such  successor  Agent shall  succeed to and become  vested with all the rights,
powers,  privileges and duties of the resigning  Agent.  Upon the earlier of the
acceptance of any  appointment  as Agent  hereunder by a successor  Agent or the
effective date of the resigning Agent's  resignation,  the resigning Agent shall
be discharged from its duties and obligations under this Agreement and the other
Loan  Documents,  except that any  indemnity  rights or other rights in favor of
such resigning Agent shall  continue.  After any resigning  Agent's  resignation
hereunder, the provisions of this Section 9 shall inure to its benefit as to any
actions  taken or omitted  to be taken by it while it was acting as Agent  under
this Agreement and the other Loan Documents.

         9.8 Setoff and  Sharing of  Payments.  In addition to any rights now or
hereafter  granted under applicable law and not by way of limitation of any such
rights,  upon the occurrence and during the  continuance of any Event of Default
and subject to Section 9.9(f),  each Lender is hereby  authorized at any time or
from time to time,  without  notice to any Credit Party or to any other  Person,
any such notice being hereby expressly  waived, to offset and to appropriate and
to apply any and all  balances  held by it at any of its offices for the account
of any Borrower or Guarantor  (regardless  of whether such balances are then due
to such  Borrower or Guarantor)  and any other  properties or assets at any time
held or owing by that  Lender  or that  holder  to or for the  credit or for the
account  of any  Borrower  or  Guarantor  against  and on  account of any of the
Obligations that are not paid when due. Any Lender  exercising a right of setoff
or otherwise  receiving any payment on account of the  Obligations  in excess of
its Pro Rata Share  thereof  shall  purchase for cash (and the other  Lenders or
holders shall sell) such  participations in each such other Lender's or holder's
Pro Rata Share of the  Obligations as would be necessary to cause such Lender to
share the  amount so offset or  otherwise  received  with each  other  Lender or
holder in accordance  with their  respective  Pro Rata Shares (other than offset
rights  exercised  by any Lender with respect to Sections  1.13,  1.15 or 1.16).
Each Lender's  obligation under this Section 9.8 shall be in addition to and not
in limitation of its obligations to purchase a participation in an amount equal


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<PAGE>

to its Pro Rata Share of the Swing Line Loans  under  Section  1.1.  Each Credit
Party that is a Borrower or Guarantor agrees, to the fullest extent permitted by
law,  that (a) any  Lender  may  exercise  its right to offset  with  respect to
amounts  in  excess  of its Pro  Rata  Share  of the  Obligations  and may  sell
participations  in such  amounts so offset to other  Lenders and holders and (b)
any Lender so purchasing a participation in the Loans made or other  Obligations
held by other  Lenders or holders may  exercise  all rights of offset,  bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such  Lender  or  holder  were a direct  holder of the Loans and the other
Obligations in the amount of such participation.  Notwithstanding the foregoing,
if all or any  portion of the offset  amount or payment  otherwise  received  is
thereafter recovered from the Lender that has exercised the right of offset, the
purchase of  participations  by that Lender shall be rescinded  and the purchase
price restored without interest.

         9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.

                  (a) Advances; Payments.

                        (i) Revolving Lenders shall refund or participate in the
Swing Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(b).  If
the Swing  Line  Lender  declines  to make a Swing  Line  Loan or if Swing  Line
Availability  is zero,  Agent shall notify  Revolving  Lenders,  promptly  after
receipt of a Notice of Revolving  Credit  Advance and in any event prior to 1:00
p.m.  (New York time) on the date such Notice of Revolving  Advance is received,
by telecopy,  telephone or other similar form of  transmission.  Each  Revolving
Lender shall make the amount of such  Lender's Pro Rata Share of such  Revolving
Credit Advance  available to Agent in same day funds by wire transfer to Agent's
account as set forth in Annex H not later than 3:00 p.m.  (New York time) on the
requested  funding date,  in the case of an Index Rate Loan,  and not later than
11:00 a.m. (New York time) on the requested funding date, in the case of a LIBOR
Loan.  After receipt of such wire transfers (or, in the Agent's sole discretion,
before receipt of such wire transfers), subject to the terms hereof, Agent shall
make the  requested  Revolving  Credit  Advance to the  Borrower  designated  by
Borrower  Representative in the Notice of Revolving Credit Advance. All payments
by each Revolving Lender shall be made without setoff, counterclaim or deduction
of any kind.

                        (ii) On the 2nd Business Day of each calendar week or
more  frequently at Agent's  election (each, a "Settlement  Date"),  Agent shall
advise each Lender by telephone,  or telecopy of the amount of such Lender's Pro
Rata Share of principal,  interest and Fees paid for the benefit of Lenders with
respect  to each  applicable  Loan.  Provided  that each  Lender  has funded all
payments  or  Advances  required  to  be  made  by  it  and  has  purchased  all
participations required to be purchased by it under this Agreement and the other
Loan Documents as of such Settlement  Date,  Agent shall pay to each Lender such
Lender's Pro Rata Share of principal,  interest and Fees paid by Borrowers since
the previous Settlement Date for the benefit of such Lender on the Loans held by
it. To the extent that any Lender (a  "Non-Funding  Lender")  has failed to fund
all such  payments  and  Advances  or  failed to fund the  purchase  of all such
participations,  Agent  shall  be  entitled  to set off the  funding  short-fall
against that Non-Funding  Lender's Pro Rata Share of all payments  received from
Borrowers. Such payments shall be made by wire transfer to such Lender's account
(as specified by such Lender in Annex H or the applicable Assignment Agreement)


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<PAGE>

not later than 2:00 p.m. (New York time) on the next Business Day following each
Settlement Date.

                  (b) Availability of Lender's Pro Rata Share.  Agent may assume
that each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance  available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled
to recover  such amount on demand from such  Revolving  Lender  without  setoff,
counterclaim or deduction of any kind. If any Revolving  Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower Representative and Borrowers shall immediately repay such amount
to Agent.  Nothing in this Section  9.9(b) or elsewhere in this Agreement or the
other Loan Documents shall be deemed to require Agent to advance funds on behalf
of any Revolving  Lender or to relieve any Revolving  Lender from its obligation
to fulfill its  Commitments  hereunder or to prejudice any rights that Borrowers
may have  against  any  Revolving  Lender  as a result  of any  default  by such
Revolving  Lender  hereunder.  To the extent  that Agent  advances  funds to any
Borrower on behalf of any Revolving Lender and is not reimbursed therefor on the
same Business Day as such Advance is made, Agent shall be entitled to retain for
its  account  all  interest  accrued on such  Advance  until  reimbursed  by the
applicable Revolving Lender.

                  (c) Return of Payments.

                        (i) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation  that a related  payment has been or will
be received by Agent from Borrowers and such related  payment is not received by
Agent,  then Agent will be entitled  to recover  such amount from such Lender on
demand without setoff, counterclaim or deduction of any kind.

                        (ii) If Agent determines at any time that any amount
received by Agent under this  Agreement must be returned to any Borrower or paid
to  any  other  Person  pursuant  to any  insolvency  law  or  otherwise,  then,
notwithstanding  any other term or condition of this Agreement or any other Loan
Document,  Agent will not be required to distribute  any portion  thereof to any
Lender.  In  addition,  each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest at
such rate,  if any, as Agent is  required  to pay to any  Borrower or such other
Person, without setoff, counterclaim or deduction of any kind.

                  (d) Non-Funding Lenders. The failure of any Non-Funding Lender
to make any Revolving  Credit Advance or any payment required by it hereunder or
to purchase any  participation in any Swing Line Loan to be made or purchased by
it on the date specified  therefor shall not relieve any other Lender (each such
other  Revolving  Lender,  an "Other  Lender") of its  obligations  to make such
Advance or  purchase  such  participation  on such date,  but  neither any Other
Lender nor Agent shall be responsible for the failure of any Non-Funding  Lender
to make an Advance,  purchase a participation or make any other payment required
hereunder.  Notwithstanding  anything  set  forth  herein  to  the  contrary,  a
Non-Funding  Lender  shall not have any voting or consent  rights  under or with
respect to any Loan  Document or  constitute a "Lender" or a "Revolving  Lender"
(or be included in the  calculation  of  "Requisite  Lenders" or  "Supermajority
Revolving Lenders" hereunder) for any voting or consent rights under or with


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<PAGE>

respect to any Loan Document. At Borrower  Representative's  request, Agent or a
Person reasonably  acceptable to Agent shall have the right with Agent's consent
and in Agent's sole  discretion  (but shall have no obligation) to purchase from
any Non-Funding  Lender,  and each  Non-Funding  Lender agrees that it shall, at
Agent's request, sell and assign to Agent or such Person, all of the Commitments
of that Non-Funding  Lender for an amount equal to the principal  balance of all
Loans held by such  Non-Funding  Lender and all accrued  interest  and fees with
respect  thereto  through  the  date  of  sale,  such  purchase  and  sale to be
consummated pursuant to an executed Assignment Agreement.

                  (e)  Dissemination of Information.  Agent shall use reasonable
efforts  to  provide  Lenders  with any  notice of  Default  or Event of Default
received by Agent from, or delivered by Agent to, any Credit Party,  with notice
of any Event of Default of which Agent has actually become aware and with notice
of any action  taken by Agent  following  any Event of Default;  provided,  that
Agent shall not be liable to any Lender for any failure to do so,  except to the
extent that such failure is attributable to Agent's gross  negligence or willful
misconduct. Lenders acknowledge that Borrowers are required to provide Financial
Statements and Collateral  Reports to Lenders in accordance with Annexes E and F
hereto and agree that Agent shall have no duty to provide the same to Lenders.

                  (f) Actions in  Concert.  Anything  in this  Agreement  to the
contrary notwithstanding,  each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights  arising out of
this Agreement or the Notes (including  exercising any rights of setoff) without
first  obtaining the prior written  consent of Agent and Requisite  Lenders,  it
being the intent of Lenders  that any such  action to protect or enforce  rights
under  this  Agreement  and the  Notes  shall  be taken  in  concert  and at the
direction or with the consent of Agent or Requisite Lenders.

10.      SUCCESSORS AND ASSIGNS

         10.1  Successors  and  Assigns.  This  Agreement  and  the  other  Loan
Documents  shall be binding  on and shall  inure to the  benefit of each  Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party,  a  debtor-in-possession  on behalf of such Credit
Party),  except as  otherwise  provided  herein or therein.  No Credit Party may
assign,  transfer,   hypothecate  or  otherwise  convey  its  rights,  benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior  express  written  consent of Agent and  Lenders.  Any such  purported
assignment,  transfer,  hypothecation  or other  conveyance  by any Credit Party
without the prior  express  written  consent of Agent and Lenders shall be void.
The terms and  provisions of this  Agreement are for the purpose of defining the
relative  rights and  obligations  of each Credit Party,  Agent and Lenders with
respect to the transactions  contemplated  hereby and no Person shall be a third
party beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.

11.      MISCELLANEOUS

         11.1 Complete Agreement; Modification of Agreement. The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2. Any letter of interest, commitment letter, or fee letter


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<PAGE>

(other than the GE Capital Fee Letter) or confidentiality  agreement between any
Credit  Party and Agent or any  Lender  or any of their  respective  Affiliates,
predating  this Agreement and relating to a financing of  substantially  similar
form, purpose or effect shall be superseded by this Agreement.

         11.2 Amendments and Waivers.

                  (a)  Except for  actions  expressly  permitted  to be taken by
Agent,  no amendment,  modification,  termination  or waiver of any provision of
this  Agreement or any other Loan  Document,  or any consent to any departure by
any Credit  Party  therefrom,  shall in any event be  effective  unless the same
shall be in writing and signed by Agent and Borrowers, and by Requisite Lenders,
Supermajority  Revolving Lenders or all affected Lenders, as applicable.  Except
as set forth in clauses (b) and (c) below, all such  amendments,  modifications,
terminations  or waivers  requiring the consent of any Lenders shall require the
written consent of Requisite Lenders.

                  (b) No amendment,  modification,  termination  or waiver of or
consent  with respect to any  provision of this  Agreement  that  increases  the
percentage  advance rates set forth in the definition of the Borrowing  Base, or
that makes less  restrictive  the  nondiscretionary  criteria for exclusion from
Eligible  Accounts  and  Eligible  Inventory  set forth in Sections 1.6 and 1.7,
shall be  effective  unless the same  shall be in  writing  and signed by Agent,
Supermajority  Revolving  Lenders and  Borrowers.  No  amendment,  modification,
termination  or waiver of or  consent  with  respect  to any  provision  of this
Agreement  that waives  compliance  with the  conditions  precedent set forth in
Section 2.2 to the making of any Loan or the  incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed by
Agent,  Requisite Lenders and Borrowers.  Notwithstanding  anything contained in
this Agreement to the contrary, no waiver or consent with respect to any Default
or any Event of  Default  shall be  effective  for  purposes  of the  conditions
precedent  to the  making  of  Loans  or the  incurrence  of  Letter  of  Credit
Obligations  set forth in Section  2.2  unless the same shall be in writing  and
signed by Agent,  Requisite  Lenders  and  Borrowers.  Notwithstanding  anything
contained in this Agreement to the contrary, Agent shall have sole discretion to
extend, modify or waive the terms of that certain letter agreement,  dated as of
the date hereof, among Borrowers and Agent regarding the completion and delivery
of certain items after the Closing Date.

                  (c) No amendment,  modification,  termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected thereby:
(i) increase the principal  amount of any Lender's  Commitment or Pro Rata Share
(which action shall be deemed only to affect those Lenders whose Commitments and
Pro  Rata  Shares  are  increased  and may be  approved  by  Requisite  Lenders,
including  those Lenders whose  Commitments  and Pro Rata Shares are increased);
(ii) reduce the  principal  of, rate of interest on or Fees payable with respect
to any Loan or Letter of Credit Obligations of any affected Lender; (iii) extend
any scheduled  payment date (other than payment  dates of mandatory  prepayments
under  Section  1.3(b)(ii)  and (iii)) or final  maturity  date of the principal
amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or
postpone any payment of interest or Fees as to any affected Lender;  (v) release
any  Guaranty  or,  except as  otherwise  permitted  herein or in the other Loan
Documents,  release, or permit any Credit Party to sell or otherwise dispose of,
any Collateral with a value exceeding $10,000,000 in the aggregate (which action
shall be deemed to directly affect all Lenders); (vi) change the percentage of


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the Commitments or of the aggregate  unpaid  principal  amount of the Loans that
shall be required for Lenders or any of them to take any action  hereunder;  and
(vii)  amend  or  waive  this  Section  11.2  or the  definitions  of the  terms
"Requisite  Lenders"  or  "Supermajority  Revolving  Lenders"  insofar  as  such
definitions  affect  the  substance  of  this  Section  11.2.  Furthermore,   no
amendment, modification, termination or waiver affecting the rights or duties of
Agent or L/C Issuer  under this  Agreement or any other Loan  Document  shall be
effective  unless in writing and signed by Agent or L/C Issuer,  as the case may
be, in  addition  to Lenders  required  hereinabove  to take such  action.  Each
amendment,  modification,  termination  or waiver shall be effective only in the
specific  instance  and for the  specific  purpose  for which it was  given.  No
amendment,  modification,  termination  or waiver shall be required for Agent to
take  additional  Collateral  pursuant  to  any  Loan  Document.  No  amendment,
modification,  termination  or  waiver  of any  provision  of any Note  shall be
effective without the written  concurrence of the holder of that Note. No notice
to or demand on any Credit Party in any case shall  entitle such Credit Party or
any other  Credit  Party to any other or further  notice or demand in similar or
other circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance  with this Section 11.2 shall be binding upon each holder
of the Notes at the time outstanding and each future holder of the Notes.

                  (d)  If,   in   connection   with  any   proposed   amendment,
modification, waiver or termination (a "Proposed Change"):

                        (i) requiring the consent of all affected Lenders, the
consent of Requisite Lenders is obtained, but the consent of other Lenders whose
consent is  required  is not  obtained  (any such  Lender  whose  consent is not
obtained as described in this clause (i) and in clause (ii) below being referred
to as a "Non-Consenting Lender"), or

                        (ii) requiring the consent of Supermajority Revolving
Lenders, the consent of Requisite Lenders is obtained, but the consent of
Supermajority Revolving Lenders is not obtained,

then,  so  long  as  Agent  is  not  a   Non-Consenting   Lender,   at  Borrower
Representative's request, Agent or a Person reasonably acceptable to Agent shall
have the right with Agent's  consent and in Agent's sole  discretion  (but shall
have no  obligation)  to purchase  from such  Non-Consenting  Lenders,  and such
Non-Consenting  Lenders agree that they shall,  upon Agent's  request,  sell and
assign to Agent or such Person,  all of the  Commitments of such  Non-Consenting
Lenders for an amount  equal to the  principal  balance of all Loans held by the
Non-Consenting  Lenders and all accrued  interest and Fees with respect  thereto
through the date of sale,  such purchase and sale to be consummated  pursuant to
an executed Assignment Agreement.

                  (e) Upon payment in full in cash and performance of all of the
Obligations  (other  than  indemnification  Obligations),   termination  of  the
Commitments  and a release of all claims against Agent and Lenders,  and so long
as no suits,  actions,  proceedings or claims are pending or threatened  against
any Indemnified  Person  asserting any damages,  losses or liabilities  that are
Indemnified   Liabilities,   Agent  shall   deliver  to  Borrowers   termination
statements,  mortgage  releases and other documents  necessary or appropriate to
evidence the termination of the Liens securing payment of the Obligations.



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<PAGE>

         11.3 Fees and  Expenses.  Borrowers  shall  reimburse (i) Agent for all
fees,  costs and expenses  (including the reasonable fees and expenses of all of
its counsel,  advisors,  consultants  and  auditors)  and (ii) Agent (and,  with
respect  to clauses  (c) and (d) below,  all  Lenders)  for all fees,  costs and
expenses,  including the reasonable fees, costs and expenses of counsel or other
advisors  (including  environmental and management  consultants and appraisers),
incurred  in  connection  with  the  negotiation  and  preparation  of the  Loan
Documents and incurred in connection with:

                  (a) the  forwarding to Borrowers or any other Person on behalf
of Borrowers by Agent of the proceeds of any Loan (including a wire transfer fee
of $25 per wire transfer);

                  (b) any  amendment,  modification  or waiver of,  consent with
respect to, or termination of, any of the Loan Documents or Related Transactions
Documents or advice in connection with the syndication and administration of the
Loans made pursuant hereto or its rights hereunder or thereunder;

                  (c) any  litigation,  contest,  dispute,  suit,  proceeding or
action  (whether  instituted  by Agent,  any Lender,  any  Borrower or any other
Person and whether as a party,  witness or otherwise) in any way relating to the
Collateral,  any of the Loan Documents or any other  agreement to be executed or
delivered  in  connection  herewith  or  therewith,  including  any  litigation,
contest,  dispute,  suit, case,  proceeding or action,  and any appeal or review
thereof,  in  connection  with a case  commenced by or against any or all of the
Borrowers  or any other  Person that may be  obligated to Agent by virtue of the
Loan  Documents;   including  any  such  litigation,   contest,  dispute,  suit,
proceeding or action arising in connection with any work-out or restructuring of
the Loans during the pendency of one or more Events of Default; provided that in
the case of  reimbursement  of  counsel  for  Lenders  other  than  Agent,  such
reimbursement  shall be limited to one counsel for all such  Lenders;  provided,
further, that no Person shall be entitled to reimbursement under this clause (c)
in respect of any litigation,  contest,  dispute,  suit, proceeding or action to
the extent any of the foregoing  results from such Person's gross  negligence or
willful misconduct;

                  (d) any attempt to enforce any  remedies of Agent  against any
or all of the Credit  Parties or any other Person that may be obligated to Agent
or any Lender by virtue of any of the Loan Documents, including any such attempt
to enforce any such remedies in the course of any work-out or  restructuring  of
the Loans during the pendency of one or more Events of Default;  provided,  that
in the case of  reimbursement  of counsel  for Lenders  other than  Agent,  such
reimbursement shall be limited to one counsel for all such Lenders;

                  (e) any workout or restructuring of the Loans during the
pendency of one or more Events of Default; and

                  (f)  efforts  to (i)  monitor  the  Loans or any of the  other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective  affairs,  and (iii) verify,  protect,  evaluate,  assess,  appraise,
collect,  sell,  liquidate  or  otherwise  dispose  of any  of  the  Collateral,
including,  as to  each  of  clauses  (a)  through  (f)  above,  all  reasonable
attorneys' and other  professional and service providers' fees arising from such
services and other advice,  assistance or other representation,  including those
in connection with any appellate proceedings, and all expenses, costs, charges


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and other  fees  incurred  by such  counsel  and  others in  connection  with or
relating to any of the events or actions  described in this Section 11.3, all of
which shall be payable,  on demand, by Borrowers to Agent.  Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may include:
fees,  costs and expenses of accountants,  environmental  advisors,  appraisers,
investment bankers, management and other consultants and paralegals; court costs
and expenses;  photocopying and duplication expenses; court reporter fees, costs
and expenses; long distance telephone charges; air express charges;  telegram or
telecopy charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection  with the  performance  of such legal or
other advisory services.

         11.4 No Waiver.  Agent's or any Lender's failure, at any time or times,
to require  strict  performance  by the Credit  Parties of any provision of this
Agreement  or any other Loan  Document  shall not waive,  affect or diminish any
right of  Agent or such  Lender  thereafter  to  demand  strict  compliance  and
performance  herewith  or  therewith.  Any  suspension  or waiver of an Event of
Default  shall not suspend,  waive or affect any other Event of Default  whether
the same is prior or  subsequent  thereto and whether the same or of a different
type.  Subject to the  provisions  of Section  11.2,  none of the  undertakings,
agreements,  warranties,  covenants  and  representations  of any  Credit  Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit  Party shall be deemed to have been  suspended or
waived  by Agent or any  Lender,  unless  such  waiver  or  suspension  is by an
instrument in writing  signed by an officer of or other  authorized  employee of
Agent and the applicable required Lenders,  and directed to Borrowers specifying
such suspension or waiver.

         11.5  Remedies.  Agent's and Lenders'  rights and  remedies  under this
Agreement shall be cumulative and  nonexclusive of any other rights and remedies
that Agent or any Lender may have under any other agreement, including the other
Loan  Documents,  by operation of law or otherwise.  Recourse to the  Collateral
shall not be required.

         11.6 Severability.  Wherever possible, each provision of this Agreement
and the other  Loan  Documents  shall be  interpreted  in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any other Loan Document  shall be  prohibited by or invalid under  applicable
law, such provision shall be ineffective  only to the extent of such prohibition
or  invalidity  without  invalidating  the  remainder  of such  provision or the
remaining provisions of this Agreement or such other Loan Document.

         11.7 Conflict of Terms.  Except as otherwise provided in this Agreement
or any of the other Loan  Documents  by  specific  reference  to the  applicable
provisions  of this  Agreement,  if any  provision  contained in this  Agreement
conflicts with any provision in any of the other Loan  Documents,  the provision
contained in this Agreement shall govern and control.

         11.8  Confidentiality.  Agent and each Lender agree to use commercially
reasonable  efforts  (equivalent  to the efforts Agent or such Lender applies to
maintaining the confidentiality of its own confidential information) to maintain
as  confidential  all  confidential  information  provided to them by the Credit
Parties and designated as confidential for a period of 2 years following receipt
thereof,  except that Agent and any Lender may disclose such  information (a) to
Persons  employed or engaged by Agent or such Lender in  evaluating,  approving,
structuring or administering the Loans and the Commitments; (b) to any bona fide


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<PAGE>

assignee or participant or potential  assignee or participant that has agreed to
comply with the covenant  contained in this Section 11.8 (and any such bona fide
assignee or participant or potential  assignee or participant  may disclose such
information  to Persons  employed or engaged by them as  described in clause (a)
above); (c) as required or requested by any Governmental Authority or reasonably
believed by Agent or such Lender to be compelled by any court  decree,  subpoena
or legal or administrative order or process; (d) as, on the advice of Agent's or
such Lender's  counsel,  is required by law; (e) in connection with the exercise
of any  right or remedy  under  the Loan  Documents  or in  connection  with any
Litigation  to which Agent or such  Lender is a party;  or (f) that ceases to be
confidential through no fault of Agent or any Lender.

         11.9 GOVERNING LAW.  EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED IN ANY OF
THE LOAN  DOCUMENTS,  IN ALL RESPECTS,  INCLUDING  ALL MATTERS OF  CONSTRUCTION,
VALIDITY  AND  PERFORMANCE,  THE LOAN  DOCUMENTS  AND THE  OBLIGATIONS  SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK  APPLICABLE TO CONTRACTS  MADE AND PERFORMED IN THAT STATE
AND ANY  APPLICABLE  LAWS OF THE UNITED  STATES OF AMERICA.  EACH  CREDIT  PARTY
HEREBY  CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK
COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES  BETWEEN THE CREDIT PARTIES,  AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED,  THAT  AGENT,  LENDERS  AND THE CREDIT  PARTIES  ACKNOWLEDGE  THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW
YORK COUNTY; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER  JURISDICTION  TO REALIZE ON THE  COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS,  OR TO ENFORCE A JUDGMENT  OR OTHER  COURT ORDER IN FAVOR OF AGENT.
EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,  AND EACH CREDIT PARTY HEREBY
WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION,  IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING  OF SUCH LEGAL OR  EQUITABLE  RELIEF AS IS DEEMED  APPROPRIATE  BY SUCH
COURT.  EACH  CREDIT  PARTY  HEREBY  WAIVES  PERSONAL  SERVICE  OF THE  SUMMONS,
COMPLAINT  AND OTHER  PROCESS  ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS,  COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR  CERTIFIED  MAIL  ADDRESSED  TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN
ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED


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<PAGE>

UPON THE EARLIER OF SUCH CREDIT PARTY'S  ACTUAL RECEIPT  THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.

         11.10  Notices.  Except as otherwise  provided  herein,  whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or  other  communication  shall or may be  given  to or  served  upon any of the
parties by any other parties,  or whenever any of the parties desires to give or
serve upon any other parties any  communication  with respect to this Agreement,
each such notice,  demand,  request,  consent,  approval,  declaration  or other
communication  shall be in  writing  and shall be  deemed  to have been  validly
served,  given or  delivered:  (a) upon the  earlier  of  actual  receipt  and 3
Business Days after  deposit in the United States Mail,  registered or certified
mail,  return  receipt  requested,   with  proper  postage  prepaid;   (b)  upon
transmission,  when sent by telecopy  or other  similar  facsimile  transmission
(with such  telecopy or  facsimile  promptly  confirmed by delivery of a copy by
personal  delivery or United  States Mail as otherwise  provided in this Section
11.10); (c) 1 Business Day after deposit with a reputable overnight courier with
all charges prepaid or (d) when delivered,  if hand-delivered by messenger,  all
of which shall be  addressed to the party to be notified and sent to the address
or facsimile  number indicated in Annex I or to such other address (or facsimile
number) as may be substituted by notice given as herein provided.  The giving of
any notice required  hereunder may be waived in writing by the party entitled to
receive  such  notice.  Failure  or delay in  delivering  copies of any  notice,
demand, request,  consent,  approval,  declaration or other communication to any
Person (other than Borrower  Representative  or Agent)  designated in Annex I to
receive  copies  shall in no way  adversely  affect  the  effectiveness  of such
notice, demand, request, consent, approval, declaration or other communication.

         11.11  Section  Titles.  The  Section  titles  and  Table  of  Contents
contained  in this  Agreement  are and shall be without  substantive  meaning or
content of any kind  whatsoever and are not a part of the agreement  between the
parties hereto.

         11.12  Counterparts.  This  Agreement  may be executed in any number of
separate   counterparts,   each  of  which  shall  collectively  and  separately
constitute one agreement.

         11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL  TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE  STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN  ARBITRATION  RULES),  THE PARTIES  DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH  APPLICABLE  LAWS.  THEREFORE,  TO
ACHIEVE  THE BEST  COMBINATION  OF THE  BENEFITS OF THE  JUDICIAL  SYSTEM AND OF
ARBITRATION,  THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT,  OR  PROCEEDING  BROUGHT TO  RESOLVE  ANY  DISPUTE,  WHETHER  SOUNDING  IN
CONTRACT,  TORT OR OTHERWISE,  AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT  OF,  CONNECTED  WITH,   RELATED  TO,  OR  INCIDENTAL  TO  THE  RELATIONSHIP
ESTABLISHED  AMONG THEM IN CONNECTION  WITH,  THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.



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         11.14 Press Releases and Related  Matters.  Each Credit Party executing
this  Agreement  agrees that  neither it nor its  Affiliates  will in the future
issue any press releases or other public disclosure using the name of GE Capital
or its  affiliates or referring to this  Agreement,  the other Loan Documents or
the  Related  Transactions  Documents  without at least 2 Business  Days'  prior
notice to GE Capital and without the prior written  consent of GE Capital unless
(and only to the extent  that) such Credit  Party or Affiliate is required to do
so under law and then, in any event, such Credit Party or Affiliate will consult
with GE Capital  before  issuing such press release or other public  disclosure.
Each  Credit  Party  consents  to the  publication  by Agent or any  Lender of a
tombstone or similar advertising material relating to the financing transactions
contemplated by this Agreement.  Agent reserves the right to provide to industry
trade organizations  information necessary and customary for inclusion in league
table measurements.

         11.15  Reinstatement.  This  Agreement  shall  remain in full force and
effect and continue to be  effective  should any petition be filed by or against
any Borrower  for  liquidation  or  reorganization,  should any Borrower  become
insolvent or make an assignment  for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of any
Borrower's  assets,  and shall continue to be effective or to be reinstated,  as
the case may be, if at any time payment and performance of the  Obligations,  or
any part  thereof,  is,  pursuant to  applicable  law,  rescinded  or reduced in
amount,  or must  otherwise  be  restored  or  returned  by any  obligee  of the
Obligations,  whether as a "voidable  preference,"  "fraudulent  conveyance," or
otherwise,  all as though such payment or performance  had not been made. In the
event that any payment, or any part thereof, is rescinded,  reduced, restored or
returned,  the  Obligations  shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

         11.16 Advice of Counsel.  Each of the parties  represents to each other
party  hereto  that it has  discussed  this  Agreement  and,  specifically,  the
provisions of Sections 11.9 and 11.13, with its counsel.

         11.17 No Strict  Construction.  The parties  hereto  have  participated
jointly in the  negotiation  and  drafting  of this  Agreement.  In the event an
ambiguity or question of intent or interpretation  arises,  this Agreement shall
be construed as if drafted  jointly by the parties  hereto and no presumption or
burden of proof shall arise favoring or  disfavoring  any party by virtue of the
authorship of any provisions of this Agreement.

12.      CROSS-GUARANTY

         12.1 Cross-Guaranty.  Each Borrower hereby agrees that such Borrower is
jointly and  severally  liable for, and hereby  absolutely  and  unconditionally
guarantees to Agent and Lenders and their respective successors and assigns, the
full and  prompt  payment  (whether  at  stated  maturity,  by  acceleration  or
otherwise) and performance of, all Obligations  owed or hereafter owing to Agent
and Lenders by each other  Borrower.  Each  Borrower  agrees  that its  guaranty
obligation hereunder is a continuing guaranty of payment and performance and not
of  collection,  that  its  obligations  under  this  Section  12  shall  not be
discharged  until  payment and  performance,  in full,  of the  Obligations  has
occurred,  and that its obligations  under this Section 12 shall be absolute and
unconditional, irrespective of, and unaffected by,



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<PAGE>

                  (a) the genuineness,  validity, regularity,  enforceability or
any future  amendment of, or change in, this Agreement,  any other Loan Document
or any other  agreement,  document or instrument to which any Borrower is or may
become a party;

                  (b) the  absence  of any  action  to  enforce  this  Agreement
(including  this Section 12) or any other Loan Document or the waiver or consent
by Agent and Lenders with respect to any of the provisions thereof;

                  (c) the  existence,  value or  condition  of,  or  failure  to
perfect its Lien against, any security for the Obligations or any action, or the
absence of any action,  by Agent and Lenders in respect  thereof  (including the
release of any such security);

                  (d) the insolvency of any Credit Party; or

                  (e) any other  action or  circumstances  that might  otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor.

Each Borrower shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder.

         12.2 Waivers by Borrowers. Each Borrower expressly waives all rights it
may have now or in the future under any statute,  or at common law, or at law or
in equity,  or  otherwise,  to compel Agent or Lenders to marshall  assets or to
proceed in respect of the  Obligations  guaranteed  hereunder  against any other
Credit  Party,  any other  party or against  any  security  for the  payment and
performance of the Obligations before proceeding  against,  or as a condition to
proceeding against, such Borrower.  It is agreed among each Borrower,  Agent and
Lenders  that  the  foregoing  waivers  are of the  essence  of the  transaction
contemplated  by this  Agreement and the other Loan  Documents and that, but for
the  provisions  of this Section 12 and such  waivers,  Agent and Lenders  would
decline to enter into this Agreement.

         12.3 Benefit of Guaranty.  Each Borrower  agrees that the provisions of
this  Section 12 are for the benefit of Agent and  Lenders and their  respective
successors,  transferees,  endorsees and assigns,  and nothing herein  contained
shall  impair,  as  between  any  other  Borrower  and  Agent  or  Lenders,  the
obligations of such other Borrower under the Loan Documents.

         12.4 Subordination of Subrogation, Etc. Notwithstanding anything to the
contrary  in this  Agreement  or in any other Loan  Document,  and except as set
forth  in  Section  12.7,  each  Borrower   hereby   expressly  and  irrevocably
subordinates  to  payment  of the  Obligations  any and all  rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off  and  any  and all  defenses  available  to a  surety,  guarantor  or
accommodation  co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Borrower  acknowledges and agrees that this subordination is intended
to  benefit  Agent and  Lenders  and shall not limit or  otherwise  affect  such
Borrower's  liability  hereunder or the  enforceability  of this Section 12, and
that Agent,  Lenders and their  respective  successors  and assigns are intended
third  party  beneficiaries  of the  waivers  and  agreements  set forth in this
Section 12.4.



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<PAGE>

         12.5 Election of Remedies. If Agent or any Lender may, under applicable
law,  proceed to realize its  benefits  under any of the Loan  Documents  giving
Agent or such Lender a Lien upon any  Collateral,  whether owned by any Borrower
or by any other Person,  either by judicial  foreclosure or by non-judicial sale
or enforcement,  Agent or any Lender may, at its sole option, determine which of
its  remedies or rights it may pursue  without  affecting  any of its rights and
remedies  under this  Section  12. If, in the  exercise of any of its rights and
remedies,  Agent or any Lender  shall  forfeit  any of its  rights or  remedies,
including its right to enter a deficiency  judgment  against any Borrower or any
other Person,  whether because of any applicable laws pertaining to "election of
remedies" or the like,  each Borrower hereby consents to such action by Agent or
such Lender and waives any claim based upon such action,  even if such action by
Agent or such  Lender  shall  result in a full or partial  loss of any rights of
subrogation  that each Borrower might  otherwise have had but for such action by
Agent or such  Lender.  Any  election of remedies  that results in the denial or
impairment  of the right of Agent or any  Lender to seek a  deficiency  judgment
against any Borrower shall not impair any other Borrower's obligation to pay the
full amount of the  Obligations.  In the event Agent or any Lender  shall bid at
any foreclosure or trustee's sale or at any private sale permitted by law or the
Loan Documents,  Agent or such Lender may bid all or less than the amount of the
Obligations  and the amount of such bid need not be paid by Agent or such Lender
but shall be credited against the Obligations.  The amount of the successful bid
at any such sale,  whether  Agent,  Lender or any other party is the  successful
bidder,  shall  be  conclusively  deemed  to be the  fair  market  value  of the
Collateral and the difference  between such bid amount and the remaining balance
of  the  Obligations  shall  be  conclusively  deemed  to be the  amount  of the
Obligations  guaranteed under this Section 12,  notwithstanding that any present
or future law or court  decision or ruling may have the effect of  reducing  the
amount of any deficiency  claim to which Agent or any Lender might  otherwise be
entitled but for such bidding at any such sale.

         12.6 Limitation.  Notwithstanding any provision herein contained to the
contrary, each Borrower's liability under this Section 12 (which liability is in
any event in  addition to amounts for which such  Borrower is  primarily  liable
under  Section  1) shall be limited to an amount not to exceed as of any date of
determination the greater of:

                  (a) the net amount of all Loans advanced to any other Borrower
under this Agreement and then re-loaned or otherwise  transferred to, or for the
benefit of, such Borrower; and

                  (b) the amount that could be claimed by Agent and Lenders from
such Borrower  under this Section 12 without  rendering  such claim  voidable or
avoidable  under Section 548 of Chapter 11 of the  Bankruptcy  Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent  Conveyance
Act or similar  statute or common law after  taking  into  account,  among other
things,  such Borrower's  right of contribution  and  indemnification  from each
other Borrower under Section 12.7.

         12.7 Contribution with Respect to Guaranty Obligations.

                  (a) To the extent that any Borrower shall make a payment under
this Section 12 of all or any of the Obligations  (other than Loans made to that
Borrower for which it is primarily liable) (a "Guarantor  Payment") that, taking
into account all other Guarantor Payments then previously or concurrently made


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by any other  Borrower,  exceeds the amount that such Borrower  would  otherwise
have paid if each Borrower had paid the aggregate  Obligations satisfied by such
Guarantor Payment in the same proportion that such Borrower's "Allocable Amount"
(as defined below) (as determined  immediately prior to such Guarantor  Payment)
bore to the aggregate  Allocable  Amounts of each of the Borrowers as determined
immediately  prior to the  making of such  Guarantor  Payment,  then,  following
indefeasible  payment in full in cash of the  Obligations and termination of the
Commitments,  such  Borrower  shall be  entitled  to  receive  contribution  and
indemnification payments from, and be reimbursed by, each other Borrower for the
amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment.

                  (b) As of any date of determination, the "Allocable Amount" of
any Borrower  shall be equal to the maximum  amount of the claim that could then
be recovered  from such Borrower  under this Section 12 without  rendering  such
claim  voidable or avoidable  under Section 548 of Chapter 11 of the  Bankruptcy
Code or under any  applicable  state Uniform  Fraudulent  Transfer Act,  Uniform
Fraudulent Conveyance Act or similar statute or common law.

                  (c) This Section 12.7 is intended  only to define the relative
rights of Borrowers and nothing set forth in this Section 12.7 is intended to or
shall impair the  obligations of Borrowers,  jointly and  severally,  to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this  Agreement,  including  Section  12.1.  Nothing  contained in this
Section  12.7 shall limit the  liability  of any  Borrower to pay the Loans made
directly or indirectly to that Borrower and accrued interest,  Fees and expenses
with respect thereto for which such Borrower shall be primarily liable.

                  (d)  The  parties  hereto   acknowledge  that  the  rights  of
contribution  and  indemnification  hereunder  shall  constitute  assets  of the
Borrower to which such contribution and indemnification is owing.

                  (e) The rights of the  indemnifying  Borrowers  against  other
Credit  Parties under this Section 12.7 shall be  exercisable  upon the full and
indefeasible payment of the Obligations and the termination of the Commitments.

         12.8  Liability  Cumulative.  The  liability  of  Borrowers  under this
Section 12 is in addition to and shall be  cumulative  with all  liabilities  of
each  Borrower  to Agent and  Lenders  under this  Agreement  and the other Loan
Documents to which such Borrower is a party or in respect of any  Obligations or
obligation of the other  Borrower,  without any limitation as to amount,  unless
the  instrument  or  agreement  evidencing  or  creating  such  other  liability
specifically provides to the contrary.

         12.9 Subordination.

                  (a) Each Credit Party covenants and agrees that the payment of
any indebtedness  and all obligations and liabilities  owing by any Credit Party
in favor of any other Credit Party,  whether now existing or hereafter  incurred
(collectively,  the "Intercompany  Obligations") is subordinated,  to the extent
and in the manner provided in this Section 12.9, to the prior payment in full of


                                       66
<PAGE>

all  Obligations  owed or hereafter  owing to Agent and Lenders by the Borrowers
and that such subordination is for the benefit of Agent for itself and Lenders.

                  (b) Each Credit Party hereby (i) authorizes Agent on behalf of
Lenders to demand specific  performance of the terms of this Section 12.9 at any
time when any Credit  Party shall have failed to comply with any  provisions  of
this Section 12.9 which are  applicable  to it and (ii)  irrevocably  waives any
defense  based on the adequacy of a remedy at law,  which might be asserted as a
bar to such remedy of specific performance.

                  (c) Upon any distribution of assets of any Credit Party in any
dissolution,  winding up, liquidation or reorganization  (whether in bankruptcy,
insolvency or receivership  proceedings or upon an assignment for the benefit of
creditors or otherwise):

                        (i) Agent and Lenders shall first be entitled to receive
payment in full in cash of the  Obligations  before any Credit Party is entitled
to receive any payment on account of the Intercompany Obligations.

                        (ii) Any payment or distribution of assets of any Credit
Party of any kind or  character,  whether in cash,  property or  securities,  to
which any other Credit Party would be entitled except for the provisions of this
Section  12.9(c),  shall be paid by the  liquidating  trustee  or agent or other
Person making such payment or distribution  directly to Agent for the benefit of
the  Lenders in the manner set forth  herein,  to the extent  necessary  to make
payment in full of all Obligations  remaining  unpaid after giving effect to any
concurrent  payment or distribution  or provisions  therefor to Agent for itself
and Lenders.

                        (iii) In the event that notwithstanding the foregoing
provisions of this Section 12.9(c), any payment or distribution of assets of any
Credit Party of any kind or character,  whether in cash, property or securities,
shall be  received  by any other  Credit  Party on account  of any  Intercompany
Obligations   before  all   Obligations  are  paid  in  full,  such  payment  or
distribution  shall be received  and held in trust for and shall be paid over to
Agent for itself and Lenders for  application to the payment of the  Obligations
until all of the Obligations  shall have been paid in full,  after giving effect
to any concurrent  payment or  distribution  or provision  therefor to Agent for
itself and Lenders.

                  (d) No right of Agent,  any  Lender or any  other  present  or
future holders of the  Obligations to enforce  subordination  as provided herein
shall at any time in any way be  prejudiced or impaired by any act or failure to
act on the part of any Credit  Party or by any act or  failure  to act,  in good
faith, by any Credit Party, or by any noncompliance by any Credit Party with the
terms of the Intercompany Obligations, regardless of any knowledge thereof which
any Credit Party may have or be otherwise charged with.





                                       67
<PAGE>

                  IN WITNESS  WHEREOF,  this Agreement has been duly executed as
of the date first written above.

BORROWERS

AGWAY, INC.
AGWAY HOLDINGS INC.
AGWAY  FINANCIAL   CORPORATION
FEED  COMMODITIES   INTERNATIONAL   LLC
MILFORD FERTILIZER  COMPANY  LLC
BRUBAKER  AGRONOMIC  CONSULTING  SERVICE  LLC
COUNTRY BEST-DEBERRY LLC
AGWAY ENERGY PRODUCTS LLC
AGWAY ENERGY SERVICES-PA,  INC.
AGWAY ENERGY SERVICES, INC.


By:        /s/   KAREN J. OHLIGER
         -----------------------------------------------------
Name:            KAREN J. OHLIGER
         -----------------------------------------------------
Title:           TREASURER
         -----------------------------------------------------


AGWAY GENERAL AGENCY, INC.
COUNTRY BEST ADAMS, LLC

By:       /s/   KAREN J. OHLIGER
         -----------------------------------------------------
Name:           KAREN J. OHLIGER
         -----------------------------------------------------
Title:          ASST. TREASURER
         -----------------------------------------------------






                                       68
<PAGE>

LENDERS

COBANK, ACB


By:       /s/    ROBERT E.  SATROM
      -----------------------------------------
Name:            ROBERT E. SATROM
         --------------------------------------
Title:
         --------------------------------------




COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEEN BANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH


By:  /s/   FLOYD SMITH                         By:       /s/ IAN REECE
     -------------------------                        --------------------------
Name:      FLOYD SMITH                             Name:     IAN REECE
     -------------------------                        --------------------------
Title:    VICE PRESIDENT                         Title:   SENIOR CREDIT OFFICER
     -------------------------                        --------------------------


GMAC BUSINESS CREDIT, LLC


By:        /s/  WILLIAM J. STEWART
         -----------------------------------------------------
Name:           WILLIAM J. STEWART
         -----------------------------------------------------
Title:             DIRECTOR
         -----------------------------------------------------


GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender


By:       /s/  PIETER SMIT
         -----------------------------------------------------
         Duly Authorized Signatory



                                       69
<PAGE>

                               ANNEX A (RECITALS)
                                       TO
                                CREDIT AGREEMENT

                                   DEFINITIONS

                  Capitalized  terms  used  in the  Loan  Documents  shall  have
(unless  otherwise  provided  elsewhere  in the Loan  Documents)  the  following
respective  meanings,  and all  references to Sections,  Exhibits,  Schedules or
Annexes  in  the  following  definitions  shall  refer  to  Sections,  Exhibits,
Schedules or Annexes of or to the Agreement:

                  "Account  Debtor" means any Person who may become obligated to
any Credit Party under, with respect to, or on account of, an Account.

                  "Accounting Changes" has the meaning ascribed thereto in Annex
G.

                  "Accounts"  means all  "accounts,"  as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, including (a) all
accounts  receivable,   other  receivables,   book  debts  and  other  forms  of
obligations  (other  than  forms of  obligations  evidenced  by  Chattel  Paper,
Documents  or  Instruments),  whether  arising  out of  goods  sold or  services
rendered by it or from any other  transaction  (including  any such  obligations
that may be  characterized  as an account or contract right under the Code), (b)
all of each  Credit  Party's  rights  in, to and under  all  purchase  orders or
receipts for goods or  services,  (c) all of each Credit  Party's  rights to any
goods  represented by any of the foregoing  (including unpaid sellers' rights of
rescission,  replevin,  reclamation  and  stoppage  in  transit  and  rights  to
returned,  reclaimed or repossessed  goods), (d) all monies due or to become due
to any Credit  Party,  under all purchase  orders and  contracts for the sale of
goods  or the  performance  of  services  or  both by such  Credit  Party  or in
connection with any other transaction  (whether or not yet earned by performance
on the part of such Credit  Party),  including the right to receive the proceeds
of said purchase orders and contracts, (e) all health care insurance receivables
and (f) all collateral security and guaranties of any kind, given by any Account
Debtor or any other Person with respect to any of the foregoing.

                  "Advance"  means any  Revolving  Credit  Advance or Swing Line
Advance, as the context may require.

                  "AEP" means Agway Energy Products LLC.

                  "Affiliate" means, with respect to any Person, (a) each Person
that, directly or indirectly,  owns or controls,  whether beneficially,  or as a
trustee,  guardian or other  fiduciary,  5% or more of the Stock having ordinary
voting power in the  election of directors of such Person,  (b) each Person that
controls, is controlled by or is under common control with such Person, (c) each
of such Person's  officers,  directors,  joint venturers and partners and (d) in
the  case of  Borrowers,  the  immediate  family  members,  spouses  and  lineal
descendants of individuals who are Affiliates of any Borrower.  For the purposes
of this definition, "control" of a Person shall mean the possession, directly or


                                       A-1
<PAGE>
indirectly,  of the power to direct or cause the direction of its  management or
policies,  whether  through the ownership of voting  securities,  by contract or
otherwise;  provided,  however,  that the term  "Affiliate"  shall  specifically
exclude Agent and each Lender.

                  "AFC"   means   Agway   Financial   Corporation,   a  Delaware
corporation.

                  "Agway" means Agway Inc., a Delaware corporation.


                  "Agway's 401K Plan" means the Amended and Restated Employees'
Thrift Investment Plan of Agway, Inc., dated as of May 17, 1999, as amended.

                  "Agent"  means GE Capital in its capacity as Agent for Lenders
or its successor appointed pursuant to Section 9.7.

                  "Agreement" means the Credit Agreement by and among Borrowers,
the other Credit Parties party thereto,  GE Capital, as Agent and Lender and the
other  Lenders  from time to time  party  thereto,  as the same may be  amended,
supplemented, restated or otherwise modified from time to time.

                  "Agricultural   Restructuring   Plan"   means   that   certain
restructuring  plan,  dated  November  17,  2000 and  approved  by the  Board of
Directors of Agway.

                  "Appendices" has the meaning ascribed to it in the recitals to
the Agreement.

                  "Applicable  L/C Margin" means the per annum fee, from time to
time in effect, payable with respect to outstanding Letter of Credit Obligations
as determined by reference to Section 1.5(a).

                  "Applicable  Margins"  means  collectively  the Applicable L/C
Margin,  the Applicable  Unused Line Fee Margin,  the Applicable  Revolver Index
Margin and the Applicable Revolver LIBOR Margin.

                  "Applicable   Revolver  Index  Margin"  means  the  per  annum
interest  rate margin from time to time in effect and payable in addition to the
Index Rate  applicable  to the  Revolving  Loan,  as  determined by reference to
Section 1.5(a).

                  "Applicable   Revolver  LIBOR  Margin"  means  the  per  annum
interest  rate from time to time in effect and  payable in addition to the LIBOR
Rate  applicable  to the  Revolving  Loan, as determined by reference to Section
1.5(a).

                  "Applicable  Unused Line Fee Margin"  means the per annum fee,
from time to time in  effect,  payable  in  respect  of  Borrowers'  non-use  of
committed funds pursuant to Section 1.9(b), which fee is determined by reference
to Section 1.5(a).

                  "Assignment  Agreement"  has  the  meaning  ascribed  to it in
Section 9.1(a).

                  "Bankruptcy  Code"  means  the  provisions  of Title 11 of the
United States Code, 11 U.S.C.ss.ss.101 et seq.


                                       A-2
<PAGE>
                  "Blocked Accounts" has the meaning ascribed to it in Annex C.

                  "Borrower  Representative"  means  Agway  in its  capacity  as
Borrower Representative pursuant to the provisions of Section 1.1(c).

                  "Borrowers"  and  "Borrower"  have  the  respective   meanings
ascribed thereto in the preamble to the Agreement.

                  "Borrowing Availability" means as of any date of determination
as to all Borrowers, the lesser of (i) the Maximum Amount and (ii) the Borrowing
Base, in each case, less the sum of the aggregate  Revolving Loan and Swing Line
Loan then  outstanding;  provided that an Overadvance in accordance with Section
1.1(a)(iii)  may cause the Revolving  Loan and the Swing Line Loan to exceed the
Borrowing Base by the amount of such permitted Overadvance.

                  "Borrowing  Base" means,  as of any date of  determination  by
Agent, from time to time, an amount equal to the sum at such time of:

                  (a) up to 85% of the book value of Borrowers' Eligible
Accounts other than Eligible Deferred Term Accounts;

                  (b) up to 65% of the book value of Eligible Deferred Term
Accounts;

                  (c) the  lesser  of (i) 55% of the book  value  of  Borrowers'
Eligible  Inventory valued at the lower of cost or market or (ii) 85% of the Net
Orderly Liquidation Value of Borrowers' Eligible Inventory; and

                  (d) up to 75% of the book value of Eligible Energy Product
Inventory valued at the lower of cost or market;

in each case, less any Reserves established by Agent at such time.

                  "Borrowing  Base  Certificate"   means  a  certificate  to  be
executed and  delivered  from time to time by Borrowers in the form  attached to
the Agreement as Exhibit 4.1(b).

                  "Business Day" means any day that is not a Saturday,  a Sunday
or a day on which banks are  required or  permitted to be closed in the State of
New York and in  reference to LIBOR Loans shall mean any such day that is also a
LIBOR Business Day.

                  "Capital  Expenditures" means, with respect to any Person, all
expenditures  (by the expenditure of cash or the incurrence of  Indebtedness) by
such Person during any measuring  period for any fixed assets or improvements or
for replacements,  substitutions or additions thereto that have a useful life of
more than one year and that are required to be capitalized under GAAP.

                  "Capital Lease" means,  with respect to any Person,  any lease
of any property (whether real, personal or mixed) by such Person as lessee that,
in accordance with GAAP, would be required to be classified and accounted for as
a capital lease on a balance sheet of such Person.


                                       A-3
<PAGE>
                  "Capital Lease Obligation"  means, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in  accordance  with GAAP,  would  appear on a balance  sheet of such  lessee in
respect of such Capital Lease.

                  "Cash Collateral Account" has the meaning ascribed to it Annex
B.

                  "Cash Equivalents" has the meaning ascribed to it in Annex B.

                  "Cash  Management  Systems" has the meaning  ascribed to it in
Section 1.8.

                  "Change of Control" means any of the following: (a) any person
or group of persons (within the meaning of the Securities Exchange Act of 1934,)
shall have  acquired  beneficial  ownership  (within  the  meaning of Rule 13d-3
promulgated  by the  Securities  and Exchange  Commission  under the  Securities
Exchange  Act of 1934,) of 20% or more of the issued and  outstanding  shares of
capital Stock of Agway having the right to vote for the election of directors of
Agway  under  ordinary  circumstances;  and (b)  during  any  period  of  twelve
consecutive  calendar  months,  individuals  who at the beginning of such period
constituted  the board of directors of Agway  (together  with any new  directors
whose  election  by the  board of  directors  of Agway or whose  nomination  for
election  by the  Stockholders  of  Agway  was  approved  by a vote of at  least
two-thirds  of the directors  then still in office who either were  directors at
the beginning of such period or whose  election or  nomination  for election was
previously  so approved)  cease for any reason other than death or disability to
constitute a majority of the directors then in office.

                  "Charges" means all federal,  state, county, city,  municipal,
local,  foreign or other governmental taxes (including taxes owed to the PBGC at
the time due and  payable),  levies,  assessments,  charges,  liens,  claims  or
encumbrances  upon or relating to (a) the Collateral,  (b) the Obligations,  (c)
the employees,  payroll,  income or gross receipts of any Credit Party,  (d) any
Credit Party's  ownership or use of any  properties or other assets,  or (e) any
other aspect of any Credit Party's business.

                  "Chattel  Paper"  means any  "chattel  paper," as such term is
defined in the Code,  including electronic chattel paper, now owned or hereafter
acquired by any Credit Party, wherever located.

                  "Closing Date" means March 28, 2001.

                  "Closing   Checklist"   means  the  schedule,   including  all
appendices,  exhibits  or  schedules  thereto,  listing  certain  documents  and
information  to be delivered in connection  with the  Agreement,  the other Loan
Documents and the  transactions  contemplated  thereunder,  substantially in the
form attached hereto as Annex D.

                  "CoBANK" means CoBANK, ACB.

                  "Code" means the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of New York; provided,  that
in the event that,  by reason of mandatory  provisions of law, any or all of the
attachment,  perfection or priority of, or remedies with respect to,  Agent's or
any Lender's Lien on any Collateral is governed by the Uniform Commercial Code


                                       A-4
<PAGE>
as enacted and in effect in a jurisdiction other than the State of New York, the
term "Code" shall mean the Uniform  Commercial  Code as enacted and in effect in
such other  jurisdiction  solely for purposes of the provisions thereof relating
to such  attachment,  perfection,  priority  or  remedies  and for  purposes  of
definitions related to such provisions.

                  "Collateral"  means  the  property  covered  by  the  Security
Agreement,  the  Mortgages  and the  other  Collateral  Documents  and any other
property,  real or personal,  tangible or intangible,  now existing or hereafter
acquired,  that may at any time be or become  subject to a security  interest or
Lien in favor of  Agent,  on  behalf  of  itself  and  Lenders,  to  secure  the
Obligations.

                  "Collateral  Documents"  means  the  Security  Agreement,  the
Pledge Agreements,  the Mortgages,  the Intellectual Property Security Agreement
and all similar agreements  entered into guaranteeing  payment of, or granting a
Lien upon property as security for payment of, the Obligations.

                  "Collateral  Reports"  means the reports  with  respect to the
Collateral referred to in Annex F.

                  "Collection  Account"  means  that  certain  account of Agent,
account  number  502-328-54 in the name of Agent at Bankers Trust Company in New
York, New York ABA No. 021 001 033, or such other account as may be specified in
writing by Agent as the "Collection Account."

                  "Commercial  Tort  Claim"  means a claim  arising in tort with
respect to which: (a) the claimant is an organization; or (b) the claimant is an
individual and the claim: (i) arose in the course of the claimant's  business or
profession;  and (ii) does not include damages arising out of personal injury to
or the death of an individual.

                  "Commitment  Termination Date" means the earliest of (a) March
28, 2004, (b) the date of  termination of Lenders'  obligations to make Advances
and to incur Letter of Credit  Obligations  or permit  existing  Loans to remain
outstanding  pursuant to Section 8.2(b),  and (c) the date of prepayment in full
by  Borrowers  of the  Loans  and  the  cancellation  and  return  (or  stand-by
guarantee) of all Letters of Credit or the cash  collateralization of all Letter
of Credit  Obligations  pursuant to Annex B, and the permanent  reduction of all
Commitments to zero dollars ($0).

                  "Commitments"  means (a) as to any Lender,  the  aggregate  of
such Lender's Revolving Loan Commitment (including without duplication the Swing
Line  Lender's  Swing  Line  Commitment  as  a  subset  of  its  Revolving  Loan
Commitment)  as set  forth on  Annex J to the  Agreement  or in the most  recent
Assignment  Agreement  executed  by such Lender and (b) as to all  Lenders,  the
aggregate  of  all  Lenders'  Revolving  Loan  Commitments   (including  without
duplication  the Swing Line  Lender's  Swing Line  Commitment as a subset of its
Revolving Loan  Commitment),  which  aggregate  commitment  shall be One Hundred
Seventy Five Million Dollars  ($175,000,000)  on the Closing Date, as to each of
clauses (a) and (b), as such  Commitments may be reduced,  amortized or adjusted
from time to time in accordance with the Agreement.

                  "Compliance  Certificate"  has the  meaning  ascribed to it in
Annex E.

                                       A-5
<PAGE>
                  "Concentration  Accounts"  has the  meaning  ascribed to it in
Annex C.

                  "Condemnation  Proceeds"  has the  meaning  ascribed  to it in
Section 5.4.

                  "Contracts"  means all "contracts," as such term is defined in
the Code,  now owned or hereafter  acquired by any Credit  Party,  in any event,
including  all  contracts,   undertakings,  or  agreements  (other  than  rights
evidenced  by Chattel  Paper,  Documents or  Instruments)  in or under which any
Credit Party may now or hereafter have any right,  title or interest,  including
any agreement  relating to the terms of payment or the terms of  performance  of
any Account.

                  "Control  Letter" means a letter  agreement  between Agent and
(i) the issuer of  uncertificated  securities  with  respect  to  uncertificated
securities in the name of any Credit Party, (ii) a securities  intermediary with
respect  to  securities,  whether  certificated  or  uncertificated,  securities
entitlements and other financial assets held in a securities account in the name
of any Credit Party, or (iii) a futures  commission  merchant or clearing house,
as applicable,  with respect to commodity accounts and commodity  contracts held
by any Credit  Party,  whereby,  among  other  things,  the  issuer,  securities
intermediary or futures  commission  merchant disclaims any security interest in
the applicable  financial  assets,  acknowledges the Lien of Agent, on behalf of
itself  and  Lenders,  on such  financial  assets,  and  agrees  to  follow  the
instructions  or  entitlement  orders of Agent  without  further  consent by the
affected Credit Party.

                  "Copyright  License"  means  any and all  rights  now owned or
hereafter  acquired by any Credit Party under any written agreement granting any
right to use any Copyright or Copyright registration.

                  "Copyrights" means all of the following now owned or hereafter
adopted  or  acquired  by any  Credit  Party:  (a) all  copyrights  and  General
Intangibles  of  like  nature   (whether   registered  or   unregistered),   all
registrations  and  recordings  thereof,  and  all  applications  in  connection
therewith,  including all  registrations,  recordings  and  applications  in the
United States  Copyright Office or in any similar office or agency of the United
States,  any state or territory  thereof,  or any other country or any political
subdivision thereof, and (b) all reissues, extensions or renewals thereof.

                  "Credit Card Notices"  means those certain  notices  issued by
Borrowers in favor of Agent to the Credit Card Providers  pursuant to which such
Credit Card  Providers  agree to transfer all credit card  receipts of Borrowers
into the Collection Account.

                  "Credit Card Providers" means the banks and finance  companies
listed on  Disclosure  Schedule  3.26, as updated or  supplemented  from time to
time.

                  "Credit Parties" means each Borrower.

                  "Default"  means any event  that,  with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.

                  "Default  Rate"  has the  meaning  ascribed  to it in  Section
1.5(d).

                                       A-6
<PAGE>
                  "Disbursement  Accounts"  has the  meaning  ascribed  to it in
Annex C.

                  "Disclosure   Schedules"  means  the  Schedules   prepared  by
Borrowers and  denominated as Disclosure  Schedules  (1.4) through (6.15) in the
Index to the Agreement.

                  "Documents"  means all "documents," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located.

                  "Dollars" or "$" means lawful currency of the United States of
America.

                  "EBITDA"  means,  with  respect  to any  Person for any fiscal
period,  without duplication,  an amount equal to (a) consolidated net income of
such Person for such period  determined in accordance  with GAAP,  minus (b) the
sum  of  (i)  income  tax  credits,   (ii)  interest  income,  (iii)  gain  from
extraordinary  items for such period,  (iv) any  aggregate net gain (but not any
aggregate net loss) during such period arising from the sale,  exchange or other
disposition  of  capital  assets by such  Person  (including  any fixed  assets,
whether  tangible or  intangible,  all inventory  sold in  conjunction  with the
disposition  of fixed  assets and all  securities),  and (v) any other  non-cash
gains   (including   pension   income)  that  have  been  added  in  determining
consolidated net income,  in each case to the extent included in the calculation
of  consolidated  net income of such Person for such period in  accordance  with
GAAP, but without duplication,  plus (c) the sum of (i) any provision for income
taxes,  (ii)  Interest  Expense,  (iii) loss from  extraordinary  items for such
period,  (iv) the amount of depreciation and  amortization for such period,  (v)
amortized debt discount for such period, and (vi) the amount of any deduction to
consolidated  net  income  as the  result  of any  grant to any  members  of the
management of such Person of any Stock,  in each case to the extent  included in
the  calculation  of  consolidated  net income of such Person for such period in
accordance with GAAP, but without duplication.  For purposes of this definition,
the following items shall be excluded in determining  consolidated net income of
a Person:  (1) the income (or deficit) of any other Person  accrued prior to the
date it became a Subsidiary of, or was merged or consolidated  into, such Person
or any of such Person's  Subsidiaries;  (2) the income (or deficit) of any other
Person (other than a Subsidiary) in which such Person has an ownership interest,
except to the extent any such income has actually  been  received by such Person
in the form of cash dividends or distributions;  (3) the undistributed  earnings
of any  Subsidiary of such Person to the extent that the  declaration or payment
of  dividends or similar  distributions  by such  Subsidiary  is not at the time
permitted  by the terms of any  contractual  obligation  or  requirement  of law
applicable to such Subsidiary;  (4) any restoration to income of any contingency
reserve,  except to the extent that  provision  for such reserve was made out of
income  accrued during such period;  (5) any write-up of any asset;  (6) any net
gain from the collection of the proceeds of life insurance policies; (7) any net
gain arising from the  acquisition  of any  securities,  or the  extinguishment,
under GAAP, of any Indebtedness,  of such Person, (8) in the case of a successor
to such Person by consolidation or merger or as a transferee of its assets,  any
earnings of such successor  prior to such  consolidation,  merger or transfer of
assets,  and (9) any deferred  credit  representing  the excess of equity in any
Subsidiary of such Person at the date of acquisition of such Subsidiary over the
cost to such Person of the investment in such Subsidiary.

                  "Eligible  Accounts" has the meaning ascribed to it in Section
1.6.

                                       A-7
<PAGE>
                  "Eligible  Deferred Term Accounts"  means  customer  accounts,
comprised of a single  invoice or series of invoices,  having terms in excess of
30 days,  payable  either at a specific date in a lump sum or through  regularly
scheduled  payments over a period of time with a defined  maturity date, and are
established  in  ordinary  course of  business  for  annual  agronomic  needs to
include,  but not limited to, seed,  fertilizer,  crop protectant,  or agronomic
services. Such accounts will be eligible to the extent defined in Section 1.6 of
this Agreement,  notwithstanding  Section 1.6(1)(i) which will be modified as to
such  Accounts  so that they will be deemed  ineligible  if not paid  within the
earlier of 60 days  following the due date of the  scheduled  payment or 90 days
following the scheduled payment, as applicable.

                  "Eligible  Energy Product  Inventory" means all Energy Product
Inventory  (a) owned by Borrowers  free and clear of all Liens and rights of any
other  Person,  except  Liens  in  favor  of Agent  and  Lenders  and  Permitted
Encumbrances,  (b) which are not located on premises owned,  leased or rented by
any  Borrower or any of their  Affiliates,  (c) which is subject to a reasonably
satisfactory  acknowledged  bailee  letter  or  access  agreement  that has been
received  by  Agent,  (d) as to  which  Agent's  and  Lenders'  Lien  is a first
priority,  perfected  Lien,  (e) as to which of all of the  representations  and
warranties  pertaining to such Inventory set forth in the Agreement or the other
Loan Documents is true, and (f) as determined by Agent in its reasonable  credit
judgment to not be excluded  under  Section 1.7 and  otherwise  to be  "Eligible
Inventory" hereunder.

                  "Eligible In-Transit Inventory" means all Inventory, excluding
any Energy Product  Inventory,  owned by Borrowers and not covered by Letters of
Credit, and which Inventory is in transit to one of the Borrowers' locations and
which inventory (a) has been paid for and is owned by one of the Borrowers,  (b)
is fully insured,  (c) is subject to a first priority  security  interest in and
lien upon such goods in favor of Agent (except for any possessory lien upon such
goods in the possession of a freight carrier or shipping  company  securing only
the freight charges for the transportation of such goods to such Borrowers), (d)
is  evidenced  or  deliverable  pursuant  to  documents,  notices,  instruments,
statements  and bills of lading  that have been  delivered  to Agent or an agent
acting on its behalf,  and (e) is otherwise  deemed to be  "Eligible  Inventory"
hereunder.

                  "Eligible Inventory" has the meaning ascribed to it in Section
1.7.

                  "Energy  Product  Inventory"  means  all fuel,  petroleum  and
energy products,  including without  limitation,  heating oil, propane,  natural
gas, kerosene,  diesel fuel and gasoline, now owned or hereafter acquired by any
Credit Party.

                  "Environmental Laws" means all applicable federal, state,
local and foreign laws, statutes, ordinances, codes, rules, standards and
regulations, now or hereafter in effect, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C.ss.ss.9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation
Authorization Act of 1994 (49 U.S.C.ss.ss. 5101 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.ss.136 et seq.); the
Solid Waste Disposal Act (42 U.S.C.ss.ss. 6901 et seq.); the Toxic Substance
Control Act (15 U.S.C.ss.ss.2601 et seq.); the Clean Air Act (42
U.S.C.ss.ss.7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C.ss.ss.1251 et seq.); the Occupational Safety and Health Act (29


                                       A-8
<PAGE>
U.S.C.ss.ss.651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss.
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state, local and foreign counterparts or equivalents and any transfer
of ownership notification or approval statutes.

                  "Environmental Liabilities" means, with respect to any Person,
all liabilities, obligations,  responsibilities,  response, remedial and removal
costs,  investigation and feasibility study costs, capital costs,  operation and
maintenance costs, losses, damages,  punitive damages, property damages, natural
resource  damages,  consequential  damages,  treble damages,  costs and expenses
(including all reasonable fees,  disbursements and expenses of counsel,  experts
and consultants),  fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability,  criminal or civil statute or common law, including any arising under
or related to any Environmental  Laws,  Environmental  Permits, or in connection
with any Release or  threatened  Release or  presence  of a  Hazardous  Material
whether  on,  at, in,  under,  from or about or in the  vicinity  of any real or
personal property.

                  "Environmental   Permits"   means   all   permits,   licenses,
authorizations,   certificates,  approvals  or  registrations  required  by  any
Governmental Authority under any Environmental Laws.

                  "Equipment"  means all "equipment," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party,  wherever located
and, in any event,  including all such Credit  Party's  machinery and equipment,
including processing  equipment,  conveyors,  machine tools, data processing and
computer equipment, including embedded software and peripheral equipment and all
engineering,   processing  and   manufacturing   equipment,   office  machinery,
furniture,  materials  handling  equipment,  tools,  attachments,   accessories,
automotive equipment,  trailers,  trucks, forklifts,  molds, dies, stamps, motor
vehicles,  rolling  stock and other  equipment  of every kind and nature,  trade
fixtures  and fixtures not forming a part of real  property,  together  with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals,  drawings,
instructions,  warranties and rights with respect thereto,  and all products and
proceeds  thereof and  condemnation  awards and insurance  proceeds with respect
thereto.

                  "ERISA" means the Employee  Retirement  Income Security Act of
1974, as amended from time to time, and any regulations promulgated thereunder.

                  "ERISA Affiliate" means, with respect to any Credit Party, any
trade or business (whether or not incorporated)  that, together with such Credit
Party,  are treated as a single employer within the meaning of Sections  414(b),
(c), (m) or (o) of the IRC.

                  "ERISA Event"  means,  with respect to any Credit Party or any
ERISA  Affiliate,  (a) any event  described  in  Section  4043(c)  of ERISA with
respect to a Title IV Plan;  (b) the  withdrawal  of any  Credit  Party or ERISA
Affiliate  from a Title IV Plan  subject to Section  4063 of ERISA during a plan
year in which it was a substantial employer, as defined in Section 4001(a)(2) of


                                       A-9
<PAGE>
ERISA;  (c) the complete or partial  withdrawal of any Credit Party or any ERISA
Affiliate from any  Multiemployer  Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan  amendment as a termination
under Section 4041 of ERISA;  (e) the  institution of proceedings to terminate a
Title IV Plan or  Multiemployer  Plan by the PBGC; (f) the failure by any Credit
Party  or  ERISA  Affiliate  to  make  when  due  required  contributions  to  a
Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days;
(g) any other event or condition that might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the  termination  of, or the appointment
of a trustee to administer,  any Title IV Plan or Multiemployer  Plan or for the
imposition  of  liability  under  Section  4069 or  4212(c)  of  ERISA;  (h) the
termination  of a  Multiemployer  Plan  under  Section  4041A  of  ERISA  or the
reorganization or insolvency of a Multiemployer  Plan under Section 4241 or 4245
of ERISA;  or (i) the loss of a  Qualified  Plan's  qualification  or tax exempt
status; or (j) the termination of a Plan described in Section 4064 of ERISA.

                  "ESOP"   means  a  Plan  that  is   intended  to  satisfy  the
requirements of Section 4975(e)(7) of the IRC.

                  "Event of Default"  has the meaning  ascribed to it in Section
8.1.

                  "Exchange  Agreements"  mean  collectively,  (a) the Petroleum
Product  Exchange  and Thruput  Agreement  dated as of August 29,  2000,  by and
between  Amerada Hess  Corporation and AEP, the Petroleum  Product  Exchange and
Thruput  Agreement  dated as of September 1, 1999,  by and between  Amerada Hess
Corporation and Agway Petroleum Corporation,  the Exchange Agreement dated as of
July 1, 1987,  by and  between  Amerada  Hess  Corporation  and Agway  Petroleum
Corporation,  the Exchange  Agreement  dated as of July 1, 1998,  by and between
Gulf Oil Limited Partnership and AEP, the Exchange or Thruput Agreement dated as
of February 1, 1991, by and between United Refining  Company and Agway Petroleum
Corporation,  the Exchange Agreement dated as of October 1, 1991, by and between
Mobil Oil Corporation and Agway Petroleum  Corporation,  the Exchange  Agreement
dated as of July 1, 1998, by and between Coastal Refining & Marketing,  Inc. and
AEP, as each may be amended, supplemented,  restated, or otherwise modified from
time to time, and (b) any and all similar  agreements entered into by any Credit
Party relating to the exchange of any Energy Product Inventory.

                  "Fair Labor Standards Act" means the Fair Labor Standards Act,
29 U.S.C. ss.201 et seq.

                  "Farm  Products"  means  all "farm  products"  as such term is
defined  in the Code,  now owned or  hereafter  acquired  by any  Credit  Party,
including but not limited to livestock and feeds.

                  "Federal Funds Rate" means, for any day, a floating rate equal
to the weighted  average of the rates on overnight  Federal  funds  transactions
among members of the Federal Reserve System,  as determined by Agent in its sole
discretion,  which determination shall be final,  binding and conclusive (absent
manifest error).

                                      A-10
<PAGE>
                  "Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.

                  "Fees"  means any and all fees  payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.

                  "Financial  Covenants" means the financial covenants set forth
in Annex G.

                  "Financial    Statements"    means   the    consolidated   and
consolidating income statements,  statements of cash flows and balance sheets of
Borrowers delivered in accordance with Section 3.4 and Annex E.

                  "Fiscal Month" means any of the monthly  accounting periods of
Borrowers.

                  "Fiscal Quarter" means any of the quarterly accounting periods
of Borrowers,  which quarterly  accounting  periods through the Termination Date
are as set forth on Disclosure Schedule (6.15).

                  "Fiscal  Year" means any of the annual  accounting  periods of
Borrowers which accounting periods are as set forth on Disclosure Schedule 6.15.

                  "Fixed  Charges"  means,  with  respect  to any Person for any
fiscal period,  (a) the aggregate of all Interest Expense paid or accrued during
such  period,   plus  (b)  scheduled  payments  of  principal  with  respect  to
Indebtedness  (excluding  Indebtedness  consisting of Subordinated  Debt and any
notes outstanding  under the Milford Note Program) during such period,  plus (c)
Capital Expenditures during such period, plus (d) dividends  distributed in cash
with respect to the  Preferred  Stock and Common Stock of Agway for such period,
plus (e) the  aggregate  amount of cash  required to be paid in respect of taxes
for such period,  less (f) interest  income (cash or non-cash),  plus (g) in the
case of any Fiscal Quarter ending during the month of December, in the event the
aggregate principal amount of the outstanding Preferred Stock, Subordinated Debt
and outstanding notes under the Milford Note Program is less than  $460,000,000,
the difference between such aggregate principal amount outstanding at the end of
such Fiscal Quarter and $460,000,000, plus (h) in the case of any Fiscal Quarter
ending during a month other than December,  in the event the aggregate principal
amount of the outstanding  Preferred  Stock,  Subordinated  Debt and outstanding
notes under the Milford Note Program is less than  $470,000,000,  the difference
between such aggregate  principal  amount  outstanding at the end of such Fiscal
Quarter and $470,000,000.

                  "Fixed  Charge  Coverage  Ratio"  means,  with  respect to any
Person for any fiscal period, the ratio of EBITDA to Fixed Charges.

                  "Fixtures" means all "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party.

                  "Funded  Debt"  means,  with  respect to any  Person,  without
duplication,  all  Indebtedness  for borrowed money  evidenced by notes,  bonds,
debentures,  or similar evidences of Indebtedness that by its terms matures more
than one year from, or is directly or indirectly renewable or extendible at such
Person's  option under a revolving  credit or similar  agreement  obligating the
lender or lenders to extend credit over a period of more than one year from the


                                      A-11
<PAGE>
date of creation thereof, and specifically  including Capital Lease Obligations,
current  maturities of long-term  debt,  revolving  credit and  short-term  debt
extendible beyond one year at the option of the debtor,  and also including,  in
the case of Borrowers,  the Obligations  and,  without  duplication,  Guaranteed
Indebtedness consisting of guaranties of Funded Debt of other Persons.

                  "GAAP" means generally accepted  accounting  principles in the
United States of America  consistently  applied, as such term is further defined
in Annex G to the Agreement.

                  "GE Capital" means General Electric Capital Corporation, a New
York corporation.

                  "GE Capital Fee Letter" means that certain letter, dated as of
January 17, 2001,  between GE Capital and Borrowers with respect to certain Fees
to be paid from time to time by Borrowers to GE Capital.

                  "General Intangibles" means all "general intangibles," as such
term is  defined  in the Code,  now owned or  hereafter  acquired  by any Credit
Party, including all right, title and interest that such Credit Party may now or
hereafter  have in or under any  Contract,  all  payment  intangibles,  customer
lists, Licenses, Copyrights,  Trademarks, Patents, and all applications therefor
and reissues,  extensions or renewals thereof,  rights in Intellectual Property,
interests  in  partnerships,  joint  ventures and other  business  associations,
licenses,  permits,  copyrights,  trade  secrets,  proprietary  or  confidential
information,  inventions  (whether  or not  patented or  patentable),  technical
information,  procedures,  designs, knowledge,  know-how,  software, data bases,
data, skill, expertise,  experience,  processes, models, drawings, materials and
records,  goodwill  (including  the goodwill  associated  with any  Trademark or
Trademark  License),  all  rights  and  claims  in or under  insurance  policies
(including  insurance  for fire,  damage,  loss and casualty,  whether  covering
personal  property,  real property,  tangible rights or intangible  rights,  all
liability,  life, key man and business interruption insurance,  and all unearned
premiums),  uncertificated securities,  chooses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments, rights to
receive  dividends,  distributions,  cash,  Instruments  and other  property  in
respect of or in exchange for pledged Stock and Investment  Property,  rights of
indemnification,  all books and records, correspondence,  credit files, invoices
and other papers,  including without limitation all tapes, cards,  computer runs
and other papers and  documents in the  possession  or under the control of such
Credit Party or any computer  bureau or service company from time to time acting
for such Credit Party.

                  "Goods" means all "goods" as defined in the Code, now owned or
hereafter acquired by any Credit Party, including embedded software.

                  "Governmental  Authority" means any nation or government,  any
state or other  political  subdivision  thereof,  and any agency,  department or
other  entity  exercising  executive,   legislative,   judicial,  regulatory  or
administrative functions of or pertaining to government.

                  "Guaranteed   Indebtedness"   means  as  to  any  Person,  any
obligation  of  such  Person   guaranteeing,   providing  comfort  or  otherwise
supporting any  Indebtedness,  lease,  dividend,  or other obligation  ("primary
obligation") of any other Person (the "primary obligor") in any manner,


                                      A-12
<PAGE>
including  any  obligation  or  arrangement  of such  Person to (a)  purchase or
repurchase any such primary obligation,  (b) advance or supply funds (i) for the
purchase or payment of any such primary  obligation or (ii) to maintain  working
capital or equity  capital of the primary  obligor or  otherwise to maintain the
net worth or solvency or any balance sheet condition of the primary obligor, (c)
purchase property,  securities or services primarily for the purpose of assuring
the owner of any such primary  obligation of the ability of the primary  obligor
to make payment of such primary obligation,  (d) protect the beneficiary of such
arrangement  from loss  (other than  product  warranties  given in the  ordinary
course  of  business)  or (e)  indemnify  the owner of such  primary  obligation
against loss in respect  thereof.  The amount of any Guaranteed  Indebtedness at
any time shall be deemed to be an amount equal to the lesser at such time of (x)
the stated or determinable  amount of the primary obligation in respect of which
such  Guaranteed  Indebtedness  is incurred and (y) the maximum amount for which
such Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed  Indebtedness,  or,  if  not  stated  or  determinable,  the  maximum
reasonably anticipated liability (assuming full performance) in respect thereof.

                  "Hazardous  Material"  means any substance,  material or waste
that is regulated  by, or forms the basis of liability  now or hereafter  under,
any Environmental Laws,  including any material or substance that is (a) defined
as  a  "solid  waste,"  "hazardous  waste,"  "hazardous   material,"  "hazardous
substance,"   "extremely   hazardous  waste,"   "restricted   hazardous  waste,"
"pollutant,"  "contaminant,"  "hazardous  constituent,"  "special waste," "toxic
substance" or other similar term or phrase under any Environmental  Laws, or (b)
petroleum  or any  fraction or  by-product  thereof,  asbestos,  polychlorinated
biphenyls (PCB's), or any radioactive substance.

                  Holdings" means Agway Holdings Inc., a Delaware corporation.

                  "Indebtedness"  means,  with  respect to any  Person,  without
duplication,  (a) all  indebtedness of such Person for borrowed money or for the
deferred  purchase  price of property  payment for which is deferred 6 months or
more,  but excluding  obligations  to trade  creditors  incurred in the ordinary
course of  business  that are  unsecured  and not  overdue by more than 6 months
unless  being  contested  in  good  faith,  (b)  all   reimbursement  and  other
obligations with respect to letters of credit,  bankers'  acceptances and surety
bonds,  whether or not matured,  (c) all obligations  evidenced by notes, bonds,
debentures or similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person  (even  though the rights and  remedies of the seller or
lender under such agreement in the event of default are limited to  repossession
or sale of such  property),  (e) all Capital Lease  Obligations  and the present
value  (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic  leases,  (f) all obligations of such Person
under commodity  purchase or option  agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person  under any  foreign  exchange  contract,  currency  swap  agreement,
interest  rate swap,  cap or collar  agreement  or other  similar  agreement  or
arrangement designed to alter the risks of that Person arising from fluctuations
in  currency  values or  interest  rates,  in each case  whether  contingent  or
matured,  (h) all  Indebtedness  referred to above  secured by (or for which the
holder of such Indebtedness has an existing right,  contingent or otherwise,  to
be secured by) any Lien upon or in property or other assets (including  accounts
and contract rights) owned by such Person, even though such Person has not


                                      A-13
<PAGE>
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.

                  "Indemnified  Liabilities"  has the meaning  ascribed to it in
Section 1.13.

                  "Indemnified  Person" has the  meaning  ascribed to in Section
1.13.

                  "Indentures"  means (i) that  certain  Indenture,  dated as of
August 23, 1989, as amended, modified and supplemented, among AFC, Agway and Key
Bank of  Central  New York  National  Association,  (ii)  Indenture  dated as of
September 1, 1976, by and between Agway, Inc. and First Trust & Deposit Company,
as Trustee, for Subordinated  Debentures due July 1, 2001, (iii) Indenture dated
as of September 1, 1978,  by and between  Agway,  Inc. and First Trust & Deposit
Company,  as  Trustee,  for  Subordinated  Debentures  due  July 1,  2003,  (iv)
Indenture dated as of September 1, 1985, by and between Agway, Inc. and Key Bank
of  Central  New  York,  as  Trustee,   for  Subordinated  Member  Money  Market
Certificates  due October 31, 2005, (v) Indenture dated as of September 1, 1986,
by and between Agway Financial  Corporation and Key Bank of Central New York, as
Trustee,  for Subordinated Member Money Market  Certificates,  (vi) Supplemental
Indenture dated as of October 1, 1986, by and among Agway, Inc., Agway Financial
Corporation and Key Bank of Central New York, as Trustee,  (vii) Indenture dated
as of August 24, 1987, by and between Agway  Financial  Corporation and Key Bank
of Central New York National  Association,  as Trustee,  for Subordinated Member
Money Market Certificates,  (viii) Indenture dated as of August 23, 1988, by and
between  Agway  Financial  Corporation  and Key Bank of  Central  New  York,  as
Trustee,  for Subordinated Member Money Market  Certificates,  (ix) Supplemental
Indenture   dated  as  of  October  14,  1988,  by  and  among  Agway  Financial
Corporation,  Agway,  Inc.,  as  Guarantor,  and Key  Bank of  Central  New York
National Association,  as Trustee, (x) Indenture dated as of August 23, 1989, by
and between Agway Financial  Corporation,  Agway, Inc. as Guarantor and Key Bank
of  Central  New  York,  as  Trustee,   for  Subordinated  Member  Money  Market
Certificates,  and ( xi) Supplemental  Indenture dated as of August 24, 1992, by
and among Agway Financial Corporation,  Agway, Inc., as Guarantor,  and Key Bank
of New York, as Trustee.

                  "Index Rate" means,  for any day, a floating rate equal to the
higher of (i) the rate  publicly  quoted  from  time to time by The Wall  Street
Journal  as the  "base  rate on  corporate  loans  posted by at least 75% of the
nation's 30 largest banks" (or, if The Wall Street Journal ceases quoting a base
rate of the type described,  the highest per annum rate of interest published by
the Federal  Reserve  Board in Federal  Reserve  statistical  release H.15 (519)
entitled  "Selected  Interest  Rates"  as  the  Bank  prime  loan  rate  or  its
equivalent),  and (ii) the  Federal  Funds Rate plus 50 basis  points per annum.
Each change in any interest rate  provided for in the  Agreement  based upon the
Index Rate shall take effect at the time of such change in the Index Rate.

                  "Index  Rate  Loan"  means a Loan or portion  thereof  bearing
interest by reference to the Index Rate.

                  "Instruments" means all "instruments," as such term is defined
in the Code,  now owned or  hereafter  acquired  by any Credit  Party,  wherever
located, and, in any event, including all certificates of deposit, and all notes
and other, without limitation, evidences of indebtedness, other than instruments


                                      A-14
<PAGE>
that constitute, or are a part of a group of writings that constitute, Chattel
Paper.

                  "Insurance Proceeds" has the meaning ascribed to it in Section
5.4.

                  "Intellectual  Property" means any and all Licenses,  Patents,
Copyrights, Trademarks, and the goodwill associated with such Trademarks.

                  "Intellectual   Property   Security   Agreement"   means   the
Intellectual  Property  Security  Agreement made in favor of Agent, on behalf of
itself and Lenders,  by each  applicable  Credit Party,  as amended from time to
time.

                  "Intercompany Notes" has the meaning ascribed to it in Section
6.3.

                  "Interest  Expense" means,  with respect to any Person for any
fiscal  period,  interest  expense  (whether  cash or  non-cash)  of such Person
determined in accordance  with GAAP for the relevant  period ended on such date,
including,  interest  expense with respect to any Funded Debt of such Person and
interest  expense  for the  relevant  period  that has been  capitalized  on the
balance sheet of such Person.

                  "Interest  Payment  Date" means (a) as to any Index Rate Loan,
the first  Business  Day of each month to occur while such Loan is  outstanding,
and (b) as to any  LIBOR  Loan,  the last day of the  applicable  LIBOR  Period;
provided that, in addition to the foregoing, each of (x) the date upon which all
of the Commitments have been terminated and the Loans have been paid in full and
(y) the Commitment  Termination Date shall be deemed to be an "Interest  Payment
Date" with respect to any interest that has then accrued under the Agreement.

                  "Inventory"  means all "inventory," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located,
and in any event  including  inventory,  merchandise,  goods and other  personal
property  that are held by or on behalf of any Credit Party for sale or lease or
are  furnished  or are to be  furnished  under a contract  of  service,  or that
constitute raw materials,  work in process,  finished goods,  returned goods, or
materials or supplies of any kind,  nature or description used or consumed or to
be used or  consumed  in such  Credit  Party's  business  or in the  processing,
production,  packaging,  promotion,  delivery or shipping of the same, including
other supplies and embedded software.

                  "Investment  Property" means all "investment property" as such
term is defined in the Code now owned or hereafter acquired by any Credit Party,
wherever  located,  including  (i)  all  securities,   whether  certificated  or
uncertificated,   including  stocks,  bonds,   interests  in  limited  liability
companies,  partnership  interests,  treasuries,  certificates  of deposit,  and
mutual  fund  shares;  (ii) all  securities  entitlements  of any Credit  Party,
including  the  rights of any Credit  Party to any  securities  account  and the
financial  assets held by a securities  intermediary in such securities  account
and any free credit balance or other money owing by any securities  intermediary
with respect to that account; (iii) all securities accounts of any Credit Party;
(iv) all commodity contracts of any Credit Party; and (v) all commodity accounts
held by any Credit Party.


                                      A-15
<PAGE>
                  "IRC"  means  the  Internal  Revenue  Code  of  1986  and  all
regulations promulgated thereunder.

                  "IRS" means the Internal Revenue Service.

                  "L/C Issuer" has the meaning ascribed to it in Annex B.

                  "L/C Sublimit" has the meaning ascribed to it in Annex B.

                  "Lenders"  means GE Capital,  the other  Lenders  named on the
signature pages of the Agreement, and, if any such Lender shall decide to assign
all or any portion of the  Obligations,  such term shall include any assignee of
such Lender.

                  "Letter of Credit Fee" has the meaning ascribed to it in Annex
B.

                  "Letter   of  Credit   Obligations"   means  all   outstanding
obligations   incurred   by  Agent  and  Lenders  at  the  request  of  Borrower
Representative,  whether direct or indirect, contingent or otherwise, due or not
due, in  connection  with the  issuance of Letters of Credit by Agent or another
L/C  Issuer  or the  purchase  of a  participation  as set forth in Annex B with
respect to any Letter of Credit. The amount of such Letter of Credit Obligations
shall equal the  maximum  amount that may be payable at such time or at any time
thereafter by Agent or Lenders thereupon or pursuant thereto.

                  "Letters of Credit" means  documentary  or standby  letters of
credit  issued for the account of any  Borrower by any L/C Issuer,  and bankers'
acceptances  issued by any  Borrower,  for which Agent and Lenders have incurred
Letter of Credit Obligations.

                  "LIBOR  Business  Day" means a Business  Day on which banks in
the  City of  London  are  generally  open for  interbank  or  foreign  exchange
transactions.

                  "LIBOR  Loan"  means a Loan  or any  portion  thereof  bearing
interest by reference to the LIBOR Rate.

                  "LIBOR  Period"  means,  with respect to any LIBOR Loan,  each
period  commencing on a LIBOR  Business Day selected by Borrower  Representative
pursuant to the  Agreement  and ending one, two or three months  thereafter,  as
selected by Borrower  Representative's  irrevocable notice to Agent as set forth
in Section  1.5(e);  provided,  that the foregoing  provision  relating to LIBOR
Periods is subject to the following:

                  (a) if any LIBOR Period would  otherwise  end on a day that is
not a LIBOR  Business  Day,  such LIBOR  Period  shall be  extended  to the next
succeeding  LIBOR Business Day unless the result of such  extension  would be to
carry such LIBOR  Period into another  calendar  month in which event such LIBOR
Period shall end on the immediately preceding LIBOR Business Day

                  (b) any LIBOR Period that would  otherwise  extend  beyond the
Commitment Termination Date shall end 2 LIBOR Business Days prior to such date;


                                      A-16
<PAGE>
                  (c) any LIBOR  Period that  begins on the last LIBOR  Business
Day  of a  calendar  month  (or  on a day  for  which  there  is no  numerically
corresponding  day in the calendar  month at the end of such LIBOR Period) shall
end on the last LIBOR Business Day of a calendar month;

                  (d) Borrower  Representative  shall select LIBOR Periods so as
not to require a payment or  prepayment  of any LIBOR Loan during a LIBOR Period
for such Loan; and

                  (e) Borrower Representative shall select LIBOR Periods so that
there shall be no more than five (5)  separate  LIBOR Loans in  existence at any
one time.

                  "LIBOR Rate" means for each LIBOR  Period,  a rate of interest
determined by Agent equal to:

                  (a) the offered rate for deposits in United States Dollars for
the applicable  LIBOR Period that appears on Telerate Page 3750 as of 11:00 a.m.
(London  time),  on the second full LIBOR  Business Day next preceding the first
day of such LIBOR Period (unless such date is not a Business Day, in which event
the next succeeding Business Day will be used); divided by

                  (b) a number  equal to 1.0 minus the  aggregate  (but  without
duplication)  of  the  rates  (expressed  as  a  decimal  fraction)  of  reserve
requirements  in effect on the day that is 2 LIBOR  Business  Days  prior to the
beginning  of such LIBOR Period  (including  basic,  supplemental,  marginal and
emergency  reserves under any  regulations of the Federal Reserve Board or other
Governmental Authority having jurisdiction with respect thereto, as now and from
time to time in effect)  for  Eurocurrency  funding  (currently  referred  to as
"Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board that are
required to be maintained by a member bank of the Federal Reserve System.

                  If such  interest  rates  shall  cease  to be  available  from
Telerate News Service,  the LIBOR Rate shall be determined  from such  financial
reporting service or other information as shall be mutually  acceptable to Agent
and Borrower Representative.

                  "License"  means  any  Copyright   License,   Patent  License,
Trademark  License or other license of rights or interests now held or hereafter
acquired by any Credit Party.

                  "Lien"   means  any   mortgage  or  deed  of  trust,   pledge,
hypothecation,  assignment,  deposit arrangement,  lien, charge, claim, security
interest,  easement or  encumbrance,  or preference,  priority or other security
agreement  or  preferential   arrangement  of  any  kind  or  nature  whatsoever
(including any lease or title  retention  agreement,  any financing lease having
substantially  the same economic effect as any of the foregoing,  and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).

                  "Litigation" has the meaning ascribed to it in Section 3.13.

                  "Loan Account" has the meaning ascribed to it in Section 1.12.


                                      A-17
<PAGE>
                  "Loan   Documents"   means  the  Agreement,   the  Notes,  the
Collateral  Documents,  the Master Standby Agreement,  and all other agreements,
instruments,  documents and  certificates  identified  in the Closing  Checklist
executed and  delivered  to, or in favor of, Agent or any Lenders and  including
all  other  pledges,  powers  of  attorney,  consents,  assignments,  contracts,
notices,  and all other  written  matter  whether  heretofore,  now or hereafter
executed  by or on behalf of any Credit  Party,  or any  employee  of any Credit
Party,  and delivered to Agent or any Lender in connection with the Agreement or
the  transactions  contemplated  thereby.  Any reference in the Agreement or any
other Loan Document to a Loan Document shall include all appendices, exhibits or
schedules  thereto,  and all  amendments,  restatements,  supplements  or  other
modifications thereto, and shall refer to the Agreement or such Loan Document as
the same may be in effect at any and all times such reference becomes operative.

                  "Loans" means the Revolving Loan and the Swing Line Loan.

                  "Lock Boxes" has the meaning ascribed to it in Annex C.

                  "Margin Stock" has the meaning ascribed to in Section 3.10.

                  "Master  Standby  Agreement"  means the Master  Agreement  for
Standby  Letters of Credit  dated as of the  Closing  Date among  Borrowers,  as
Applicant(s), and GE Capital, as issuer.

                  "Material  Adverse Effect" means a material  adverse effect on
(a) the business, assets, operations,  prospects or financial or other condition
of any Credit Party or the Credit  Parties taken as a whole,  (b) any Borrower's
ability to pay any of the Loans or any of the other  Obligations  in  accordance
with the terms of the Agreement,  (c) the Collateral or Agent's Liens, on behalf
of itself and Lenders,  on the Collateral or the priority of such Liens,  or (d)
Agent's or any Lender's  rights and remedies  under the  Agreement and the other
Loan Documents.  Without limiting the generality of the foregoing,  any event or
occurrence  adverse  to one or  more  Credit  Parties  which  results  or  could
reasonably  be  expected  to  result  in  costs  and/or  liabilities  or loss of
revenues,  individually or in the aggregate,  measured at the time of such event
or occurrence,  to any Credit Party in excess of the lesser of  $20,000,000  and
10% of Borrowing Availability as of any date of determination shall constitute a
Material Adverse Effect.

                  "Maximum  Amount" means, as of any date of  determination,  an
amount equal to the Revolving Loan Commitment of all Lenders as of that date.

                  "Mortgaged Properties" has the meaning assigned to it in Annex
D.

                  "Mortgages"  means  each of the  mortgages,  deeds  of  trust,
leasehold mortgages,  leasehold deeds of trust, collateral assignments of leases
or other real estate security  documents  delivered by any Credit Party to Agent
on behalf of itself and Lenders with respect to the Mortgaged Properties, all in
form and substance reasonably satisfactory to Agent.

                  "Multiemployer  Plan" means a "multiemployer  plan" as defined
in Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate


                                      A-18
<PAGE>
is  making,  is  obligated  to make  or has  made or  been  obligated  to  make,
contributions on behalf of participants who are or were employed by any of them.

                  "Net  Orderly  Liquidation  Value"  means  as to any  Eligible
Inventory,  the net orderly  liquidation  value of such Eligible  Inventory,  as
determined by an appraisal,  performed by an appraiser retained by Borrowers and
acceptable to Agent and reflecting asset values acceptable to Agent.

                  "Net Worth"  means,  with respect to any Person as of any date
of determination,  the book value of the assets of such Person, minus the sum of
(a) reserves applicable thereto,  and (b) all of such Person's  liabilities on a
consolidated  basis  (including  accrued  and  deferred  income  taxes),  all as
determined in accordance with GAAP.

                  "Non-Funding Lender" has the meaning ascribed to it in Section
9.9(a)(ii).

                  "Notes" means, collectively, the Revolving Notes and the Swing
Line Notes.

                  "Notice of  Conversion/Continuation"  has the meaning ascribed
to it in Section 1.5(e).

                  "Notice of Revolving  Credit Advance" has the meaning ascribed
to it in Section 1.1(a).

                  "Obligations" means all loans,  advances,  debts,  liabilities
and obligations for the performance of covenants, tasks or duties or for payment
of  monetary  amounts  (whether  or not such  performance  is then  required  or
contingent,  or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any  Lender,  and all  covenants  and  duties  regarding  such
amounts, of any kind or nature,  present or future,  whether or not evidenced by
any note,  agreement or other instrument,  arising under the Agreement or any of
the other Loan Documents. This term includes all principal,  interest (including
all interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in  bankruptcy,  whether or not allowed in such case or
proceeding),  Fees,  Charges,  expenses,  attorneys'  fees  and  any  other  sum
chargeable  to any Credit  Party  under the  Agreement  or any of the other Loan
Documents.

                  "Overadvance"  has  the  meaning  ascribed  to it  in  Section
1.1(a)(iii).

                  "PACA" means the Perishable  Agricultural  Commodities  Act, 7
U.S.C.ss.499, as it may be amended from time to time.

                  "Patent License" means rights under any written  agreement now
owned or hereafter  acquired by any Credit Party granting any right with respect
to any invention on which a Patent is in existence.

                  "Patents" means all of the following in which any Credit Party
now holds or hereafter  acquires  any  interest:  (a) all letters  patent of the
United States or of any other country, all registrations and recordings thereof,
and all  applications  for letters  patent of the United  States or of any other
country,  including  registrations,  recordings and  applications  in the United
States  Patent and  Trademark  Office or in any similar  office or agency of the
United  States,  any  State,  or  any  other  country,  and  (b)  all  reissues,
continuations, continuations-in-part or extensions thereof.


                                      A-19
<PAGE>
                  "PBGC" means the Pension Benefit Guaranty Corporation.

                  "Pension  Plan"  means a Plan  described  in  Section  3(2) of
ERISA.

                  "Permitted Encumbrances" means the following encumbrances: (a)
Liens for taxes or  assessments  or other  governmental  Charges not yet due and
payable or which are being  contested in  accordance  with Section  5.2(b);  (b)
pledges or deposits of money  securing  statutory  obligations  under  workmen's
compensation,  unemployment insurance,  social security or public liability laws
or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of
money securing bids, tenders, contracts (other than contracts for the payment of
money)  or leases to which  any  Credit  Party is a party as lessee  made in the
ordinary course of business;  (d) inchoate and unperfected workers',  mechanics'
or similar  liens  arising in the ordinary  course of business,  so long as such
Liens attach only to  Equipment,  Fixtures  and/or Real Estate;  (e)  carriers',
warehousemen's,  suppliers'  or other  similar  possessory  liens arising in the
ordinary course of business (other than liens or statutory  trusts arising under
PACA or the Food  Security  Act of 1985 (7  U.S.C.  Section  1631et  seq.))  and
securing  liabilities  in an  outstanding  aggregate  amount  not in  excess  of
$250,000  at any time,  so long as such  Liens  attach  only to  Inventory;  (f)
deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings
to which any Credit Party is a party;  (g) any  attachment  or judgment lien not
constituting an Event of Default under Section 8.1(j); (h) zoning  restrictions,
easements,  licenses,  or other  restrictions  on the use of any Real  Estate or
other minor irregularities in title (including leasehold title) thereto, so long
as the same do not materially  impair the use, value, or  marketability  of such
Real  Estate;  (i)  presently  existing or hereafter  created  Liens in favor of
Agent, on behalf of Lenders; (j) Liens expressly permitted under clauses (b) and
(c) of Section  6.7 of the  Agreement;  and (k) leases or  subleases  granted to
others not  interfering in any material  respect with the business of any Credit
Party.

                  "Permitted Telmark  Sale-Leaseback  Transactions"  means those
certain proposed  sale-leaseback  transactions identified on Disclosure Schedule
(6.7(b)) between any of the Telmark  Entities and any Borrower,  provided at the
time of any such proposed  sale-leaseback  transaction,  the applicable  Telmark
Entity is not in default of any of its existing credit facilities,  and provided
further that  Borrowers  shall cause on or before  April 15, 2001 any  equipment
subject to that  certain  Master  Lease  Agreement,  dated June 25, 1997 between
Agway,  Inc. and Fleet Bank,  upon the release and/or purchase of such equipment
under such  Master  Lease  Agreement,  to become  subject  to a lease  agreement
between one of the Telmark Entities and Agway, Inc.,  provided however Borrowers
shall not be required to subject any equipment  identified on Schedules 1, 2, 6,
11 and 14 of Master Lease Agreement to a lease with one of the Telmark Entities.

                  "Person"   means   any   individual,    sole   proprietorship,
partnership,  joint venture, trust,  unincorporated  organization,  association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal,  state,  county,  city,  municipal,
local, foreign, or otherwise,  including any instrumentality,  division, agency,
body or department thereof).

                  "Plan" means,  at any time,  an "employee  benefit  plan",  as
defined  in Section  3(3) of ERISA,  that any  Credit  Party or ERISA  Affiliate
maintains, contributes to or has an obligation to contribute to or has


                                      A-20
<PAGE>
maintained,  contributed  to or had an  obligation  to contribute to at any time
within the past 7 years on behalf of  participants  who are or were  employed by
any Credit Party or ERISA Affiliate.

                  "Pledge  Agreement"  means the Pledge  Agreements of even date
herewith  executed  by  Borrowers  in favor of Agent,  on  behalf of itself  and
Lenders,  pledging  all  Stock  or  interests,  as the  case  may  be,  and  all
Intercompany Notes owing to or held by them, as amended from time to time.

                  "Preferred  Stock" means the 6%  Cumulative  Preferred  Stock,
Series  A, the 8%  Cumulative  Preferred  Stock,  Series  B,  the 7%  Cumulative
Preferred Stock, Series C and Series HM Preferred Stock issued by Agway.

                  "Prior Lender" means collectively, CoBANK and Rabo Bank.

                  "Prior Lender Obligations" means all obligations of any Credit
Party and any of their Subsidiaries to the Prior Lender pursuant to that certain
(i) Master Loan  Agreement,  dated as of January 1, 1998 between CoBANK and AFC,
as amended,  modified and supplemented,  and (ii) Amended and Restated Letter of
Credit and Reimbursement  Agreement,  dated as of December 10, 1997, between AFC
and Rabo Bank, as amended, modified and supplemented.

                  "Proceeds"  means  "proceeds,"  as such term is defined in the
Code, including (a) any and all proceeds of any insurance,  indemnity,  warranty
or guaranty payable to any Credit Party from time to time with respect to any of
the Collateral,  (b) any and all payments (in any form  whatsoever)  made or due
and  payable  to any  Credit  Party  from  time to time in  connection  with any
requisition,  confiscation,  condemnation,  seizure or  forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of  governmental  authority),  (c) any claim of any Credit  Party  against
third  parties  (i) for past,  present or future  infringement  of any Patent or
Patent License,  or (ii) for past, present or future infringement or dilution of
any Copyright,  Copyright License, Trademark or Trademark License, or for injury
to the goodwill  associated  with any  Trademark or Trademark  License,  (d) any
recoveries  by any  Credit  Party  against  third  parties  with  respect to any
litigation or dispute concerning any of the Collateral, (e) dividends, interest,
distributions  and Instruments  with respect to Investment  Property and pledged
Stock, and (f) any and all other amounts from time to time paid or payable under
or in connection with any of the Collateral, upon disposition or otherwise.

                  "Pro Forma" means the unaudited consolidated and consolidating
balance sheet of Borrowers and their  Subsidiaries as of December 31, 2000 after
giving pro forma effect to the Related Transactions.

                  "Projections"  means  Borrowers'  forecasted  consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements;  and (d) capitalization  statements, all prepared on a Subsidiary by
Subsidiary  (excluding the Telmark Entities,  Agway Insurance Company and all of
their respective Subsidiaries) or division-by-division basis, if applicable, and
otherwise  consistent with the historical Financial Statements of the Borrowers,
together  with  appropriate  supporting  details and a statement  of  underlying
assumptions.

                                      A-21
<PAGE>
                  "Pro Rata Share" means with respect to all matters relating to
any Lender,  (a) with respect to the Revolving Loan, the percentage  obtained by
dividing (i) the Revolving Loan  Commitment of that Lender by (ii) the aggregate
Revolving Loan  Commitments of all Lenders,  (b) with respect to all Loans,  the
percentage obtained by dividing (i) the aggregate  Commitments of that Lender by
(ii) the aggregate Commitments of all Lenders, and (d) with respect to all Loans
on and after  the  Commitment  Termination  Date,  the  percentage  obtained  by
dividing (i) the aggregate  outstanding  principal  balance of the Loans held by
that Lender, by (ii) the outstanding  principal balance of the Loans held by all
Lenders.

                  "Qualified  Plan" means a Pension  Plan that is intended to be
tax-qualified under Section 401(a) of the IRC.

                  "Qualified  Assignee"  means (a) any Lender,  any Affiliate of
any Lender  and,  with  respect to any Lender  that is an  investment  fund that
invests  in  commercial  loans,  any  other  investment  fund  that  invests  in
commercial  loans and that is managed or advised by the same investment  advisor
as such  Lender  or by an  Affiliate  of such  investment  advisor,  and (b) any
commercial  bank,  savings  and loan  association  or savings  bank or any other
entity which is an  "accredited  investor" (as defined in Regulation D under the
Securities  Act of  1933)  which  extends  credit  or buys  loans  as one of its
businesses,   including  insurance  companies,  mutual  funds,  lease  financing
companies and commercial finance companies,  in each case, which has a rating of
BBB or higher from S&P and a rating of Baa2 or higher  from  Moody's at the date
that it becomes a Lender and which,  through its applicable  lending office,  is
capable of lending to Borrowers  without the  imposition of any  withholding  or
similar taxes;  provided that no Person  determined by Agent to be acting in the
capacity of a vulture fund or  distressed  debt  purchaser  shall be a Qualified
Assignee, and no Person or Affiliate of such Person (other than a Person that is
already a Lender) holding  Subordinated Debt or Stock issued by any Credit Party
shall be a Qualified Assignee.

                  "Rabo Bank" means Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch.

                  "Ratable  Share"  has the  meaning  ascribed  to it in Section
1.1(b).

                  "Real Estate" has the meaning ascribed to it in Section 3.6.

                  "Refinancing"  means the repayment in full by Borrowers of the
Prior Lender Obligations on the Closing Date.

                  "Refunded  Swing Line Loan" has the meaning  ascribed to it in
Section 1.1(b)(iii).

                  "Related  Transactions"  means the initial borrowing under the
Revolving  Loan on the Closing Date, the  Refinancing,  the payment of all fees,
costs and expenses  associated  with all of the  foregoing and the execution and
delivery of all of the Related Transactions Documents.

                  "Related Transactions  Documents" means the Loan Documents and
all other  agreements or  instruments  executed in  connection  with the Related
Transactions.

                                      A-22
<PAGE>
                  "Release"  means  any  release,   threatened  release,  spill,
emission,  leaking, pumping,  pouring,  emitting,  emptying,  escape, injection,
deposit,  disposal,  discharge,  dispersal,  dumping,  leaching or  migration of
Hazardous Material in the indoor or outdoor environment,  including the movement
of Hazardous Material through or in the air, soil,  surface water,  ground water
or property.

                  "Requisite  Lenders"  means at least 2  Lenders  having in the
aggregate  (a) more than 51% of the  Commitments  of all Lenders,  or (b) if the
Commitments  have been  terminated,  more than 51% of the aggregate  outstanding
amount of all Loans.

                  "Reserves"  means (a) reserves  established by Agent from time
to time  against  Eligible  Inventory  pursuant  to Section  5.9,  (b)  reserves
established  by Agent from time to time against the  Borrowing  Base pursuant to
Section  5.12,  (c)  reserves  established  pursuant  to Section  5.4(c),  (d) a
dilution reserve with respect to Eligible Accounts,  and (e) such other reserves
against  Eligible  Accounts,  Eligible  Inventory or Borrowing  Availability  of
Borrowers that Agent may, in its reasonable credit judgment, establish from time
to time. Without limiting the generality of the foregoing,  Reserves established
to ensure the  payment of accrued  Interest  Expenses or  Indebtedness  shall be
deemed to be a reasonable exercise of Agent's credit judgment.

                  "Restricted  Payment" means,  with respect to any Credit Party
(a)  the  declaration  or  payment  of any  dividend  or the  incurrence  of any
liability to make any other payment or distribution of cash or other property or
assets  in  respect  of Stock;  (b) any  payment  on  account  of the  purchase,
redemption,  defeasance, sinking fund or other retirement of such Credit Party's
Stock or any other  payment  or  distribution  made in respect  thereof,  either
directly or indirectly;  (c) any payment or prepayment of principal of, premium,
if any,  or  interest,  fees or other  charges  on or with  respect  to, and any
redemption,  purchase,  retirement,  defeasance, sinking fund or similar payment
and any claim for  rescission  with respect to, any  Subordinated  Debt; (d) any
payment  made to  redeem,  purchase,  repurchase  or  retire,  or to obtain  the
surrender of, any outstanding warrants, options or other rights to acquire Stock
of such Credit  Party now or hereafter  outstanding;  (e) any payment of a claim
for the rescission of the purchase or sale of, or for material  damages  arising
from the  purchase or sale of, any shares of such Credit  Party's  Stock or of a
claim for  reimbursement,  indemnification  or  contribution  arising  out of or
related to any such claim for  damages or  rescission;  (f) any  payment,  loan,
contribution, or other transfer of funds or other property to any Stockholder of
such Credit Party other than payment of  compensation  in the ordinary course of
business to Stockholders  who are employees of such Person;  and (g) any payment
of management  fees (or other fees of a similar  nature) by such Credit Party to
any Stockholder of such Credit Party or its Affiliates.

                  "Retiree Welfare Plan" means, at any time, a Welfare Plan that
provides  for  continuing  coverage  or  benefits  for  any  participant  or any
beneficiary of a participant after such participant's termination of employment,
other than  continuation  coverage provided pursuant to Section 4980B of the IRC
and  at  the  sole  expense  of  the  participant  or  the  beneficiary  of  the
participant.

                  "Revolving  Credit Advance" has the meaning  ascribed to it in
Section 1.1(a)(i).


                                      A-23
<PAGE>
                  "Revolving  Lenders" means,  as of any date of  determination,
Lenders having a Revolving Loan Commitment.

                  "Revolving  Loan"  means,  at any  time,  the  sum of (i)  the
aggregate amount of Revolving Credit Advances outstanding to Borrowers plus (ii)
the  aggregate  Letter of Credit  Obligations  incurred on behalf of  Borrowers.
Unless the context otherwise requires,  references to the outstanding  principal
balance of the Revolving Loan shall include the outstanding balance of Letter of
Credit Obligations.

                  "Revolving Loan  Commitment"  means (a) as to any Lender,  the
aggregate  commitment of such Lender to make Revolving  Credit Advances or incur
Letter of Credit  Obligations as set forth on Annex J to the Agreement or in the
most  recent  Assignment  Agreement  executed  by such  Lender and (b) as to all
Lenders,  the  aggregate  commitment  of all  Lenders to make  Revolving  Credit
Advances or incur Letter of Credit Obligations, which aggregate commitment shall
be One Hundred Seventy Five Million Dollars  ($175,000,000) on the Closing Date,
as such amount may be adjusted,  if at all, from time to time in accordance with
the Agreement.

                  "Revolving  Note" has the  meaning  ascribed  to it in Section
1.1(a)(ii).

                  "Security Agreement" means the Security Agreement of even date
herewith  entered into by and among Agent, on behalf of itself and Lenders,  and
each  Credit  Party  that  is a  signatory  thereto,  as  amended,  modified  or
supplemented from time to time.

                  "Senior  Interest  Coverage Ratio" means,  with respect to any
Person for any period, the ratio of EBITDA to Senior Interest Expense.

                  "Senior  Interest  Expense" means,  with respect to any Person
for any fiscal  period,  interest  expense  (whether  cash or  non-cash) of such
Person  determined in accordance with GAAP for the relevant period ended on such
date, including, interest expense with respect to any Funded Debt of such Person
and interest  expense for the relevant  period that has been  capitalized on the
balance sheet of such Person,  excluding interest expense due in connection with
the Milford  Note  Program  and  excluding  interest  expense  (whether  cash or
non-cash) due under Subordinated Debt.

                  "Solvent"  means,  with  respect to any Person on a particular
date,  that on such date (a) the fair value of the  property  of such  Person is
greater than the total amount of liabilities,  including contingent liabilities,
of such Person;  (b) the present fair salable value of the assets of such Person
is not less than the amount that will be required to pay the probable  liability
of such Person on its debts as they become absolute and matured; (c) such Person
does  not  intend  to,  and  does  not  believe  that it  will,  incur  debts or
liabilities  beyond such Person's  ability to pay as such debts and  liabilities
mature; and (d) such Person is not engaged in a business or transaction,  and is
not  about to engage in a  business  or  transaction,  for which  such  Person's
property  would  constitute  an  unreasonably  small  capital.   The  amount  of
contingent  liabilities  (such  as  litigation,   guaranties  and  pension  plan
liabilities)  at any time shall be computed as the amount that,  in light of all
the facts and circumstances existing at the time, represents the amount that can
be reasonably be expected to become an actual or matured liability.


                                      A-24
<PAGE>
                  "Stock"  means  all  shares,  options,  warrants,  general  or
limited  partnership  interests,   membership  interests  or  other  equivalents
(regardless  of how  designated) of or in a  corporation,  partnership,  limited
liability  company or equivalent  entity whether voting or nonvoting,  including
common stock,  preferred  stock or any other "equity  security" (as such term is
defined in Rule 3a11-1 of the General Rules and  Regulations  promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934).

                  "Stockholder"  means, with respect to any Person,  each holder
of Stock of such Person.

                  "Subordinated Debt" means the Indebtedness of AFC evidenced by
the  Subordinated   Notes  and  any  other  Indebtedness  of  any  Credit  Party
subordinated to the  Obligations in a manner and form  satisfactory to Agent and
Lenders in their sole discretion,  as to right and time of payment and as to any
other rights and remedies thereunder.

                  "Subordinated  Notes" means those certain  subordinated  money
market certificates and debentures issued by AFC pursuant to the Indentures.

                  "Subsidiary"  means,  with  respect  to any  Person,  (a)  any
corporation  of which an  aggregate  of more than 50% of the  outstanding  Stock
having  ordinary  voting  power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such  corporation  shall have or might have voting power by reason
of the happening of any  contingency)  is at the time,  directly or  indirectly,
owned legally or beneficially by such Person or one or more Subsidiaries of such
Person,  or with  respect  to which  any such  Person  has the  right to vote or
designate  the vote of 50% or more of such Stock  whether  by proxy,  agreement,
operation of law or  otherwise,  and (b) any  partnership  or limited  liability
company in which such  Person  and/or one or more  Subsidiaries  of such  Person
shall  have an  interest  (whether  in the form of  voting or  participation  in
profits or capital contribution) of more than 50% or of which any such Person is
a general  partner or may exercise the powers of a general  partner.  Unless the
context otherwise requires,  each reference to a Subsidiary shall be a reference
to a Subsidiary of a Borrower.

                  "Supermajority  Revolving  Lenders"  means Lenders  having (a)
66-2/3% or more of the Revolving Loan Commitments of all Lenders,  or (b) if the
Revolving  Loan  Commitments  have  been  terminated,  66-2/3%  or  more  of the
aggregate  outstanding  amount of the  Revolving  Loan (with the Swing Line Loan
being  attributed  to  the  Lender  making  such  Loan)  and  Letter  of  Credit
Obligations.

                  "Supporting  Obligations"  means a  letter-of-credit  right or
secondary  obligation  that supports the payment or  performance  of an Account,
Chattel Paper, a Document,  a General Intangible,  an Instrument,  or Investment
Property.

                  "Swing Line Advance" has the meaning ascribed to it in Section
1.1(b)(i).

                  "Swing Line  Availability"  has the meaning  ascribed to it in
Section 1.1(b)(i).

                  "Swing Line  Commitment"  means,  as to the Swing Line Lender,
the commitment of the Swing Line Lender to make Swing Line Advances as set forth


                                      A-25
<PAGE>
on Annex J to the Agreement,  which commitment  constitutes a subfacility of the
Revolving Loan Commitment of the Swing Line Lender.

                  "Swing Line Lender" means GE Capital.

                  "Swing Line Loan" means,  as the context may  require,  at any
time, the aggregate amount of Swing Line Advances outstanding to any Borrower or
to all Borrowers.

                  "Swing  Line Note" has the  meaning  ascribed to it in Section
1.1(b)(ii).

                  "Taxes" means taxes, levies, imposts,  deductions,  Charges or
withholdings,  and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which  Agent and Lenders are  organized  or conduct  business or any
political subdivision thereof.

                  "Telmark  Entities" means  collectively,  Telmark LLC, Telease
Financial Services,  Ltd., Telmark Lease Funding I LLC, Telmark Lease Funding II
LLC and Telmark Lease  Funding III LLC and any  Subsidiary of any of them formed
after the Closing Date.

                  "Termination  Date" means the date on which (a) the Loans have
been repaid in full, (b) all other Obligations under the Agreement and the other
Loan  Documents  have  been  completely  discharged  (c) all  Letter  of  Credit
Obligations have been cash collateralized, canceled or backed by standby letters
of credit in accordance  with Annex B, and (d) none of Borrowers  shall have any
further right to borrow any monies under the Agreement.

                  "Title  IV  Plan"   means  a  Pension   Plan   (other  than  a
Multiemployer  Plan),  that is covered by Title IV of ERISA, and that any Credit
Party or ERISA  Affiliate  maintains,  contributes  to or has an  obligation  to
contribute to on behalf of participants who are or were employed by any of them.

                  "Trademark  License" means rights under any written  agreement
now owned or hereafter  acquired by any Credit  Party  granting any right to use
any Trademark.

                  "Trademarks" means all of the following now owned or hereafter
existing or adopted or acquired by any Credit Party:  (a) all trademarks,  trade
names,  corporate names,  business names,  trade styles,  service marks,  logos,
other  source or  business  identifiers,  prints  and labels on which any of the
foregoing  have  appeared or appear,  designs and  general  intangibles  of like
nature (whether  registered or  unregistered),  all registrations and recordings
thereof, and all applications in connection therewith,  including registrations,
recordings and  applications in the United States Patent and Trademark Office or
in any similar  office or agency of the United  States,  any state or  territory
thereof,  or any other country or any  political  subdivision  thereof;  (b) all
reissues,  extensions or renewals thereof;  and (c) all goodwill associated with
or symbolized by any of the foregoing.

                  "Unfunded Pension Liability" means, at any time, the aggregate
amount,  if any, of the sum of (a) the amount by which the present  value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all


                                      A-26
<PAGE>
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA,  all determined as of the most recent  valuation date for each such
Title IV Plan using the  actuarial  assumptions  for funding  purposes in effect
under  such  Title  IV  Plan,  and  (b) for a  period  of 5  years  following  a
transaction  which might reasonably be expected to be covered by Section 4069 of
ERISA,  the  liabilities  (whether or not accrued)  that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.

                  "Welfare  Plan"  means a Plan  described  in  Section  3(i) of
ERISA.

                  Rules of construction with respect to accounting terms used in
the Agreement or the other Loan Documents  shall be as set forth in Annex G. All
other undefined terms contained in any of the Loan Documents  shall,  unless the
context  indicates  otherwise,  have the meanings provided for by the Code as in
effect  in the  State of New  York to the  extent  the same are used or  defined
therein.  Unless otherwise specified,  references in the Agreement or any of the
Appendices to a Section,  subsection or clause refer to such Section, subsection
or clause as  contained  in the  Agreement.  The words  "herein,"  "hereof"  and
"hereunder" and other words of similar import refer to the Agreement as a whole,
including all Annexes, Exhibits and Schedules, as the same may from time to time
be  amended,  restated,  modified  or  supplemented,  and not to any  particular
section,  subsection  or clause  contained  in the  Agreement or any such Annex,
Exhibit or Schedule.

                  Wherever  from the context it appears  appropriate,  each term
stated in either the  singular  or plural  shall  include the  singular  and the
plural,  and pronouns  stated in the masculine,  feminine or neuter gender shall
include the  masculine,  feminine  and neuter  genders.  The words  "including",
"includes"  and "include"  shall be deemed to be followed by the words  "without
limitation"; the word "or" is not exclusive; references to Persons include their
respective  successors  and  assigns  (to the  extent  and  only  to the  extent
permitted  by the  Loan  Documents)  or,  in the case of  governmental  Persons,
Persons succeeding to the relevant functions of such Persons; and all references
to statutes and related regulations shall include any amendments of the same and
any  successor  statutes and  regulations.  Whenever  any  provision in any Loan
Document  refers to the knowledge (or an analogous  phrase) of any Credit Party,
such words are intended to signify  that such Credit Party has actual  knowledge
or awareness of a particular  fact or circumstance or that such Credit Party, if
it had exercised  reasonable  diligence,  would have known or been aware of such
fact or circumstance.







                                      A-27
<PAGE>
                              ANNEX B (SECTION 1.2)
                                       TO
                                CREDIT AGREEMENT

                                LETTERS OF CREDIT

                  (a)  Issuance.  Subject  to the  terms and  conditions  of the
Agreement,  Agent and Revolving  Lenders agree to incur, from time to time prior
to the Commitment Termination Date, upon the request of Borrower  Representative
on behalf of Borrowers' account, Letter of Credit Obligations by causing Letters
of Credit to be issued by GE Capital or a Subsidiary  thereof or a bank or other
legally  authorized  Person  selected  by or  acceptable  to  Agent  in its sole
discretion (each, an "L/C Issuer") for such Borrower's account and guaranteed by
Agent; provided, that if the L/C Issuer is a Revolving Lender, then such Letters
of Credit  shall not be  guaranteed  by Agent but rather each  Revolving  Lender
shall, subject to the terms and conditions  hereinafter set forth,  purchase (or
be deemed to have purchased) risk  participations  in all such Letters of Credit
issued with the written  consent of Agent,  as more fully described in paragraph
(b)(ii)  below.  The aggregate  amount of all such Letter of Credit  Obligations
shall  not at any time  exceed  the least of (i)  Thirty  Five  Million  Dollars
($35,000,000)  (the  "L/C  Sublimit")  and  (ii)  the  Maximum  Amount  less the
aggregate outstanding principal balance of the Revolving Credit Advances and the
Swing Line Loan,  and (iii) the Borrowing  Base less the  aggregate  outstanding
principal  balance of the Revolving  Credit Advances and the Swing Line Loan. No
such  Letter of  Credit  shall  have an  expiry  date that is more than one year
following  the date of issuance  thereof,  unless  otherwise  determined  by the
Agent, in its sole discretion,  and neither Agent nor Revolving Lenders shall be
under any  obligation  to incur Letter of Credit  Obligations  in respect of, or
purchase risk participations in, any Letter of Credit having an expiry date that
is later than the Commitment Termination Date.

                  (b) (i) Advances Automatic;  Participations. In the event that
Agent or any  Revolving  Lender  shall make any  payment on or  pursuant  to any
Letter of Credit Obligation,  such payment shall then be deemed automatically to
constitute a Revolving  Credit Advance to the applicable  Borrower under Section
1.1(a) of the Agreement  regardless of whether a Default or Event of Default has
occurred and is continuing and notwithstanding any Borrower's failure to satisfy
the conditions precedent set forth in Section 2, and each Revolving Lender shall
be obligated to pay its Pro Rata Share thereof in accordance with the Agreement.
The failure of any Revolving  Lender to make  available to Agent for Agent's own
account its Pro Rata Share of any such  Revolving  Credit  Advance or payment by
Agent  under or in respect  of a Letter of Credit  shall not  relieve  any other
Revolving Lender of its obligation  hereunder to make available to Agent its Pro
Rata Share thereof, but no Revolving Lender shall be responsible for the failure
of any other Revolving  Lender to make available such other  Revolving  Lender's
Pro Rata Share of any such payment.

                  (ii) If it shall be illegal or  unlawful  for any  Borrower to
incur  Revolving  Credit  Advances as  contemplated  by  paragraph  (b)(i) above
because of an Event of Default  described in Sections 8.1(h) or (i) or otherwise
or if it shall be illegal or unlawful for any  Revolving  Lender to be deemed to
have assumed a ratable  share of the  reimbursement  obligations  owed to an L/C
Issuer,  or if the L/C Issuer is a Revolving  Lender,  then (A)  immediately and
without further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the


                                       B-1
<PAGE>
case may be) an undivided  interest and  participation  equal to such  Revolving
Lender's Pro Rata Share (based on the Revolving Loan  Commitments) of the Letter
of Credit  Obligations in respect of all Letters of Credit then  outstanding and
(B)  thereafter,  immediately  upon  issuance  of any  Letter  of  Credit,  each
Revolving  Lender  shall  be  deemed  to have  irrevocably  and  unconditionally
purchased  from  Agent  (or such L/C  Issuer,  as the case may be) an  undivided
interest and  participation in such Revolving  Lender's Pro Rata Share (based on
the Revolving Loan Commitments) of the Letter of Credit Obligations with respect
to such Letter of Credit on the date of such  issuance.  Each  Revolving  Lender
shall fund its  participation  in all payments or  disbursements  made under the
Letters of Credit in the same manner as provided in the  Agreement  with respect
to Revolving Credit Advances.

                  (c) Cash Collateral.

                  (i) If Borrowers are required to provide cash  collateral  for
any  Letter  of  Credit  Obligations  pursuant  to the  Agreement  prior  to the
Commitment  Termination  Date,  each  Borrower will pay to Agent for the ratable
benefit of itself and Revolving  Lenders cash or cash equivalents  acceptable to
Agent ("Cash Equivalents") in an amount equal to 105% of the maximum amount then
available to be drawn under each applicable Letter of Credit outstanding for the
benefit of such Borrower.  Such funds or Cash Equivalents shall be held by Agent
in a cash collateral  account (the "Cash  Collateral  Account")  maintained at a
bank or financial  institution  acceptable to Agent. The Cash Collateral Account
shall be in the name of the  applicable  Borrower  and shall be pledged  to, and
subject to the control of,  Agent,  for the benefit of Agent and  Lenders,  in a
manner  satisfactory to Agent. Each Borrower hereby pledges and grants to Agent,
on behalf of itself and Lenders,  a security interest in all such funds and Cash
Equivalents  held in the  Cash  Collateral  Account  from  time to time  and all
proceeds  thereof,  as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The  Agreement,  including this Annex B, shall  constitute a security  agreement
under applicable law.

                  (ii) If any Letter of Credit Obligations,  whether or not then
due  and  payable,  shall  for  any  reason  be  outstanding  on the  Commitment
Termination Date, Borrowers shall either (A) provide cash collateral therefor in
the  manner  described  above,  or (B) cause  all such  Letters  of  Credit  and
guaranties  thereof,  if any,  to be  canceled  and  returned,  or (C) deliver a
stand-by  letter (or  letters)  of credit in  guaranty  of such Letter of Credit
Obligations, which stand-by letter (or letters) of credit shall be of like tenor
and duration  (plus 30  additional  days) as, and in an amount equal to 105% of,
the aggregate  maximum amount then  available to be drawn under,  the Letters of
Credit to which such outstanding  Letter of Credit  Obligations relate and shall
be issued by a Person, and shall be subject to such terms and conditions, as are
be satisfactory to Agent in its sole discretion.

                  (iii) From time to time after funds are  deposited in the Cash
Collateral  Account  by any  Borrower,  whether  before or after the  Commitment
Termination  Date,  Agent may apply such funds or Cash  Equivalents then held in
the Cash Collateral Account to the payment of any amounts,  and in such order as
Agent may elect, as shall be or shall become due and payable by such Borrower to
Agent and Lenders with respect to such Letter of Credit Obligations of such


                                       B-2
<PAGE>
Borrower and, upon the satisfaction in full of all Letter of Credit  Obligations
of such Borrower, to any other Obligations of any Borrower then due and payable.

                  (iv) No  Borrower  nor any  Person  claiming  on  behalf of or
through any  Borrower  shall have any right to withdraw any of the funds or Cash
Equivalents  held  in  the  Cash  Collateral  Account,   except  that  upon  the
termination of all Letter of Credit  Obligations  and the payment of all amounts
payable  by  Borrowers  to Agent  and  Lenders  in  respect  thereof,  any funds
remaining in the Cash Collateral  Account shall be applied to other  Obligations
then due and owing and upon payment in full of such  Obligations,  any remaining
amount  shall be paid to Borrowers  or as  otherwise  required by law.  Interest
earned on deposits in the Cash  Collateral  Account  shall be for the account of
Agent.

                  (d) Fees and Expenses. Borrowers agree to pay to Agent for the
benefit of  Revolving  Lenders,  as  compensation  to such Lenders for Letter of
Credit Obligations  incurred  hereunder,  (i) all costs and expenses incurred by
Agent or any Lender on account of such  Letter of Credit  Obligations,  and (ii)
for each  month  during  which  any  Letter of Credit  Obligation  shall  remain
outstanding,  a fee (the  "Letter  of  Credit  Fee") in an  amount  equal to the
Applicable  L/C Margin  from time to time in effect  multiplied  by the  maximum
amount  available from time to time to be drawn under the  applicable  Letter of
Credit. Such fee shall be paid to Agent for the benefit of the Revolving Lenders
in  arrears,  on the first day of each month and on the  Commitment  Termination
Date. In addition,  Borrowers shall pay to any L/C Issuer, on demand,  such fees
(including  all per annum  fees),  charges  and  expenses  of such L/C Issuer in
respect  of the  issuance,  negotiation,  acceptance,  amendment,  transfer  and
payment  of  such  Letter  of  Credit  or  otherwise  payable  pursuant  to  the
application  and  related  documentation  under  which such  Letter of Credit is
issued.

                  (e) Request for  Incurrence  of Letter of Credit  Obligations.
Borrower Representative shall give Agent at least 2 Business Days' prior written
notice requesting the incurrence of any Letter of Credit Obligation.  The notice
shall be  accompanied  by the  form of the  Letter  of  Credit  (which  shall be
acceptable to the L/C Issuer) and a completed  Application for Standby Letter of
Credit  in the form of  Exhibit  B  attached  hereto.  Notwithstanding  anything
contained  herein to the  contrary,  Letter of Credit  applications  by Borrower
Representative  and  approvals  by  Agent  and the L/C  Issuer  may be made  and
transmitted  pursuant to electronic codes and security  measures mutually agreed
upon and  established  by and among Borrower  Representative,  Agent and the L/C
Issuer.

                  (f)  Obligation  Absolute.  The  obligation  of  Borrowers  to
reimburse  Agent and  Revolving  Lenders for  payments  made with respect to any
Letter of Credit  Obligation shall be absolute,  unconditional  and irrevocable,
without necessity of presentment,  demand, protest or other formalities, and the
obligations of each  Revolving  Lender to make payments to Agent with respect to
Letters of Credit shall be unconditional  and  irrevocable.  Such obligations of
Borrowers  and Revolving  Lenders shall be paid strictly in accordance  with the
terms hereof under all circumstances including the following:

                  (i) any lack of validity or enforceability of any Letter of
Credit or the Agreement or the other Loan Documents or any other agreement;


                                       B-3
<PAGE>
                  (ii) the  existence  of any  claim,  setoff,  defense or other
right that any Borrower or any of their respective  Affiliates or any Lender may
at any time have against a beneficiary or any transferee of any Letter of Credit
(or any Persons or entities for whom any such transferee may be acting),  Agent,
any Lender, or any other Person,  whether in connection with the Agreement,  the
Letter  of  Credit,  the  transactions  contemplated  herein or  therein  or any
unrelated transaction (including any underlying transaction between any Borrower
or any of their  respective  Affiliates and the beneficiary for which the Letter
of Credit was procured);

                  (iii) any draft,  demand,  certificate  or any other  document
presented under any Letter of Credit proving to be forged,  fraudulent,  invalid
or  insufficient  in any  respect  or any  statement  therein  being  untrue  or
inaccurate in any respect;

                  (iv) payment by Agent (except as otherwise  expressly provided
in paragraph  (g)(ii)(C)  below) or any L/C Issuer under any Letter of Credit or
guaranty thereof against presentation of a demand, draft or certificate or other
document  that does not comply  with the terms of such  Letter of Credit or such
guaranty;

                  (v) any other circumstance or event whatsoever, that is
similar to any of the foregoing; or

                  (vi) the fact that a Default or an Event of Default has
occurred and is continuing.

                  (g) Indemnification; Nature of Lenders' Duties.

                  (i) In addition to amounts  payable as  elsewhere  provided in
the Agreement, Borrowers hereby agree to pay and to protect, indemnify, and save
harmless  Agent and each Lender  from and  against any and all claims,  demands,
liabilities,  damages, losses, costs, charges and expenses (including reasonable
attorneys'  fees and  allocated  costs of  internal  counsel)  that Agent or any
Lender may incur or be subject to as a consequence,  direct or indirect,  of (A)
the issuance of any Letter of Credit or guaranty thereof,  or (B) the failure of
Agent or any  Lender  seeking  indemnification  or of any L/C  Issuer to honor a
demand for payment under any Letter of Credit or guaranty thereof as a result of
any act or omission,  whether rightful or wrongful,  of any present or future de
jure or de facto government or Governmental  Authority,  in each case other than
to the extent solely as a result of the gross  negligence or willful  misconduct
of  Agent  or  such  Lender  (as  finally  determined  by a court  of  competent
jurisdiction).

                  (ii) As between Agent and any Lender and Borrowers,  Borrowers
assume all risks of the acts and omissions of, or misuse of any Letter of Credit
by beneficiaries,  of any Letter of Credit. In furtherance and not in limitation
of the foregoing,  to the fullest extent permitted by law, neither Agent nor any
Lender shall be responsible for: (A) the form, validity, sufficiency,  accuracy,
genuineness  or legal effect of any document  issued by any party in  connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects  invalid,  insufficient,  inaccurate,
fraudulent  or  forged;  (B)  the  validity  or  sufficiency  of any  instrument
transferring  or  assigning  or  purporting  to transfer or assign any Letter of
Credit or the rights or benefits  thereunder or proceeds thereof, in whole or in
part, that may prove to be invalid or ineffective for any reason; (C) failure of
the beneficiary of any Letter of Credit to comply fully with conditions required


                                       B-4
<PAGE>
in order to demand  payment under such Letter of Credit;  provided,  that in the
case of any  payment by Agent  under any Letter of Credit or  guaranty  thereof,
Agent shall be liable to the extent such  payment was made solely as a result of
its gross negligence or willful  misconduct (as finally determined by a court of
competent  jurisdiction)  in determining  that the demand for payment under such
Letter of Credit or guaranty  thereof  complies on its face with any  applicable
requirements  for a demand for  payment  under such Letter of Credit or guaranty
thereof;  (D) errors,  omissions,  interruptions  or delays in  transmission  or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they may be in cipher;  (E) errors in  interpretation of technical terms;
(F) any loss or delay in the transmission or otherwise of any document  required
in order to make a payment under any Letter of Credit or guaranty  thereof or of
the proceeds  thereof;  (G) the credit of the proceeds of any drawing  under any
Letter of Credit or guaranty  thereof;  and (H) any  consequences  arising  from
causes  beyond  the  control  of Agent or any  Lender.  None of the above  shall
affect,  impair, or prevent the vesting of any of Agent's or any Lender's rights
or powers hereunder or under the Agreement.

                  (iii) Nothing  contained herein shall be deemed to limit or to
expand any waivers,  covenants or indemnities  made by Borrowers in favor of any
L/C  Issuer in any  letter of credit  application,  reimbursement  agreement  or
similar  document,  instrument or agreement  between or among Borrowers and such
L/C Issuer, including an Application and Agreement For Standby Letter of Credit,
and a Master Standby Agreement entered into with Agent.








                                       B-5
<PAGE>
                              ANNEX C (SECTION 1.8)
                                       TO
                                CREDIT AGREEMENT

                             CASH MANAGEMENT SYSTEM

                  Each  Borrower  shall,  and shall cause its  Subsidiaries  to,
establish and maintain the Cash Management Systems described below:

                  (a) On or before the  Closing  Date and until the  Termination
Date, each Borrower shall deposit and cause its Subsidiaries to deposit or cause
to be deposited promptly,  and in any event no later than the first Business Day
after the date of receipt  thereof,  all cash,  checks,  drafts or other similar
items of payment relating to or constituting payments made in respect of any and
all  Collateral  (whether or not  otherwise  delivered  to a Lock Box) into lock
boxes ("Lock Boxes") at the banks identified in Disclosure  Schedule (3.19) (the
"Lock Box Banks"), or in the blocked accounts ("Blocked  Accounts") at the banks
identified  in  Disclosure  Schedule  (3.19) (the  "Blocked  Account  Banks" and
together  with the  Lock  Box  Banks,  the  "Relationship  Banks"  and  each,  a
"Relationship  Bank") or other  depository  accounts  (the  "Deposit  Accounts")
identified on  Disclosure  Schedule  3.19.  On or before the Closing  Date,  the
Credit   Parties   shall  have   established   a   concentration   account  (the
"Concentration  Account") at the bank  designated as the  Concentration  Account
bank in Disclosure  Schedule (3.19) (the  "Concentration  Account Bank"),  which
bank shall be reasonably  satisfactory  to Agent. On or before December 1, 2001,
Agway shall establish a Lock Box for the  agriculture  feed at a bank reasonably
acceptable  to  Agent  and for the  agriculture  agronomy  at a bank  reasonably
acceptable  to Agent,  and shall  request in  writing  and  otherwise  take such
reasonable  steps to ensure that all relevant  Account  Debtors  forward payment
directly to such Lock Boxes.

                  (b) Each Borrower may maintain,  in its name, an account (each
a "Disbursement  Account" and collectively,  the  "Disbursement  Accounts") at a
bank reasonably  acceptable to Agent into which Agent shall,  from time to time,
deposit  proceeds of Revolving  Credit  Advances and Swing Line Advances made to
such  Borrower  pursuant  to  Section  1.1 for use by such  Borrower  solely  in
accordance with the provisions of Section 1.4.

                  (c) On or before the Closing Date (or such later date as Agent
shall consent to in writing),  the Concentration Account Bank, each bank where a
Disbursement  Account is maintained and all other Relationship Banks, shall have
entered into tri-party lockbox account agreements or blocked account agreements,
as  appropriate,  with  Agent,  for the benefit of itself and  Lenders,  and the
applicable  Borrower  and  Subsidiaries  thereof,  as  applicable,  in form  and
substance  reasonably  acceptable to Agent,  which shall become  operative on or
prior to the Closing  Date.  Each such lockbox  account  agreement and each such
blocked account agreement shall provide,  among other things, that (i) all items
of payment  deposited  in such  account and  proceeds  thereof  deposited in the
Concentration Account are held by such bank as agent or  bailee-in-possession or
as  depository  for  Agent,  on  behalf  of itself  and  Lenders,  (ii) the bank
executing  such  agreement  has no rights of setoff or  recoupment  or any other
claim  against such  account,  as the case may be, other than for payment of its
service fees and other charges  directly related to the  administration  of such
account and for  returned  checks or other items of payment,  and (iii) from and
after the Closing Date (A) with respect to banks at which a Lock Box is


                                       C-1
<PAGE>
maintained, such Lock Box Bank agrees to forward immediately all amounts in each
Lock Box to the Concentration  Account Bank and to commence the process of daily
sweeps  from such Lock Box  Account  into the  Concentration  Account,  (B) with
respect to banks at which a Blocked Account is maintained,  such Blocked Account
Bank agrees to forward  immediately  all amounts in each Blocked  Account to the
Concentration Account Bank and to commence the process of daily sweeps from such
Blocked Account into the  Concentration  Account,  provided,  that a reserve for
fees and  returned  items may be  maintained  in  certain  of the Lock Boxes and
Blocked Accounts listed on Disclosure Schedule (3.19) in an amount not to exceed
the amount set forth  opposite  the  respective  account  numbers on  Disclosure
Schedule  (3.19) after the wire  transfer has been made on any business day, and
(C) with  respect  to the  Concentration  Account  Bank,  such  bank  agrees  to
immediately  forward all amounts  received in the  Concentration  Account to the
Collection Account through daily sweeps from the Concentration  Account into the
Collection  Account.  No Borrower shall, or shall cause or permit any Subsidiary
thereof to,  accumulate  or maintain  cash in  Disbursement  Accounts or payroll
accounts  as of any date of  determination  in excess of checks or ACH  payments
outstanding  against such accounts as of that date and amounts necessary to meet
minimum balance or prefunding requirements.

                  (d) So long as no Default or Event of Default has occurred and
is continuing,  Borrowers may amend Disclosure Schedule (3.19) to add or replace
a Relationship Bank, Lock Box, Blocked Account, or Deposit Account or to replace
any Concentration Account or any Disbursement Account;  provided, that (i) Agent
shall have  consented  in writing in advance to the  opening of such  account or
Lock Box with the  relevant  bank and (ii)  prior to the time of the  opening of
such  account or Lock Box,  the  applicable  Borrower  or its  Subsidiaries,  as
applicable, and such bank shall have executed and delivered to Agent a tri-party
blocked  account,  lock  box or  concentration  account  agreement,  in form and
substance  reasonably  satisfactory to Agent except that no such agreement shall
be entered into with respect to any new Deposit Accounts.  Borrowers shall close
any of their accounts (and establish replacement accounts in accordance with the
foregoing  sentence)  promptly and in any event within 30 days following  notice
from Agent that the creditworthiness of any bank holding an account is no longer
acceptable in Agent's reasonable judgment,  or as promptly as practicable and in
any  event  within  60 days  following  notice  from  Agent  that the  operating
performance,  funds  transfer or  availability  procedures or  performance  with
respect to accounts or Lock Boxes of the bank holding  such  accounts or Agent's
liability  under any tri-party lock box or blocked  account  agreement with such
bank is no longer acceptable in Agent's reasonable judgment.

                  (e) The Lock Boxes, Blocked Accounts,  Disbursement  Accounts,
the  Concentration  Accounts and the Deposit  Accounts shall be cash  collateral
accounts,  with all cash,  checks  and other  similar  items of  payment in such
accounts securing payment of the Loans and all other  Obligations,  and in which
each Borrower and each Subsidiary thereof shall have granted a Lien to Agent, on
behalf of itself and Lenders, pursuant to the Security Agreement.

                  (f) All amounts  deposited in the Collection  Account shall be
deemed  received by Agent in  accordance  with Section 1.10 and shall be applied
(and  allocated) by Agent in accordance with Section 1.11. In no event shall any
amount be so applied  unless and until such amount  shall have been  credited in
immediately available funds to the Collection Account.


                                       C-2
<PAGE>
                  (g) Each  Borrower  shall  and  shall  cause  its  Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with such Borrower (each a "Related Person") to (i) hold in trust for Agent, for
the benefit of itself and Lenders,  all checks,  cash and other items of payment
received by such Borrower or any such Related Person, and (ii) within 1 Business
Day after  receipt by such  Borrower or any such  Related  Person of any checks,
cash or other  items of  payment,  deposit  the same into a Blocked  or Lock Box
Account  of such  Borrower.  Each  Borrower  and  each  Related  Person  thereof
acknowledges  and  agrees  that  all  cash,  checks  or other  items of  payment
constituting proceeds of Collateral are part of the Collateral.  All proceeds of
the sale or other  disposition of any  Collateral,  shall be deposited  directly
into the applicable  Blocked Accounts,  Lock Box Accounts or Deposit Accounts as
listed on Disclosure Schedule 3.19.












                                       C-3
<PAGE>
                            ANNEX D (SECTION 2.1(A))
                                       TO
                                CREDIT AGREEMENT

                                CLOSING CHECKLIST

In addition to, and not in limitation  of, the  conditions  described in Section
2.1 of the Agreement,  pursuant to Section  2.1(a),  the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date (each  capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in Annex A to the Agreement):

                  (a) Appendices. All Appendices to the Agreement, in form and
substance satisfactory to Agent.

                  (b) Revolving Notes and Swing Line Notes. Duly executed
originals of the Revolving Notes and Swing Line Notes for each applicable
Lender, dated the Closing Date.

                  (c) Security Agreement. Duly executed originals of the
Security Agreement, dated the Closing Date, and all instruments, documents and
agreements executed pursuant thereto.

                  (d)  Insurance.   Satisfactory  evidence  that  the  insurance
policies  required by Section 5.4 are in full force and  effect,  together  with
appropriate  evidence showing loss payable and/or additional  insured clauses or
endorsements, as requested by Agent, in favor of Agent, on behalf of Lenders.

                  (e) Security Interests and Code Filings.

                  (i) Evidence satisfactory to Agent that Agent (for the benefit
of  itself  and  Lenders)  has a valid and  perfected  first  priority  security
interest in the  Collateral,  including (i) such documents duly executed by each
Credit Party (including financing statements under the Code and other applicable
documents under the laws of any  jurisdiction  with respect to the perfection of
Liens) as Agent may request in order to perfect its  security  interests  in the
Collateral  and  (ii)  copies  of Code  search  reports  listing  all  effective
financing statements that name any Credit Party as debtor,  together with copies
of such financing statements,  none of which shall cover the Collateral,  except
for  those  relating  to the Prior  Lender  Obligations  (all of which  shall be
terminated on the Closing Date).

                  (ii) Evidence satisfactory to Agent,  including copies, of all
UCC-1 and other  financing  statements  filed in favor of any Credit  Party with
respect to each location, if any, at which Inventory may be consigned.

                  (iii) Control  Letters from (i) all issuers of  uncertificated
securities  and  financial  assets held by each  Borrower,  (ii) all  securities
intermediaries   with  respect  to  all   securities   accounts  and  securities
entitlements  of each  Borrower,  and (iii) all  futures  commission  agents and
clearing  houses  with  respect to all  commodities  contracts  and  commodities
accounts held by any Borrower.


                                       D-1
<PAGE>
                  (f) Payoff Letter;  Termination  Statements.  Copies of a duly
executed payoff letter, in form and substance reasonably  satisfactory to Agent,
by and  between  all  parties  to the Prior  Lender  loan  documents  evidencing
repayment in full of all Prior Lender  Obligations,  together  with (a) UCC-3 or
other appropriate termination statements,  in form and substance satisfactory to
Agent,  manually signed by the Prior Lender  releasing all liens of Prior Lender
upon any of the personal  property of each Credit Party,  and (b) termination of
all  blocked  account  agreements,  bank  agency  agreements  or  other  similar
agreements or  arrangements or arrangements in favor of Prior Lender or relating
to the Prior Lender Obligations.

                  (g) Intellectual  Property Security  Agreement.  Duly executed
originals of the Intellectual  Property  Security  Agreement,  dated the Closing
Date and signed by each Credit Party which owns  Trademarks,  Copyrights  and/or
Patents,  as applicable,  all in form and substance  reasonably  satisfactory to
Agent, together with all instruments, documents and agreements executed pursuant
thereto.

                  (h)  Initial   Borrowing  Base   Certificate.   Duly  executed
originals of an initial  Borrowing Base  Certificate  from Borrowers,  dated the
Closing Date, reflecting  information  concerning Eligible Accounts and Eligible
Inventory  of  Borrowers  as of a date not more than 7 days prior to the Closing
Date.

                  (i) Initial Notice of Revolving Credit Advance.  Duly executed
originals of a Notice of Revolving Credit Advance,  dated the Closing Date, with
respect to the initial  Revolving  Credit  Advance to be  requested  by Borrower
Representative on the Closing Date.

                  (j) Letter of Direction.  Duly executed  originals of a letter
of direction  from  Borrower  Representative  addressed  to Agent,  on behalf of
itself and Lenders,  with respect to the disbursement on the Closing Date of the
proceeds of the initial Revolving Credit Advance.

                  (k)  Cash  Management  System;   Blocked  Account  Agreements.
Evidence  satisfactory  to Agent that, as of the Closing Date,  Cash  Management
Systems  complying with Annex C to the Agreement have been  established  and are
currently  being  maintained  in the manner set forth in such Annex C,  together
with copies of duly executed  tri-party blocked account and lock box agreements,
reasonably satisfactory to Agent, with the banks as required by Annex C.

                  (l) Charter and Good  Standing.  For each Credit  Party,  such
Person's (a) charter and all amendments thereto, (b) good standing  certificates
(including  verification  of tax status) in its state of  incorporation  and (c)
good  standing   certificates   (including   verification  of  tax  status)  and
certificates of qualification to conduct business in each jurisdiction where its
ownership  or lease of  property or the conduct of its  business  requires  such
qualification,  each dated a recent date prior to the Closing Date and certified
by the applicable Secretary of State or other authorized Governmental Authority.

                  (m) Bylaws and  Resolutions.  For each Credit Party,  (a) such
Person's  bylaws,  together with all amendments  thereto and (b)  resolutions of
such Person's Board of Directors and stockholders, approving and authorizing the
execution,  delivery and  performance of the Loan Documents to which such Person
is a party and the transactions to be consummated in connection therewith, each


                                       D-2
<PAGE>
certified  as of the Closing  Date by such  Person's  corporate  secretary or an
assistant  secretary as being in full force and effect without any  modification
or amendment.

                  (n) Incumbency Certificates.  For each Credit Party, signature
and incumbency certificates of the officers of each such Person executing any of
the Loan Documents,  certified as of the Closing Date by such Person's corporate
secretary  or an  assistant  secretary  as being  true,  accurate,  correct  and
complete.

                  (o) Opinions of Counsel.  Duly executed  originals of opinions
of Weil, Gotshal & Manges LLP, counsel for the Credit Parties, together with any
local counsel opinions reasonably requested by Agent, each in form and substance
reasonably  satisfactory  to Agent and its counsel,  dated the Closing Date, and
each  accompanied by a letter addressed to such counsel from the Credit Parties,
authorizing  and  directing  such  counsel to address its  opinion to Agent,  on
behalf of Lenders,  and to include in such  opinion an express  statement to the
effect that Agent and Lenders are authorized to rely on such opinion.

                  (p) Pledge Agreements.  Duly executed originals of each of the
Pledge  Agreements   accompanied  by  (as  applicable)  (a)  share  or  interest
certificates representing all of the outstanding Stock or interest being pledged
pursuant to such Pledge Agreement and stock or interest powers for such share or
interest  certificates executed in blank and (b) the original Intercompany Notes
and other  instruments  evidencing  Indebtedness  being pledged pursuant to such
Pledge Agreement, duly endorsed in blank.

                  (q) Accountants'  Letters. A letter from the Credit Parties to
their  independent  auditors   authorizing  the  independent   certified  public
accountants  of the Credit  Parties  to  communicate  with Agent and  Lenders in
accordance with Section 4.2.

                  (r) Fee Letter. Duly executed originals of the GE Capital Fee
Letter.

                  (s)  Officer's  Certificate.  Agent shall have  received  duly
executed  originals of a certificate of the Treasurer or Assistant  Treasurer of
each Borrower,  dated the Closing Date, stating that, since June 24, 2000 (a) no
event or  condition  has  occurred or is  existing  which  could  reasonably  be
expected to have a Material Adverse Effect; (b) no Litigation has been commenced
which,  if successful,  would have a Material  Adverse Effect or could challenge
any of the  transactions  contemplated  by the  Agreement  and  the  other  Loan
Documents;  and (c) except for changes due to the seasonal  nature of Borrowers'
business,  there has been no material  increase in  liabilities,  liquidated  or
contingent,  and no material  decrease  in assets of any  Borrower or any of its
Subsidiaries.

                  (t) Waivers.  Agent, on behalf of Lenders, shall have received
landlord waivers and consents,  bailee letters,  access agreements and mortgagee
agreements in form and substance reasonably  satisfactory to Agent, in each case
as required pursuant to Section 5.9.

                  (u)  Mortgages.  Mortgages  covering  all of the  Real  Estate
identified  on  Annex  D-1  (each  a  "Mortgaged  Property,"   collectively  the
"Mortgaged  Properties")  together  with:  (a)  title  searches,  in  each  case
reasonably  satisfactory  in form and  substance  to Agent;  (b)  evidence  that
counterparts  of the  Mortgages  have been  recorded in all places to the extent
necessary or desirable, in the judgment of Agent, to create a valid and


                                       D-3
<PAGE>
enforceable  first  priority  lien (subject to Permitted  Encumbrances)  on each
Mortgaged  Property  in favor of Agent for the benefit of itself and Lenders (or
in favor of such other  trustee as may be required or desired  under local law);
and (c) an opinion of counsel in each state in which any  Mortgaged  Property is
located in form and substance and from counsel reasonably satisfactory to Agent;
and (d) any  lease  amendments  or other  forms  of  consent  required  from any
landlords and third parties in connection with such Mortgages.

                  (v) Audited Financials;  Financial Condition. Agent shall have
received the Financial Statements,  Projections and other materials set forth in
Section 3.4, certified by Borrower  Representative's Chief Financial Officer, in
each case in form and  substance  reasonably  satisfactory  to Agent,  and Agent
shall be satisfied,  in its sole  discretion,  with all of the foregoing.  Agent
shall have further  received a  certificate  of the Chief  Financial  Officer of
Borrower Representative,  based on such Projections, to the effect that (a) each
Borrower will be Solvent upon the consummation of the transactions  contemplated
herein except with respect to Holdings,  Agway  General  Agency,  Inc.,  Country
Best-DeBerry  LLC, Country Best Adams, LLC and Agway Energy  Services-PA,  Inc.,
(b) Borrowers on a consolidated  basis will be Solvent upon the  consummation of
the  transactions  contemplated  herein,  and (c) the Projections are based upon
estimates and assumptions stated therein,  all of which Borrower  Representative
believes to be reasonable  and fair in light of current  conditions  and current
facts known to Borrower  Representative  and,  as of the Closing  Date,  reflect
Borrower  Representative's  good faith and  reasonable  estimates  of its future
financial  performance and of the other  information  projected  therein for the
period set forth therein.

                  (w) Master Standby Agreement. A Master Agreement for Standby
Letters of Credit among Borrowers and GE Capital.

                  (x) Other Documents. Such other certificates, documents and
agreements respecting any Credit Party as Agent may, in its sole discretion,
request.









                                       D-4
<PAGE>
                                    ANNEX D-1

                              MORTGAGED PROPERTIES

FEE
<TABLE>
<CAPTION>
    Property Name                   Owner                        Address
    -------------                   -----                        -------
<S>                              <C>                    <C>
Adams Crops                       Agway, Inc.            1 Park Row
                                                         Adams
                                                         Jefferson County
                                                         New York

Andgrow Fertilizer                Agway, Inc.            3150 Stoney Point Road
                                                         East Berlin
                                                         Adams County
                                                         Pennsylvania

Andgrow Turf - Rosenhayn          Agway, Inc.            658 Kenyon Avenue
                                                         Deerfield
                                                         Cumberland County
                                                         New Jersey

Apex Bag                          Agway, Inc.            253 Industrial Drive
                                                         Wapakoneta
                                                         Auglaize County
                                                         Ohio

Batavia Feed                      Agway, Inc.            8849 Wortendyke Road & Rt. 33
                                                         Batavia
                                                         Genessee County
                                                         New York

Bernardston Feed                  Agway, Inc.            456, 472, 488, 496 Northfield Road
                                                         Bernardston
                                                         Franklin County
                                                         Massachusetts

Canton Feed                       Agway, Inc.            6005 US Route 11
                                                         Canton
                                                         St. Lawrence County
                                                         New York

Central Maine Agway               Agway, Inc.            36, 50, 54 North Road
                                                         Detroit
                                                         Somerset County
                                                         Maine


                                      D-1-1
<PAGE>
Country Best Deberry              Country Best -         103 North 17th Street
                               DeBerry, LLC Donna
                                                         Hidalgo County
                                                         Texas

Country Best Florida              Agway, Inc.            203 E. Terrace Drive
                                                         Plant City
                                                         Hillsborough County
                                                         Florida

                                                         4302 Airport Road
                                                         Plant City
                                                         Hillsborough County
                                                         Florida

Curryville Agway                  Agway, Inc.            Route 866
                                                         North Woodbury Township
                                                         Curryville
                                                         Blair County
                                                         Pennsylvania

Depot @ Letterkenny               Agway, Inc.            Overcash Avenue
                                                         Greene
                                                         Franklin County
                                                         Pennsylvania

Grandin Sunflower                 Agway, Inc.            314 Third Street
                                                         Grandin
                                                         Cass County
                                                         North Dakota

                                                         Railroad Property
                                                         Grandin
                                                         Cass County
                                                         North Dakota

Guilderland Feed                  Agway, Inc.            2 VanBuren Road
                                                         Guilderland
                                                         Albany County
                                                         New York - no access


                                      D-1-2
<PAGE>
Jamestown Feed                    Agway, Inc.            Co. Hwy 325
                                                         Poland Center Road
                                                         Poland
                                                         Chautauqua County
                                                         New York

Laurel                            Milford Fertilizer     431 N. Poplar Street
                                  Company                Laurel
                                                         Sussex County
                                                         Delaware

Milford Fertilizer                Milford Fertilizer     NE Front Street and State
                                  Company                Rt 14 & Co Rd 443
                                                         Milford
                                                         Kent County
                                                         Delaware

Millardsville                     Milford Fertilizer     852 Tulpehocken Road
                                  Company                Jackson
                                                         Lebanon County
                                                         Pennsylvania

Salem Agway                       Agway, Inc.            4183 State Route 29
                                                         Salem
                                                         Washington County
                                                         New York

Sangerfield Agway                 Agway, Inc.            US Rt 20
                                                         Sangerfield
                                                         Oneida County
                                                         New York

Seedway                           Agway, Inc.            7 Parcels
                                                         Seneca
                                                         Ontario County
                                                         New York

Somerset Agway                    Agway, Inc.            951 S. Edgewood Street
                                                         Somerset
                                                         Somerset County
                                                         Pennsylvania

Sprakers Crops                    Agway, Inc.            337 State Highway 162
                                                         Root
                                                         Montgomery County
                                                         New York


                                      D-1-3
<PAGE>
Spring Garden                     Agway, Inc.            980 Loocks Mill Road
                                                         Spring Garden
                                                         York County
                                                         Pennsylvania

Winfield Feed                     Agway, Inc.            Route 15
                                                         Union
                                                         Union County
                                                         Pennsylvania


</TABLE>










                                      D-1-4
<PAGE>
                            ANNEX E (SECTION 4.1(A))
                                       TO
                                CREDIT AGREEMENT

                 FINANCIAL STATEMENTS AND PROJECTIONS--REPORTING

                  Borrowers  shall  deliver or cause to be delivered to Agent or
to Agent and Lenders, as indicated, the following:

                  (a) Monthly Financials.  To Agent and Lenders,  within 30 days
after the end of each Fiscal Month,  financial  information  regarding Borrowers
and their Subsidiaries (excluding all Telmark Entities,  Agway Insurance Company
and all of their  respective  Subsidiaries),  certified  by the Chief  Financial
Officer or the Treasurer of Borrower Representative,  consisting of consolidated
and consolidating (i) unaudited monthly financial  statements in the form of the
Agway Operations  Financial Statements delivered pursuant to Section 3.4(a)(iii)
hereof,  all  prepared  in  accordance  with GAAP  (subject  to normal  year-end
adjustments);  and (ii) a summary of the outstanding balance of all Intercompany
Notes as of the last day of that Fiscal Month. Such financial  information shall
be  accompanied  by (A) a statement in reasonable  detail  (each,  a "Compliance
Certificate") showing the calculations used in determining  compliance with each
Financial  Covenant  that is  tested on a monthly  basis,  (B) a summary  of the
discussions of Borrowers' management regarding such financial statements and (C)
the certification of the Chief Financial Officer of Borrower Representative that
(i) such financial  information presents fairly in accordance with GAAP (subject
to normal year-end adjustments) the financial position and results of operations
of Borrowers  and their  Subsidiaries  (excluding  all Telmark  Entities,  Agway
Insurance Company and all of their respective  Subsidiaries),  on a consolidated
and consolidating basis, in each case as at the end of such Fiscal Month and for
that  portion  of the  Fiscal  Year then  ended  and (ii) any other  information
presented is true,  correct and complete in all material respects and that there
was no Default or Event of Default in existence as of such time or, if a Default
or Event of  Default  has  occurred  and is  continuing,  describing  the nature
thereof and all efforts undertaken to cure such Default or Event of Default.

                  (b) Quarterly Financials. To Agent and Lenders, within 45 days
after the end of each Fiscal Quarter,  consolidated and consolidating  financial
information  regarding  Borrowers and their Subsidiaries  (excluding all Telmark
Entities,  Agway Insurance  Company and all of their  respective  Subsidiaries),
certified  by  the  Chief  Financial   Officer  or  the  Treasurer  of  Borrower
Representative,  including (i) unaudited  balance sheets as of the close of such
Fiscal  Quarter  and the  related  statements  of income  and cash flow for that
portion of the Fiscal  Year  ending as of the close of such  Fiscal  Quarter and
(ii) unaudited  statements of income and cash flows for such Fiscal Quarter,  in
each case setting forth in  comparative  form the figures for the  corresponding
period in the prior year and the figures  contained in the  Projections for such
Fiscal Year,  all prepared in accordance  with GAAP (subject to normal  year-end
adjustments).   Such  financial  information  shall  be  accompanied  by  (A)  a
Compliance  Certificate  in respect of each of the Financial  Covenants  that is
tested on a quarterly  basis and (B) the  certification  of the Chief  Financial
Officer or the Treasurer of Borrower Representative that (i) such financial


                                       E-1
<PAGE>
information  presents fairly in accordance with GAAP (subject to normal year-end
adjustments)  the financial  position,  results of operations  and statements of
cash flows of Borrowers and their Subsidiaries  (excluding all Telmark Entities,
Agway Insurance  Company and all of their  respective  Subsidiaries),  on both a
consolidated and  consolidating  basis, as at the end of such Fiscal Quarter and
for that  portion  of the Fiscal  Year then  ended,  (ii) any other  information
presented is true,  correct and complete in all material respects and that there
was no Default or Event of Default in existence as of such time or, if a Default
or Event of  Default  has  occurred  and is  continuing,  describing  the nature
thereof and all efforts undertaken to cure such Default or Event of Default.  In
addition, Borrowers shall deliver to Agent and Lenders, within 45 days after the
end of each Fiscal Quarter, a management discussion and analysis that includes a
comparison to budget for that Fiscal Quarter and a comparison of performance for
that Fiscal Quarter to the corresponding period in the prior year.

                  (c)  Operating  Plans.  To  Agent  and  Lenders,  as  soon  as
available,  but not later than 30 days after the end of (i) each Fiscal Year, an
annual operating plan for Borrowers,  on a consolidated and consolidating basis,
approved by the Board of Directors of Borrowers,  for the following Fiscal Year,
which (A) includes a statement of all of the material  assumptions on which such
plan is based,  (B) includes  monthly  balance  sheets,  income  statements  and
statements of cash flows for the following year and (C) integrates sales,  gross
profits,  operating  expenses,  operating  profit,  cash  flow  projections  and
Borrowing  Availability  projections,  all  prepared  on the same  basis  and in
similar detail as that on which operating  results are reported (and in the case
of cash flow  projections,  representing  management's  good faith  estimates of
future financial  performance  based on historical  performance),  and including
plans for personnel,  Capital Expenditures and facilities,  and (ii) each second
Fiscal Quarter,  an annual  operating plan for Borrowers,  on a consolidated and
consolidating basis, for the current Fiscal Year, which (A) includes a statement
of all of the  material  assumptions  on which such plan is based,  (B) includes
monthly balance sheets,  income  statements and statements of cash flows for the
current  year and (C)  integrates  sales,  gross  profits,  operating  expenses,
operating profit, cash flow projections and Borrowing Availability  projections,
all prepared on the same basis and in similar detail as that on which  operating
results are  reported  (and in the case of cash flow  projections,  representing
management's  good faith  estimates  of future  financial  performance  based on
historical performance), and including plans for personnel, Capital Expenditures
and facilities.

                  (d) Annual Audited Financials. To Agent and Lenders, within 90
days  after  the end of each  Fiscal  Year,  audited  Financial  Statements  for
Borrowers  and  their  Subsidiaries  (excluding  all  Telmark  Entities,   Agway
Insurance Company or all of their respective Subsidiaries) on a consolidated and
(unaudited)  consolidating basis, consisting of balance sheets and statements of
income and retained  earnings and cash flows,  setting forth in comparative form
in each  case  the  figures  for  the  previous  Fiscal  Year,  which  Financial
Statements  shall be  prepared in  accordance  with GAAP and  certified  without
qualification,  by an independent  certified public  accounting firm of national
standing or otherwise  acceptable to Agent.  Such Financial  Statements shall be
accompanied  by (i) a  statement  prepared  in  reasonable  detail  showing  the
calculations  used  in  determining   compliance  with  each  of  the  Financial
Covenants,  (ii) a report  from such  accounting  firm to the  effect  that,  in
connection with their audit examination,  nothing has come to their attention to
cause  them to  believe  that a Default or Event of  Default  has  occurred  (or
specifying  those  Defaults and Events of Default that they became aware of), it
being understood that such audit examination extended only to accounting matters
and that no special  investigation  was made with  respect to the  existence  of
Defaults or Events of Default, (iii) the annual letters to such accountants in


                                       E-2
<PAGE>
connection with their audit  examination  detailing  contingent  liabilities and
material litigation  matters,  and (iv) the certification of the Chief Executive
Officer,  Chief  Financial  Officer  or  Treasurer  of  Borrowers  that all such
Financial  Statements  present  fairly in  accordance  with  GAAP the  financial
position,  results of operations  and  statements of cash flows of Borrowers and
their Subsidiaries (excluding all Telmark entities,  Agway Insurance Company and
all of their  respective  Subsidiaries),  on a  consolidated  and  consolidating
basis, as at the end of such Fiscal Year and for the period then ended, and that
there was no Default or Event of Default in  existence  as of such time or, if a
Default or Event of Default  has  occurred  and is  continuing,  describing  the
nature  thereof  and all  efforts  undertaken  to cure such  Default or Event of
Default.

                  (e)  Management  Letters.  To  Agent  and  Lenders,  within  5
Business  Days  after  receipt  thereof  by  any  Credit  Party,  copies  of all
management letters,  exception reports or similar letters or reports received by
such Credit Party from its independent certified public accountants.

                  (f)  Default  Notices.  To  Agent  and  Lenders,  as  soon  as
practicable,  and in any event within 5 Business Days after an executive officer
of any Borrower has actual  knowledge of the existence of any Default,  Event of
Default or other event that has had a Material  Adverse  Effect,  telephonic  or
telecopied  notice  specifying the nature of such Default or Event of Default or
other event,  including the anticipated  effect thereof,  which notice, if given
telephonically, shall be promptly confirmed in writing on the next Business Day.

                  (g) SEC  Filings  and Press  Releases.  To Agent and  Lenders,
promptly upon their becoming available, copies of: (i) all Financial Statements,
reports,  notices and proxy  statements  made  publicly  available by any Credit
Party to its security  holders;  (ii) all regular and  periodic  reports and all
registration statements and prospectuses, if any, filed by any Credit Party with
any securities  exchange or with the  Securities and Exchange  Commission or any
governmental or private regulatory  authority;  and (iii) all press releases and
other  statements  made  available by any Credit Party to the public  concerning
material changes or developments in the business of any such Person.

                  (h) Subordinated Debt and Equity Notices. To Agent, as soon as
practicable,  copies of all material  written  notices  given or received by any
Credit Party with respect to any Subordinated Debt or Stock of such Person, and,
within 2 Business Days after any Credit Party  obtains  knowledge of any matured
or unmatured event of default with respect to any Subordinated  Debt,  notice of
such event of default.

                  (i) Supplemental Schedules. To Agent, supplemental
disclosures, if any, required by Section 5.6.

                  (j)  Litigation.  To Agent in writing,  promptly upon learning
thereof,  notice of any  Litigation  commenced or threatened  against any Credit
Party that (i) seeks  damages  in excess of  $1,000,000,  (ii) seeks  injunctive
relief, (iii) is asserted or instituted against any Plan, its fiduciaries or its
assets or against any Credit Party or ERISA Affiliate by any Governmental Agency
in  connection  with any Plan,  (iv) alleges  criminal  misconduct by any Credit
Party,  (v) alleges the  violation of any law  regarding,  or seeks  remedies in
connection  with,  any  Environmental  Liabilities in excess of $250,000 or (vi)
involves any product recall.


                                       E-3
<PAGE>
                  (k) Insurance Notices. To Agent, disclosure of losses or
casualties required by Section 5.4.

                  (l) Lease Default  Notices.  To Agent,  within 2 Business Days
after receipt thereof,  copies of (i) any and all default notices received under
or with respect to any leased location, terminal, port or public warehouse where
Collateral  is located,  and (ii) such other  notices or  documents as Agent may
reasonably request.

                  (m) Lease Amendments. To Agent, within 2 Business Days after
receipt thereof, copies of all material amendments to real estate leases.

                  (n) PACA Notices. To Agent, within 2 Business Days after
receipt thereof, copies of all (i) notices under the Food Security Act of 1985
(7 U.S.C. Section 1631 et. seq.), or (ii) notices to preserve the statutory
trust under PACA.

                  (o)  Other  Documents.   To  Agent  and  Lenders,  such  other
financial  and other  information  respecting  any Credit  Party's  business  or
financial  condition as Agent or any Lender  shall from time to time  reasonably
request.







                                       E-4
<PAGE>
                            ANNEX F (SECTION 4.1(B))
                                       TO
                                CREDIT AGREEMENT

                               COLLATERAL REPORTS

         Borrowers shall deliver or cause to be delivered the following:

                  (a) To  Agent,  upon  its  request,  and in any  event no less
frequently  than 10 Business Days after the end of each calendar Month (together
with a copy of all or any part of the following  reports requested by any Lender
in writing after the Closing Date), each of the following reports, each of which
shall  be  prepared  by the  Borrower  Representative  as of the last day of the
immediately preceding Fiscal Month prior to the date of any such request:

                  (i) a Borrowing Base Certificate with respect to Borrowers, in
each case  accompanied by such supporting  detail and  documentation as shall be
requested by Agent in its reasonable discretion;

                  (ii) with  respect to  Borrowers,  a summary of  Inventory  by
location and type with a supporting  perpetual  Inventory  report,  in each case
accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion; and

                  (iii)  with  respect to  Borrowers,  a monthly  trial  balance
showing Accounts outstanding aged from invoice date as follows: 1 to 30 days, 31
to 60 days, 61 to 90 days and 91 days or more,  accompanied by supporting detail
and documentation as shall be requested by Agent in its reasonable discretion.

                  (b) To  Agent,  on a  daily  basis,  collateral  reports  with
respect to Borrowers, including all additions and reductions (cash and non-cash)
with  respect  to  Accounts  of  Borrowers,  in each  case  accompanied  by such
supporting  detail  and  documentation  as  shall be  requested  by Agent in its
reasonable discretion.

                  (c) To Agent,  on a daily basis,  updated  collateral  reports
with  respect  to all  Energy  Product  Inventory  of  Borrowers,  in each case,
accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion.

                  (d) To Agent, on a weekly basis,  updated  collateral  reports
with respect to all country product and agricultural Inventory of Borrowers,  in
each case  accompanied by such supporting  detail and  documentation as shall be
requested by Agent in its reasonable discretion.

                  (e) To Agent,  at the time of  delivery of each of the monthly
Financial Statements delivered pursuant to Annex E:

                  (i)  a  reconciliation   of  the  Accounts  trial  balance  of
Borrowers to the  Borrowers'  most recent  Borrowing Base  Certificate,  general
ledger and monthly Financial  Statements  delivered pursuant to Annex E, in each
case  accompanied  by such  supporting  detail  and  documentation  as  shall be
requested by Agent in its reasonable discretion;


                                       F-1
<PAGE>
                  (ii) a reconciliation  of the perpetual  inventory by location
of Borrowers to  Borrowers'  most recent  Borrowing  Base  Certificate,  general
ledger and monthly Financial  Statements  delivered pursuant to Annex E, in each
case  accompanied  by such  supporting  detail  and  documentation  as  shall be
requested by Agent in its reasonable discretion;

                  (iii) an aging of  accounts  payable and a  reconciliation  of
that accounts payable aging to Borrowers'  general ledger and monthly  Financial
Statements  delivered  pursuant to Annex E, in each case  accompanied by, in the
case of each  vendor  which has sold  perishable  agricultural  commodities  (as
defined in PACA) to Borrowers,  the payment  terms of such accounts  payable and
such other such  supporting  detail and  documentation  as shall be requested by
Agent in its reasonable discretion;

                  (iv) a reconciliation of the outstanding Loans as set forth in
the monthly  Loan  Account  statement  provided by Agent to  Borrowers'  general
ledger and monthly Financial  Statements  delivered pursuant to Annex E, in each
case  accompanied  by such  supporting  detail  and  documentation  as  shall be
requested by Agent in its reasonable discretion;

                  (v) a report reflecting Borrowers' hedging positions with
respect to all Energy Product Inventory;

                  (vi)  a  report   reflecting  and  itemizing  the  outstanding
balances of (A)  Indebtedness,  owing from growers in  accordance  with advances
permitted  under  Section 6.2  (b)(iii),  and (B) notes  payable with respect to
Accounts settled by Account Debtors of Borrowers; and

                  (vii) a report summarizing  Borrowers' cash receipts in a form
consistent with prior reports reflecting such information delivered to Agent.

                  (f) To Agent, at the time of delivery of each of the quarterly
Financial  Statements delivered pursuant to Annex E, (i) a listing of government
contracts of each  Borrower  subject to the Federal  Assignment of Claims Act of
1940; and (ii) a list of any  applications  for the  registration of any Patent,
Trademark or Copyright  filed by any Credit Party with the United  States Patent
and Trademark  Office,  the United States Copyright Office or any similar office
or agency in the prior Fiscal Quarter;

                  (g) To Agent,  at Agent's  request and at Borrowers'  expense,
the results of each  physical  verification,  if any,  that  Borrowers or any of
their Subsidiaries may in their discretion have made, or caused any other Person
to have made on their behalf,  of all or any portion of their Inventory (and, if
a Default or an Event of  Default  has  occurred  and is  continuing,  Borrowers
shall,  upon the  request of Agent,  conduct,  and  deliver the results of, such
physical verifications as Agent may require);

                  (h) To Agent,  at  Borrowers'  expense,  (i) two (2) inventory
appraisals per Fiscal Year,  (ii) one (1) fixed asset appraisal per Fiscal Year,
and (iii) such other  appraisals  of its assets as Agent may request at any time
after the  occurrence  and  during the  continuance  of a Default or an Event of
Default,  such  appraisals  to be  conducted  by an  appraiser,  and in form and
substance reasonably satisfactory to Agent;


                                       F-2
<PAGE>
                  (i) To Agent,  written  notice of any Credit  Card  Provider's
intent to (x) establish a reserve,  (y) change its agreement  with the Borrowers
or (z) terminate its agreement with the Borrowers.

                  (j) Such other reports,  statements and  reconciliations  with
respect to the Borrowing  Base,  Collateral or  Obligations of any or all Credit
Parties as Agent shall from time to time request in its reasonable discretion;

                  (k)  Agent  shall be  permitted,  at  Borrower's  expense,  to
conduct four (4) collateral audits per Fiscal Year.














                                       F-3
<PAGE>
                             ANNEX G (SECTION 6.10)
                                       TO
                                CREDIT AGREEMENT

                               FINANCIAL COVENANTS

                  Borrowers  shall not breach or fail to comply  with any of the
following financial  covenants,  each of which shall be calculated in accordance
with GAAP consistently applied:

(a) Maximum Capital  Expenditures.  Borrowers and their Subsidiaries  (excluding
all  Telmark  Entities,  Agway  Insurance  Company  and all of their  respective
Subsidiaries) on a consolidated basis shall not make Capital Expenditures during
the  following  periods  that  exceed in the  aggregate  the  amounts  set forth
opposite each of such periods:

<TABLE>
<CAPTION>
                Period                                      Maximum Capital Expeditures per Period
                ------                                      --------------------------------------
<S>                                                         <C>
December 23, 2000 through June 30, 2001                                $ 15,500,000
Fiscal Year ending June 29, 2002                                         18,400,000
Fiscal Year ending June 28, 2003                                         15,500,000
June 29, 2003 through March 27, 2004                                     12,000,000

</TABLE>

                  (b) Minimum Fixed Charge Coverage  Ratio.  Borrowers and their
Subsidiaries (excluding all Telmark Entities, Agway Insurance Company and all of
their respective  Subsidiaries) shall have on a consolidated basis at the end of
each Fiscal  Quarter set forth  below,  a Fixed  Charge  Coverage  Ratio for the
12-month period then ended (except for any period  commencing  December 23, 2000
and ending on or prior to  December  29,  2001,  which  shall be for the periods
described below) of not less than the following:

         0.70x for the period of two Fiscal Quarters commencing December 23,
         2000 and ending June 30, 2001;

         0.30x for the period of three Fiscal Quarters commencing December 23,
         2000 and ending September 29, 2001;

         0.30x for the period of four Fiscal Quarters commencing December 23,
         2000 and ending December 29, 2001;

         0.35x for the Fiscal Quarter ending March 30, 2002;

         0.50x for the Fiscal Quarter ending June 29, 2002;

         0.50x for the Fiscal Quarter ending September 28, 2002;

         0.55x for the Fiscal Quarter ending December 28, 2002;

         0.60x for the Fiscal Quarter ending March 29, 2003;

         0.65x for the Fiscal Quarter ending June 28, 2003;

         0.65x for the Fiscal Quarter ending September 27, 2003;

         0.65x for the Fiscal Quarter ending December 27, 2003

         0.70x for the Fiscal Quarter ending March 27, 2004

                  (c) Minimum  EBITDA  (Agway  Operations).  Borrowers and their
Subsidiaries (excluding all Telmark Entities, Agway Insurance Company and all of
their respective Subsidiaries) on a consolidated basis shall have, at the end of
each Fiscal Quarter set forth below, EBITDA for the 12-month period then ended


                                       G-1
<PAGE>
(except for any period  commencing  December  23, 2000 and ending on or prior to
December 29, 2001,  which shall be for the periods  described below) of not less
than the following:

<TABLE>
<CAPTION>
                           Period                                                      EBITDA
                           ------                                                      ------
<S>                                                                                 <C>
December 23, 2000 through June 30, 2001                                              $25,600,000
December 23, 2000 through September 29, 2001                                          17,000,000
December 23, 2000 through December 29, 2001                                           21,000,000
March 30, 2002                                                                        25,100,000
June 29, 2002                                                                         31,600,000
September 28, 2002                                                                    32,300,000
December 28, 2002                                                                     35,600,000
March 29, 2003                                                                        38,000,000
June 28, 2003                                                                         41,000,000
September 27, 2003                                                                    40,800,000
December 27, 2003                                                                     41,800,000
March 27, 2004                                                                        44,300,000


                  (d)  Minimum  EBITDA  (Agriculture).   The  Agway  Agriculture
Business Unit (as designated on the Agway Operations financial  statements) on a
consolidated  basis  shall  have,  at the end of each  Fiscal  Quarter set forth
below,  EBITDA  for the  12-month  period  then  ended  (except  for any  period
commencing  December 23, 2000 and ending on or prior to December 29, 2001, which
shall be for the periods described below) of not less than the following:

                           Period                                                      EBITDA
                           ------                                                      ------

December 23, 2000 through June 30, 2001                                              $ 8,500,000
December 23, 2000 through September 29, 2001                                           3,800,000
December 23, 2000 through December 29, 2001                                            1,800,000
March 30, 2002                                                                         4,700,000
June 29, 2002                                                                          8,300,000
September 28, 2002                                                                    11,100,000
December 28, 2002                                                                     12,400,000
March 29, 2003                                                                        13,400,000
June 28, 2003                                                                         12,600,000
September 27, 2003                                                                    12,800,000
December 27, 2003                                                                     13,000,000
March 27, 2004                                                                        13,400,000


                  (e)  Minimum  EBITDA  (Country  Products).  The Agway  Country
Products Group Business Unit (as  designated on the Agway  Operations  financial
statements)  on a  consolidated  basis  shall  have,  at the end of each  Fiscal
Quarter set forth below,  EBITDA for the 12-month  period then ended (except for
any period  commencing  December 23, 2000 and ending on or prior to December 29,
2001,  which  shall be for the  periods  described  below)  of not less than the
following:


                                       G-2
<PAGE>
                           Period                                                      EBITDA
                           ------                                                      ------

December 23, 2000 through June 30, 2001                                              $ 1,700,000
December 23, 2000 through September 29, 2001                                           3,000,000
December 23, 2000 through December 29, 2001                                            4,600,000
March 30, 2002                                                                         6,500,000
June 29, 2002                                                                          8,000,000
September 28, 2002                                                                     8,600,000
December 28, 2002                                                                      9,400,000
March 29, 2003                                                                         9,800,000
June 28, 2003                                                                         10,600,000
September 27, 2003                                                                    10,500,000
December 27, 2003                                                                     11,200,000
March 27, 2004                                                                        12,400,000


                  (f) Minimum EBITDA  (Energy).  The Agway Energy  Business Unit
(as designated on the Agway  Operations  financial  statements on a consolidated
basis shall have, at the end of each Fiscal Quarter set forth below,  EBITDA for
the 12-month  period then ended (except for any period  commencing  December 23,
2000 and ending on or prior to December 29, 2001, which shall be for the periods
described below) of not less than the following:

                           Period                                                      EBITDA
                           ------                                                      ------

December 23, 2000 through June 30, 2001                                              $18,300,000
December 23, 2000 through September 29, 2001                                          16,500,000
December 23, 2000 through December 29, 2001                                           23,100,000
March 30, 2002                                                                        21,600,000
June 29, 2002                                                                         21,600,000
September 28, 2002                                                                    18,600,000
December 28, 2002                                                                     19,000,000
March 29, 2003                                                                        19,400,000
June 28, 2003                                                                         21,700,000
September 27, 2003                                                                    21,400,000
December 27, 2003                                                                     21,500,000
March 27, 2004                                                                        22,100,000

</TABLE>

                  (g) Minimum  Senior  Interest  Coverage  Ratio.  Borrowers and
their Subsidiaries (excluding all Telmark Entities,  Agway Insurance Company and
all of their respective  Subsidiaries) on a consolidated basis shall have at the
end of each Fiscal Quarter set forth below, a Senior Interest Coverage Ratio for
the 12-month  period then ended (except for any period  commencing  December 23,
2000 and ending on or prior to December 29, 2001, which shall be for the periods
described below) of not less than the following:

         5.3x for the period of two Fiscal Quarters commencing December 23, 2000
         and ending June 30, 2001

         2.6x for the period of three Fiscal Quarters commencing December 23,
         2000 and ending September 29, 2001


                                       G-3
<PAGE>
         2.5x for the period of four Fiscal Quarters commencing December 23,
         2000 and ending December 29, 2001

         3.1x for the Fiscal Quarter ending March 30, 2002

         4.0x for the Fiscal Quarter ending June 29, 2002

         4.0x for the Fiscal Quarter ending September 28, 2002

         4.2x for the Fiscal Quarter ending December 28, 2002

         4.3x for the Fiscal Quarter ending March 29, 2003

         4.8x for the Fiscal Quarter ending June 28, 2003

         4.8x for the Fiscal Quarter ending September 27, 2003

         4.9x for the Fiscal Quarter ending December 27, 2003

         5.0x for the Fiscal Quarter ending March 27, 2004

                  (h)  Minimum   Excess   Availability.   Borrowers   and  their
Subsidiaries (excluding all Telmark Entities, Agway Insurance Company and all of
their respective  Subsidiaries) at all times shall have Borrowing  Availability,
after  giving  effect to  Eligible  Accounts,  Eligible  Deferred  Accounts  and
Eligible  Inventory of Borrowers  supporting  Revolving  Credit Advances and all
Letter of Credit  Obligations  (on a pro forma basis,  with trade payables being
paid in the ordinary  course,  and expenses  and  liabilities  being paid in the
ordinary  course of business and without  acceleration of sales) of at least Ten
Million Dollars ($10,000,000).

                  Unless otherwise  specifically provided herein, any accounting
term used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly  modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the  foregoing.  If any  "Accounting  Changes" (as defined
below)  occur and such  changes  result in a change  in the  calculation  of the
financial covenants,  standards or terms used in the Agreement or any other Loan
Document, then Borrowers,  Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably  reflect such
Accounting  Changes with the desired  result that the  criteria  for  evaluating
Borrowers' and their  Subsidiaries'  financial condition shall be the same after
such  Accounting  Changes  as if such  Accounting  Changes  had not  been  made;
provided,  however,  that the  agreement  of  Requisite  Lenders to any required
amendments  of  such  provisions  shall  be  sufficient  to  bind  all  Lenders.
"Accounting Changes" means (i) changes in accounting  principles required by the
promulgation of any rule, regulation,  pronouncement or opinion by the Financial
Accounting  Standards  Board  of the  American  Institute  of  Certified  Public
Accountants (or successor  thereto or any agency with similar  functions),  (ii)
changes in accounting principles concurred in by any Borrower's certified public
accountants;  (iii) purchase  accounting  adjustments  under A.P.B. 16 or 17 and
EITF 88-16,  and the application of the accounting  principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal  (in whole or in part) of such  reserves;  and (iv) the reversal of any
reserves  established as a result of purchase accounting  adjustments.  All such
adjustments  resulting  from  expenditures  made  subsequent to the Closing Date
(including  capitalization  of costs and expenses or payment of pre-Closing Date
liabilities)  shall be treated as  expenses in the period the  expenditures  are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrowers and Requisite Lenders agree upon the required amendments, then after


                                       G-4
<PAGE>
appropriate  amendments have been executed and the underlying  Accounting Change
with respect  thereto has been  implemented,  any reference to GAAP contained in
the  Agreement or in any other Loan Document  shall,  only to the extent of such
Accounting Change,  refer to GAAP,  consistently  applied after giving effect to
the implementation of such Accounting Change. If Agent,  Borrowers and Requisite
Lenders cannot agree upon the required  amendments  within 30 days following the
date of implementation of any Accounting Change,  then all Financial  Statements
delivered and all  calculations  of financial  covenants and other standards and
terms in accordance  with the Agreement  and the other Loan  Documents  shall be
prepared, delivered and made without regard to the underlying Accounting Change.
For purposes of Section 8.1, a breach of a Financial  Covenant contained in this
Annex G shall be  deemed to have  occurred  as of any date of  determination  by
Agent or as of the last day of any specified  measurement period,  regardless of
when the Financial Statements reflecting such breach are delivered to Agent.












                                       G-5
<PAGE>
                            ANNEX H (SECTION 9.9(A))
                                       TO
                                CREDIT AGREEMENT

                            WIRE TRANSFER INFORMATION


         Agent's and GE Capital's Account:
         --------------------------------

         Name:                      General Electric Capital Corporation
         Bank:                      Bankers Trust Company
                                    New York, New York
         ABA #:                     021001033
         Account #:                 50232854
         Account Name:              GECC/CAF Depository
         Reference:                 CFN 44447

         CoBank Account:
         --------------

         Name:                      CoBank, ACB
         Bank:                      CoBank, ACB

         ABA #:                     307088754
         Account #:                 11360199
         Reference:                 Agway Financial Corporation

         Rabo Bank Account:
         -----------------

         Name:                      Rabobank International, New York Branch
         Bank:                      Bank of New York, for the account of
                                    Rabobank International

         ABA #:                     021-000-018
         Account #:                 802-6002-533
         Reference:                 Agway Financial Corporation
         Attn:                      Corporate Services Department

         GMAC Business Credit, LLC Account:
         ---------------------------------

         Name:                      GMAC Business Credit LLC
         Bank:                      Bank One, Michigan
                                    Detroit, Michigan
         ABA #:                     072000326
         Account #:                 3613249-84
         Reference:                 Agway, Inc.



                                       H-1
<PAGE>
                             ANNEX I (SECTION 11.10)
                                       TO
                                CREDIT AGREEMENT

                                NOTICE ADDRESSES

i.       If to Agent or GE Capital, at

         General Electric Capital Corporation
         800 Connecticut Avenue
         Two North
         Norwalk, Connecticut 06854
         Attention: Agway Account Manager
         Telecopier No.:  (203) 852-3630
         Telephone No.:  (203) 852-3600

         with copies to:

         Paul, Hastings, Janofsky & Walker LLP
         1055 Washington Boulevard, 10th Floor
         Stamford, Connecticut 06901
         Attention: Leslie A. Plaskon, Esq.
         Telecopier No.: (203) 359-3031
         Telephone No.: (203) 961-7400

         and

         General Electric Capital Corporation
         201 High Ridge Road
         Stamford, Connecticut 06927-5100
         Attention:  Corporate Counsel - Commercial Finance
         Telecopier No.: (203) 316-7889
         Telephone No.:  (203) 316-7552

ii.      If to any Borrower, to Borrower Representative, at

         Agway, Inc.
         333 Butternut Drive
         Dewitt, New York 13214
         Attention: Karen Ohliger
         Telecopier No.: (315) 449-6435
         Telephone No.: (315) 449-6147



                                       I-1
<PAGE>
         with copies to:

         Weil, Gotshal & Manges LLP
         767 5th Avenue
         New York, New York 10153
         Attention: Marsha Simms, Esq.
         Telecopier No.: (212) 310-8007
         Telephone No.: (212) 310-8000

















                                       I-2
<PAGE>
                       ANNEX J (FROM ANNEX A - COMMITMENTS DEFINITION)
                                     --------------------------------
                                       TO
                                CREDIT AGREEMENT


<TABLE>
<CAPTION>
                                                          Lender(s)
                                                          ---------
<S>                                                       <C>
Revolving Loan Commitment
(including a Swing Line Commitment
of $10,000,000)
$75,000,000                                               General Electric Capital Corporation

Revolving Loan Commitment
$52,000,000                                               CoBank, ACB

Revolving Loan Commitment
$23,000,000                                               Cooperatieve Centrale Raiffeisen-Boerenleenbank
                                                          B.A., "Rabobank Nederland", New York Branch

Revolving Loan Commitment
$25,000,000                                               GMAC Business Credit, LLC

</TABLE>













                                       J-1
                               SECURITY AGREEMENT
                               ------------------

                           SECURITY AGREEMENT, dated as of March 28, 2001, among
         Agway, Inc., a Delaware corporation  ("Agway"),  Agway Holdings Inc., a
         Delaware corporation ("AHI"), Agway Financial  Corporation,  a Delaware
         corporation  ("AFC"),  Feed  Commodities  International  LLC, a limited
         liability  company  organized  under the laws of the state of  Delaware
         ("FCI"),  Milford  Fertilizer  Company LLC, a limited liability company
         organized  under the laws of the state of  Delaware  ("MFC"),  Brubaker
         Agronomic Consulting Service LLC, a limited liability company organized
         under the laws of the state of Delaware ("BACS"), Agway General Agency,
         Inc. a New York corporation ("AGA"), Country Best Adams, LLC, a limited
         liability  company  organized  under the laws of the state of  Delaware
         ("CBA"),   Country   Best-Deberry  LLC,  a  limited  liability  company
         organized under the laws of the state of Delaware ("CBD"), Agway Energy
         Products LLC, a limited  liability  company organized under the laws of
         the state of  Delaware  ("AEP"),  Agway  Energy  Services-PA,  Inc.,  a
         Delaware  corporation  ("AESPA"),  and Agway Energy  Services,  Inc., a
         Delaware  corporation  ("AES");  (Agway, AHI, AFC, FCI, MFC, BACS, AGA,
         CBA, CBD, AEP,  AESPA and AES are  sometimes  collectively  referred to
         herein as "Grantors"  and  individually  as a  "Grantor"),  and GENERAL
         ELECTRIC CAPITAL CORPORATION,  a New York corporation,  in its capacity
         as Agent for Lenders.

                               W I T N E S S T H:
                               ------------------

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Grantors, Agent and Lenders (including all annexes,
exhibits  and  schedules  thereto,  as  from  time to  time  amended,  restated,
supplemented or otherwise modified, the "Credit Agreement"), Lenders have agreed
to make the  Loans  and to incur  Letter  of  Credit  Obligations  on  behalf of
Grantors;

                  WHEREAS,  in order to induce  Agent and  Lenders to enter into
the Credit  Agreement and other Loan Documents and to induce Lenders to make the
Loans and to incur  Letter of Credit  Obligations  as provided for in the Credit
Agreement, Grantors have agreed to grant a continuing Lien on the Collateral (as
hereinafter defined) to secure the Obligations;

                  NOW,  THEREFORE,  in  consideration of the premises and mutual
covenants  herein contained and for other good and valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

                  1. DEFINED TERMS. All capitalized terms used but not otherwise
defined herein have the meanings given to them in the Credit Agreement or in
Annex A thereto. All other terms contained in this Security Agreement, unless


<PAGE>

the context indicates  otherwise,  have the meanings provided for by the Code to
the extent the same are used or defined therein.

                  2. GRANT OF LIEN.
                     -------------

                  (a) To secure the prompt and complete payment, performance and
observance  of  all  of  the  Obligations   (specifically   including,   without
limitation,   each  Grantor's   Obligations  arising  under  the  cross-guaranty
provisions of Section 12 of the Credit  Agreement),  each Grantor hereby grants,
assigns, conveys, mortgages,  pledges,  hypothecates and transfers to Agent, for
itself and the  benefit  of  Lenders,  a Lien upon all of its  right,  title and
interest in, to and under the following property,  whether now owned by or owing
to, or  hereafter  acquired  by or arising in favor of such  Grantor  (including
under any trade names,  styles or  derivations  thereof),  and whether  owned or
consigned by or to, or leased from or to, such Grantor,  and regardless of where
located  (all  of  which  being  hereinafter  collectively  referred  to as  the
"Collateral"):

                       (i) all Accounts;

                      (ii) all Chattel Paper;

                     (iii) all Contracts;

                      (iv) all Documents;

                       (v) all Equipment;

                      (vi) all Fixtures;

                     (vii) all Farm Products;

                    (viii) all General Intangibles;

                      (ix) all Goods;

                       (x) all Instruments;

                      (xi) all Inventory (including all Energy Product
         Inventory);

                     (xii) all Investment Property;

                    (xiii) all Blocked Accounts,  Concentration Accounts,
         depository accounts,  Disbursement  Accounts, and all other deposit and
         other bank accounts and all deposits therein;

                     (xiv) all money, cash or cash equivalents of any
         Grantor;


                                        2
<PAGE>

                      (xv) all Supporting Obligations of any Grantor;

                     (xvi) any Commercial Tort Claims; and

                           (xvii) to the  extent  not  otherwise  included,  all
         Proceeds  and  products  of  the  foregoing  and  all   accessions  to,
         substitutions  and replacements  for, and rents and profits of, each of
         the foregoing (including insurance proceeds).

                  (b) In addition,  to secure the prompt and  complete  payment,
performance  and observance of the  Obligations and in order to induce Agent and
Lenders as aforesaid,  each Grantor  hereby grants to Agent,  for itself and the
benefit of Lenders,  a right of setoff against the property of such Grantor held
by Agent or any Lender,  consisting of property  described above in Section 2(a)
now or hereafter in the  possession  or custody of or in transit to Agent or any
Lender, for any purpose,  including  safekeeping,  collection or pledge, for the
account  of such  Grantor,  or as to which  such  Grantor  may have any right or
power.

                  3. AGENT'S AND LENDERS' RIGHTS: LIMITATIONS ON AGENT'S AND
LENDERS' OBLIGATIONS.

                  (a) It is expressly  agreed by Grantors that,  anything herein
to the contrary notwithstanding,  each Grantor shall remain liable under each of
its Contracts and each of its Licenses to observe and perform all the conditions
and obligations to be observed and performed by it thereunder. Neither Agent nor
any Lender shall have any obligation or liability  under any Contract or License
by reason of or arising out of this Security Agreement or the granting herein of
a Lien thereon or the receipt by Agent or any Lender of any payment  relating to
any Contract or License pursuant  hereto.  Neither Agent nor any Lender shall be
required or obligated in any manner to perform or fulfill any of the obligations
of any  Grantor  under or pursuant  to any  Contract or License,  or to make any
payment,  or to make any  inquiry  as to the  nature or the  sufficiency  of any
payment  received by it or the sufficiency of any performance by any party under
any Contract or License, or to present or file any claims, or to take any action
to collect or enforce any  performance  or the payment of any amounts  which may
have been assigned to it or to which it may be entitled at any time or times.

                  (b) Agent may at any time  after a Default or Event of Default
shall have  occurred  and be  continuing,  without  prior notice to any Grantor,
notify  Account  Debtors,  parties to the  Contracts  and obligors in respect of
Instruments  and  Chattel  Paper,  that the  Accounts  and the right,  title and
interest of any  Grantor in and under such  Contracts,  Instruments  and Chattel
Paper have been assigned to Agent,  and that payments  shall be made directly to
Agent.  Upon the request of Agent, each Grantor shall so notify Account Debtors,
parties to Contracts and obligors in respect of Instruments and Chattel Paper.



                                        3
<PAGE>

                  (c) Agent may at any time in Agent's own name,  in the name of
a  nominee  of  Agent  or in the  name  of any  Grantor  communicate  (by  mail,
telephone,  facsimile or otherwise) with Account Debtors,  parties to Contracts,
obligors in respect of  Instruments  and obligors in respect of Chattel Paper to
verify with such Persons, to Agent's satisfaction,  the existence,  amount terms
of, and any other matter relating to, any such Accounts, Contracts,  Instruments
or Chattel  Paper.  If a Default or Event of Default  shall have occurred and be
continuing,  each  Grantor,  at its own  expense,  shall  cause the  independent
certified public accountants then engaged by such Grantor to prepare and deliver
to Agent and each Lender at any time and from time to time promptly upon Agent's
request the following reports with respect to each Grantor: (i) a reconciliation
of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a
test  verification of such Accounts as Agent may request.  Each Grantor,  at its
own expense,  shall deliver to Agent the results of each physical  verification,
if any, which such Grantor may in its discretion  have made, or caused any other
Person to have made on its behalf, of all or any portion of its Inventory.

                  4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants that:

                  (a)  Each  Grantor  is the  sole  owner  of  each  item of the
Collateral upon which it purports to grant a Lien hereunder,  and has good title
thereto free and clear of any and all Liens other than Permitted Encumbrances.

                  (b) No  effective  security  agreement,  financing  statement,
equivalent security or Lien instrument or continuation statement covering all or
any part of the Collateral is on file or of record in any public office,  except
such as may have been  filed (i) by any  Grantor in favor of Agent  pursuant  to
this Security Agreement or the other Loan Documents, and (ii) in connection with
any other Permitted Encumbrances.

                  (c) This Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of the appropriate  financing statements
listed on Schedule I hereto,  a perfected Lien in favor of Agent, for itself and
the benefit of Lenders,  on the  Collateral  with respect to which a Lien may be
perfected by filing pursuant to the Code. Such Lien is prior to all other Liens,
except Permitted Encumbrances that would be prior to Liens in favor of Agent for
the benefit of Agent and Lenders as a matter of law, and is  enforceable as such
as against any and all creditors of and purchasers  from any Grantor (other than
purchasers of Inventory in the ordinary  course of business).  All action by any
Grantor  necessary or desirable to protect and perfect such Lien on each item of
the Collateral has been duly taken.

                  (d)  Schedule  II  hereto  lists  all  Chattel  Paper  of each
Grantor. All action by any Grantor necessary or desirable to protect and perfect
the Lien of Agent on each item set forth on Schedule II (including  the delivery
of all  originals  thereof to Agent and the  legending  of all Chattel  Paper as
required by Section 5(b) hereof) has been duly taken. The Lien of Agent, for the
benefit of Agent and Lenders, on the Collateral listed on Schedule II hereto is


                                        4
<PAGE>

prior to all other Liens,  except Permitted  Encumbrances that would be prior to
the  Liens in favor of Agent  as a matter  of law,  and is  enforceable  as such
against any and all creditors of and purchasers from any Grantor.

                  (e) Each Grantor's  state of  organization  or  incorporation,
chief executive office, principal place of business, offices, all warehouses and
premises where Collateral is stored or located,  and the locations of all of its
books and records  concerning the  Collateral  are set forth on Schedule  III-A,
Schedule III-B,  Schedule III-C, Schedule III-D, Schedule III-E, Schedule III-F,
Schedule III-G,  Schedule III-H, Schedule III-I, Schedule III-J, Schedule III-K,
and Schedule III-L, respectively, hereto.

                  (f) With  respect  to the  Accounts,  except  as  specifically
disclosed  in the most  recent  Collateral  Report  delivered  to Agent (i) they
represent  bona fide sales of  Inventory  or  rendering  of  services to Account
Debtors in the ordinary course of each Grantor's  business and are not evidenced
by a judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or
disputes  existing or asserted with respect  thereto and no Grantor has made any
agreement  with any  Account  Debtor for any  extension  of time for the payment
thereof, any compromise or settlement for less than the full amount thereof, any
release  of any  Account  Debtor  from  liability  therefor,  or  any  deduction
therefrom except a discount, compromise, settlement or allowance allowed by such
Grantor in the ordinary  course of its business for prompt payment and disclosed
to Agent;  (iii) to each  Grantor's  knowledge,  there  are no facts,  events or
occurrences  which in any way impair the validity or  enforceability  thereof or
could reasonably be expected to reduce the amount payable thereunder as shown on
any Grantor's  books and records and any  invoices,  statements  and  Collateral
Reports delivered to Agent and Lenders with respect thereto; (iv) no Grantor has
received any notice of  proceedings  or actions which are  threatened or pending
against any Account Debtor which might result in any material  adverse change in
such Account Debtor's financial condition; and (v) no Grantor has knowledge that
any  Account  Debtor is unable  generally  to pay its debts as they  become due.
Further  with respect to the  Accounts  (x) the amounts  shown on all  invoices,
statements  and  Collateral  Reports  which may be  delivered  to the Agent with
respect  thereto are actually and absolutely  owing to such Grantor as indicated
thereon and are not in any way contingent; (y) no payments have been or shall be
made thereon except  payments  immediately  delivered to the applicable  Blocked
Accounts or the Agent as required pursuant to the terms of Annex C to the Credit
Agreement;  and (z) to each Grantor's  knowledge,  all Account  Debtors have the
capacity to contract.

                  (g) With respect to any  Inventory  scheduled or listed on the
most recent  Collateral  Report delivered to Agent pursuant to the terms of this
Security Agreement or the Credit Agreement, (i) such Inventory is located at one
of the  applicable  Grantor's  locations set forth on Schedule  III-A,  Schedule
III-B,  Schedule III-C, Schedule III-D, Schedule III-E, Schedule III-F, Schedule
III-G,  Schedule  III-H,  Schedule  III-I,  Schedule  III-J,  Schedule III-K, or
Schedule III-L hereto, as applicable,  (ii) no Inventory is now, or shall at any
time or times hereafter be stored at any other location without Agent's prior


                                        5
<PAGE>

consent,  and  if  Agent  gives  such  consent,  each  applicable  Grantor  will
concurrently  therewith  obtain, to the extent required by the Credit Agreement,
bailee, landlord and mortgagee agreements, (iii) the applicable Grantor has good
title  to such  Inventory  and  such  Inventory  is not  subject  to any Lien or
security  interest or document  whatsoever except for the Lien granted to Agent,
for the benefit of Agent and  Lenders,  and except for  Permitted  Encumbrances,
(iv)  except as  specifically  disclosed  in the most recent  Collateral  Report
delivered to Agent, such Inventory is Eligible Inventory,  (v) such Inventory is
not  subject  to any  licensing,  patent,  royalty,  trademark,  trade  name  or
copyright  agreements  with any third parties which would require any consent of
any third party upon sale or disposition of that Inventory or the payment of any
monies to any third party as a precondition  of such sale or other  disposition,
and (vi) the  completion  of  manufacture,  sale or  other  disposition  of such
Inventory by Agent  following an Event of Default  shall not require the consent
of any Person and shall not constitute a breach or default under any contract or
agreement to which any Grantor is a party or to which such property is subject.

                  (h) No Grantor has any  interest  in, or title to, any Patent,
Trademark or Copyright except as set forth in Schedule IV hereto.  This Security
Agreement is effective to create a valid and continuing Lien on and, upon filing
of the Copyright Security Agreements with the United States Copyright Office and
filing of the Patent Security  Agreements and the Trademark Security  Agreements
with the United States Patent and Trademark Office, perfected security interests
in favor of Agent on each Grantor' s Patents, Trademarks and Copyrights and such
perfected  security  interests  are  enforceable  as such as against any and all
creditors  of and  purchasers  from any  Grantor.  Upon filing of the  Copyright
Security  Agreements with the United States  Copyright  Office and filing of the
Patent Security Agreements and the Trademark Security Agreements with the United
States  Patent and  Trademark  Office and the  filing of  appropriate  financing
statements  listed on Schedule I hereto,  all action  necessary  or desirable to
protect  and perfect  Agent's  Lien on each  Grantor's  Patents,  Trademarks  or
Copyrights shall have been duly taken.

                  5. COVENANTS. Each Grantor covenants and agrees with Agent,
for the benefit of Agent and Lenders, that from and after the date of this
Security Agreement and until the Termination Date:



                                        6
<PAGE>

                  (a) Further Assurances: Pledge of Chattel Paper.

                  (i) At any  time  and from  time to  time,  upon  the  written
         request of Agent and at the sole  expense  of  Grantors,  each  Grantor
         shall  promptly  and duly  execute and deliver any and all such further
         instruments  and documents  and take such further  actions as Agent may
         deem  desirable to obtain the full benefits of this Security  Agreement
         and of the rights and powers  herein  granted,  including (A) using its
         best  efforts  to  secure  all  consents  and  approvals  necessary  or
         appropriate  for the  assignment  to or for the benefit of Agent of any
         License or Contract  held by such  Grantor or in which such Grantor has
         any rights  not  heretofore  assigned,  (B)  filing  any  financing  or
         continuation  statements  under  the Code  with  respect  to the  Liens
         granted  hereunder or under any other Loan Document,  (C)  transferring
         Collateral to Agent's possession (for the benefit of Agent and Lenders)
         if such  Collateral  consists  of  Chattel  Paper  or if a Lien on such
         Collateral  can be  perfected  only by  possession,  or if requested by
         Agent, (D) obtaining,  or using its best efforts to obtain,  waivers of
         Liens,  if any exist,  from landlords and mortgagees in accordance with
         the Credit Agreement,  (E) obtaining signed  acknowledgments of Agent's
         Liens from banks holding any Grantor's  depository accounts and bailees
         having  possession of any  Grantor's  Goods;  and (F) obtaining  signed
         control  agreements  from  any  securities   intermediary  holding  any
         Grantor's  Financial Assets. Each Grantor also hereby authorizes Agent,
         for the benefit of Agent and  Lenders,  to file any such  financing  or
         continuation  statements  without the  signature of such Grantor to the
         extent  permitted by applicable  law. If any amount payable under or in
         connection  with any of the Collateral is or shall become  evidenced by
         any Instrument,  such Instrument,  other than checks and notes received
         in the ordinary course of business,  shall be duly endorsed in a manner
         satisfactory to Agent immediately upon such Grantor's receipt thereof.

                  (ii) Each Grantor  shall  deliver to Agent the original of all
         letters of credit issued to it as a beneficiary along with a collateral
         assignment  thereof  evidencing  the consent to such  assignment by the
         issuer of the letter of credit  and each  correspondent  or  confirming
         bank, all in form and substance reasonably satisfactory to Agent.

                  (iii) Each Grantor shall take all steps necessary to grant the
         Agent control of all  electronic  chattel paper in accordance  with the
         Code as revised effective July 1, 2001.

                  (iv)  Each  Grantor  authorizes  the  Agent to file  financing
         statements  describing  the  Collateral  without the  signature of such
         Grantor to the extent permitted by law.



                                        7
<PAGE>

                  (b) Maintenance of Records.  Grantors shall keep and maintain,
at  their  own  cost and  expense,  satisfactory  and  complete  records  of the
Collateral,  including a record of any and all payments received and any and all
credits  granted with respect to the  Collateral and all other dealings with the
Collateral.  Grantors  shall  mark their  books and  records  pertaining  to the
Collateral to evidence this Security Agreement and the Liens granted hereby. All
Chattel Paper shall be marked with the following  legend:  "This writing and the
obligations  evidenced or secured hereby are subject to the security interest of
General  Electric  Capital  Corporation,  as Agent, for the benefit of Agent and
certain Lenders."

                  (c) Covenants Regarding Patent, Trademark and Copyright
Collateral.

                  (i) Grantors  shall notify Agent  immediately  if they know or
         have reason to know that any  application or  registration  relating to
         any Patent, Trademark or Copyright (now or hereafter existing) material
         to the operation of such Grantor's business may become abandoned, or of
         any adverse determination or development (including the institution of,
         or any such  determination  or  development  in, any  proceeding in the
         United States Patent and Trademark Office,  the United States Copyright
         Office or any court)  regarding  any  Grantor's  ownership  of any such
         Patent,  Trademark or Copyright,  its right to register the same, or to
         keep and maintain the same.

                  (ii)  Within  45 days  after the end of each  Fiscal  Quarter,
         grantors  shall  provide  Agent  a list  of any  applications  for  the
         registration of any Patent,  Trademark or copyright filed by any Credit
         Party with The United States Patent and  Trademark  Office,  The United
         States  Copyright  Office or any similar  office or agency in the prior
         Fiscal Quarter,  and, upon request of Agent,  Grantor shall execute and
         deliver  any and all Patent  Security  Agreements,  Copyright  Security
         Agreements  or Trademark  Security  Agreements  as Agent may request to
         evidence Agent's Lien on such Patent,  Trademark or Copyright,  and the
         General  Intangibles  of such Grantor  relating  thereto or represented
         thereby.

                  (iii) Grantors  shall take all actions  necessary or requested
         by Agent to  maintain  and  pursue  each  application,  to  obtain  the
         relevant  registration  and to maintain the registration of each of the
         Patents, Trademarks and Copyrights (now or hereafter existing) material
         to the operation of such  Grantor's  business , including the filing of
         applications   for   renewal,   affidavits   of  use,   affidavits   of
         noncontestability  and opposition  and  interference  and  cancellation
         proceedings.

                  (iv)  In  the  event  that  any of the  Patent,  Trademark  or
         Copyright  Collateral is infringed upon, or  misappropriated or diluted
         by a third party,  such Grantor shall notify Agent  promptly after such
         Grantor learns thereof.  Such Grantor shall,  unless such Grantor shall
         reasonably   determine   that  such  Patent,   Trademark  or  Copyright
         Collateral is in no way material to the conduct of its business or


                                        8
<PAGE>

         operations, promptly sue for infringement, misappropriation or dilution
         and  to   recover   any  and  all   damages   for  such   infringement,
         misappropriation  or  dilution,  and shall take such  other  actions as
         Agent shall deem  appropriate  under the  circumstances to protect such
         Patent, Trademark or Copyright Collateral.

                  (d) Indemnification. In any suit, proceeding or action brought
by Agent  or any  Lender  relating  to any  Account,  Chattel  Paper,  Contract,
Document,  General  Intangible or Instrument for any sum owing  thereunder or to
enforce any provision of any Account, Chattel Paper, Contract, Document, General
Intangible or Instrument,  each Grantor will save,  indemnify and keep Agent and
Lenders harmless from and against all expense (including  reasonable  attorneys'
fees and expenses),  loss or damage  suffered by reason of any defense,  setoff,
counterclaim,  recoupment  or reduction of liability  whatsoever  of the obligor
thereunder,  arising out of a breach by any Grantor of any obligation thereunder
or arising out of any other  agreement,  indebtedness  or  liability at any time
owing to, or in favor of,  such  obligor or its  successors  from such  Grantor,
except in the case of Agent or any Lender, to the extent such expense,  loss, or
damage is attributable  solely to the gross negligence or willful  misconduct of
Agent or such Lender as finally determined by a court of competent jurisdiction.
All such  obligations  of Grantors shall be and remain  enforceable  against and
only against Grantors and shall not be enforceable against Agent or any Lender.

                  (e)  Compliance  with Terms of Accounts,  etc. In all material
respects,  each Grantor will perform and comply with all  obligations in respect
of its Accounts,  Chattel Paper, Contracts and Licenses and all other agreements
to which it is a party or by which it is bound relating to the Collateral.

                  (f) Limitation on Liens on Collateral. No Grantor will create,
permit or suffer to exist, and each Grantor will defend the Collateral  against,
and take such other action as is necessary to remove, any Lien on the Collateral
except Permitted Encumbrances,  and will defend the right, title and interest of
Agent and Lenders in and to any of such  Grantor's  rights under the  Collateral
against the claims and demands of all Persons whomsoever.

                  (g) Limitations on Disposition.  No Grantor will sell,  lease,
transfer or otherwise  dispose of any of the Collateral,  or attempt or contract
to do so except as permitted by the Credit Agreement.

                  (h) Further Identification of Collateral. Grantors will, if so
requested by Agent, furnish to Agent, as often as Agent requests, statements and
schedules  further  identifying  and  describing  the  Collateral and such other
reports in connection with the Collateral as Agent may reasonably  request,  all
in such detail as Agent may specify.

                  (i) Notices. Grantors will advise Agent promptly, in
reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or claim
made or asserted against any of the Collateral, and (ii) of the occurrence of


                                        9
<PAGE>

any other  event  which would have a material  adverse  effect on the  aggregate
value of the  Collateral  or on the Liens  created  hereunder or under any other
Loan Document.

                  6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.

                  On the Closing Date each Grantor  shall execute and deliver to
Agent a power of attorney  (the "Power of Attorney")  substantially  in the form
attached  hereto as Exhibit A. The power of  attorney  granted  pursuant  to the
Power of Attorney is a power  coupled with an interest and shall be  irrevocable
until the Termination  Date. The powers  conferred on Agent,  for the benefit of
Agent and  Lenders,  under the Power of Attorney  are solely to protect  Agent's
interests (for the benefit of Agent and Lenders) in the Collateral and shall not
impose any duty upon  Agent or any Lender to  exercise  any such  powers.  Agent
agrees that (a) it shall not exercise any power or authority  granted  under the
Power of Attorney unless an Event of Default has occurred and is continuing, and
(b) Agent  shall  account  for any  moneys  received  by Agent in respect of any
foreclosure on or  disposition  of Collateral  pursuant to the Power of Attorney
provided  that  none of  Agent  or any  Lender  shall  have  any  duty as to any
Collateral,  and Agent and Lenders  shall be  accountable  only for amounts that
they actually receive as a result of the exercise of such powers. NONE OF AGENT,
LENDERS OR THEIR RESPECTIVE AFFILIATES,  OFFICERS, DIRECTORS,  EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO
ACT UNDER ANY POWER OF  ATTORNEY  OR  OTHERWISE,  EXCEPT IN  RESPECT  OF DAMAGES
ATTRIBUTABLE  SOLELY TO THEIR OWN GROSS  NEGLIGENCE  OR  WILLFUL  MISCONDUCT  AS
FINALLY DETERMINED BY A COURT OF COMPETENT  JURISDICTION,  NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

                  7. REMEDIES: RIGHTS UPON DEFAULT.

                  (a) In addition to all other rights and remedies granted to it
under this Security  Agreement,  the Credit Agreement,  the other Loan Documents
and under any other instrument or agreement securing,  evidencing or relating to
any of the  Obligations,  if any Event of  Default  shall have  occurred  and be
continuing,  Agent may exercise all rights and remedies of a secured party under
the Code.  Without  limiting  the  generality  of the  foregoing,  each  Grantor
expressly agrees that in any such event Agent,  without demand of performance or
other demand,  advertisement  or notice of any kind (except the notice specified
below of time and place of public or  private  sale) to or upon such  Grantor or
any other Person (all and each of which demands,  advertisements and notices are
hereby  expressly  waived to the maximum extent  permitted by the Code and other
applicable law), may forthwith enter upon the premises of such Grantor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving such Grantor or any other Person notice and
opportunity  for a hearing on Agent's claim or action and may collect,  receive,
assemble, process, appropriate and realize upon the Collateral, or any part


                                       10
<PAGE>

thereof,  and may forthwith sell,  lease,  assign,  give an option or options to
purchase,  or sell or  otherwise  dispose of and  deliver  said  Collateral  (or
contract to do so), or any part  thereof,  in one or more parcels at a public or
private sale or sales, at any exchange at such prices as it may deem acceptable,
for cash or on credit or for future  delivery  without  assumption of any credit
risk.  Agent or any Lender  shall have the right  upon any such  public  sale or
sales and, to the extent  permitted by law, upon any such private sale or sales,
to purchase for the benefit of Agent and Lenders,  the whole or any part of said
Collateral so sold,  free of any right or equity of redemption,  which equity of
redemption  each  Grantor  hereby  releases.  Such  sales may be  adjourned  and
continued from time to time with or without  notice.  Agent shall have the right
to conduct such sales on any Grantor's  premises or elsewhere and shall have the
right to use any  Grantor's  premises  without  charge for such time or times as
Agent deems necessary or advisable.

                  Each Grantor further agrees,  at Agent's request,  to assemble
the  Collateral  and make it  available  to Agent at places  which  Agent  shall
select, whether at such Grantor's premises or elsewhere.  Until Agent is able to
effect a sale, lease, or other  disposition of Collateral,  Agent shall have the
right to hold or use  Collateral,  or any part  thereof,  to the extent  that it
deems  appropriate for the purpose of preserving  Collateral or its value or for
any other purpose deemed appropriate by Agent. Agent shall have no obligation to
any Grantor to maintain or preserve the rights of such Grantor as against  third
parties with respect to  Collateral  while  Collateral  is in the  possession of
Agent. Agent may, if it so elects,  seek the appointment of a receiver or keeper
to take possession of Collateral and to enforce any of Agent's remedies (for the
benefit of Agent and Lenders),  with respect to such  appointment  without prior
notice or hearing as to such appointment.  Agent shall apply the net proceeds of
any such collection,  recovery, receipt,  appropriation,  realization or sale to
the  Obligations as provided in the Credit  Agreement,  and only after so paying
over  such net  proceeds,  and after the  payment  by Agent of any other  amount
required by any provision of law, need Agent account for the surplus, if any, to
any Grantor.  To the maximum  extent  permitted by applicable  law, each Grantor
waives all claims,  damages, and demands against Agent or any Lender arising out
of the  repossession,  retention or sale of the Collateral  except such as arise
solely out of the gross negligence or willful misconduct of Agent or such Lender
as finally determined by a court of competent jurisdiction.  Each Grantor agrees
that ten (10) days  prior  notice  by Agent of the time and place of any  public
sale or of the time  after  which a private  sale may take  place is  reasonable
notification of such matters. Grantors shall remain liable for any deficiency if
the proceeds of any sale or disposition of the  Collateral are  insufficient  to
pay all Obligations, including any reasonable attorneys' fees and other expenses
incurred by Agent or any Lender to collect such deficiency.

                  (b) Except as otherwise  specifically  provided  herein,  each
Grantor hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.



                                       11
<PAGE>

                  8. GRANT OF LICENSE TO USE INTELLECTUAL  PROPERTY  COLLATERAL.
For the purpose of enabling Agent to exercise  rights and remedies under Section
7 hereof (including, without limiting the terms of Section 7 hereof, in order to
take possession of, hold, preserve,  process, assemble, prepare for sale, market
for sale,  sell or otherwise  dispose of Collateral) at such time as Agent shall
be lawfully  entitled to exercise such rights and remedies,  each Grantor hereby
grants  to  Agent,  for the  benefit  of  Agent  and  Lenders,  an  irrevocable,
nonexclusive   license   (exercisable   without  payment  of  royalty  or  other
compensation  to such Grantor) to use,  license or sublicense  any  Intellectual
Property now owned or hereafter acquired by such Grantor,  and wherever the same
may be located,  and including in such license  access to all media in which any
of the licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.

                  9.  LIMITATION  ON  AGENT'S  AND  LENDERS'  DUTY IN RESPECT OF
COLLATERAL.  Agent and each Lender shall use reasonable care with respect to the
Collateral in its possession or under its control.  Neither Agent nor any Lender
shall have any other duty as to any  Collateral in its  possession or control or
in the possession or control of any agent or nominee of Agent or such Lender, or
any income thereon or as to the  preservation of rights against prior parties or
any other rights pertaining thereto.

                  10.  REINSTATEMENT.  This Security  Agreement  shall remain in
full force and effect and continue to be effective  should any petition be filed
by or against any Grantor for liquidation or reorganization,  should any Grantor
become  insolvent  or make an  assignment  for the  benefit of any  creditor  or
creditors  or  should  a  receiver  or  trustee  be  appointed  for  all  or any
significant part of any Grantor's assets,  and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of the
Obligations,  or any part thereof,  is, pursuant to applicable law, rescinded or
reduced in amount,  or must  otherwise be restored or returned by any obligee of
the Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise,  all as though such payment or performance  had not been made. In the
event that any payment, or any part thereof, is rescinded,  reduced, restored or
returned,  the  Obligations  shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

                  11. NOTICES.  Except as otherwise provided herein, whenever it
is  provided  herein  that  any  notice,  demand,  request,  consent,  approval,
declaration or other  communication  shall or may be given to or served upon any
of the parties by any other  party,  or whenever  any of the parties  desires to
give and serve  upon any other  party any  communication  with  respect  to this
Security  Agreement,  each such  notice,  demand,  request,  consent,  approval,
declaration or other communication shall be in writing and shall be given in the
manner, and deemed received, as provided for in the Credit Agreement.



                                       12
<PAGE>

                  12.  SEVERABILITY.  Whenever possible,  each provision of this
Security Agreement shall be interpreted in a manner as to be effective and valid
under  applicable law, but if any provision of this Security  Agreement shall be
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective to the extent of such prohibition or invalidity without invalidating
the  remainder of such  provision or the  remaining  provisions of this Security
Agreement. This Security Agreement is to be read, construed and applied together
with the Credit  Agreement and the other Loan Documents  which,  taken together,
set forth the  complete  understanding  and  agreement  of  Agent,  Lenders  and
Grantors with respect to the matters referred to herein and therein.

                  13. NO  WAIVER;  CUMULATIVE  REMEDIES.  Neither  Agent nor any
Lender shall by any act,  delay,  omission or otherwise be deemed to have waived
any of its rights or remedies hereunder,  and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth. A waiver
by Agent of any  right or  remedy  hereunder  on any one  occasion  shall not be
construed as a bar to any right or remedy which Agent would  otherwise  have had
on any future  occasion.  No failure to exercise nor any delay in  exercising on
the part of Agent or any Lender, any right, power or privilege hereunder,  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
right,  power or  privilege  hereunder  preclude  any other or  future  exercise
thereof or the exercise of any other right,  power or privilege.  The rights and
remedies  hereunder  provided  are  cumulative  and may be  exercised  singly or
concurrently,  and are not exclusive of any rights and remedies provided by law.
None of the  terms or  provisions  of this  Security  Agreement  may be  waived,
altered,  modified or amended except by an instrument in writing,  duly executed
by Agent and Grantors.

                  14.  LIMITATION  BY  LAW.  All  rights,  remedies  and  powers
provided in this Security Agreement may be exercised only to the extent that the
exercise  thereof does not violate any applicable  provision of law, and all the
provisions  of  this  Security  Agreement  are  intended  to be  subject  to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent  necessary so that they shall not render this  Security  Agreement
invalid,  unenforceable,  in whole or in part,  or not  entitled to be recorded,
registered or filed under the provisions of any applicable law.

                  15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section
10 hereof, this Security Agreement shall terminate upon the Termination Date.

                  16.  SUCCESSORS AND ASSIGNS.  This Security  Agreement and all
obligations  of Grantors  hereunder  shall be binding  upon the  successors  and
assigns of each Grantor  (including any  debtor-in-possession  on behalf of such
Grantor)  and shall,  together  with the rights and  remedies of Agent,  for the
benefit  of Agent and  Lenders,  hereunder,  inure to the  benefit  of Agent and
Lenders, all future holders of any instrument  evidencing any of the Obligations
and their respective  successors and assigns. No sales of participations,  other
sales,  assignments,  transfers or other dispositions of any agreement governing
or instrument evidencing the Obligations or any portion thereof or interest


                                       13
<PAGE>

therein shall in any manner affect the Lien granted to Agent, for the benefit of
Agent and  Lenders,  hereunder.  No Grantor may  assign,  sell,  hypothecate  or
otherwise transfer any interest in or obligation under this Security Agreement.

                  17. COUNTERPARTS. This Security Agreement may be executed in
any number of separate counterparts, each of which shall collectively and
separately constitute one agreement.

                  18. GOVERNING LAW. EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED IN
ANY  OF  THE  LOAN  DOCUMENTS,  IN  ALL  RESPECTS,   INCLUDING  ALL  MATTERS  OF
CONSTRUCTION,   VALIDITY  AND  PERFORMANCE,  THIS  SECURITY  AGREEMENT  AND  THE
OBLIGATIONS  ARISING  HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE  WITH,  THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE,  AND ANY APPLICABLE  LAWS OF THE UNITED STATES
OF AMERICA.  EACH GRANTOR  HEREBY  CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS  LOCATED  IN NEW YORK  COUNTY,  CITY OF NEW YORK,  NEW YORK,  SHALL  HAVE
EXCLUSIVE  JURISDICTION  TO HEAR AND  DETERMINE  ANY CLAIMS OR DISPUTES  BETWEEN
GRANTORS,  AGENT AND LENDERS PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE
OTHER  LOAN  DOCUMENTS  OR TO ANY  MATTER  ARISING  OUT OF OR  RELATING  TO THIS
SECURITY  AGREEMENT OR ANY OF THE OTHER LOAN  DOCUMENTS,  PROVIDED,  THAT AGENT,
LENDERS AND GRANTORS  ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, AND, PROVIDED,  FURTHER,
NOTHING IN THIS  AGREEMENT  SHALL BE DEEMED OR OPERATE  TO  PRECLUDE  AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER  JURISDICTION TO REALIZE
ON THE  COLLATERAL OR ANY OTHER  SECURITY FOR THE  OBLIGATIONS,  OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT.  EACH GRANTOR EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH  JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT,  AND EACH GRANTOR HEREBY WAIVES ANY OBJECTION  WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY  CONSENTS  TO THE  GRANTING OF SUCH LEGAL OR  EQUITABLE  RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS,  COMPLAINT AND OTHER PROCESS  ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED  MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH
ON ANNEX I TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED


                                       14
<PAGE>

COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                  19.  WAIVER  OF  JURY  TRIAL.   BECAUSE  DISPUTES  ARISING  IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN  EXPERIENCED  AND EXPERT  PERSON AND THE PARTIES WISH  APPLICABLE
STATE AND FEDERAL LAWS TO APPLY  (RATHER THAN  ARBITRATION  RULES),  THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION,  SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS,
AND GRANTORS  ARISING OUT OF,  CONNECTED WITH,  RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP  ESTABLISHED IN CONNECTION WITH, THIS SECURITY  AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

                  20. SECTION TITLES. The Section titles contained in this
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.

                  21.  NO  STRICT   CONSTRUCTION.   The   parties   hereto  have
participated jointly in the negotiation and drafting of this Security Agreement.
In the event an ambiguity or question of intent or interpretation  arises,  this
Security  Agreement  shall be  construed  as if drafted  jointly by the  parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any  party by  virtue  of the  authorship  of any  provisions  of this  Security
Agreement.

                  22. ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Security Agreement and,
specifically, the provisions of Section 18 and Section 19, with its counsel.

                  (a)  BENEFIT OF  LENDERS.  All Liens  granted or  contemplated
hereby  shall be for the  benefit  of Agent and  Lenders,  and all  proceeds  or
payments realized from Collateral in accordance herewith shall be applied to the
Obligations in accordance with the terms of the Credit Agreement.



                                       15
<PAGE>

                  IN WITNESS WHEREOF, each of the parties hereto has caused this
Security  Agreement to be executed and delivered by its duly authorized  officer
as of the date first set forth above.

                                AGWAY, INC.
                                AGWAY HOLDINGS INC.
                                AGWAY FINANCIAL CORPORATION
                                FEED COMMODITIES INTERNATIONAL LLC
                                MILFORD FERTILIZER COMPANY LLC
                                BRUBAKER AGRONOMIC CONSULTING SERVICE LLC
                                COUNTRY BEST-DEBERRY LLC
                                AGWAY ENERGY PRODUCTS LLC
                                AGWAY ENERGY SERVICES-PA, INC.
                                AGWAY ENERGY SERVICES, INC.

                                By:  /s/  KAREN J. OHLIGER
                                    --------------------------------------------
                                Name:  KAREN J. OHLIGER
                                    --------------------------------------------
                                Title:  TREASURER
                                       -----------------------------------------

                                AGWAY GENERAL AGENCY, INC.
                                COUNTRY BEST ADAMS, LLC
                                By:   /s/  KAREN J. OHLIGER
                                   ---------------------------------------------
                                Name:   KAREN J. OHLIGER
                                     -------------------------------------------
                                Title:  ASST. TREASURER
                                     -------------------------------------------
                                GENERAL ELECTRIC CAPITAL CORPORATION, AS AGENT
                                By:    /s/  PIETER SMIT
                                      ------------------------------------------
                                Name:   PIETER SMIT
                                      ------------------------------------------
                                Title: Its Duly Authorized Signatory



<PAGE>
                                PLEDGE AGREEMENT
                                ----------------

                  This PLEDGE AGREEMENT, dated as of March 28, 2001 (together
with all amendments, if any, from time to time hereto, this "Agreement") between
AGWAY, INC., a Delaware corporation, AGWAY FINANCIAL CORPORATION, a Delaware
corporation, AGWAY HOLDINGS INC., a Delaware corporation, FEED COMMODITIES
INTERNATIONAL LLC, a limited liability company organized under the laws of the
state of Delaware, MILFORD FERTILIZER COMPANY LLC, a limited liability company
organized under the laws of the state of Delaware, BRUBAKER AGRONOMIC CONSULTING
SERVICE LLC, a limited liability company organized under the laws of the state
of Delaware, AGWAY GENERAL AGENCY, INC., a New York corporation, COUNTRY BEST
ADAMS, LLC, a limited liability company organized under the laws of the state of
Delaware, COUNTRY BEST DEBERRY LLC, a limited liability company organized under
the laws of the state of Delaware, AGWAY ENERGY PRODUCTS LLC, a limited
liability company organized under the laws of the state of Delaware, AGWAY
ENERGY SERVICES-PA, INC, a Delaware corporation, and AGWAY ENERGY SERVICES,
INC., a Delaware corporation (collectively, the "Pledgors") and GENERAL ELECTRIC
CAPITAL CORPORATION in its capacity as Agent for Lenders ("Agent").

                              W I T N E S S E T H:
                               - - - - - - - - - -

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among the Pledgors, the Persons named therein as Credit
Parties (the "Borrowers"), Agent and the Persons signatory thereto from time to
time as Lenders (including all annexes, exhibits and schedules thereto, and as
from time to time amended, restated, supplemented or otherwise modified (the
"Credit Agreement") the Lenders have agreed to make Loans to, and incur Letter
of Credit Obligations for the benefit of, Borrowers;

                  WHEREAS, Pledgors are the record and beneficial owner of the
shares of Stock and limited liability company interests listed in Parts A and B
of Schedule I hereto and the owners of the promissory notes and instruments
listed in Part C of Schedule I hereto;

                  WHEREAS, the Pledgors benefit from the credit facilities made
available to Borrowers under the Credit Agreement;

                  WHEREAS, in order to induce Agent and Lenders to make the
Loans and to incur the Letter of Credit Obligations as provided for in the
Credit Agreement, the Pledgors have agreed to pledge the Pledged Collateral to
Agent in accordance herewith;

                  NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained and to induce Lenders to make Loans and to incur
Letter of Credit Obligations under the Credit Agreement, it is agreed as
follows:

                  1. Definitions. Unless otherwise defined herein, terms defined
in the Credit Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Agreement) the following


<PAGE>

respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):

                  "Bankruptcy Code" means title 11, United States Code, as
amended from time to time, and any successor statute thereto.

                  "Operating Agreement" means each limited liability company
agreement, operating agreement or similar agreement identified on Part B of
Schedule I hereto, in each case, as amended, supplemented or otherwise modified
from time to time.

                  "Pledged Collateral" has the meaning assigned to such term in
Section 2 hereof.

                  "Pledged Entity" means an issuer of Pledged Shares, Pledged
Interests or Pledged Indebtedness.

                  "Pledged Indebtedness" means the Indebtedness evidenced by
promissory notes and instruments listed on Part C of Schedule I hereto;

                  "Pledged Interests" means the limited liability company
interests listed on part B of Schedule I hereto.

                  "Pledged Shares" means those shares listed on Part A of
Schedule I hereto.

                  "Secured Obligations" has the meaning assigned to such term in
Section 3 hereof.

                  2. Pledge. Pledgors hereby pledge to Agent, and grant to Agent
for itself and the benefit of Lenders, a first priority security interest in
(other than the shares of AG Processing Inc., CF Industries, Inc., Universal
Cooperatives, Inc. and CoBank, ACB, in which Agent for itself and the benefit of
Lenders shall have a second priority security interest in, subordinate only to
the lien of the issuer of said shares to secure any indebtedness of the owner of
said shares to said issuer (the "Issuer Lien") all of the following
(collectively, the "Pledged Collateral"):

                  (a) the Pledged Shares and the certificates representing the
         Pledged Shares, and all dividends, distributions, cash, instruments and
         other property or proceeds from time to time received, receivable or
         otherwise distributed in respect of or in exchange for any or all of
         the Pledged Shares; and

                  (b) the Pledged Interests and the certificates representing
         the Pledged Interests, if any, including, without limitation, (i) all
         of Pledgors' rights, powers, and remedies under each Operating
         Agreement, and (ii) any rights to properties, assets, distributions,
         liquidating distributions and allocations of profits and losses in
         respect of such Pledged Interests; and

                  (c) such portion, as determined by Agent as provided in
         Section 6(d) below, of any additional limited liability company
         interests or equity interests of a Pledged Entity or other options or
         rights with respect to any such interests from time to time acquired by
         the Pledgors in any manner (which equity interests shall be deemed to
         be part of the Pledged Shares and which limited liability company
         interests shall be deemed to be part of the Pledged Interests), and the


                                        2
<PAGE>

         certificates representing such additional shares, and all dividends,
         distributions, cash, instruments and other property or proceeds from
         time to time received, receivable or otherwise distributed in respect
         of or in exchange for any or all of such Stock; and

                  (d) the Pledged Indebtedness and the promissory notes or
         instruments evidencing the Pledged Indebtedness, and all interest,
         cash, instruments and other property and assets from time to time
         received, receivable or otherwise distributed in respect of the Pledged
         Indebtedness; and

                  (e) all additional Indebtedness arising after the date hereof
         and owing to the Pledgors and evidenced by promissory notes or other
         instruments, together with such promissory notes and instruments, and
         all interest, cash, instruments and other property and assets from time
         to time received, receivable or otherwise distributed in respect of
         that Pledged Indebtedness.

                  3. Security for Obligations. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Credit Agreement and the
other Loan Documents and all obligations of the Pledgors now or hereafter
existing under this Agreement including, without limitation, all fees, costs and
expenses whether in connection with collection actions hereunder or otherwise
(collectively, the "Secured Obligations").

                  4. Delivery of Pledged Collateral. All certificates and all
promissory notes and instruments evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of Agent, for itself and the benefit of
Lenders, pursuant hereto. Notwithstanding the foregoing and except as otherwise
provided under Section 6(h) hereto, or except as consistent with prior practices
when such notes and instruments evidencing the Pledged Indebtedness are required
to be utilized with respect to collection efforts, all promissory notes and
instruments evidencing the Pledged Indebtedness, other than notes evidencing
intercompany indebtedness and the note receivable from Southern States
Cooperative, Inc. dated July 31, 2000 in the original principal amount of
$13,300,000, shall be held by Agway, Inc., on behalf of Agent for the benefit of
the Agent and Lenders, at its corporate headquarters located at 333 Butternut
Drive, DeWitt, New York 13214. All Pledged Shares and, if evidenced by
certificates, all Pledged Interests shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Agent and all promissory notes or other instruments evidencing
the Pledged Indebtedness shall be endorsed by the Pledgors.

                  5. Representations and Warranties. Pledgors represent and
warrant to Agent that:

                  (a) Pledgors are, and at the time of delivery of the Pledged
         Shares and Pledged Interests to Agent will be, the sole holder of
         record and the sole beneficial owner of such Pledged Collateral pledged
         by the Pledgors free and clear of any Lien thereon or affecting the
         title thereto, except for the Issuer Lien or any Lien created by this
         Agreement; Pledgors are and at the time of delivery of the Pledged
         Indebtedness to Agent will be, the sole owner of such Pledged


                                        3
<PAGE>

         Collateral free and clear of any Lien thereon or affecting title
         thereto, except for the Issuer Lien or any Lien created by this
         Agreement;

                  (b) All of the Pledged Shares and the Pledged Interests have
         been duly authorized, validly issued and are fully paid and
         non-assessable; the Pledged Indebtedness has been duly authorized,
         authenticated or issued and delivered by, and is the legal, valid and
         binding obligations of, the Pledged Entities;

                  (c) Pledgors have the right and requisite authority to pledge,
         assign, transfer, deliver, deposit and set over the Pledged Collateral
         pledged by Pledgors to Agent as provided herein;

                  (d) None of the Pledged Shares, Pledged Interests or Pledged
         Indebtedness has been issued or transferred by Pledgors in violation of
         the securities registration, securities disclosure or similar laws of
         any jurisdiction to which such issuance or transfer may be subject;

                  (e) All of the Pledged Shares and Pledged Interests are
         presently owned by the Pledgors, and are presently represented by the
         certificates listed on Parts A and B of Schedule I hereto. As of the
         date hereof, there are no existing options, warrants, calls or
         commitments of any character whatsoever relating to the Pledged Shares
         or Pledged Interests;

                  (f) Other than the consent of CoBank, ACB to a pledge of its
         stock, no consent, approval, authorization or other order or other
         action by, and no notice to or filing with, any Governmental Authority
         or any other Person is required (i) for the pledge by the Pledgors of
         the Pledged Collateral pursuant to this Agreement or for the execution,
         delivery or performance of this Agreement by the Pledgors, or (ii) for
         the exercise by Agent of the voting or other rights provided for in
         this Agreement or the remedies in respect of the Pledged Collateral
         pursuant to this Agreement, except as may have been obtained or may be
         required in connection with such disposition by laws affecting the
         offering and sale of securities generally;

                  (g) Except as otherwise provided in Section 2 hereof, the
         pledge, assignment and delivery of the Pledged Collateral pursuant to
         this Agreement will create a valid first priority Lien on and a first
         priority perfected security interest in favor of the Agent for the
         benefit of Agent and Lenders in the Pledged Collateral and the proceeds
         thereof, securing the payment of the Secured Obligations, subject to no
         other Lien;

                  (h) This Agreement has been duly authorized, executed and
         delivered by the Pledgors and constitutes a legal, valid and binding
         obligation of the Pledgors enforceable against the Pledgors in
         accordance with its terms;

                  (i) The Pledged Shares constitute the percentage of the issued
         and outstanding shares of Stock owned by each Pledgor of each Pledged
         Entity listed in Part A of Schedule I hereto;



                                        4
<PAGE>

                  (j) The Pledged Interests represent a fully enforceable and
         validly existing right of the Pledgors to share in the respective
         distributions, profits and losses of each Pledged Entity listed in Part
         B of Schedule I hereto, and rights to approve or consent to such
         Pledged Entity's actions in accordance with the relevant Operating
         Agreement;

                  (k) A true and complete copy of each Operating Agreement,
         including all amendments, supplements and other modifications thereto,
         has previously been delivered to Agent. Each Operating Agreement is a
         legal, valid and binding agreement, enforceable by and against the
         applicable Pledgors in accordance with its terms, subject to applicable
         bankruptcy, insolvency, moratorium, reorganization or other similar
         laws affecting creditors' rights and to equitable principles of general
         applicability. Except as otherwise permitted to be made under the
         Credit Agreement, no additional contributions are required to be made
         by the Pledgors in respect of the Pledged Interests and, there exist no
         liabilities or obligations, monetary or otherwise, of the Pledgors to
         any Pledged Entity; and

                  (l) Except as disclosed on Part C of Schedule I, none of the
         Pledged Indebtedness is subordinated in right of payment to other
         Indebtedness (except for the Secured Obligations) or subject to the
         terms of an indenture.

                  The representations and warranties set forth in this Section 5
shall survive the execution and delivery of this Agreement.

                  6. Covenants. Pledgors covenant and agree that until the
Termination Date:

                  (a) Subject to the Issuer Lien provided in Section 2 hereof,
         without the prior written consent of Agent, Pledgors will not sell,
         assign, transfer, pledge, or otherwise encumber any of their rights in
         or to the Pledged Collateral, or any unpaid dividends, interest or
         other distributions or payments with respect to the Pledged Collateral
         or grant a Lien in the Pledged Collateral, unless otherwise expressly
         permitted by the Credit Agreement;

                  (b) Pledgors will, at their expense, promptly execute,
         acknowledge and deliver all such instruments and take all such actions
         as Agent from time to time may request in order to ensure to Agent and
         Lenders the benefits of the Liens in and to the Pledged Collateral
         intended to be created by this Agreement, including the filing of any
         necessary Code financing statements, which may be filed by Agent with
         or (to the extent permitted by law) without the signature of the
         Pledgors, and will cooperate with Agent, at Pledgors expense, in
         obtaining all necessary approvals and making all necessary filings
         under federal, state, local or foreign law in connection with such
         Liens or any sale or transfer of the Pledged Collateral;

                  (c) Pledgors have and will defend the title to the Pledged
         Collateral and the Liens of Agent in the Pledged Collateral against the
         claim of any Person and will maintain and preserve such Liens;

                  (d) Pledgors will, upon obtaining ownership of any additional
         Stock, limited liability company interest or promissory notes or
         instruments of a Pledged Entity or Stock, limited liability company


                                        5
<PAGE>

         interests or promissory notes or instruments otherwise required to be
         pledged to Agent pursuant to any of the Loan Documents, which Stock,
         limited liability company interests, notes or instruments are not
         already Pledged Collateral, promptly (and in any event within five (5)
         Business Days) deliver to Agent a Pledge Amendment, duly executed by
         the respective Pledgor, in substantially the form of Schedule II hereto
         (a "Pledge Amendment") in respect of any such additional Stock, limited
         liability company interests, notes or instruments, pursuant to which
         Pledgors shall pledge to Agent all of such additional Stock, limited
         liability company interests, notes and instruments. Pledgors hereby
         authorize Agent to attach each Pledge Amendment to this Agreement and
         agree that all Pledged Shares, Pledged Interests and Pledged
         Indebtedness listed on any Pledge Amendment delivered to Agent shall
         for all purposes hereunder be considered Pledged Collateral;

                  (e) Pledgors shall comply in all respects with the terms and
         conditions of each Operating Agreement and all other contracts and
         agreements relating to the Pledged Collateral. Without the prior
         written consent of Agent, Pledgors shall not amend, supplement or
         otherwise modify (or consent to any such amendment, supplement or
         modification) the terms of any Operating Agreement in a manner which
         would adversely affect Agent's or Pledgors' duty or ability to repay
         the Secured Obligations;

                  (f) Pledgors shall deliver to each Pledged Entity listed on
         Part B of Schedule I hereto a Pledge Instruction in the form of Exhibit
         A hereto and shall cause each such Pledged Entity to record on its
         books the pledge created hereby and to execute and deliver the
         Acknowledgment and Agreement with respect to this Agreement in the form
         of Exhibit B hereto;

                  (g) If the Pledged Interests become evidenced by certificates
         or any other instrument, Pledgors shall immediately deliver all such
         certificates or instruments to Agent together with duly executed
         instruments of transfer or assignments in blank, all in form and
         substance satisfactory to Agent; and

                  (h) Upon the occurrence of an Event of Default and at Agent's
         request, Pledgors shall immediately deliver to Agent, but in no event
         later than two Business Days after request, all promissory notes and
         instruments evidencing the Pledged Indebtedness, duly endorsed in a
         manner acceptable to the Agent.

                  7. Pledgors' Rights. As long as no Default or Event of Default
shall have occurred and be continuing and until written notice shall be given to
Pledgors in accordance with Section 8(a) hereof:

                  (a) Pledgors shall have the right, from time to time, to vote
         and give consents with respect to the Pledged Collateral, or any part
         thereof for all purposes not inconsistent with the provisions of this
         Agreement, the Credit Agreement or any other Loan Document; provided,
         however, that no vote shall be cast, and no consent shall be given or
         action taken, which would have the effect of impairing the position or
         interest of Agent in respect of the Pledged Collateral or which would
         authorize, effect or consent to (unless and to the extent expressly
         permitted by the Credit Agreement):



                                        6
<PAGE>

                           (i) the dissolution or liquidation, in whole or in
         part, of a Pledged Entity;

                           (ii) the consolidation or merger of a Pledged Entity
         with any other Person;

                           (iii) the sale, disposition or encumbrance of all or
         substantially all of the assets of a Pledged Entity, except for the
         Issuer Liens and Liens in favor of Agent;

                           (iv) any change in the authorized number of shares,
         the stated capital or the authorized share capital of a Pledged Entity
         or the issuance of any additional shares of its Stock;

                           (v) the issuance of any limited liability company
         interests or other equity interests of any nature or the issuance of
         any other interests convertible into or granting the right to purchase
         or exchange for any limited liability company interests or other equity
         interests of any nature of any Pledged Entity or the issuance of any
         certificates representing any Pledged Interests; or

                           (vi) the alteration of the voting rights with respect
         to the Stock of a Pledged Entity; and

                  (b) Subject to the Issuer Lien provided in Section 2 hereof,
         (i) Pledgors shall be entitled, from time to time, to collect and
         receive for their own use all cash dividends and interest paid in
         respect of the Pledged Shares, Pledged Interests and Pledged
         Indebtedness to the extent not in violation of the Credit Agreement
         other than any and all: (A) dividends, distributions and interest paid
         or payable other than in cash in respect of any Pledged Collateral, and
         instruments and other property received, receivable or otherwise
         distributed in respect of, or in exchange for, any Pledged Collateral;
         (B) dividends and other distributions paid or payable in cash in
         respect of any Pledged Shares or Pledged Interests in connection with a
         partial or total liquidation or dissolution or in connection with a
         reduction of capital, capital surplus or paid-in capital of a Pledged
         Entity; and (C) cash paid, payable or otherwise distributed, in respect
         of principal of, or in redemption of, or in exchange for, any Pledged
         Collateral; provided, however, that until actually paid all rights to
         such distributions shall remain subject to the Lien created by this
         Agreement; and

                           (ii) all dividends, distributions and interest (other
         than such cash dividends and interest as are permitted to be paid to
         Pledgors in accordance with clause (i) above) and all other
         distributions in respect of any of the Pledged Shares, Pledged
         Interests or Pledged Indebtedness, whenever paid or made, shall be
         delivered to Agent to hold as Pledged Collateral and shall, if received
         by Pledgors, be received in trust for the benefit of Agent, be
         segregated from the other property or funds of Pledgors, and be
         forthwith delivered to Agent as Pledged Collateral in the same form as
         so received (with any necessary endorsement).



                                        7
<PAGE>

                  8. Defaults and Remedies; Proxy.

                  (a) Except for the shares of stock subject to the Issuer Lien
         provided for in Section 2 hereof, upon the occurrence of an Event of
         Default and during the continuation of such Event of Default, and
         concurrently with written notice to the Pledgors, Agent (personally or
         through an agent) is hereby authorized and empowered to transfer and
         register in its name or in the name of its nominee the whole or any
         part of the Pledged Collateral, to exchange certificates or instruments
         representing or evidencing Pledged Collateral for certificates or
         instruments of smaller or larger denominations, to exercise the voting
         and all other rights as a holder with respect thereto, to collect and
         receive all cash dividends, interest, principal and other distributions
         made thereon, to sell in one or more sales after ten (10) days' notice
         of the time and place of any public sale or of the time at which a
         private sale is to take place (which notice Pledgors agree is
         commercially reasonable) the whole or any part of the Pledged
         Collateral and to otherwise act with respect to the Pledged Collateral
         as though Agent was the outright owner thereof. Any sale shall be made
         at a public or private sale at Agent's place of business, or at any
         place to be named in the notice of sale, either for cash or upon credit
         or for future delivery at such price as Agent may deem fair, and Agent
         may be the purchaser of the whole or any part of the Pledged Collateral
         so sold and hold the same thereafter in its own right free from any
         claim of Pledgors or any right of redemption. Each sale shall be made
         to the highest bidder, but Agent reserves the right to reject any and
         all bids at such sale which, in its discretion, it shall deem
         inadequate. Demands of performance, except as otherwise herein
         specifically provided for, notices of sale, advertisements and the
         presence of property at sale are hereby waived and any sale hereunder
         may be conducted by an auctioneer or any officer or agent of Agent.
         PLEDGORS HEREBY IRREVOCABLY CONSTITUTE AND APPOINT AGENT AS THE PROXY
         AND ATTORNEY-IN-FACT OF PLEDGORS WITH RESPECT TO THE PLEDGED
         COLLATERAL, INCLUDING THE RIGHT TO VOTE THE PLEDGED SHARES AND PLEDGED
         INTERESTS, WITH FULL POWER OF SUBSTITUTION TO DO SO. THE APPOINTMENT OF
         AGENT AS PROXY AND ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND
         SHALL BE IRREVOCABLE UNTIL THE TERMINATION DATE. IN ADDITION TO THE
         RIGHT TO VOTE THE PLEDGED SHARES AND PLEDGED INTERESTS, THE APPOINTMENT
         OF AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO
         EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A
         HOLDER OF THE PLEDGED SHARES AND PLEDGED INTERESTS WOULD BE ENTITLED
         UNDER EACH OPERATING AGREEMENT OR OTHERWISE (INCLUDING GIVING OR
         WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS OR MEMBERS, CALLING
         SPECIAL MEETINGS OF SHAREHOLDERS OR MEMBERS AND VOTING AT SUCH
         MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE
         NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY PLEDGED SHARES
         AND PLEDGED INTERESTS ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY
         PESON (INCLUDING THE ISSUER OF THE PLEDGED SHARES AND PLEDGED INTERESTS
         OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE OF AN EVENT OF
         DEFAULT. NOTWITHSTANDING THE FOREGOING, AGENT SHALL NOT HAVE ANY DUTY


                                        8
<PAGE>

         TO EXERCISE ANY SUCH RIGHT OR TO PRESERVE THE SAME AND SHALL NOT BE
         LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO.

                  (b) If, at the original time or times appointed for the sale
         of the whole or any part of the Pledged Collateral, the highest bid, if
         there be but one sale, shall be inadequate to discharge in full all the
         Secured Obligations, or if the Pledged Collateral be offered for sale
         in lots, if at any of such sales, the highest bid for the lot offered
         for sale would indicate to Agent, in its discretion, that the proceeds
         of the sales of the whole of the Pledged Collateral would be unlikely
         to be sufficient to discharge all the Secured Obligations, Agent may,
         on one or more occasions and in its discretion, postpone any of said
         sales by public announcement at the time of sale or the time of
         previous postponement of sale, and no other notice of such postponement
         or postponements of sale need be given, any other notice being hereby
         waived; provided, however, that any sale or sales made after such
         postponement shall be after ten (10) days' notice to Pledgors.

                  (c) If, at any time when Agent in its sole discretion
         determines, following the occurrence and during the continuance of an
         Event of Default, that, in connection with any actual or contemplated
         exercise of its rights (when permitted under this Section 8) to sell
         the whole or any part of the Pledged Shares hereunder, it is necessary
         or advisable to effect a public registration of all or part of the
         Pledged Collateral pursuant to the Securities Act of 1933, as amended
         (or any similar statute then in effect) (the "Act"), Pledgors shall, in
         an expeditious manner, cause the Pledged Entities to:

                           (i) Prepare and file with the Securities and Exchange
         Commission (the "Commission") a registration statement with respect to
         the Pledged Shares and in good faith use commercially reasonable
         efforts to cause such registration statement to become and remain
         effective;

                           (ii) Prepare and file with the Commission such
         amendments and supplements to such registration statement and the
         prospectus used in connection therewith as may be necessary to keep
         such registration statement effective and to comply with the provisions
         of the Act with respect to the sale or other disposition of the Pledged
         Shares covered by such registration statement whenever Agent shall
         desire to sell or otherwise dispose of the Pledged Shares;

                           (iii) Furnish to Agent such numbers of copies of a
         prospectus and a preliminary prospectus, in conformity with the
         requirements of the Act, and such other documents as Agent may request
         in order to facilitate the public sale or other disposition of the
         Pledged Shares by Agent;

                           (iv) Use commercially reasonable efforts to register
         or qualify the Pledged Shares covered by such registration statement
         under such other securities or blue sky laws of such jurisdictions
         within the United States and Puerto Rico as Agent shall request, and do
         such other reasonable acts and things as may be required of it to


                                        9
<PAGE>

         enable Agent to consummate the public sale or other disposition in such
         jurisdictions of the Pledged Shares by Agent;

                           (v) Furnish, at the request of Agent, on the date
         that shares of the Pledged Collateral are delivered to the underwriters
         for sale pursuant to such registration or, if the security is not being
         sold through underwriters, on the date that the registration statement
         with respect to such Pledged Shares becomes effective, (A) an opinion,
         dated such date, of the independent counsel representing such
         registrant for the purposes of such registration, addressed to the
         underwriters, if any, and in the event the Pledged Shares are not being
         sold through underwriters, then to Agent, in customary form and
         covering matters of the type customarily covered in such legal
         opinions; and (B) a comfort letter, dated such date, from the
         independent certified public accountants of such registrant, addressed
         to the underwriters, if any, and in the event the Pledged Shares are
         not being sold through underwriters, then to Agent, in a customary form
         and covering matters of the type customarily covered by such comfort
         letters and as the underwriters or Agent shall reasonably request. The
         opinion of counsel referred to above shall additionally cover such
         other legal matters with respect to the registration in respect of
         which such opinion is being given as Agent may reasonably request. The
         letter referred to above from the independent certified public
         accountants shall additionally cover such other financial matters
         (including information as to the period ending not more than five (5)
         Business Days prior to the date of such letter) with respect to the
         registration in respect of which such letter is being given as Agent
         may reasonably request; and

                           (vi) Otherwise use commercially reasonable efforts to
         comply with all applicable rules and regulations of the Commission, and
         make available to its security holders, as soon as reasonably
         practicable but not later than 18 months after the effective date of
         the registration statement, an earnings statement covering the period
         of at least 12 months beginning with the first full month after the
         effective date of such registration statement, which earnings statement
         shall satisfy the provisions of Section 11(a) of the Act.

                  (d) All expenses incurred in complying with Section 8(c)
         hereof, including, without limitation, all registration and filing fees
         (including all expenses incident to filing with the National
         Association of Securities Dealers, Inc.), printing expenses, fees and
         disbursements of counsel for the registrant, the fees and expenses of
         counsel for Agent, expenses of the independent certified public
         accountants (including any special audits incident to or required by
         any such registration) and expenses of complying with the securities or
         blue sky laws or any jurisdictions, shall be paid by Pledgors.

                  (e) If, at any time when Agent shall determine to exercise its
         right to sell the whole or any part of the Pledged Collateral
         hereunder, such Pledged Collateral or the part thereof to be sold shall
         not, for any reason whatsoever, be effectively registered under the
         Act, Agent may, in its discretion (subject only to applicable
         requirements of law), sell such Pledged Collateral or part thereof by
         private sale in such manner and under such circumstances as Agent may
         deem necessary or advisable, but subject to the other requirements of
         this Section 8, and shall not be required to effect such registration


                                       10
<PAGE>

         or to cause the same to be effected. Without limiting the generality of
         the foregoing, in any such event, Agent in its discretion (x) may, in
         accordance with applicable securities laws, proceed to make such
         private sale notwithstanding that a registration statement for the
         purpose of registering such Pledged Collateral or part thereof could be
         or shall have been filed under said Act (or similar statute), (y) may
         approach and negotiate with a single possible purchaser to effect such
         sale, and (z) may restrict such sale to a purchaser who is an
         accredited investor under the Act and who will represent and agree that
         such purchaser is purchasing for its own account, for investment and
         not with a view to the distribution or sale of such Pledged Collateral
         or any part thereof. In addition to a private sale as provided above in
         this Section 8, if any of the Pledged Collateral shall not be freely
         distributable to the public without registration under the Act (or
         similar statute) at the time of any proposed sale pursuant to this
         Section 8, then Agent shall not be required to effect such registration
         or cause the same to be effected but, in its discretion (subject only
         to applicable requirements of law), may require that any sale hereunder
         (including a sale at auction) be conducted subject to restrictions:

                           (i) as to the financial sophistication and ability of
         any Person permitted to bid or purchase at any such sale;

                           (ii) as to the content of legends to be placed upon
         any certificates representing the Pledged Collateral sold in such sale,
         including restrictions on future transfer thereof;

                           (iii) as to the representations required to be made
         by each Person bidding or purchasing at such sale relating to that
         Person's access to financial information about the Pledgors and such
         Person's intentions as to the holding of the Pledged Collateral so sold
         for investment for its own account and not with a view to the
         distribution thereof; and

                           (iv) as to such other matters as Agent may, in its
         discretion, deem necessary or appropriate in order that such sale
         (notwithstanding any failure so to register) may be effected in
         compliance with the Bankruptcy Code and other laws affecting the
         enforcement of creditors' rights and the Act and all applicable state
         securities laws.

                  (f) Pledgors recognize that Agent may be unable to effect a
         public sale of any or all the Pledged Collateral and may be compelled
         to resort to one or more private sales thereof in accordance with
         clause (e) above. Pledgors also acknowledge that any such private sale
         may result in prices and other terms less favorable to the seller than
         if such sale were a public sale and, notwithstanding such
         circumstances, agree that any such private sale shall not be deemed to
         have been made in a commercially unreasonable manner solely by virtue
         of such sale being private. Agent shall be under no obligation to delay
         a sale of any of the Pledged Collateral for the period of time
         necessary to permit the Pledged Entity to register such securities for
         public sale under the Act, or under applicable state securities laws,
         even if Pledgors and the Pledged Entity would agree to do so.



                                       11
<PAGE>

                  (g) Pledgors agree to the maximum extent permitted by
         applicable law that following the occurrence and during the continuance
         of an Event of Default they will not at any time plead, claim or take
         the benefit of any appraisal, valuation, stay, extension, moratorium or
         redemption law now or hereafter in force in order to prevent or delay
         the enforcement of this Agreement, or the absolute sale of the whole or
         any part of the Pledged Collateral or the possession thereof by any
         purchaser at any sale hereunder, and Pledgors waive the benefit of all
         such laws to the extent they lawfully may do so. Pledgors agree that
         they will not interfere with any right, power and remedy of Agent
         provided for in this Agreement or now or hereafter existing at law or
         in equity or by statute or otherwise, or the exercise or beginning of
         the exercise by Agent of any one or more of such rights, powers or
         remedies. No failure or delay on the part of Agent to exercise any such
         right, power or remedy and no notice or demand which may be given to or
         made upon Pledgors by Agent with respect to any such remedies shall
         operate as a waiver thereof, or limit or impair Agent's right to take
         any action or to exercise any power or remedy hereunder, without notice
         or demand, or prejudice its rights as against Pledgors in any respect.

                  (h) Pledgors further agree that a breach of any of the
         covenants contained in this Section 8 will cause irreparable injury to
         Agent, that Agent shall have no adequate remedy at law in respect of
         such breach and, as a consequence, agree that each and every covenant
         contained in this Section 8 shall be specifically enforceable against
         Pledgors, and Pledgors hereby waive and agree not to assert any
         defenses against an action for specific performance of such covenants
         except for a defense that the Secured Obligations are not then due and
         payable in accordance with the agreements and instruments governing and
         evidencing such obligations.

                  9. Irrevocable Authorization and Instruction. Pledgors hereby
authorize and instruct each Pledged Entity listed on Part B of Schedule I hereto
and CoBank, ACB with respect to the CoBank stock listed on Part A of Schedule I
to comply with any instruction received by it from Agent without any further
order or further consent or instructions from Pledgors and Pledgors agree that
each Pledged Entity shall be fully protected in so complying.

                  10. Waiver. No delay on Agent's part in exercising any power
of sale, Lien, option or other right hereunder, and no notice or demand which
may be given to or made upon Pledgors by Agent with respect to any power of
sale, Lien, option or other right hereunder, shall constitute a waiver thereof,
or limit or impair Agent's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Agent's rights as against Pledgors in any respect.

                  11. Assignment. Agent may assign, indorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Credit Agreement, and the holder of such instrument
shall be entitled to the benefits of this Agreement.

                  12. Termination. Immediately following the Termination Date,
Agent shall deliver to Pledgors the Pledged Collateral pledged by the Pledgors
at the time subject to this Agreement and all instruments of assignment executed
in connection therewith, free and clear of the Liens hereof and, except as


                                       12
<PAGE>

otherwise provided herein, all of Pledgors' obligations hereunder shall at such
time terminate.

                  13. Lien Absolute. Subject to the Issuer Lien provided in
Section 2 hereof, all rights of Agent hereunder, and all obligations of Pledgors
hereunder, shall be absolute and unconditional irrespective of:

                  (a) any lack of validity or enforceability of the Credit
         Agreement, any other Loan Document or any other agreement or instrument
         governing or evidencing any Secured Obligations;

                  (b) any change in the time, manner or place of payment of, or
         in any other term of, all or any part of the Secured Obligations, or
         any other amendment or waiver of or any consent to any departure from
         the Credit Agreement, any other Loan Document or any other agreement or
         instrument governing or evidencing any Secured Obligations;

                  (c) any exchange, release or non-perfection of any other
         Collateral, or any release or amendment or waiver of or consent to
         departure from any guaranty, for all or any of the Secured Obligations;

                  (d) the insolvency of any Credit Party; or

                  (e) any other circumstance which might otherwise constitute a
         defense available to, or a discharge of, Pledgors.

                  14. Release. Pledgors consent and agree that Agent may at any
time, or from time to time, in its discretion:

                  (a) renew, extend or change the time of payment, and/or the
         manner, place or terms of payment of all or any part of the Secured
         Obligations; and

                  (b) exchange, release and/or surrender all or any of the
         Collateral (including the Pledged Collateral), or any part thereof, by
         whomsoever deposited, which is now or may hereafter be held by Agent in
         connection with all or any of the Secured Obligations; all in such
         manner and upon such terms as Agent may deem proper, and without notice
         to or further assent from Pledgors, it being hereby agreed that
         Pledgors shall be and remain bound upon this Agreement, irrespective of
         the value or condition of any of the Collateral, and notwithstanding
         any such change, exchange, settlement, compromise, surrender, release,
         renewal or extension, and notwithstanding also that the Secured
         Obligations may, at any time, exceed the aggregate principal amount
         thereof set forth in the Credit Agreement, or any other agreement
         governing any Secured Obligations. Pledgors hereby waive notice of
         acceptance of this Agreement, and also presentment, demand, protest and
         notice of dishonor of any and all of the Secured Obligations, and
         promptness in commencing suit against any party hereto or liable
         hereon, and in giving any notice to or of making any claim or demand
         hereunder upon Pledgors. No act or omission of any kind on Agent's part
         shall in any event affect or impair this Agreement.



                                       13
<PAGE>

                  15. Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Pledgors or any Pledged Entity for liquidation or reorganization, should
Pledgors or any Pledged Entity become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Pledgors' or a Pledged Entity's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference", "fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

                  16. Miscellaneous.

                  (a) Agent may execute any of its duties hereunder by or
         through agents or employees and shall be entitled to advice of counsel
         concerning all matters pertaining to its duties hereunder.

                  (b) Pledgors agree to promptly reimburse Agent for actual
         out-of-pocket expenses, including, without limitation, reasonable
         counsel fees, incurred by Agent in connection with the administration
         and enforcement of this Agreement.

                  (c) Neither Agent, nor any of its respective officers,
         directors, employees, agents or counsel shall be liable for any action
         lawfully taken or omitted to be taken by it or them hereunder or in
         connection herewith, except for its or their own gross negligence or
         willful misconduct as finally determined by a court of competent
         jurisdiction.

                  (d) THIS AGREEMENT SHALL BE BINDING UPON PLEDGORS AND THEIR
         SUCCESSORS AND ASSIGNS (INCLUDING DEBTORS-IN-POSSESSION ON BEHALF OF
         PLEDGORS), AND SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY,
         AGENT AND ITS SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND
         CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
         YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE
         OF THE TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED,
         MODIFIED OR AMENDED EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF
         AGENT AND PLEDGORS.

                  17. Severability. If for any reason any provision or
provisions hereof are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or effect those
portions of this Agreement which are valid.

                  18. Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to


                                       14
<PAGE>

give or serve upon any other a communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person or
sent by registered or certified mail, return receipt requested, with proper
postage prepaid, or by facsimile transmission and confirmed by delivery of a
copy by personal delivery or United States Mail as otherwise provided herein:

                (a)      If to Agent, at:

                         General Electric Capital Corporation
                         800 Connecticut Avenue
                         Two North
                         Norwalk, Connecticut 06854
                         Attention: Agway Account Manager
                         Fax No.: (203) 852-3630

                         With copies to:

                         Paul, Hastings, Janofsky & Walker LLP
                         1055 Washington Boulevard, 10th Floor
                         Stamford, Connecticut 06901-2217
                         Attention: Leslie A. Plaskon, Esq.
                         Fax No.: (203) 359-3031

                                          - and -

                         General Electric Capital Corporation
                         201 High Ridge Road
                         Stamford, Connecticut 06927-5100
                         Attention: Corporate Counsel - Commercial Finance
                         Fax No.: (203) 316-7889

                (b)      If to any Pledgor, at:

                         Agway, Inc.
                         333 Butternut Drive
                         Dewitt, New York 13214
                         Attention: Karen Ohligher
                         Fax No.: (315) 449-6435

                         With copies to:

                         Weil, Gotshal & Manges LLP
                         767 Fifth Avenue
                         New York, New York 10153
                         Attention: Marsha Simms, Esq.
                         Fax No.: (212) 310-8007


                                       15
<PAGE>

or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly served, given or delivered (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 18, (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (d) when delivered, if hand-delivered by
messenger. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.

                  19. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

                  20. Counterparts. This Agreement may be executed in any number
of counterparts, which shall, collectively and separately, constitute one
agreement.

                  21. Benefit of Lenders. All security interests granted or
contemplated hereby shall be for the benefit of Agent and Lenders, and all
proceeds or payments realized from the Pledged Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms of the Credit
Agreement.

                            [signature page follows]






                                       16
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.

                    AGWAY, INC.
                    AGWAY FINANCIAL CORPORATION
                    AGWAY HOLDINGS INC.
                    FEED COMMODITIES INTERNATIONAL LLC
                    MILFORD FERTILIZER COMPANY LLC
                    BRUBAKER AGRONOMIC CONSULTING SERVICE LLC
                    COUNTRY BEST-DEBERRY LLC
                    AGWAY ENERGY PRODUCTS LLC
                    AGWAY ENERGY SERVICES-PA, INC.
                    AGWAY ENERGY SERVICES, INC.

                    By:    /s/  KAREN J. OHLIGER
                         -----------------------------
                    Name:  KAREN J. OHLIGER
                         -----------------------------
                    Title:  TREASURER
                          ----------------------------

                    AGWAY GENERAL AGENCY, INC.
                    COUNTRY BEST ADAMS, LLC

                    By:   /s/  KAREN J. OHLIGER
                          ----------------------------
                    Name:  KAREN J. OHLIGER
                          ----------------------------
                    Title:  ASST. TREASURER
                          ----------------------------

                    GENERAL ELECTRIC CAPITAL CORPORATION, AS AGENT



                    By:   /s/  PIETER SMIT
                          ----------------------------
                    Name:  PIETER SMIT
                          -----------------------------
                          Its Duly Authorized Signatory





<PAGE>
                    INTELLECTUAL PROPERTY SECURITY AGREEMENT
                    ----------------------------------------

                  THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT, dated as of
March 28, 2001, is made by Agway, Inc., a Delaware corporation ("Agway"), Agway
Holdings Inc., a Delaware corporation ("AHI"), Agway Financial Corporation, a
Delaware corporation ("AFC"), Feed Commodities International LLC, a limited
liability company organized under the laws of the state of Delaware ("FCI"),
Milford Fertilizer Company LLC, a limited liability company organized under the
laws of the state of Delaware ("MFC"), Brubaker Agronomic Consulting Service
LLC, a limited liability company organized under the laws of the state of
Delaware ("BACS"), Agway General Agency, Inc. a New York corporation ("AGA"),
Country Best Adams, LLC, a limited liability company organized under the laws of
the state of Delaware ("CBA"), Country Best-Deberry LLC, a limited liability
company organized under the laws of the state of Delaware ("CBD"), Agway Energy
Products LLC, a limited liability company organized under the laws of the state
of Delaware ("AEP"), Agway Energy Services-PA, Inc., a Delaware corporation
("AESPA"), and Agway Energy Services, Inc., a Delaware corporation ("AES");
(Agway, AHI, AFC, FCI, MFC, BACS, AGA, CBA, CBD, AEP, AESPA and AES are,
together, "Grantor") in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation, in its capacity as agent for Lenders ("Agent").

                              W I T N E S S E T H:

                  WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Grantor, the Persons named therein as Credit
Parties, Agent and the Persons signatory thereto from time to time as Lenders
(including all annexes, exhibits or schedules thereto, as from time to time
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
Lenders have agreed to make the Loans and to incur Letter of Credit Obligations
for the benefit of Grantor; and

                  WHEREAS, Lenders are willing to make the Loans and to incur
the Letter of Credit Obligations as provided for in the Credit Agreement, but
only upon the condition, among others, that Grantor shall have executed and
delivered to Agent this Intellectual Property Security Agreement;

                  NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby agrees
as follows:

                  1. DEFINED TERMS. All capitalized terms used but not otherwise
defined herein have the meanings given to them in Annex A to the Credit
Agreement.

                  2. GRANT OF SECURITY INTEREST IN INTELLECTUAL PROPERTY
COLLATERAL. To secure the complete and timely payment of all the Obligations of
Grantor now or hereafter existing from time to time, Grantor hereby pledges and


<PAGE>

grants to Agent, on behalf of itself and Lenders, a continuing first priority
security interest in all of Grantor's right, title and interest in, to and under
the following, whether presently existing or hereafter created or acquired
(collectively, the "Intellectual Property Collateral"):

                        (a) all of its Patents and Patent Licenses to which it
is a party including those referred to on Schedule I hereto;

                        (b) all of its Trademarks and Trademark Licenses to
which it is a party including those referred to on Schedule II hereto;

                        (c) all of its Copyrights and Copyright Licenses to
which it is a party including those referred to on Schedule III hereto;

                        (d) all reissues, continuations or extensions of the
foregoing;

                        (e) all goodwill of the business connected with the use
of, and symbolized by, each Patent, each Patent License, each Trademark, each
Trademark License, each Copyright and each Copyright License; and

                        (f) all products and proceeds of the foregoing,
including, without limitation, any claim by Grantor against third parties for
past, present or future (i) infringement or dilution of any Patent or Patent
licensed under any Patent License, (ii) injury to the goodwill associated with
any Patent or any Patent licensed under any Patent License, (iii) infringement
or dilution of any Trademark or Trademark licensed under any Trademark License,
(iv) injury to the goodwill associated with any Trademark or any Trademark
licensed under any Trademark License, (v) infringement or dilution of any
Copyright or Copyright licensed under any Copyright License, and (vi) injury to
the goodwill associated with any Copyright or any Copyright licensed under any
Copyright License.

                  3. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants that Grantor does not have any interest in, or title to, any Patent,
Trademark or Copyright except as set forth in Schedule I, Schedule II and
Schedule III, respectively, hereto. This Intellectual Property Security
Agreement is effective to create a valid and continuing Lien on and, upon the
filing hereof with the United States Patent and Trademark Office and the United
States Copyright Office, perfected security interests in favor of Agent in all
of Grantor's Patents, Trademarks and Copyrights and such perfected security
interests are enforceable as such as against any and all creditors of, and
purchasers from, Grantor. Upon filing of this Intellectual Property Security
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office and the filing of appropriate financing statements
listed on Schedule I to the Security Agreement, all action necessary or
desirable to protect and perfect Agent's Lien on Grantor's Patents, Trademarks
and Copyrights shall have been duly taken.



                                        2
<PAGE>

                  4. COVENANTS. Grantor covenants and agrees with Agent, on
behalf of itself and Lenders, that from and after the date of this Intellectual
Property Security Agreement and until the Termination Date:

                        (a) Grantor shall notify Agent immediately if it knows
or has reason to know that any application or registration relating to any
Patent, Trademark or Copyright (now or hereafter existing) material to the
operation of such Grantor's business may become abandoned, or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court) regarding
Grantor's ownership of any such Patent, Trademark or Copyright, its right to
register the same, or to keep and maintain the same.

                        (b) Within 45 days after the end of each Fiscal Quarter,
Grantors shall provide Agent a list of any applications for the registration of
any Patent, Trademark or Copyright filed by any Credit Party with the United
States Patent and Trademark Office, The United States Copyright Office or any
similar office or agency in the prior Fiscal Quarter, and, upon request of
Agent, Grantor shall execute and deliver a supplement hereto (in form and
substance satisfactory to Agent) to evidence Agent's Lien on such Patent,
Trademark or Copyright, and the General Intangibles of Grantor relating thereto
or represented thereby.

                        (c) Grantor shall take all actions necessary or
requested by Agent to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each of the Patents,
Trademarks or Copyrights (now or hereafter existing) material to the operation
of such Grantor's business, including the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings.

                        (d) In the event that any of the Intellectual Property
Collateral is infringed upon, or misappropriated or diluted by a third party,
Grantor shall notify Agent promptly after Grantor learns thereof. Grantor shall,
unless it shall reasonably determine that such Intellectual Property Collateral
is in no way material to the conduct of its business or operations, promptly sue
for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and shall take such
other actions as Agent shall deem appropriate under the circumstances to protect
such Intellectual Property Collateral.

                  5. SECURITY AGREEMENT. The security interests granted pursuant
to this Intellectual Property Security Agreement are granted in conjunction with
the security interests granted to Agent pursuant to the Security Agreement.
Grantor hereby acknowledges and affirms that the rights and remedies of Agent
with respect to the security interest in the Intellectual Property Collateral
made and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if fully
set forth herein.



                                        3
<PAGE>

                  6. REINSTATEMENT. This Intellectual Property Security
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against Grantor for liquidation or
reorganization, should Grantor become insolvent or make an assignment for the
benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of Grantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.

                  7. NOTICES. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other party, or
whenever any of the parties desires to give and serve upon any other party any
communication with respect to this Intellectual Property Security Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be given in the manner, and deemed
received, as provided for in the Credit Agreement.

                  8. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section
6 hereof, this Intellectual Property Security Agreement shall terminate upon the
Termination Date.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





                                        4
<PAGE>

                  IN WITNESS WHEREOF, Grantor has caused this Intellectual
Property Security Agreement to be executed and delivered by its duly authorized
officer as of the date first set forth above.

                           AGWAY, INC.
                           AGWAY HOLDINGS INC.
                           AGWAY FINANCIAL CORPORATION FEED COMMODITIES
                           INTERNATIONAL LLC MILFORD FERTILIZER COMPANY LLC
                           BRUBAKER AGRONOMIC CONSULTING SERVICE LLC COUNTRY
                           BEST-DEBERRY LLC AGWAY ENERGY PRODUCTS LLC AGWAY
                           ENERGY SERVICES-PA, INC. AGWAY ENERGY SERVICES, INC.

                           By:   /s/  KAREN J. OHLIGER
                              --------------------------------------------------
                           Name:   KAREN J. OHLIGER
                           Title:  TREASURER


                           AGWAY GENERAL AGENCY, INC.
                           COUNTRY BEST ADAMS, LLC

                           By:  /s/   KAREN J. OHLIGER
                              --------------------------------------------------
                           Name:   KAREN J. OHLIGER
                           Title:  ASST. TREASURER

ACCEPTED and ACKNOWLEDGED by:

GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent


By:  /s/  PIETER SMIT
   --------------------------------------------------
Name:  PIETER SMIT
Its: Duly Authorized Signatory

<PAGE>