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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(MARK ONE)
  X   ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----  ACT OF 1934
      For the fiscal year ended June 30, 2002
                                       OR
      TRANSITION  REPORT PURSUANT TO SECTION  13  OR  15(d)  OF  THE  SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from                    to
      Commission file number 2-22791
                                   AGWAY INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                        15-0277720
  (STATE OR OTHER JURISDICTION              (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

                   333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 315-449-6436

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

  TITLE OF EACH CLASS                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
  -------------------                  -----------------------------------------
         None                                             None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

      INDICATE BY CHECK MARK  WHETHER THE  REGISTRANT  (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),  AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
                                    X
                                   ---  ---
                                   Yes   No

      INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST  OF  REGISTRANT'S   KNOWLEDGE,  IN  ANY  DEFINITIVE  PROXY  OR  INFORMATION
STATEMENTS  INCORPORATED  BY  REFERENCE  IN PART  III OF THIS  FORM  10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
                            ---

      STATE THE  AGGREGATE  MARKET  VALUE OF THE  VOTING AND  NON-VOTING  COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 27, 2002.

               Membership Common Stock, $25 Par Value - $2,411,200

      INDICATE  THE  NUMBER OF SHARES  OUTSTANDING  OF EACH OF THE  REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
          CLASS                                OUTSTANDING AT SEPTEMBER 27, 2002
          -----                                ---------------------------------
   Membership Common Stock,
       $25 Par Value                                    96,448 Shares

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         FORM 10-K ANNUAL REPORT - 2002
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                              CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
                                                                                                                Page
                                     PART I
<S>              <C>                                                                                             <C>
Items 1 & 2.     Business and Properties
                     General...................................................................................   3
                     Agriculture...............................................................................   5
                     Country Products Group....................................................................   6
                     Energy....................................................................................   8
                     Other.....................................................................................   8
                     Discontinued Operations...................................................................   9
                         Leasing...............................................................................   9
                         Insurance.............................................................................   9
                         Agronomy..............................................................................  10
                         Sunflower.............................................................................  10
                         Retail................................................................................  10
                     Human Resources...........................................................................  11
                     Administrative............................................................................  11
                     Regulation................................................................................  11
                     Stockholder Membership and Control of Agway...............................................  11
                     Retained Earnings.........................................................................  12
                     Patronage Refunds.........................................................................  13
Item 3.          Legal Proceedings.............................................................................  14
Item 4.          Submission of Matters to a Vote of Security Holders...........................................  15

                                     PART II

Item 5.          Market for the Registrant's Common Equity and Related Stockholder Matters.....................  15
Item 6.          Selected Financial Data.......................................................................  15
Item 7.          Management's Discussion and Analysis of Financial Condition and Results of Operations.........  16
Item 7a.         Quantitative and Qualitative Disclosures about Market Risk....................................  38
Item 8.          Financial Statements and Supplementary Data...................................................  39
Item 9.          Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........  78

                                    PART III

Item 10.         Directors and Executive Officers of the Registrant............................................  78
Item 11.         Executive Compensation........................................................................  82
Item 12.         Security Ownership of Certain Beneficial Owners and Management................................  86
Item 13.         Certain Relationships and Related Transactions................................................  86

                                     PART IV

Item 14.         Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................  87

                 Signatures....................................................................................  98

                 Certifications Under New Exchange Act Rules 13a-14 and 15d-14 of the Exchange Act of 1934..... 100
</TABLE>

                                        2
<PAGE>



                                     PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

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

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

GENERAL

Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in De Witt, New York. Agway is an agricultural  cooperative
primarily engaged in providing  agriculture-related products and services to its
farmer-members  and other customers,  as described in more detail below. In this
Form 10-K, unless otherwise  indicated,  the "Company,"  "Agway," "we," or "our"
refer to Agway Inc. and its subsidiaries.

Agway Inc. and certain of its  subsidiaries  intend to file voluntary  petitions
for  reorganization  under  Chapter 11 of the U.S.  Bankruptcy  Code in order to
allow it to continue running its businesses without  interruption while it gains
the time needed to  reorganize  its financial  obligations  and  strengthen  its
balance sheet. The petitions for Agway Inc. and certain of its subsidiaries will
include the following business units: Agway Feed and Nutrition,  Agway Agronomy,
Seedway,  Feed  Commodities  International  (FCI),  Country  Best  Produce,  CPG
Nutrients,  Agway CPG Technologies and Agway General Agency. These petitions are
expected to be filed with the United  States  Bankruptcy  Court for the Northern
District of New York in Utica, New York, on October 1, 2002.

Four wholly owned Agway Inc. subsidiaries WILL NOT be included in the Chapter 11
filings:  Agway Energy Products LLC, Agway Energy  Services,  Inc., Agway Energy
Services-PA, Inc. and Telmark LLC.

Agway intends to develop a longer-term  strategic  plan of  reorganization  that
will serve as a framework for Agway's emergence from the Chapter 11 process as a
financially healthy, more competitive  enterprise.  As of June 30, 2002, Agway's
total assets on a consolidated basis were $1,574,360 while its total liabilities
on a consolidated basis were approximately $1,510,258. For more information, see
the Liquidity and Capital Resources  section of Item 7, Management's  Discussion
and Analysis of Financial Condition and Results of Operations, and Note 2, Going
Concern, in Item 8, Financial Statements and Supplemental Data.

Agway is an  agricultural  cooperative  directly  engaged  within its continuing
operations  in  manufacturing,   processing,   distribution,  and  marketing  of
agricultural  feed  products  and  services  for its  farmer-members  and  other
customers,  primarily in the  northeastern  United States and Ohio. In addition,
Agway is involved in repacking  and  marketing  fresh produce and is involved in
new technologies to benefit agricultural and food businesses through its Country
Products  Group segment. Agway,  through a wholly owned subsidiary, Agway Energy
Products LLC, is also involved in the distribution of petroleum products and the
installation  and  servicing  of  heating,   ventilation,  and  air-conditioning
equipment.

                                        3
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


GENERAL (CONTINUED)

Operating as a  cooperative,  Agway is eligible to pay patronage  refunds to its
members and  "contract  patrons"  from  earnings on sales of patronage  eligible
products and services.  See Patronage  Refunds  below.  For income tax purposes,
Agway is subject to corporate  income tax at applicable tax rates on all taxable
income remaining after deductions for patronage refunds, if paid.

Prior to July 1, 2001, Agway Financial Corporation (AFC), a Delaware corporation
incorporated  in 1986 with principal  executive  offices  located in Wilmington,
Delaware,  was a wholly owned  subsidiary  of Agway.  AFC's  principal  business
activities  consisted of securing  financing  through bank borrowings and public
issuance of corporate debt instruments,  principally in the form of Subordinated
Debentures and Subordinated  Money Market  Certificates  (collectively the "Debt
Securities"), in order to provide funds for general corporate purposes to Agway,
AFC's wholly owned  subsidiary,  Agway Holdings Inc. (AHI), and certain of AHI's
subsidiaries.

Major holdings of AHI included Agway Energy  Products LLC, Agway Energy Services
Inc., and Agway Energy Services-PA,  Inc. (Energy segment),  Telmark LLC and its
subsidiaries  (Leasing  segment),  and Agway Insurance Company and Agway General
Agency Inc.  (Insurance  segment)  through  June 30, 2001.  In exemptive  relief
granted  pursuant to a "no action  letter" issued by the staff of the Securities
and Exchange  Commission  (SEC),  AFC did not file periodic reports with the SEC
for itself but did  historically  report  summarized  financial  information  in
Agway's financial statement  footnotes.  The Leasing and Insurance segments (now
included in discontinued operations) have historically financed their activities
through their own operations or with a combination of their own short- and long-
term credit facilities. No funds borrowed by AFC were used to finance Leasing or
Insurance nor is Telmark LLC's debt guaranteed by Agway.

Over time, we determined that Agway's complex corporate  structure was no longer
necessary  due to  changed  circumstances  related  to  Agway's  financing,  and
effective July 1, 2001, we simplified the corporate structure by merging AFC and
AHI into Agway Inc.  As a result of those  mergers,  Agway Inc.  assumed all the
assets  and  liabilities  of AFC  (including  the Debt  Securities)  and AHI and
assumed the direct responsibility of securing financing,  as described above. In
connection  with  the  assumption  by Agway of the  obligations  under  the Debt
Securities,  AFC,  Agway  and The  Chase  Manhattan  Bank,  a New  York  banking
corporation  (the Trustee),  entered into a Supplemental  Indenture  dated as of
July 1,  2001  which  provides  for  the  assumption  by  Agway  of all  rights,
responsibilities  and obligations of AFC under existing  indentures and the Debt
Securities to which they relate.

As a result of the  foregoing  transactions,  all of AHI's  direct  subsidiaries
became direct  subsidiaries of Agway. In addition,  also effective July 1, 2001,
Agway, as the sole member of Milford  Fertilizer Company LLC, a Delaware limited
liability company (Milford), merged Milford with and into Agway Inc. As a result
of this  merger,  Agway Inc.  has assumed all of the assets and  liabilities  of
Milford.

The above  mergers  did not  result  in a  material  change in the  consolidated
financial position or results of operations of Agway.

                                        4
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

GENERAL (CONTINUED)

Prior to March 6, 2002,  Agway  reported its  financial  results in five primary
segments:  Agriculture,  Country Products Group, Energy, Insurance, and Leasing.
On March 6, 2002, the Company announced details of a comprehensive plan designed
to refocus  capital  resources  on four  selected  businesses:  Animal  Feed and
Nutrition (the  principal  operation  within the  Agriculture  segment),  Energy
Products (Energy segment),  Produce, and Agricultural  Technologies  (operations
within  the  Country  Products  Group  segment).  This plan also  disclosed  our
intentions  to divest four  business  operations:  Telmark  (the former  Leasing
segment),  Agway Insurance  Company (the principal  operation  within the former
Insurance  segment),  and  Agronomy  and  Seedway  (formerly  components  of the
Agriculture  segment).  After this plan was  announced,  as part of its  ongoing
strategic assessment,  Agway began to explore strategic  alternatives  involving
the sunflower  business  (Sunflower),  an operation formerly included within the
Country  Products Group segment,  and in June 2002, the Agway Board of Directors
voted to pursue a sale of this  business.  As  required  by  generally  accepted
accounting  principles,  the  financial  statements  presented in this Form 10-K
separately   reflect  the  business   operations   planned  for  divestiture  as
discontinued  operations for all periods  reported.  For further  information on
these  discontinued  operations,  refer to Discontinued  Operations below and in
Item 7, Management's  Discussion and Analysis of Financial Condition and Results
of Operations, and to Note 3 to the financial statements contained in Item 8. As
a result of the  foregoing,  Agway now  reports its  financial  results in three
primarily  segments:  Agriculture,  Country Products Group, and Energy. For more
information  regarding these segments,  see Item 7, Management's  Discussion and
Analysis of Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.

On August 28,  2002,  Agway  completed  the sale of Agway  Insurance  Company to
United Farm Family  Mutual  Insurance  Company.  On September  16,  2002,  Agway
completed  the  sale  of  its  sunflower   business  to  Cenex  Harvest   States
Cooperatives.  On September 27, 2002, Agway and GROWMARK announced that they had
signed a  definitive  agreement  regarding  the sale of the Agronomy and Seedway
businesses and related assets.

AGRICULTURE

FEED AND  NUTRITION:  The Feed and  Nutrition  Division  operates 18 feed mills,
principally in New York, Pennsylvania, and Vermont. These operations manufacture
livestock and poultry feeds under Agway  formulae.  Products are sold  primarily
through an Agway sales  force,  which  actively  calls on  farmer-customers  and
responds to customer  inquiries.  Agway  believes  that  production  capacity of
animal feeds will be  sufficient  to meet market needs of the Feed and Nutrition
Division.  As of September 2002, as a result of a continued strategic assessment
of the feed mills,  the Company has signed a purchase and sale agreement for the
sale of the  Guilderland,  New York,  feed mill and  expects to close in October
2002. In addition,  as noted above,  Agway and GROWMARK have signed a definitive
agreement  regarding  the  sale  of  the  Agronomy  and Seedway  businesses  and
related assets to GROWMARK.

The Feed  operations  have  built four  farms,  which,  on a contract  basis for
farmers,  custom raise heifers in an  environment  that is designed to result in
those heifers  testing free of specific  pathogens  (TSPF(TM) -  tested-specific
pathogen free) with the ultimate goal of increasing the  productivity  levels of
such heifers.  The facilities are in Elba, Easton, and Hopkinton,  New York, and
Newburg,  Pennsylvania.  As  of  September  2002,  as a  result  of a  continued
strategic  assessment of these farms, the Company has signed a purchase and sale
agreement for the sale of the Easton, New York, farm and expects to close on the
sale in October 2002.

RESEARCH AND  DEVELOPMENT:  The Feed and Nutrition  Division  conducts  research
pertinent to its markets.  During the years ended June 2002,  2001 and 2000, net
expenditures  of  $100,  $200  and  $2,400,   respectively,   were  incurred  by
Agriculture on agricultural  research  activities.  The fiscal 2000 expenditures
were  substantially  the  result  of the  initial  development  of the  TSPF(TM)
heifer-rearing process.

                                        5
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

AGRICULTURE (CONTINUED)

COMPETITION: The Feed operations are one of the largest suppliers based on sales
volume in the northeastern United States (Source: Feed Management).  Competition
exists with large national and regional feed manufacturers as well as with local
independent  mills.  The market  position  held by Agway in the feed business is
significant, resulting from performance, quality of its products, an established
manufacturing and distribution system, and a knowledgeable work force.

AGRICULTURE  REALIGNMENT:  In the second  quarter of fiscal year 2001, the Agway
Board of  Directors  approved  a plan  (the  Agriculture  Plan) to  realign  the
Agriculture  segment of Agway's  business with the continuing  concentration  of
farming  and  our   farmer-members  in  the  northeastern   United  States.  The
realignment of the Agriculture segment into a Feed and Nutrition Division and an
Agronomy Division has been completed.  In addition, a total of 62 locations have
been converted to dealers,  sold, or closed and 397 employees at these locations
have been paid  severance.  The 62 locations were comprised of 4 feed mills,  12
feed  storage and mix  locations,  39 agronomy  facilities,  and 7 farm  stores.
During the realignment process, gains experienced on the sale of properties have
been recognized when realized,  inventories have been reduced to their estimated
net realizable  values,  and operating  costs during the  transition  period are
recognized when incurred (see Note 13 to the financial statements for summary of
impact  of this  plan).  As  noted  above,  Agway  and  GROWMARK  have  signed a
definitive  agreement regarding the sale of the Agronomy and Seedway businesses,
and related assests to GROWMARK.

COUNTRY PRODUCTS GROUP

Agway's  Country  Products Group (CPG) is engaged in the repacking and marketing
of fresh  produce and is  involved in the  development  of new  technologies  to
benefit agricultural and food businesses.  Agway believes that all operations of
CPG have sufficient capacity to meet their operating requirements.

The produce  operations of CPG (generally  marketed under the name Country Best)
consist  of a network of  seventeen  offices/facilities.  Facilities  in DeWitt,
Elba, and Chittenango,  NY; Winder,  Georgia; and Plant City, Florida specialize
in sizing and packing potatoes,  onions and corn into consumer packages for sale
to grocery  store and food  service  outlets.  A second  facility in Plant City,
Florida  specializes  in  handling  and  selling  fresh  strawberries  and other
vegetables  primarily from Florida.  There are three farmers'  market  locations
(Forest  Park,  Georgia;  and Tampa and Plant  City,  Florida)  that sell a wide
variety of produce to food  service  distributors  and  grocery  store  outlets.
Produce brokerage locations operate out of Calverton, New York, and Idaho Falls,
Idaho, and market a wide variety of produce across the United States.  The truck
brokerage  operation and the seed potato business were both shut down in May and
June of 2002,  respectively,  due to a planned  decision to exit these  business
lines. The full-line  produce  operation in Donna,  Texas, was shut down in July
2001, due to unsatisfactory financial performance.

Country Products Group started several  businesses  involved in new technologies
to  benefit   agricultural  and  food  businesses  as  follows:  CPG  Nutrients,
headquartered  in DeWitt,  New York,  is  exploring  opportunities  to apply new
technologies within the agricultural industry and, where feasible and practical,
to  introduce  those  products  and market  them to national  and  international
agricultural  customers.  A facility in  Kittanning,  Pennsylvania,  produces an
animal feed product,  OptigenTM 1200, a controlled  release nitrogen source that
uses a technology originally developed by Planet Polymer, discussed below. Agway
CPG Technologies International (CPG Technologies),  headquartered in DeWitt, New
York, invests in post-harvest  technologies such as Fresh Seal(TM), a innovative
product used for the preservation of fruits and vegetables.  Fresh Seal(TM) also
uses a technology originally developed by Planet Polymer.

CPG, through Agway,  currently owns  approximately 33% (3,000,000 shares) of the
outstanding common stock of Planet Polymer  Technologies Inc. (Planet),  located
in San Diego,  California.  On July 18, 2001, Planet's common stock was delisted
from the Nasdaq  small cap stock  market due to  non-compliance  with Nasdaq net
tangible assets and minimum bid pricing requirements.

                                        6
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

COUNTRY PRODUCTS GROUP (CONTINUED)

In November 1998,  Planet granted Agway an exclusive  worldwide  license for all
current and future products that utilize Planet's polymer coating technology for
agricultural and  food-related  purposes (other than products already covered by
existing  agreements).  In March 2000, Agway and Planet entered into sub-license
agreements  defining  sales  royalties  due  Planet  with  respect  to  Planet's
patented/patent  pending  coatings and/or polymer systems sold for use in animal
feed products and on fruits,  vegetables,  floral and nursery items. In November
2000,  Agway purchased rights to the Planet patents that are used in animal feed
products and on fruits, vegetables, floral, and nursery items. For these rights,
Agway  agreed to (1) pay $250 in cash,  (2)  continue  the sales  royalties  due
Planet as defined in the sub-license agreement existing prior to the purchase of
these patent rights, and (3) sell back to Planet the exclusive worldwide license
to all current and future products that utilize this polymer coating  technology
for uses other than agricultural and food-related purposes for $150.

CPG has recently disposed of its business operations involved in the processing,
sale,  and  distribution  of human edible  sunflower  seed and bird food and the
manufacturing of bags.  These  operations were sold in transactions  that closed
subsequent  to June 30,  2002.  In  addition,  CPG has a  minority  interest  in
Pro-Pet,  a  pet  food  manufacturer,   which  is  under  contract  to  be  sold
incrementally  over time.  LifeRight Foods, LLC,  headquartered in Philadelphia,
Pennsylvania,  was a  joint  venture  owned  45% by CPG  and  45% and 10% by two
independent  entities.  The purpose of LifeRight Foods was to develop and market
branded, nutritionally enriched food products for the retail market. This was to
be accomplished through the development or license of animal feed products which
produce  enhanced  food  products.  In  September  2002,  the joint  venture was
dissolved. The intellectual property developed by the joint venture was assigned
to the prior  joint  venture  members in  proportion  to their  prior  ownership
interests. Rights of members are governed by an intellectual property agreement.

RESEARCH  AND  DEVELOPMENT:  During the years  ended  June 2002,  2001 and 2000,
expenditures  of $300,  $300 and $500,  respectively,  were  incurred  by CPG on
research and development activities.

COMPETITION:  CPG's produce  operation  competes with a large number of firms of
all sizes and types.  The principal  factors of competition in these  operations
are product  quality,  efficiencies in product  distribution,  concentration  in
selected markets, technology and current market pricing. CPG's operations do not
occupy a major position in national markets.

CPG Nutrients  has no direct  competitors  in the market for  controlled-release
nitrogen  products  in the  animal  feed  area,  so  competition  will come from
indirect sources.  CPG Nutrients competes on the basis of a new technology that,
compared to existing technologies,  improves product quality and performance. As
new products are developed,  competitive  factors may change.  CPG Technologies'
competition  comes from  several  types of coating  companies  and  producers of
similar  products,  some of which are much larger than CPG Technologies and have
had a long  history  in the  industry.  Produce  coatings  of  waxes,  shellacs,
anti-oxidants,  modified atmosphere films, and new coating developments, as well
as products  such as  controlled  atmosphere  containers,  film liners,  and wax
boxes, all compete in the market for specialized coatings and films.

                                        7
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

ENERGY

Agway Energy  Products  LLC (AEP),  a wholly owned  Delaware  limited  liability
company, is a full-service  energy solutions provider to residential,  farm, and
commercial  customers  principally in New York,  Pennsylvania,  New Jersey,  and
Vermont. AEP is engaged in the sale and delivery of fuel oil, kerosene, propane,
gasoline and diesel fuel (both delivered direct to users and distributed through
AEP's service stations), as well as the marketing of natural gas and electricity
through Agway Energy Services,  Inc. and Agway Energy Services-PA,  Inc., wholly
owned subsidiaries of AEP, where  deregulation  makes that possible.  AEP serves
the majority of its customer base by providing home comfort, particularly in the
area of heating, ventilation, and air conditioning (HVAC) equipment and fuels to
power these systems. AEP installs and services all types of whole-house warm and
cool  air  systems  (furnaces,   boilers,   air  conditioners),   air  cleaners,
humidifiers,   de-humidifiers,   hearth  products,   space  heaters,   room  air
conditioners,  and water systems. Services such as duct cleaning, air balancing,
and energy  audits  are also  offered.  A product  emphasis  on oil and  propane
heating  fuels  creates   seasonal   increases  in  sales  and  working  capital
requirements  in the fall and winter  months.  All products are  purchased  from
numerous suppliers or through open-market purchases.

During fiscal 2002, AEP owned and operated,  within its geographic territory, 93
distribution  and  sales  centers.   AEP  also   distributes   products  through
approximately  60  distributors   and  resellers.   Agway  believes  that  these
facilities  are  sufficient to meet the current  operating  requirements  of the
business. In June 2000, AEP sold 6 of its 7 terminals to Buckeye Partners,  L.P.
(Buckeye)  as part of AEP's  strategy  to focus on  growing  its  retail  energy
marketing  business.  An  agreement  with  Buckeye  allows AEP to utilize  these
terminal  facilities  for storage as part of its  distribution  network.  In May
2001, AEP sold its final terminal and no longer operates terminals.

COMPETITION: The fuel oil, propane, HVAC, and power fuel industries in which AEP
competes  are  generally  fragmented  and  consist  of a large  number  of small
businesses.  Some  consolidation  in fuel oil,  propane,  and HVAC has created a
number  of  larger  competitors  in these  industries.  Power  fuel  competition
includes major oil companies as well as smaller,  independent businesses.  Also,
several large,  fully-integrated competitors have begun to offer a similar range
of home  comfort  products and  services.  These  competitors  have evolved from
utility  companies in the face of deregulation and the  corresponding  threat to
their traditionally captive customer base. In addition, unregulated subsidiaries
of  utilities  make up the majority of the  competition  for the natural gas and
electricity businesses.

OTHER

As discussed below in Discontinued  Operations,  Agway  Insurance  Company,  the
principal  operation in Agway's Insurance segment,  was sold on August 28, 2002.
As a  result,  Agway  General  Agency  Inc.,  formerly  reported  as part of the
Insurance  segment,  is now  reported  in the  Other  segment,  along  with  net
corporate costs, pension income,  intersegment elimination,  and interest. Agway
General Agency Inc.  markets  medical,  long-term  care, life and other products
designed  by  non-affiliated  companies  for the  agricultural  marketplace.  In
addition,  Agency provides administrative  management services to Agway business
units including claims, risk,  facilities,  data processing and payroll/benefits
management.

                                        8
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS

In fiscal  2000,  the Agway Board of  Directors  approved the sale or closure of
Agway retail  properties  and the sale of the wholesale  procurement  and supply
system which represented the Company's retail operations  historically  reported
as a separate  segment.  On March 6, 2002,  the Company  announced  details of a
comprehensive  plan  that  included  our  intentions  to  divest  four  business
operations:  Telmark (the former Leasing segment),  Agway Insurance Company (the
principal  operation  within the former  Insurance  segment),  and  Agronomy and
Seedway (formerly  components of the Agriculture  segment).  After this plan was
announced,  as  part of its  ongoing  strategic  assessment,  Agway  engaged  an
investment  advisor  to  assist in the  exploration  of  strategic  alternatives
involving the  Sunflower  business (an operation  formerly  included  within the
Country  Products  Group  segment).  In June 2002,  after  reviewing a number of
written  indications  of  interest,  the Agway Board of  Directors  affirmed the
Company's  intention to have management actively pursue a sale of this business.
As  required  by  generally  accepted  accounting   principles,   the  financial
statements  presented  in this  Form  10-K  separately  reflect  these  business
operations  planned  for  divestment,  or  actually  divested,  as  discontinued
operations  for all periods  reported.  The  following are  descriptions  of the
business and properties of these discontinued operations:

LEASING:  Telmark LLC  (Telmark),  a wholly  owned  Delaware  limited  liability
company,  and Telmark's  consolidated  subsidiaries  (which  comprise the former
Leasing segment) finance equipment, buildings, and vehicles primarily to farmers
and other customers in rural communities.  Telmark employs a captive sales force
as its primary  distribution system in most of the continental United States. In
addition,  Telmark  offers  financing in those same markets  through its Telmark
Express program, which allows customers to do business directly with the Telmark
home office on smaller- ticket leases. Telmark also transacts business in Canada
through a separate subsidiary,  Telease Financial Services, Ltd. (TFS). TFS is a
Canadian  corporation which enters into certain lease transactions with Canadian
customers.  Telmark is a direct,  wholly owned subsidiary of Agway.  However, on
September 14, 2001, Agway pledged its membership  interest in Telmark to General
Electric Capital  Corporation (GECC), as agent and lender, to provide additional
collateral to secure Agway's  obligations  under its Credit  Agreement with GECC
and a  syndicated  group  of  lenders.  In  the  event  Agway  defaults  on  its
obligations  under this Credit  Agreement,  Agway lenders could choose among the
remedies  available  to them,  including  the right to  foreclose on the Telmark
membership  interest  pledged as  security,  which  would  result in a change in
control of Telmark.  In addition,  as discussed  above,  Agway has announced its
intention to pursue a sale of Telmark.  Goldman,  Sachs & Co. is assisting Agway
in exploring strategic alternatives for this business.

As of June 30, 2002,  Telmark had  approximately  $734,000 of net  investment in
leases  outstanding with persons other than Agway and its  subsidiaries,  net of
unearned  interest  and  finance  charges  of  approximately  $260,400.  Telmark
finances  its  operations  and  lease  portfolio  growth  through  earnings  and
borrowings  under  its  lines  of  credit,   private  placements  of  debt  with
institutional  investors,  lease securitizations,  or sales of debentures to the
public. As a result of Telmark issuing subordinated debentures to the public, it
files its own periodic reports with the SEC pursuant to the Securities  Exchange
Act of 1934.

INSURANCE:  Agway  Insurance  Company,  the  primary  component  of  the  former
Insurance  segment,  is a New  York  property  and  casualty  insurance  company
authorized  to write  insurance  as  specified  in the New York  Insurance  Law,
Sections 1113 and 4102(c).  As of June 30, 2002, Agway Insurance wrote insurance
in 10 eastern  states and its  headquarters  were  located in DeWitt,  New York.
Lines of insurance  sold include  farmowners,  homeowners,  farm  commercial and
personal  auto  liability  and physical  damage,  and  miscellaneous  commercial
policies that support the  agricultural  marketplace.  On August 28, 2002, Agway
announced the completion of the sale of Agway  Insurance  Company to United Farm
Family Mutual Insurance Company.

                                        9
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS (CONTINUED)

AGRONOMY:  The  Agronomy  Division  operates 76  agronomic  blending  plants and
storage  facilities.   These  operations   manufacture,   process,  and  procure
fertilizer  and other  crop-related  products to be sold as direct  shipments to
farmer- customers, farmer-dealers, non-farmer customers, and wholesale accounts.
The  fertilizer  operation in East Berlin,  Pennsylvania  manufactures  yard and
garden  fertilizers  sold to dealers and distributors on the East Coast. In East
Liverpool, Ohio, we have fertilizer grading equipment which processes fertilizer
we sell to other commercial customers. Agronomy purchases a large portion of its
fertilizer from CF Industries,  Inc., an agricultural cooperative of which Agway
is a member and is eligible for patronage refunds. Agway has an investment in CF
Industries totaling $25,260 at June 30, 2002.

Other crop-related products sold primarily for farm use include plant nutrients,
lime, crop  protectants,  and various seed products.  The Agronomy  operation is
seasonal in nature,  with the  majority  of sales and demand on working  capital
generated at the  beginning of a growing  season (which in the Northeast is late
winter and spring).  Agronomy's seed  operations  (including  Seedway)  produce,
import, and market,  primarily for commercial use, agricultural,  vegetable, and
turf seeds through  facilities  located in Hall,  New York,  and  Elizabethtown,
Emmaus,  Mifflinburg,  and York,  Pennsylvania.  The Agronomy operation also has
direct marketing operations involved in the processing, bulk storage, and retail
and wholesale  sales of seeds and bulk storage and wholesale sales of fertilizer
products.

To date,  progress  has been made  regarding  our plans to divest  the  Agronomy
business.  On September 27, 2002,  GROWMARK,  Inc. and Agway announced that they
had  signed  a  definitive  agreement  to  sell  Agway's  Agronomy  and  Seedway
businesses and related assets to GROWMARK. Those assets include an investment in
CF Industries and Allied Seed LLC.

SUNFLOWER:  As of June 30, 2002,  the  sunflower  business,  an operation of the
Country Products Group, operated two sunflower processing facilities in Grandin,
North Dakota.  The processing  plants produce and market human edible  sunflower
seed,  hulled millet,  wild bird food and related  products.  These products are
sold throughout the United States as well as  internationally.  On September 16,
2002,  Agway  completed the sale of its sunflower  business to the Cenex Harvest
States Cooperatives.

RETAIL:  In  fiscal  2000,  the  Agway  Board  of  Directors  approved  plans to
restructure  the  retail  services  business.  The plans  called for the sale or
closure  of the  227  Agway  retail  properties  and the  sale of the  wholesale
procurement and supply system. The sale of the wholesale  procurement and supply
system,  when combined with the sale and closure of the  Agway-owned or operated
retail  stores,  constituted  a plan to  discontinue  operations  of the  retail
services business.  For financial reporting purposes,  the measurement date upon
which this  discontinued  operation  plan became  effective  was June 20,  2000.
Operating  results  of the retail  services  business,  including  restructuring
activity  which took place through that date, are included in the operating loss
from discontinued operations in the financial statements for the year ended June
2000.  The  anticipated  gains and losses  after  June 20,  2000 from the future
anticipated  sale of the  wholesale  procurement  and supply  system,  which was
consummated  on  July  31,  2000,  and  the  sale or  closure  of the  remaining
Agway-owned or operated retail store properties, as well as the results of their
future  operations  through  the  anticipated  dates of sale (as  allowed  under
generally accepted accounting principles at that time), are included in the loss
on  disposal  of the retail  services  business  in the June 2000  statement  of
operations.  No adjustments to the original estimated loss on disposal have been
made. The Company  continues to market  remaining former retail store properties
for sale.

                                       10
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

HUMAN RESOURCES

As of June 30, 2002, Agway and its  subsidiaries  employed  approximately  4,200
people,  600 of whom were  part-time.  This  represents a decrease of 500 people
from 4,700 employees as of June 30, 2001. The decrease is  substantially  due to
the   discontinuation  of  the  former  retail  services  business  and  to  the
Agriculture  Plan  realignment,  the details of which are disclosed  above.  See
Agriculture  -  Realignment  and  Discontinued   Operations  above.   There  are
approximately  106  employees  represented  by two  different  unions  with five
existing union contracts.  We enjoy  satisfactory  relations with both our union
and nonunion employees as a result of competitive wage and benefit programs.

ADMINISTRATIVE

Our principal administrative office is located at 333 Butternut Drive in DeWitt,
New York. It occupies  approximately  180,000 square feet under terms of a lease
with 5 remaining years with two 10-year renewal options. Agway believes that the
combination of its principal  administrative office and other satellite business
unit locations are sufficient for its operations.

REGULATION

Agway  and its  subsidiaries  are  subject  to  various  laws  and  governmental
regulations  concerning  employee  health,  product  safety,  and  environmental
matters.  These laws and regulations are enforced by federal government agencies
such as the Occupational Safety and Health  Administration  (OSHA), the Food and
Drug  Administration  (FDA) and the Environmental  Protection Agency (EPA). OSHA
monitors  employee safety and health  matters.  The FDA sets standards for foods
and other  products sold to consumers,  and the EPA creates rules to protect the
environment,  such as rules to  control  pollution  and to  reduce  exposure  to
chemicals.  Many states have  adopted  similar laws and  regulations,  which are
enforced by state agencies and some of which may be more burdensome than similar
federal requirements.

Agway believes its business,  as currently conducted,  is not adversely affected
by any of these laws and  regulations.  However,  these laws and regulations are
constantly changing and may impose greater requirements and expense on Agway and
its  subsidiaries in the future.  Currently,  Agway is negotiating  with various
government  agencies  concerning  the clean up of hazardous  waste sites.  These
sites  are   commonly   known  as  Superfund   sites  under  the   Comprehensive
Environmental  Response,  Compensation,  and Liability Act of 1980 (CERCLA). See
Item 3, Legal Proceedings, for details of the current status of these sites.

STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY

Agway members are farmers or cooperative  organizations  of farmers who hold one
share of Agway's  Membership Common Stock and who purchase farm supplies or farm
services or market farm products through Agway or authorized dealers. Currently,
Agway has approximately 68,000 members. Each share of Membership Common Stock is
entitled  to one vote for the  election  of  directors  and for other  corporate
actions.

The  Membership  Common  Stock,  $25 par  value,  is held only by  active  Agway
members.  Ownership of Membership  Common Stock is different  from  ownership of
common stock in typical business  corporations  because Agway is an agricultural
cooperative.  Membership  Common  Stock may only be  purchased  by  persons  who
qualify  as Agway  members  and is  transferrable  only  with  Agway's  consent.
Membership  Common Stock indicates  membership in Agway rather than indicating a
significant  equity  interest  in  Agway.  The  equity  interest  of a holder of
Membership  Common Stock is limited to the $25 par value of the  security,  plus
dividends  declared and unpaid,  if any,  for the current  year.  Dividends  are
limited to 8% of the par value of Membership Common Stock and may be declared at
the  discretion of the Agway Board of Directors  each fiscal year.  The residual
equity in the net assets of Agway is held for the  benefit  of past and  present
member-patrons of Agway.

                                       11
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY (CONTINUED)

Agway also has preferred stock.  Four different  series of Cumulative  Preferred
Stock (Series A, Series B, Series B-1 and Series C), $100 par value, are held by
Agway members,  the Agway Inc.  Employees' 40l(k) Thrift Investment Plan and the
general public.  In addition,  non-cumulative  Honorary  Member  Preferred Stock
(Series HM), $25 par value, is held only by former Agway members (see Note 11 of
the financial  statements for further  details of preferred  stock).  The equity
interest  of a holder of  preferred  stock is  limited  to the par value of such
stock.

The Board of Directors (Board) controls the affairs and business of Agway. Agway
directors are  nominated  out of three  geographic  Nomination  Regions.  Region
Nominating Task Forces  established in each region identify and recommend Member
Director  candidates  to the Board  Membership  and  Nominating  Committee.  All
stockholder actions, except as otherwise provided by law, including the election
of  directors,  are  determined  by the vote of Agway  members  present by proxy
(another  person  authorized  by the  member to vote) or in person at the annual
meeting (or special  meetings) of members.  There are  presently 15 directors on
the Board, 14 of whom are members and one of whom is the Chief Executive Officer
(CEO)  of the  Company.  The  Company's  by-laws  also  permit  up to two  other
directors who are not required to be members.  There presently are no such other
directors on the Board.  Members elect directors each year at the annual meeting
to fill new seats or vacancies  resulting  from the  expiration  of the terms of
certain directors. Once elected, a director holds office for a term of 3 years.

In June 2002,  the Board  decided to reduce  its size from 17  directors  to 12,
effective  with the 2002  annual  meeting.  The Board  will then  consist  of 11
directors, and will include only Agway members and the CEO of the Company.

RETAINED EARNINGS

Retained Earnings (also sometimes  referred to as retained margins) are held for
the benefit of past and present  Agway  members.  Retained  Earnings are all net
earnings (gross receipts  reduced by all operating  expenses) of Agway remaining
after  payment  of income  taxes,  dividends  on issued and  outstanding  stock,
patronage  refunds,  and  all net  earnings  from  the  business  activities  of
predecessors in interest  (companies who were acquired by or merged into Agway),
kept as reasonable reserves. Retained Earnings consist of :

(1)   The  portion  of  Member Earnings (net earnings based only on purchases by
      members) undistributed to members.

(2)   Net earnings based on nonmember purchases and marketing operations.

(3)   All other income,  including earnings from non-agricultural  divisions and
      subsidiaries  of  Agway,   dividends  and  interest  from  non-cooperative
      investments.

The Retained  Earnings of Agway will only be  distributed  to Agway members upon
dissolution  of  Agway.   According  to  the  By-laws  adopted  by  Agway,  upon
dissolution,  the Retained  Earnings will be distributed  proportionately  among
Agway's past and present members in accordance with their  interests,  after all
debts  are paid in full and any  amounts  due to  holders  of  preferred  stock,
revolving fund certificates,  and common stock are paid. (Agway has no revolving
fund certificates outstanding.)

                                       12
<PAGE>
ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)

PATRONAGE REFUNDS

The By-laws of Agway provide that,  after the end of each fiscal year, an amount
equal to the earnings,  if any, realized on a tax basis by Agway after deduction
for reasonable  reserves for future  operating  expenses and amounts paid or set
aside for payment of income taxes and dividends on issued and outstanding  stock
of Agway may be paid as patronage refunds in cash. The total amount of patronage
refunds paid must not exceed the total earnings attributable to the sale of farm
supplies by Agway to members during the fiscal year. These patronage refunds are
based on sales of feed, agronomic products,  and selected eligible farm supplies
to members for the fiscal year. Each member's total patronage refund is based on
the proportion of his/her  purchases of farm supplies made from Agway during the
fiscal  year,  to the total farm  supply  purchases  made by all members in such
year. No patronage  refunds are payable with respect to the purchase of services
for the marketing of farm products through Agway, unless specified in a contract
between the member and Agway.

The By-laws of Agway also allow the Board of Directors to authorize  the payment
of patronage refunds to certain contract  patrons.  Contract patrons are persons
or  businesses,  other than  members,  who purchase  eligible farm supplies from
Agway. Payment of patronage refunds to contract patrons must be made on the same
terms and conditions as those specified above for members.  Examples of contract
patrons may be certain  departments or agencies of governments,  and charitable,
religious  or  educational  institutions  that  use or  produce  farm  supplies.
Business  with contract  patrons  currently  represents  less than 1% of Agway's
annual sales volume.

Agway has not paid patronage refunds in any recent period and does not expect to
pay any patronage refunds in the foreseeable future.

                                       13
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS

Agway and its  subsidiaries  are not  involved  in any  material  pending  legal
proceedings  other than ordinary routine  litigation  incidental to the business
except the following:

In June  2002,  the State of New Jersey  (NJ)  notified  Agway Inc.  that NJ has
reason to believe that Agway is a potentially  responsible party (PRP) under the
New Jersey Spill  Compensation  and Control Act at the Syncon  Resins  Superfund
Site,  Kearny Township,  Hudson County,  New Jersey. NJ has requested that Agway
explore the  possibility of amicably  resolving its claim for  reimbursement  of
remediation costs at the site which currently totals approximately $5,000. Agway
understands  that there are several  other parties that could be involved in the
resolution  of this claim and has accrued its best  estimate for any  additional
costs it may incur in connection with the site.

In June 2002, the State of New York (NY) filed a Complaint against Agway Inc. in
the New York  Supreme  Court  alleging  that Agway  Inc.  engaged in the sale of
pesticides not registered for sale in the State of New York on Long Island,  New
York. The Complaint demands injunctive relief and monetary  penalties.  Agway is
investigating the allegations in the Complaint. In addition, Agway has contacted
NY and is attempting to amicably  resolve this matter.  The Company believes the
impact of the resolution of this lawsuit will not be material in relation to the
consolidated financial position of the Company.

In May 2000,  approximately 90 North Dakota farmers (Jorgenson,  et al. v. Agway
Inc.) filed a Complaint against Agway Inc. in the U.S. District Court,  District
of North Dakota,  Southeastern Division, alleging that they bought and planted a
variety of confection  sunflower  seed during the spring of 1999 from Agway Inc.
which was defective.  This matter was resolved to the mutual satisfaction of the
parties during fiscal 2002.

In August 1995, the  Environmental  Protection  Agency (EPA) notified Agway that
the EPA has  reason to  believe  that  Agway is a PRP  under  the  Comprehensive
Environmental  Response,   Compensation,  and  Liability  Act  (CERCLA)  at  the
Tri-Cities Barrel site, Port Crane, New York. In June 1997, the cooperating PRPs
agreed upon an allocation of  responsibility  for past and future  investigation
and  remediation  costs.  In March  2000,  the EPA issued the Record of Decision
(ROD) for the  Remedial  Design/Remedial  Action  (RD/RA) for the site.  The EPA
requested  that Agway and the other PRPs  participate  in the RD/RA.  A group of
cooperating PRPs,  including Agway,  negotiated a Consent Decree with the EPA to
perform the RD/RA.  The Consent Decree was approved by the U.S.  District Court,
Northern  District  of New  York,  in  August  2001.  Based on the  agreed  upon
allocation  and the cost  estimates  for the site,  Agway has  accrued  its best
estimate for any additional costs it may incur in connection with the site.

In August 1994 the EPA notified Motor  Transportation  Services,  Inc.  (MTS), a
dissolved  wholly owned  subsidiary  of AHI,  that the EPA has reason to believe
that MTS is a PRP under CERCLA at the Rosen Site,  Cortland,  New York.  The EPA
requested  that  MTS  and  other  PRPs   participate  in  the  ongoing  Remedial
Investigation/Feasibility  Study (RI/FS) for the Rosen Site. In March 1998,  the
EPA issued a unilateral  administrative  order to the PRPs,  including Agway and
MTS, for a removal action at the Rosen Site. Agway and MTS have notified the EPA
that  they will  comply  with the order by  cooperating  with the other  PRPs to
assure that the removal  action is  performed.  In addition,  Agway and MTS have
offered to cooperate  with the other PRPs in performing an RD/RA for the site in
accordance  with the ROD issued by the EPA and a Consent  Decree was  entered by
the U.S.  District  Court,  Northern  District of New York,  in May 1999.  Agway
currently has accrued its best estimate  relative to the cost of any  additional
assessment,  containment, removal or remediation actions regarding the property.
However,  it is reasonably  possible  that the results of ongoing  and/or future
environmental studies or other factors could alter this estimate and require the
recording of additional liabilities.  The extent or amount of such events cannot
be estimated at this time.  However,  Agway  believes  that its past  experience
provides a reasonable basis for its estimates recorded for this matter.

In addition,  as described in greater detail elsewhere in this report, Agway and
certain  of  its   subsidiaries   intend  to  file   voluntary   petitions   for
reorganization  under Chapter 11 of the United  States  Bankruptcy  Code.  These
petitions are expected to be filed with the United States  Bankruptcy  Court for
the Northern  District of New York in Utica,  New York, on October 1, 2002.  For
more information,  see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Item 8--Note 2, Going Concern.

                                       14
<PAGE>
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no items submitted to a vote of security holders for the three months
ended June 30, 2002.

                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS
(a)  Principal Market:
     There is no market for the equity  securities of Agway.  On June 14, 2002,
     Agway suspended its voluntary practice of repurchasing eligible outstanding
     Agway   securities.   As   discussed   in   Agway's  periodic  reports  and
     prospectuses relating to the sale  of those securities,  Agway was under no
     obligation to repurchase  those securities,  retained  the right to stop or
     suspend the practice at any time, and could be required to stop or  suspend
     this practice if the conditions of its  primary  credit  agreement  with  a
     syndicated group of lenders were not satisfied.
(b)  Approximate Numbers of Holders of Common Stock:
     The number of holders of record of Agway's  Common Stock,  as  of September
     27, 2002,  is 96,448,  of  which  28,439  shares have been called for those
     holders  no longer  meeting  the  membership  eligibility  requirements  as
     identified in Section 2.1(a) in the By-Laws of Agway Inc.
(c)  Dividends Paid:
     An annual  6%  dividend,  or $1.50 per share,  was paid on  Agway's  Common
     Stock  in 2002 and 2001.  Limitations on Ownership and  Availability of Net
     Earnings  to  Membership   Common   Stockholders:   Refer   to  Stockholder
     Membership  and  Control of Agway and  Patronage  Refunds under Items 1 and
     2--Business and Properties.

ITEM 6.  SELECTED FINANCIAL DATA
The following Selected Financial Data of Agway and Consolidated Subsidiaries has
been   derived   from    consolidated    financial    statements    audited   by
PricewaterhouseCoopers  LLP,  independent  certified public  accountants,  whose
report for the three years ended June 30,  2002 is  included  elsewhere  in this
Form  10-K,  and  should  be read in  conjunction  with  the  full  consolidated
financial statements of Agway and notes thereto.
<TABLE>
<CAPTION>

                                              (In Thousands of Dollars Except Per Share Amounts)
                               ------------------------------------------------------------------------------------
                                                               Years Ended
                               ------------------------------------------------------------------------------------
                                 June 2002         June 2001         June 2000        June 1999         June 1998
                               -------------     -------------    --------------    -------------    --------------
<S>                            <C>               <C>              <C>               <C>              <C>
Net sales and revenues (1)...  $    899,934      $  1,134,712     $     982,353     $    770,104     $     853,413
Earnings (loss) from
    continuing operations (1)       (17,551)           (9,503)            5,050            6,376             5,879
Earnings (loss) from
    discontinued operations (2)     (80,696)            1,633           (14,427)          (4,580)            6,309
Net earnings (loss) (3)(4)...       (98,247)           (8,927)           (9,377)           1,795            41,145
Total assets (5).............     1,574,360         1,642,797         1,649,670        1,507,784         1,391,790
Total long-term debt (1).....        18,985            19,776             7,213            5,875             5,847
Total subordinated debt (1)..       425,366           449,338           437,476          448,670           428,190
Cash dividends per share
    of common stock .........          1.50              1.50              1.50             1.50              1.50
</TABLE>

(1) The amounts reflect only the continuing operations of the Company.
(2) The data reflects  after-tax  operating  results and loss on disposal of all
    discontinued  operations  of  the  Company.  See  Note  3 to  the  financial
    statements for details.
(3) Effective June 25, 2000,  Agway changed its method of determining  the value
    of derivative  instruments under Statement of Financial Accounting Standards
    (SFAS)  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
    Activities." A cumulative effect adjustment, net of tax of $1,057, decreased
    net earnings in 2001.
(4) Effective  July 1,  1997,  Agway  changed  its  method  of  determining  the
    market-related  value  of its  plan  assets  under  Statement  of  Financial
    Accounting  Standards (SFAS) No. 87, "Accounting for Pensions." A cumulative
    effect adjustment, net of tax, of $28,956 increased net earnings in 1998.
(5) The data  includes  the  assets  from  the  business  segments  that are now
    reported as discontinued operations.  See Note 3 to the financial statements
    for details.

                                       15
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

The following discussion refers to Agway Inc. and Consolidated  Subsidiaries and
should be read in  conjunction  with  Item 6,  Selected  Financial  Data and the
Consolidated  Financial  Statements  of  Agway  and  Notes  thereto  in  Item 8,
specifically  Financial  Information  Concerning Segment Reporting (Note 12) and
Discontinued  Operations  (Note 3). The purpose of this discussion is to outline
the most  significant  factors  having an impact upon the results of operations,
the  liquidity,  and the capital  resources of the Company for each of the three
fiscal  years in the  three-year  period  ended June  2002.  Agway  reports  its
continuing  operations  principally  in three  business  segments:  Agriculture,
Country Products Group, and Energy. As noted above and further described in Item
8, Note 3 to the financial  statements,  on March 6, 2002, the Company announced
its  intentions to divest of four  business  operations:  Telmark  (formerly the
Leasing segment),  Agway Insurance  Company (the principal  operation within the
former Insurance segment),  and Agronomy and Seedway (formerly components of the
Agriculture  segment).  Additionally,  in June 2002, the Company  committed to a
plan to sell its Sunflower  business (a former component of its Country Products
Group segment).  The consolidated  results for all periods discussed reflect the
Leasing,  Insurance,  Agronomy,  Seedway,  Sunflower,  and Retail  businesses as
discontinued  operations.  As a result of the discontinued operations (exclusive
of retail) being operational throughout fiscal 2002, management's discussion and
analysis of these operations is included in this section of the report under the
caption "Discontinued  Operations." Subsequent to June 30, 2002, Agway Insurance
Company and the Sunflower business were sold.

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

As  discussed  below,  Agway  and  certain  of its  subsidiaries  intend to file
voluntary  petitions  for  reorganization  under Chapter 11 of the United States
Bankruptcy Code on October 1, 2002 in the United States Bankruptcy Court for the
Northern District of New York. See Liquidity and Capital Resources below.

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

RESULTS OF OPERATIONS - 2002 COMPARED WITH 2001

CONSOLIDATED RESULTS

Consolidated  net sales and  revenues of $899,900  for 2002  decreased  $234,800
(21%),  compared to net sales and revenues of  $1,134,700  in 2001.  The overall
decrease was the result of decreases in sales in each of our business  segments,
with the most significant decreases occurring in Energy, as more fully discussed
below.

The  consolidated  net loss of $98,200  for 2002 is an  increase  in net loss of
$89,300  (1003%)  compared to a net loss of $8,900 in 2001.  Agway's net loss of
$98,200 for 2002 includes a $85,400 net loss on disposal of certain  businesses,
net  operating  earnings  of $4,700  during the year on those  businesses  to be
disposed of, and net operating losses of $17,600 for continuing operations.  The
$85,400  loss on  disposal  is a gross loss of  $103,200,  net of tax benefit of
$17,800.  The  $103,200  gross  loss  consists  of a $71,600  write-down  to the
estimated  fair value of the  businesses  being sold, a $13,400  recognition  of
related benefit plan curtailment  costs, and $18,200 of direct costs relating to
the sales transactions. Of the $103,200 total loss estimate related to the asset
and business  sales,  only the direct  costs of $18,200  represent a future cash
cost to the Company. The net gain from discontinued operations of $4,700 in 2002
is an  improvement  of  $3,100  (194%)  from  the  net  gain  from  discontinued
operations of $1,600 in 2001 and reflects improved operating results principally
in Telmark and  Sunflower,  which is partially  offset by an  increased  loss in
Agronomy, as more fully discussed below. The net loss from continuing operations
of $17,600 in 2002  represents an increased loss of $8,100 (85%) from a net loss
from continuing operations of $9,500 in 2001.

                                       16
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CONSOLIDATED RESULTS (CONTINUED)

The  $8,100  increase  in net loss from  continuing  operations  is made up of a
$2,300  decrease in pre-tax losses offset by a $10,400  decrease in tax benefit.
The decrease in pre-tax  losses  consists of operating  improvements  in Country
Products Group ($9,500) and Agriculture  ($7,600),  offset by decreased  pre-tax
earnings in Energy  ($9,600) and  increased  corporate  expenses  ($5,200).  The
increase  in  corporate  expenses is  primarily  due to a $12,000  reduction  in
pension income  associated with  continuing  operations,  partially  offset by a
$7,300  reduction in  postretirement  benefit  expense caused by several benefit
plan amendments during 2002.

Consolidated  operating expenses from continuing  operations of $896,900 in 2002
decreased  $241,700  (21%)  compared  to  consolidated   operating  expenses  of
$1,138,600 in 2001. The decrease in operating  expenses was substantially due to
a number of closed  business  locations  in the current  year within the Country
Products Group and Agriculture segments. Additionally, Energy operating expenses
declined as a result of volume and price declines in this business.

Net interest  expense from  continuing  operations of $21,000  increased  $2,300
(12%) in 2002 as  compared  to $18,700 in 2001.  The  increase  in net  interest
expense  resulted from a decrease in interest income earned on customer  account
balances.  Trade accounts  receivable  were  significantly  lower during 2002 as
compared  to 2001,  particularly  in Energy and Feed.  As noted in Note 3 of the
financial  statements,  interest  expense from  continuing  operations is net of
interest   expense  that  has  been  allocated  to  the  operating   results  of
discontinued operations and totaled approximately $12,500 in 2002 and $11,000 in
2001. Net interest costs for all Agway operations  (continuing and discontinued)
totaled $37,100 in 2002 and $37,600 in 2001.

Other income, net from continuing operations of $1,100 decreased $2,300 (68%) in
2002  compared to other income,  net, of $3,400 in 2001.  The reduction in other
income  is  primarily  a  reduction  in the gain on the sale of  properties  and
equipment during 2002 compared to the prior year.

Income tax expense from continuing  operations of $700 in 2002 compared to a tax
benefit of $9,700 in 2001  results in  effective  tax rates of 3.9% and (49.8%),
respectively.  As described  in Note 8 to the  financial  statements,  valuation
allowance  recorded on deferred tax assets has impacted the  effective  tax rate
for 2002.

AGRICULTURE

Total  Agriculture  sales and revenues of $229,600 in 2002  decreased by $23,400
(9%) compared to sales and revenues of $253,000 in 2001,  largely as a result of
reduced  feed sales.  The feed  business  sales and revenues of $220,600 for the
year ended June 30, 2002  decreased  $17,500 (7%) compared to sales and revenues
of $238,100 in 2001. The decline was substantially the result of reduced volumes
in  manufactured  dairy and  poultry  feeds.  The  reduced  dairy feed volume is
directly  attributable to the realignment of the Agriculture business started in
December  2000,  which  was  designed  to  realign  the feed  business  with the
concentration  of farming and Agway member  farmers in the  northeastern  United
States.  This  alignment  resulted  in closed  locations  and the  corresponding
reduction in volumes in the current year compared to the prior year. The poultry
feed decline  resulted  from a  significant  reduction  in customer  flock sizes
compared to the prior year;  that  reduction in customer  flock sizes was caused
partly by poor economic  conditions that affected  certain of our poultry farmer
customers.  The average selling price of feeds remained relatively flat compared
to the prior year.  This is due in large part to  commodity  prices  during 2002
being consistent with commodity prices during the prior year. Additionally, farm
store  sales  decreased  $9,700  (88%) in 2002 as a  result  of the  closure  of
facilities in connection  with planned  business  realignment  noted above.  The
declines in  Agriculture  sales noted  above were  partially  offset by TSPF(TM)
heifer-rearing  service revenues in 2002 of $7,700, which increased $3,800 (97%)
compared  to  the  prior  year  resulting  from  increased  utilization  of  the
facilities this year.

                                       17
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

AGRICULTURE (CONTINUED)

Agriculture  pre-tax loss of $6,500 in 2002 decreased $7,600 (54%) compared to a
pre-tax  loss of $14,100  in 2001.  The  $6,500  loss in 2002  includes a $1,100
impaired  asset  charge  related  to the  pending  sale  of one of the  TSPF(TM)
heifer-rearing  farms and $5,400 in loss from  ongoing  operations.  The $14,100
loss in 2001 includes $1,600 in costs  associated with the Agriculture  Plan (as
further  described  in Note 13 to the  financial  statements),  $1,700  in asset
impairment  charges  related  to  select  business  activities  with  inadequate
projected future cash flows and $10,800 in losses from ongoing  operations.  The
$5,400  improvement  from ongoing  operations in Agriculture is primarily in the
Feed and Nutrition Division principally from expense reductions in manufacturing
and selling costs related to the Agriculture  realignment  effort where facility
rationalization  and  operational  efficiencies  reduced these costs.  Increased
competitive  pressures  caused a reduction in gross margins in the first half of
2002 compared to the prior year. This was partially offset in the second half of
fiscal 2002 by efforts to reduce  procurement  and logistic costs which improved
gross margins compared to the prior year.

COUNTRY PRODUCTS GROUP

Country  Products  Group  (CPG)  total  sales and  revenues  of $140,100 in 2002
decreased  $22,300 (14%) compared to sales and revenues of $162,400 in 2001. The
overall  decrease in total CPG sales for 2002 compared to 2001 was the result of
a  decision  made in the prior  year to shut  down or sell a number of  business
operations within the CPG portfolio of businesses,  the most significant being a
Texas produce operation. The exit of these businesses reduced sales and revenues
by $26,600 in 2002 compared to the prior year.  Sales in CPG ongoing  operations
increased  $4,300 (3%) for the year ended June 30,  2002,  compared to the prior
year.  An increase in sales in the  continuing  operations  of the fresh produce
operations  of $3,200 (2%) in 2002  compared  to 2001  resulted  primarily  from
increased  sales prices of potatoes due to a shortage in supply during the year.
Additionally, sales in CPG's agricultural technology operations increased $2,100
(68%) in 2002,  substantially  due to higher sales volume of Optigen(TM) 1200, a
controlled-release nitrogen feed product.

CPG  pre-tax  loss of $3,700 in 2002  decreased  $ 9,500  (72%)  compared to the
pre-tax loss of $13,200 in 2001. The ongoing fresh produce operations  generated
pre-tax  earnings of $300 for the year ended June 30, 2002,  compared to pre-tax
earnings  of $1,400 in the prior  year,  representing  an  overall  decrease  in
pre-tax  earnings of $1,700.  Produce  gross  margins  decreased  due to a short
supply of potatoes this year,  which increased the commodity  prices and lowered
margins compared to the prior year. The combination of closed business locations
and operations to be divested  generated  pre-tax income for the year ended June
30, 2002 of $1,300  compared to a pre-tax  loss  incurred of $9,700 in the prior
year,  representing an improvement in pre-tax earnings of $11,000. The remaining
CPG businesses  experienced a $200 (4%)  improvement in pre-tax  results for the
year ended June 30, 2002, compared to the prior year.

ENERGY

Energy total sales and revenues of $534,000 in 2002  decreased by $189,900 (26%)
compared to total sales and revenue of $723,900 in 2001.  Overall  sales  dollar
decreases from liquid product volume were $110,800 (15%).  The volume  decreases
were primarily the result of warmer and milder weather conditions in our primary
markets during the heating season  (December-March)  compared to the prior year.
Total degree days (an industry standard  measurement unit of temperature used in
determining fuel requirements) for the year ended June 30, 2002,  decreased 16%,
compared  to the prior year and  resulted  in lower  sales of heating  fuels and
propane.  The volume decline is also  attributable to lower wholesale volumes in
power fuels  (gasoline and diesel).  The mild winter in the Northeast  this year
and the generally  weaker  economic  conditions  compared to the prior year have
lowered the demand for power fuels.  Finally,  as a result of market  conditions
and a decrease in commodity  prices in 2002  compared to the prior year,  Energy
experienced  sales dollar decreases  relating to price in its liquid products of
$79,100 (11%) in 2002, compared to the prior year.

                                       18
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

ENERGY (CONTINUED)

Energy pre-tax  earnings of $10,500 in 2002  decreased  $9,600 (48%) compared to
pre-tax  earnings  of  $20,100 in 2001.  Overall  gross  margin  dollars in 2002
decreased $12,100 (6%) over the prior year and were substantially  driven by the
decrease in sales noted above. Additionally,  a decrease in pre-tax earnings for
the year  ended  June 30,  2002,  resulted  from a $1,500  gain on sale of fixed
assets in the prior year with no such gain in the current year.  These  declines
in pre-tax  earnings were  partially  offset by a $4,000 (2%) reduction in total
operating  expenses  in  2002,  compared  to the prior year. These reductions in
operating expenses resulted from lower payroll and contract hauling costs, which
in turn resulted from the lower volumes noted above.

DISCONTINUED OPERATIONS

The  following   discussion   represents  the  operational  results  of  Agway's
discontinued  operations  for fiscal 2002  compared to fiscal 2001.  The loss on
disposal  of  these  businesses  is not  included  in these  discussions  but is
separately  discussed under the heading "Loss on Disposal"  below, as well as in
Note 3 to the financial statements included in Item 8.
<TABLE>
<CAPTION>
                                                                                           Retail/
Year ended 6/30/02           Leasing       Insurance      Sunflower       Agronomy (1)    Other (2)       Total
------------------        -------------  -------------  --------------  ----------------  ----------  --------------
<S>                       <C>            <C>            <C>             <C>               <C>         <C>
Total sales & revenue..   $     90,163   $     28,535   $     47,637    $    204,985      $ (1,608)   $   369,712
Pre-tax earnings (loss)
from operations.......    $     24,584   $        623   $      1,426    $     (7,049)     $(12,676)   $     6,908

Year ended 6/30/01
------------------
Total sales & revenue..   $     86,193   $     27,259   $     40,365    $    261,949      $ 25,490    $   441,256
Pre-tax earnings (loss)
from operations.......    $     21,242   $        809   $       (848)   $     (4,710)     $(10,970)   $     5,523
</TABLE>

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

(2)    Estimated  future  operating  losses of retail were reported in June 2000
       when the retail business was discontinued. There has not been a change in
       that estimate, so there are no retail operating results in either 2002 or
       2001.  All  sales  reported  in  2001  represent  residual  retail  sales
       subsequent   to  its   discontinuance.   The  column  also  includes  the
       elimination of intercompany  sales and revenues  between the discontinued
       operations  components and other pre-tax  earnings  (loss) impacts of the
       discontinued  operations,  principally  interest  allocated  to  the  net
       investment in the discontinued operations.

LEASING (TELMARK)

Leasing  total  revenues of $90,200 in 2002  increased  $4,000 (5%)  compared to
revenues  of $86,200  in 2001.  The  increase  in  revenues  is mostly due to an
increase in average investment in leases and notes,  compared to the prior year,
partially  offset by a lower average income rate on the  outstanding  portfolio.
The average net  investment  in leases and notes of $736,000 for 2002  increased
$44,800  (7%)  compared  to an  average  net  investment  in leases and notes of
$691,200 in 2001.

Pre-tax  earnings  from  operations of $24,600 for 2002  increased  $3,300 (16%)
compared to pre-tax  earnings of $21,200 in 2001.  The 2002  increase in pre-tax
earnings was  attributable  to the increased  revenues  noted above and a $3,000
(8%)  decrease in interest  expense in 2002  compared to 2001.  The  decrease in
interest  expense is due to lower average interest rates on the outstanding debt
compared to the prior year.

                                       19
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS (CONTINUED)

LEASING (TELMARK)(CONTINUED)

These  increases  were partially  offset by an increase in selling,  general and
administrative  costs of $3,200 (17%) in 2002 compared to 2001.  These increased
expenses  are the result of higher  information  services  expenses due to costs
associated  with  the  implementation  of a new  lease  accounting  system,  and
additional  personnel  and  incentive  costs  related to overall  profitability,
retention of business,  and  profitability  of new  business.  In addition,  the
provision for credit losses of $10,000 in 2002  increased  $500 (5%) compared to
$9,500 in 2001.  Telmark's  allowance  for credit  losses is based on a periodic
review of the collection  history of past leases,  current credit practices,  an
analysis of delinquent accounts, and current economic conditions.

INSURANCE

Agway  Insurance  Company net revenues of $28,500 in 2002 increased  $1,200 (4%)
compared to $27,300 in 2001. Net earned premiums  improved as sales  initiatives
created an increase in the number of  policies in force and  increased  premiums
per policy.

Pre-tax  earnings of the Agway Insurance  Company of $600 in 2002 decreased $200
(25%)  compared  to pre-tax  earnings  of $800 in 2001.  The  Insurance  Company
increase in net earned  premiums noted above was offset by an increase in claims
losses in 2002  compared to 2001,  principally  the result of a spring 2002 hail
storm that  resulted  in  numerous  losses  being  incurred  and an  increase in
selling, general and administrative  activities related to the increase in sales
volume.

SUNFLOWER (OPERATION OF THE COUNTRY PRODUCTS GROUP)

The Sunflower operation was previously a component of the Country Products Group
segment.  Total  sales and  revenue in 2002 of $47,600  increased  $7,200  (18%)
compared to total sales and  revenues of $40,400 in 2001.  The increase in sales
was  attributable to a $2,900  increase in bird food sales,  which resulted from
increased promotional efforts and new customers. Additionally, human edible food
sales  increased  $4,500 in 2002 compared to the prior year  primarily due to an
increase in regular  in-shell and kernel sales,  as well as increased new bakery
products sales.

Sunflower's  pre-tax  earnings of $1,400 in 2002 increased  $2,200 compared to a
pre-tax  loss of $800 in 2001.  This  increase  in pre-tax  earnings in 2002 was
substantially the result of improved margins. Product margins increased due to a
shift in product mix and lower cost of products resulting from lower shrink (ie,
unusable or damaged product) in the current year.

DISCONTINUED AGRICULTURE COMPONENTS

Agronomy,  Seedway and Brubaker Consulting services were all previously reported
as part of the Agriculture segment.  Total sales and revenue of $205,000 in 2002
decreased  $56,900  (22%)  compared to total  sales and  revenues of $261,900 in
2001. The overall decrease  resulted  primarily from decreased sales in Agronomy
in 2002 of $56,300  (28%)  compared to the prior  year.  The decline in Agronomy
sales resulted from continued  industry-wide  low commodity  pricing of nitrogen
products.  Additionally, high rainfall in the northern portion of Agway's market
territory  during the spring 2002 planting season delayed and reduced  plantings
and the sale of agronomy  products  such as  fertilizers,  pesticides  and lime.
Finally,  the overall  decline in sales in 2002 is also  attributable  to closed
locations from the Agriculture realignment plan as discussed in Items 1 and 2.

The discontinued  operations component of Agriculture experienced a pre-tax loss
of $7,000 in 2002,  which increased  $2,300 (49%) from pre-tax loss of $4,700 in
2001. The increase in pre-tax  losses is primarily  related to the reduced sales
in Agronomy  noted above and reduced  margins on  fertilizers,  especially  urea
during the course of the current planting season.

                                       20

<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS (CONTINUED)

2002 LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS

As of June  30,  2002,  an  estimate  of  expected  loss on sale of the  various
discontinued  operations  of the Company was  reported.  The gross loss  totaled
$103,200 and consisted of a $71,600  write-down  to the estimated  fair value of
the businesses  being sold, a $13,400  recognition  of benefit plan  curtailment
costs,  and $18,200 of direct cost  relating to the sales  transactions.  Of the
$103,200  total loss  estimate  related to asset and  business  sales,  only the
direct costs of $18,200  represent a future cash cost to the Company.  There are
other cash costs anticipated in the future related to the planned divestiture of
assets and  businesses  which can only be  recognized at the time that the costs
are incurred or the  transactions  are  finalized  and closed.  Examples of such
costs can  include  operating  losses  to the date of  disposal,  severance  and
incentive  payments to employees.  Our current estimate of the future cash costs
to be recognized in future periods for these costs is  approximately  $4,200.  A
further  description  of  discontinued  operations  is included in Note 3 to the
financial statements in Item 8.

RESULTS OF OPERATIONS - 2001 COMPARED WITH 2000

CONSOLIDATED RESULTS

Agway's net loss of $8,900 for 2001 reflects a decrease in net loss of $500 (5%)
compared to a net loss of $9,400 in 2000.  The net loss is  reported  separately
between  continuing and  discontinued  operations.  The net loss from continuing
operations  of $9,500 in 2001  represents  a  decrease  in  earnings  of $14,500
compared to net earnings from  continuing  operations of $5,000 in 2000. The net
earnings from discontinued  operations were $1,600 in 2001, as compared to a net
loss of $14,400 in 2000. Finally,  the cumulative effect of an accounting change
resulted in a net loss of $1,100 in 2001.

The $14,500  decrease in earnings  from  continuing  operations  is made up of a
$28,400  decrease  in  pre-tax  earnings  offset  by a $13,900  decrease  in tax
expense. The decrease in pre-tax earnings consists of operating  improvements in
certain business  operations of $11,900 (see business segment  discussion below)
that were offset by $12,200 in operating  losses and costs  associated  with the
realignment  and/or  shutdown and exit from certain  business  activities in our
Agriculture  ($3,300) and Country  Products  Group ($8,900)  segments.  Gains in
fiscal  2000 of  $17,900  from the sale of 6 Energy  pipeline  terminal  storage
facilities  ($12,900) and a negotiated  settlement of prior years' cost ($5,000)
in  Agriculture's  operations  were unique to that year and were not repeated in
2001.  Finally,  corporate costs increased $10,200,  substantially due to higher
interest costs from higher average debt balances combined with a slightly higher
average interest rate during 2001 as compared to 2000.  Additionally,  a decline
in the amount of pension  income  recognized in continuing  operations  occurred
during 2001 due to the transition asset being fully amortized during 2000.

Consolidated  net sales and revenues  from  continuing  operations of $1,134,700
increased  $152,300  (16%)  compared to  consolidated  net sales and revenues of
$982,400 in 2000. The increase was  substantially  the result of increased sales
in the Energy  segment.  The increase in Energy was principally due to increases
in the cost of petroleum  products over the prior year combined with an increase
in volume.  Sales also  increased  in 2001 from  increased  sales from  Energy's
heating,  ventilation and air-conditioning (HVAC) installation and service sales
and growth in electric  and natural gas  marketing  sales;  an increase in CPG's
continuing produce operations;  and an increase in Agriculture's  heifer rearing
services.  These  improvements  were  partially  offset  by  sales  declines  in
Agriculture's  Feed operations,  substantially  due to the result of the planned
exiting from the direct marketing of grains.

Consolidated operating expenses from continuing operations of $1,138,600 in 2001
increased $153,800 (16%) compared to consolidated operating expenses of $984,800
in 2000. The increase in operating  expense was  substantially  due to increased
cost of  products  and plant  operations  of  $142,300  (16%),  the  increase in
Energy's  product  costs  noted  above,  and  increased  selling,   general  and
administrative  activities of $11,500 (16%), principally in CPG and Corporate in
each case compared to the prior year.

                                       21
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CONSOLIDATED RESULTS (CONTINUED)

Net interest  expense from  continuing  operations of $18,700  increased  $6,000
(23%) in 2001  compared  to net  interest  expense of  $12,700 in 2000.  Average
borrowing levels were higher in 2001 compared to 2000, the average interest rate
increased  slightly,  and debt fees were higher in 2001 compared to 2000,  which
drove the  increase in  interest  expense.  As noted in Note 3 of the  financial
statements,  interest  expense  from  continuing  operations  is net of interest
expense  that  has been  allocated  to the  operating  results  of  discontinued
operations  and totaled  approximately  $11,000 in 2001 and $10,700 in 2000. Net
interest costs for all Agway operations  (continuing and  discontinued)  totaled
$37,600 in 2001 and $30,600 in 2000.

Other income, net, from continuing  operations of $3,400 decreased $20,900 (86%)
in 2001  compared to other  income,  net, of $24,300 in 2000.  Total  impairment
losses  recorded in 2001 totaled  $4,400  compared to $0 in 2000.  Additionally,
other  income  in 2000  included  a  $12,900  gain  from the sale of six  Energy
pipeline terminal storage facilities and $5,000 from a negotiated  settlement in
Agriculture  of amounts  due the Company on claims  from prior  years'  business
activity, which were unique to that year and were not repeated in 2001.

Income tax benefit from  continuing  operations  of $9,700 in 2001 compared to a
tax  expense of $4,200 in 2000  results in  effective  tax rates of (49.8%)  and
45.5%,  respectively.  Effective  July 1, 2001,  Agway  simplified its corporate
structure by merging AFC,  AHI,  and Milford  Fertilizer  Company LLC into Agway
Inc. The change in net deferred tax liabilities reflects the expected future tax
rate  from  this  structure.  Additionally,   adjustment  to  prior  years'  tax
liabilities and a valuation allowance had an impact on the effective rate.

AGRICULTURE

Total  Agriculture  sales and revenue of $253,000 in 2001 decreased  $4,400 (2%)
compared to sales and  revenues of  $257,400  in 2000.  The overall  decrease in
sales in 2001 was from a $4,000  decrease in sales in the feed  business,  which
included a $4,800  (100%)  decrease  in the direct  marketing  of grains,  and a
$2,700 (12%) decrease in sales in the Agriculture farm stores.  The decreases in
sales were partially  offset by a $2,700 (212%)  increase in sales in the tested
specific-pathogen  free (TSPF) heifer-rearing  services. The TSPF heifer-rearing
service  sales  increased  due to the  continued  growth of  utilization  of the
heifer-rearing  facilities  during 2001. The decline in the direct  marketing of
grains in 2001  compared to 2000 was the result of the planned  exiting from the
direct  marketing of grains during the second half of 2000. The Feed  operations
experienced  growth in sales in the bagged feed and ongoing feed mill operations
as a result of a refocused  marketing and sales  strategies.  These increases to
feed  sales  were  offset by a loss in feed  sales as a result of the  actual or
impending  closure of several  feed  locations as part of the  Agriculture  Plan
realignment.

Agriculture pre-tax loss of $14,100 in 2001 increased $6,900 (95%) compared to a
$7,200 pre-tax loss in 2000.  The $14,100 loss in 2001 includes  $1,600 in costs
associated  with the  Agriculture  Plan (as further  described in Note 13 to the
financial  statements),  $1,700 in asset  impairment  charges  related to select
business activities with inadequate  projected future cash flows, and $10,800 in
losses from ongoing operations.

The $7,200  loss in 2000  included a $5,000  gain from a  negotiated  settlement
(with no  corresponding  gain included in the 2001 results),  a $1,900 cost from
the final exiting of the grain  marketing  business,  and $10,300 in losses from
ongoing operations.  The losses from ongoing operations  increased slightly from
$10,300 in 2000 to $10,800 in 2001.

COUNTRY PRODUCTS GROUP

Country  Products  Group  (CPG)  total  sales and  revenue of  $162,400  in 2001
increased  $3,000 (2%) compared to total sales and revenues of $159,400 in 2000.
The continuing  produce  operations sales increased $2,800 (2%) in 2001 compared
to 2000 due to  increased  volumes  in  various  product  lines and sales to new
customers. Other operating units of CPG increased sales by $1,800 (100%) in 2001
compared to 2000  primarily  from the  commercial  sale of  Optigen(TM)  1200, a
controlled-release  nitrogen  feed product,  which was not  available  until the
second quarter of 2000.

                                       22
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

COUNTRY PRODUCTS GROUP (CONTINUED)

The sales  increases  noted  above were  partially  offset by a net $1,600  (4%)
decrease in sales from the sale or shutdown of certain CPG operations. The sales
decrease due to sold or shutdown  operations  resulted from the sale of a pastry
flour  mill in the  fourth  quarter of 2000,  which  decreased  sales in 2001 by
$4,800,  and the shutdown of a number of other smaller  operations reduced sales
$1,000 (23%) in 2001 compared to 2000.  These  decreases in sales were partially
offset by a $4,200  (21%)  increase  in sales at the Texas  produce  operations,
which was shut down shortly after the fiscal 2001 year-end. Total CPG sales that
related to operations  that have been sold or exited totaled  $33,700 (or 21% of
total  segment  sales) in 2001 and $35,300 (or 22% of total  segment  sales ) in
2000.

CPG pre-tax loss of $13,200 in 2001 is a $10,200 (340%) increase in pre-tax loss
compared to a pre-tax loss of $3,000 in 2000.  The  increased  loss is primarily
due  to  operating  losses  from  discontinued  businesses,  costs  of  business
shutdowns,  and loss of earnings from sold  businesses,  which , when  combined,
increased  pre-tax  loss by  $8,900 in 2001 as  compared  to 2000.  The  largest
components of this impact were from the  operating  losses and costs of business
shutdown,  including asset  impairment,  relating to the Texas produce operation
and the bean  operation in 2001. In contrast,  CPG had operating  revenues and a
gain on the  sale  of the  flour  mill  in  2000.  CPG's  continuing  operations
experienced an increased loss of $1,300 (128%) in 2001 compared to 2000. Overall
administrative costs have increased principally from increased interest costs.

ENERGY

Energy  total sales and revenue of $723,900  in 2001  increased  $147,900  (26%)
compared  to total sales and  revenue of  $576,000  in 2000.  The overall  sales
dollar  increase  was  primarily  due to volume and price  increases  related to
liquid  products.  Sales  dollar  increases  attributable  to increase in liquid
product volume were $11,200 during 2001 (a 2% increase over 2000), while overall
sales dollar  increases  attributable to price increases in liquid products were
$114,100 for 2001 (a 19% increase over 2000).  Volume  increases of $21,000 (8%)
were  experienced in the retail and wholesale  sales of heating oil and propane,
which are a result of colder winter weather in the Northeast in 2001 as compared
to 2000.  These volume increases were partially offset by a $9,800 (4%) decrease
in volume of power fuels,  principally  gasoline, in 2001 as compared to 2000. A
combination  of  increased  price  competition  at our gas  stations  and  lower
contracted commercial gasoline sales caused the volume declines.

The  price  increases  resulted  from  the  petroleum  industry   continuing  to
experience  significantly  higher  pricing of product in 2001 as compared to the
prior  year,   primarily   due  to  pressure  on  global   supply  of  products.
Additionally,  sales  increases  in 2001 of $18,600  (96%) as  compared  to 2000
resulted  from the  continued  sales  growth in the  electric  and  natural  gas
marketing   business.   Finally,   continued  growth  of  revenues  in  heating,
ventilation and  air-conditioning  installation  and service  increased sales in
2001 by $4,000 (7%).

Energy  pre-tax  earnings of $20,100 in 2001  decreased  $1,900 (9%) compared to
pre-tax  earnings  of $22,000 in 2000.  The  pre-tax  earnings  in 2001  include
$16,500  from  operating  results and $3,600 of other  revenues,  while  pre-tax
earnings in 2000 included  $4,800 from operating  results and $17,200 from other
revenue.  The improvement in operating results includes a $17,400 (10%) increase
in gross  margin,  offset by a $5,500 (3%)  increase in operating  expense.  The
gross margins were driven by product volume increases and improved margins.  The
operating  expense  increases  are a  result  of  distribution  costs  from  the
increased volume of delivered products and an increase in 2001 in management and
employee  incentives from the improved  operating results in 2001 as compared to
2000.  Finally,  other  revenue  decreased  $13,600 in 2001 as  compared to 2000
substantially  because  Energy  recognized  a gain  of  $12,900  on  sale of six
pipeline terminal storage facilities in 2000.

                                       23
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS

The  following   discussion   represents  the  operational  results  of  Agway's
discontinued operations for fiscal 2001 compared to 2000.
<TABLE>
<CAPTION>
                                                                                            Retail/
Year ended 6/30/01            Leasing       Insurance      Sunflower       Agronomy (1)    Other (2)        Total
------------------         -------------  -------------  --------------  ----------------  -----------   --------------
<S>                         <C>            <C>            <C>             <C>               <C>           <C>
Total sales & revenue..     $     86,193   $     27,259   $     40,365    $     261,949     $   25,490    $     441,256
Pre-tax earnings (loss)
from operations........     $     21,242   $        809   $       (848)   $      (4,710)    $  (10,970)   $       5,523

Year ended 6/30/00
------------------
Total sales & revenue..     $     76,786   $     26,324   $     42,585    $     238,285     $  214,206    $     598,186
Pre-tax earnings (loss)
from operations........     $     20,059   $        614   $        140    $      (6,316)    $  (31,207)   $     (16,710)
</TABLE>

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

(2)    Estimated  future  operating  losses of retail were reported in June 2000
       when the retail business was discontinued. There has not been a change in
       that  estimate,  so there are no retail  operating  results in 2001.  All
       sales in this column were generated from the retail business.  The column
       also includes the elimination of intercompany  sales and revenues between
       the discontinued  operations  components and other pre-tax impacts of the
       discontinued  operations,  principally  interest  allocated  to  the  net
       investment in the discontinued operations.

LEASING (TELMARK)

Leasing total  revenues of $86,200 in 2001  increased  $9,400 (12%)  compared to
revenues of $76,800 in 2000.  The increase is primarily due to a higher  average
investment  in leases and notes,  which was  partially  offset by a lower income
rate on new and replacement  leases and notes.  Telmark's average net investment
in leases and notes increased $76,800 (13%) in 2001 compared to 2000.

Pre-tax  earnings  from  operations  of $21,200 for 2001  increased  $1,100 (6%)
compared  to  pre-tax  earnings  of  $20,100 in 2000.  The  increase  in pre-tax
earnings is due primarily to the total revenue increases noted above, which were
partially  offset by an  increase  in total  expenses  of  $8,200  (14%) in 2001
compared to 2000.  The  increase in total  expenses was  substantially  due to a
$5,400 (17%) increase in interest expense,  a $1,600 (20%) increase in provision
for  credit  losses,  and  a  $1,200  (7%)  increase  in  selling,  general  and
administrative  (SGA)  expenses.  The  increase in interest  expense is due to a
$71,300  (15%)  increase in the average  amount of debt  required to finance the
increase in the lease portfolio,  combined with higher interest rates on new and
replacement  debt,  compared to the prior year.  Telmark's  allowance for credit
losses is based on a periodic  review of the collection  history of past leases,
current  credit  practices,  an analysis  of  delinquent  accounts,  and current
economic conditions.  The increase in provision for credit losses from $7,900 to
$9,500  is based  on an  analysis  of the  allowance  required  to  provide  for
uncollectible  receivables,  and the allowance has been  established  at a level
management believes is sufficient to cover estimated losses in the portfolio. At
June 2001,  the allowance  for credit losses was $35,500  compared to $32,500 at
June 2000.

During 2001 and 2000,  the total value of  non-earning  accounts  increased from
$6,000 in 2000 to $6,400 in 2001 and as a percentage of lease portfolio remained
at 0.9% for both  years.  The  increase  in SGA  expense is  principally  due to
additional  personnel and incentive costs, paid to certain employees relating to
overall profitability, retention of business, and profitability of new business.

                                       24
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATIONS (CONTINUED)

AGWAY INSURANCE COMPANY

Agway  Insurance  Company net  revenues of $27,300 in 2001  increased  $900 (3%)
compared to net  revenues  of $26,300 in 2000.  The  increase  was in net earned
premiums as sales  initiatives  caused the increase in net premiums in 2001 over
2000.

The Agway Insurance Company  experienced pre-tax earnings of $800 in 2001, which
increased $200 (33%) compared to pre-tax earnings of $600 in 2000. The Insurance
Company  increase  in  net  earned  premiums  noted  above  and an  increase  in
non-operating  revenues were partially offset by an increase of $1,300 in claims
losses  during 2001  compared  to 2000 as a result of  numerous  claims from the
heavy winter snows in the Northeast  and an above  average  number of farm fires
reported during 2001.

SUNFLOWER (OPERATION OF COUNTRY PRODUCTS GROUP)

The  Sunflower  operation  was  previously a component  of the Country  Products
Group.  Total sales and  revenue of $40,400  decreased  $2,200 (5%)  compared to
sales and revenues of $42,600 in 2000.  The decline in sunflower seed sales is a
result of a poor sunflower seed crop that adversely  impacted the sunflower seed
product  sales during the first quarter of 2001 and for the remainder of 2001 is
a result of a combination of lower product demand,  low commodity  pricing,  and
lost sales due to international pricing competition.

Sunflower's  pre-tax loss of $800 increased $900 compared to pre-tax earnings of
$100 in  2000.The  increased  loss was driven by lower  margins as a result of a
combination  of higher product cost from the prior year carryover crop and lower
product demand,  excess industry  capacity,  and international  competition,  as
noted above, which has suppressed margins.

DISCONTINUED AGRICULTURE COMPONENTS

Agronomy, Seedway, and Brubaker Consulting Services were all previously reported
as part of the Agriculture segment. Total sales of these discontinued operations
of $261,900 in 2001 increased  $23,600 (10%) compared to total sales of $238,300
in 2000. The $220,200  increase is primarily  attributable to $18,200  increased
sales and revenue in the  Agronomy  business  to  $220,200  in 2001  compared to
$211,900 in 2000.  The sales  increase  in the  Agronomy  operations  was partly
related to the  weather-related  delay in the spring 2000  plantings.  The delay
resulted in the sale of agronomy products such as fertilizer,  crop protectants,
and lime (which  normally  would have  occurred  in the fourth  quarter of 2000)
occurring  in the  first  quarter  of 2001.  Additionally,  the  Agronomy  sales
increase in 2001 was due in part to an increase in pricing of certain  products,
such as liquid nitrogen and urea,  where the underlying  product costs increased
in 2001.These factors increased the sales price of these products.

Agriculture's discontinued components incurred a pre-tax loss of $4,700 in 2001,
a decrease of $1,600  (25%)  compared to the $6,300  pre-tax  loss in 2000.  The
reduction in losses in 2001 is substantially due to improved Agronomy results of
$4,100,  principally  from  improved  planting  conditions in the spring of 2001
compared  to 2000  combined  with the weather  related  delay in the spring 2000
plantings noted above.  These  improvements  were partially  offset by a pre-tax
loss in Seedway of $1,000 for June 30,  2001,  compared  to pre-tax  earnings of
$100 in the prior year.

As  disclosed  in the  Business  and  Properties section  (Items 1 and 2), Agway
discontinued  the operation of our retail services  business in 2000. As of June
2000,  Agway  reflected in its financial  results both the loss from  operations
during 2000 as well as an estimate of the net loss on the  ultimate  disposal of
the retail services business.  During fiscal 2000 and 2001, as reflected in Note
3  of the financial statements,  we executed our plans to discontinue the retail
services  business  and no  adjustment  to the  estimated  net loss on  disposal
established as of the June 20, 2000 measurement date was required.

                                       25
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

As discussed in more detail below, due to the Company's  projected level of cash
from  operations  and the  status  of its  previously  announced  plan to divest
certain of its businesses,  the Company determined that it would have difficulty
in satisfying its  anticipated  short-term  and long-term  liquidity  needs.  To
address this issue,  the Company has generally  reached  agreement of terms of a
Debtor-in-Possession financing with its current lender group and intends to file
for an order of protection under Chapter 11 of the United States Bankruptcy Code
on October 1, 2002. The objective of the anticipated Chapter 11 proceeding is to
allow the Company to continue  operating  its  businesses  without  interruption
while  it   reorganizes   its   businesses   and  financial   obligations.   The
Debtor-in-Possession  financing,  which  will be subject to the approval  of the
bankruptcy court, is intended to replace the Company's existing Senior Debt. The
factors that resulted in this decision by the Company and the anticipated impact
of the  Chapter  11  proceeding  are  discussed  under  Anticipated  Chapter  11
Proceeding; Debtor-in-Possession Financing below.

During the year ended June 2002, cash flow from current period operations,  from
reduced working capital needs, and from sale of assets decreased bank borrowings
by $27,458,  decreased subordinated  debentures outstanding by $23,972,  reduced
capital lease obligations by $5,108,  redeemed  preferred stock totaling $5,578,
and paid dividends of $2,874.  These significant  reductions in cash obligations
during 2002 were  possible  despite the net loss  reported for the Company.  The
2002 net loss includes significant  valuation allowances for businesses held for
sale and other assets that do not represent  current or future cash costs to the
Company.  During the years ended June 2001 and 2000, cash generated from sale of
discontinued  operations,  from sale of assets, and from external borrowings was
Agway's  major  source of funds to  finance  increased  working  capital  needs,
capital improvements, redemption of stock, and shareholder dividends.
<TABLE>
<CAPTION>

                                                                     June 2002        June 2001         June 2000
                                                                  --------------    -------------    --------------
<S>                                                               <C>               <C>              <C>
Net cash flows from (used in):
      Continuing operating activities...........................  $      62,720     $    (13,431)    $     (55,034)
      Discontinued operating activities.........................          2,522           31,926            33,655
      Investing activities of continuing operations.............           (252)          (2,255)           (2,874)
      Financing activities of continuing operations.............        (64,990)         (35,381)           43,394
                                                                  --------------    --------------   --------------
Net increase (decrease) in cash and equivalents.................  $           0     $    (19,141)    $      19,141
                                                                  ==============    ==============   ==============
</TABLE>

CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES

Cash flows from continuing operations generated cash flow in 2002 of $62,700 but
required the use of cash of $13,400 and $55,000 in 2001 and 2000,  respectively.
The  fluctuations  in continuing  operations  cash flows are  substantially  the
result of fluctuations in the cash required to fund working capital.  Due to the
commodity  nature  of our  Energy  and  Agriculture  businesses,  inventory  and
receivables  are   significantly   impacted  by  changes  in  commodity   costs.
Additionally,  volume  swings in our  Energy  business  resulting  from  weather
conditions also impact working capital requirements.

CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS

Capital expenditures and business acquisitions required cash of $7,800,  $16,100
and $23,900 for 2002, 2001 and 2000,  respectively.  Cash flow used in investing
was partially  funded by cash generated from investing  activities,  principally
the proceeds  from the disposal of  businesses  and/or  property and  equipment,
which amounted to a total of $7,500, $12,900 and $20,900 in 2002, 2001 and 2000,
respectively.

                                       26
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS

The net cash from  operating  activities  in 2002 noted above was used to reduce
the financing obligations of the Company,  principally a reduction in short-term
notes payable and net redemptions of subordinated debentures.  Cash generated by
the sale of assets, net of liabilities and operating results of the discontinued
retail business, was approximately $28,900 in 2001 and $41,000 in 2000. In 2001,
cash generated from retail net asset sales,  plus the $19,100  reduction in cash
balance and net borrowing in subordinated debt, provided the cash to support the
increase in working capital and reduction in short-term notes payable.  In 2000,
the cash generated from retail net asset sales and borrowings  under  short-term
notes payable funded the increase in cash and working capital as well as the net
reduction in outstanding  subordinated debt. The following details the Company's
current financing activities:

Agway Senior Debt
As of June  30,  2002,  Agway  had  available  under  its  Senior  Debt  program
(described  below) a $150,000  short-term line of credit, up to $35,000 of which
can be used for letters of credit.  This line was  decreased  to $125,000  after
June 30, 2002, as further discussed below, and is subject to further limitations
based  on the  "collateral  borrowing  base."  Also as  discussed  below,  it is
expected  that the Senior Debt will be replaced by the Debtor - in -  Possession
financing.  See  Anticipated  Chapter 11  proceeding;  Debtor - in -  Possession
Financing below. At June 30, 2002,  letters of credit issued,  primarily to back
Agway  insurance  programs,  totaled  approximately  $23,800.  At June 30, 2002,
Agway's short-term borrowings from this line of credit were $34,180.

The Agway Senior Debt, as in effect at June 30, 2002, is a syndicated three-year
asset-based revolving line of credit for up to $150,000 pursuant to the terms of
a credit agreement dated March 28, 2001 (as amended)  between Agway,  certain of
its  subsidiaries  and a  syndicated  group of lenders  (the Credit  Agreement).
That line of credit is collateralized by a variety of our assets,  including the
outstanding limited liability Company membership  interest of Telmark.  Interest
rates are determined,  at the option of Agway, as either prime rate plus 2.5% or
the London  Interbank  Offered Rate  (LIBOR)  plus 4%. As of June 30, 2002,  the
amount available to Agway under this asset-based line of credit is the lesser of
the  "collateral  borrowing  base" or the  $150,000  upper  limit of the line of
credit.  The collateral  borrowing base consists of certain of Agway's  eligible
accounts  receivable  and  inventory  (as defined  under the Credit  Agreement).
Certain  covenants  and  conditions  of the  Credit  Agreement,  as  more  fully
discussed below, restrict the use of funds and reduce the practical availability
of financing under the agreement as of June 30, 2002, by $25,000 to a maximum of
$125,000 or, if lower, to $25,000 less than the collateral borrowing base. As of
June 30, 2002, the  collateral  borrowing  base was $115,200,  which  adequately
supported Agway's credit needs which totaled $58,100 as of that date.

Subsequent to June 30, 2002, we sold Agway  Insurance  Company and the Sunflower
division  of our CPG  segment  for  combined  gross  proceeds  of  approximately
$42,500.  The  Credit  Agreement  was  amended  (fourth  and  fifth  amendments,
respectively)  in  connection  with the release of  collateral  to permit  those
sales.  The combined  effect of these  amendments  was to reduce the  commitment
level  from  $150,000  to  $125,000  and to  require  a $25,000  minimum  excess
availability of collateral,  which effectively reduced the facility to the lower
of $100,000 or $25,000 less than the  available  collateral  borrowing  base. We
anticipate that this availability is adequate for our immediate operating needs.
However,  as  discussed  below,  we  expect  to  replace  the  Senior  Debt with
Debtor-in-Possession  financing.

The Credit  Agreement  has a number of financial  covenants  which  restrict our
capital  spending and require us to maintain  minimum levels of earnings  before
interest,  taxes,  depreciation,  and amortization  (EBITDA),  as defined in the
Credit Agreement,  and minimum ratios of EBITDA to fixed charges and interest on
senior debt.  The Credit  Agreement  has been amended three times in response to
violations of financial  covenants.  In connection with those amendments,  those
violations  were waived.  As of June 30, 2002, the Company has complied with all
covenants contained in its borrowing agreements.  Earnings through September 30,
2002, are not likely to satisfy the financial covenants of the Credit Agreement.
If we violate those covenants, the lenders would be under no obligation to waive
any such violations.  The Credit  Agreement also requires a minimum  outstanding
balance of preferred stock, subordinated debt, and certain debt of a subsidiary.
That minimum  outstanding  balance  requirement ranges from $440,000 to $450,000
throughout the year. This minimum amount of capital we must maintain is referred
to as the  Minimum  Capital.  As of June 30,  2002,  the amount of capital  that
applied  towards the Minimum  Capital  requirement  was $458,500 (see discussion
below regarding Minimum Capital).

                                       27
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS  (CONTINUED)

Agway Senior Debt (continued)
Other conditions of the Credit Agreement  prevent us, in certain  circumstances,
from  using  funds we borrow  under the  Credit  Agreement  to pay  interest  or
dividends  on, or repurchase or repay  principal  of, our  subordinated  debt or
preferred stock. Effective June 14, 2002, we stopped the voluntary repurchase or
repayment  of our  subordinated  debt and  preferred  stock.  Consequently,  the
present  effect of these  restrictions  is on our  ability  to pay  interest  or
dividends  or  principal  on  maturing  debt  securities.  To  avoid  these  use
restrictions,  the Credit  Agreement  as of June 30, 2002  required us to have a
minimum  excess  borrowing  capacity  as  defined in the  agreement  (collateral
borrowing base in excess of outstanding amounts borrowed) of at least $20,000 if
we are not in default under the Credit Agreement. If we are in default under the
Credit Agreement, to avoid these use restrictions,  the minimum excess borrowing
capacity we must maintain  (collateral  borrowing  base in excess of outstanding
amounts borrowed) increases to $25,000.  Further, if we are in default under the
Credit Agreement, we are subject to these use restrictions if:

(a)  we  default  on  our payment of principal, interest or other amounts due to
     the lenders under the Credit Agreement;

(b)  we  fail  to  maintain  the cash management procedures we agree to with the
     lenders under the Credit Agreement;

(c)  we do not maintain the Minimum Capital balance of $440,000 to $450,000; or

(d)  the agent under the Credit Agreement provides us with a written notice that
     such payments are no longer permitted.

Based on expected  cash flow from our business  operations,  the cash  generated
from asset sales to date,  and the  uncertainty of both the amount and timing of
cash from sales of business operations to come, it is neither certain nor likely
that we will satisfy our  financial  covenants as of September  30, 2002 or will
have  generated  sufficient  cash to pay out our  November 1, 2002,  maturity of
subordinated  debt of $33,100 or meet the future interest  requirements on Agway
Inc. unsecured debt or to pay dividends on Agway Inc.  preferred stock.  Because
of this cash flow insufficiency, the probable inability to satisfy the financial
covenants of the Credit Agreement,  and other liquidity  concerns described more
fully  below,  we  have  generally  reached  agreement  of  terms  of a  Debtor-
in-Possession  financing  arrangement  with our present  senior  lender group to
replace the Senior Debt and we intend to commence a proceeding  under Chapter 11
of the United  States  Bankruptcy  Code on October 1, 2002,  for Agway Inc.  and
certain of its subsidiaries.  This Debtor-in-Possession  credit facility will be
subject  to  approval  by the  Bankruptcy  Court.  See  Anticipated  Chapter  11
Proceeding; Debtor-in-Possession Financing below.

Long-Term Debt
Sources of longer-term financing at June 30, 2002, include the following:
<TABLE>
<CAPTION>

                                                                                                        June 2002
                                                                                                     --------------
<S>                                                                                                   <C>
Other long-term debt - due 2002 to 2018,  interest at a weighted average rate of 6.43% with a
      range of 2.90% to 10.00%......................................................................  $      1,772
Capital lease obligations  - due 2002 to 2022, interest with a range of 7.54% to 12.20%............         17,213
Subordinated money market certificates - due 10/02 to 10/17, interest at a weighted average rate of
      8.23% with a range of 5.50% - 9.75%..........................................................        421,659
Subordinated debentures - due 7/03, interest at a weighted average rate of 7.92% with a range of
      7.50% to 8.00%...............................................................................          3,707
                                                                                                      --------------
         Total debt................................................................................   $    444,351
                                                                                                      ==============
</TABLE>

                                       28
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS  (CONTINUED)

Agway Subordinated Debt
Agway  registers  with the  Securities  and Exchange  Commission  (SEC) to offer
debentures  and money market  certificates  to the public.  As noted below,  the
Company  is  not  currently  offering  subordinated  debt  to  the  public.  The
debentures are unsecured and subordinated to all senior debt of Agway. The Agway
subordinated debt bears interest payable semiannually on January 1 and July 1 of
each year.  The interest rates of Agway's money market  certificates  are at the
greater of the stated  rate or a rate  based upon an average  discount  rate for
U.S.   Government   Treasury  Bills,  with  maturities  of  26  weeks.   Agway's
subordinated debt is not redeemable by the holder.

Effective  June  14,  2002,  the  Board  of  Directors  (the  "Board")  of Agway
determined to suspend the Company's  historic practice of repurchasing,  at face
value, eligible Agway Inc.  subordinated  debentures prior to maturity and Agway
Inc.  preferred  stock  when  presented  for  repurchase.  As  disclosed  in the
Company's  periodic reports and the  prospectuses  relating to the sale of those
securities,  the Company was under no obligation to repurchase such  securities,
retained  the right to stop or suspend this  practice at any time,  and could be
required  to stop or  suspend  this  practice  if the  conditions  of the Credit
Agreement were not satisfied.

The primary reason for the Board's decision to suspend the Company's  repurchase
of eligible Agway Inc.  subordinated  debentures and Agway Inc.  preferred stock
was to preserve the Company's  liquidity during the implementation  phase of its
planned divestiture of certain business  operations,  as discussed above in Note
3, and to provide  the  Company  with  greater  flexibility  in the event  those
divestitures  did not go as  planned.  In  addition,  because the Company is not
currently  actively  raising capital through new sales of securities,  the Board
determined  that  suspending  the  Company's  repurchase  practice  would become
necessary  in the near  future  in order to allow the  Company  to  satisfy  the
Minimum Capital requirement under the Credit Agreement. As of June 30, 2002, the
Minimum Capital requirement was $450,000; at that time, the Company had $458,500
of preferred  stock,  subordinated  debentures and other  interest  bearing debt
outstanding.

On  November  1,  2002,   $33,100  of  subordinated   money  market  certificate
obligations  of Agway  (previously  issued by AFC and  assumed  by  Agway)  will
mature.  To date,  sufficient  cash has not been generated from our operation or
from sale of businesses from our current  restructuring  plan to provide us with
the funds we would need to pay that maturity. In addition,  without amendment to
the existing Credit Agreement, payment of that maturity would be precluded since
it would  constitute a default of the Minimum Capital  requirement in the Credit
Agreement.  Because the Company is no longer offering  securities to the public,
and because we have not generated  sufficient  cash from the sale of businesses,
there is currently no basis for such amendment or a waiver from our lenders.

Surety Liquidity Risk
In July 2002,  our surety  provider  issued  cancellation  notices  relative  to
$23,900 of surety bonds supporting our insurance programs. This has no impact on
our insurance  coverage,  but it does give our  insurance  carriers the right to
demand payment of the collateral amount provided by the bonds from the issuer of
the bonds.  If our surety  provider  chooses to pay cash to our insurers  rather
than  reissue  bonds,  our surety would have a right to demand cash payment from
us. Because of the  cancellation  notices  issued,  our insurers have a right to
make demand on our surety  provider for $4,625  starting late  September and for
$6,000  starting  late October.  We dispute the right of the surety  provider to
cancel the remaining  $13,275 at this time but  recognize  their right to cancel
coverage in the spring of 2003 at the scheduled renewal dates. It is unlikely we
would meet those demands and still have cash availability sufficient to meet our
operating  needs. If we were unable to pay, it would  constitute a default under
our Credit Agreement.

                                       29
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS  (CONTINUED)

Anticipated Chapter 11 Proceeding; Debtor-in-Possession Financing
The Company and certain of its subsidiaries  intend to file voluntary  petitions
for reorganization  under Chapter 11 of the United States Bankruptcy Code. Those
filings are designed to allow the Company to continue  operating its  businesses
without  interruption while it takes steps necessary to reorganize its financial
obligations  and strengthen its balance sheet.  The petitions for Agway Inc. and
certain  of its  subsidiaries  will  include  Agway  Feed and  Nutrition,  Agway
Agronomy,  Seedway,  Feed Commodities  International,  Country Best Produce, CPG
Nutrients,  Agway CPG Technologies and Agway General Agency. These petitions are
expected to be filed with the United  States  Bankruptcy  Court for the Northern
District of New York in Utica, New York, on October 1, 2002.

Four wholly owned Agway Inc. subsidiaries WILL NOT be included in the Chapter 11
filings:  Agway Energy Products LLC, Agway Energy  Services,  Inc., Agway Energy
Services-PA, Inc. and Telmark LLC.

In connection with the intended Chapter 11 filing, the Company has generally
reached agreement of terms of an 18-month, $125,000  Debtor-in-Possession credit
facility  (the "DIP  Financing")  to replace the existing  Senior Debt.  The DIP
Financing contemplates the completion of certain asset  sales that are presently
under  negotiation and, together with the proceeds from those sales, is expected
to provide  the Company  with  adequate  cash  resources  to meet its  operating
requirements during the Chapter 11 bankruptcy  proceeding.  The DIP Financing is
subject to the approval of the Bankruptcy Court.

The Company's Board of Directors believes that the Chapter 11 filing is the best
and most realistic  option for the Company at this time. The Company  intends to
develop a  longer-term  strategic  plan of  reorganization  that will serve as a
framework  for its  emergence  from the  Chapter  11  process  as a  financially
stronger enterprise.

A number of factors and events led  to this decision by the Board. The Company's
business is substantially  dependent upon the health of the agricultural sector;
persistent  weakness in that sector has  contributed to the Company's  losses in
recent  periods,  and the Company as a whole has not been generating the cash it
needs to support the level of debt the Company is  carrying.  Those  losses,  in
turn,  have caused the Company to violate the financial  covenants in its Credit
Agreement on a number of occasions.  Although those  violations  were waived and
certain of the  covenants  were  modified,  the  Company  believes  that  future
violations are possible and perhaps likely. If such future violations occur, the
Company's lenders would be under no obligation to waive those violations,  which
would adversely affect the Company's  ability to borrow under that agreement and
could result in additional liquidity problems.

To address these  concerns,  in March 2002 the Company  approved a restructuring
plan  designed to generate  proceeds  from the sale of certain  businesses  that
could be used to satisfy the  Company's  operating  needs and reduce its overall
level of debt.  While the  restructuring  plan the  Company  put into place last
March has met with some  success,  the sales of Agway  businesses  envisioned in
that plan have proceeded more slowly than anticipated.  In particular,  based on
the level of interest  expressed by  potential  buyers,  the Company  reasonably
expected that a sale of Telmark could be  accomplished  by the end of June 2002;
however, as discussed in more detail below, that sale did not occur as expected.

Once the  restructuring  plan was  approved,  Agway  was  required  to treat the
businesses  identified  for  divestiture  as  "discontinued  operations"  and to
restate its  financial  statements  to reflect  those  discontinued  operations.
Accordingly, at the time of the announcement,  the Company temporarily suspended
actively  raising  capital  under its  securities  program  until  the  restated
financial information reflecting the expected impact of the restructuring on the
Company was filed.

                                       30
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS  (CONTINUED)

Anticipated Chapter 11 Proceeding; Debtor-in-Possession Financing (continued)
Although  the  restated  financial  information  was  filed  in May 2002 and the
Company was planning to recommence  active capital raising efforts,  the Company
determined to refrain from those  efforts  until a definitive  agreement for the
sale of  Telmark,  which  was in the  final  stages  of  negotiation,  had  been
executed. Shortly thereafter, the form of a definitive agreement for the sale of
Telmark was submitted for approval to the respective  boards of directors of the
Company and the potential  buyer.  The Company's  board  approved the agreement;
however,  the Company was thereafter informed that the board of directors of the
potential  buyer  did  not  approve  the  transaction.  Negotiations  with  that
potential  buyer were  terminated and the Company was required to start the sale
process over again.

Based on this unexpected  occurrence and the uncertainty it caused,  the Company
chose not to reopen its active  capital  raising  efforts  until it made further
progress on its restructuring plan. As a result, it no longer had the benefit of
its securities program as a source of new capital. On June 17, 2002, the Company
announced that it was suspending its voluntary practice of repurchasing  certain
securities  when  presented for  repurchase  by the holders  thereof in order to
preserve its liquidity and give it greater  flexibility in the event the planned
divestitures  did not go as planned.  In  addition,  because the Company was not
actively raising new capital though its securities program, the Company expected
that it would have had to suspend  the  repurchase  practice  in the near future
because it was in danger of violating the Minimum Capital  requirement under its
Credit Agreement.

As noted above,  based on the current level of cash flow from operations and the
status of the planned  divestitures,  it is neither  certain nor likely that the
Company  will  satisfy  its  financial  covenants  as of  September  30, 2002 or
generate  sufficient cash to satisfy the November 1, 2002 maturity of $33,100 of
subordinated  debt. Even if the Company has funds in an amount sufficient to pay
that  maturity,  such  payment  would  cause the  Company to violate the Minimum
Capital  requirement in the Credit  Agreement,  which could adversely impact the
Company's ability to borrow under that agreement and cause additional  liquidity
problems. In addition,  without further asset sales, the Company does not expect
to have sufficient funds to pay interest and dividends on its securities  and/or
satisfy any demands of its surety provider in connection  with the  cancellation
notice described above and still have cash  availability  sufficient to meet its
operating  needs.  A failure to satisfy  those  obligations  could  result in an
additional default under the Credit Agreement.

In view of the foregoing,  the Company  believes the Chapter 11 procedure is the
most realistic option available to it at this time.

                                       31
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATING ACTIVITIES

Sunflower,  Agronomy, and Retail operating activities are supported by the Agway
Inc. financing  arrangements described above under continuing operations and are
considered  in  continuing  operations  comments  relative to  estimated  future
operating cash flows and financing needs. The sale of assets, net of liabilities
of the discontinued  retail  business,  generated net cash flow of approximately
$28,900  in 2001  and  $41,000  in 2000.  The  sunflower  operation  was sold on
September 16, 2002, for  approximately  $19,700 net proceeds to Agway Inc. after
considering related costs associated with the transaction.

Insurance and Leasing are separate subsidiaries that are independently financed.
The Agway  Insurance  Company  was sold on August 28,  2002,  for  approximately
$18,100 net proceeds to Agway Inc. after  considering  related costs  associated
with the transaction.

Telmark will continue to operate separately and be separately financed as it has
been in the past and WILL NOT be part of the  Agway  Inc.  voluntary  bankruptcy
proceeding discussed above.

Telmark,  the  Company's  leasing  business,  supports  a net  lease  receivable
portfolio of $716,800.  Telmark has  historically  generated  and is expected to
continue  to  generate  ample  earnings  and cash flow to meet its debt  service
requirements.  Telmark has principally  financed its  operations,  including the
growth of its lease  portfolio,  through  borrowings  under its lines of credit,
private  placements  of debt with  institutional  investors,  other  term  debt,
subordinated debentures, lease-backed notes, principal collections on leases and
cash provided from operations. Under Telmark's financing arrangements, dividends
and  distributions  that may be made to  Agway  are  limited  in  amount;  those
limitations vary according to the level of Telmark's earnings.  Virtually all of
the cash flows from operations have  historically been invested in growth of the
lease portfolio and repayment of debt. In addition,  Telmark made  distributions
to Agway of $5,000 and $10,000 in 2000 and 2002, respectively.

At June 30,  2002,  Telmark  borrowings  under  lines of  credit,  term debt and
subordinated debentures consisted of the following:
<TABLE>
<CAPTION>
<S>                                                                                                  <C>
Lines of credit and revolving loans payable to banks due in varying amounts and dates through
February 13, 2006, with interest ranging from 2.53% to 7.47%.......................................  $      379,263

Unsecured notes payable to insurance companies due in varying amounts and dates through
December 1, 2012, with interest ranging from 6.55% to 8.72%........................................         106,667

Lease-backed notes payable to insurance companies in varying amounts and dates through
December 15, 2008, with interest rates ranging from 6.54% to 9.05%.................................          52,909
                                                                                                     --------------

Total borrowings under lines of credit and term debt...............................................         538,839

Subordinated debentures due in varying amounts and dates through March 31, 2010, with interest
ranging from 6.25% to 9.00%........................................................................          44,800
                                                                                                     --------------

Total debt.........................................................................................  $      583,639
                                                                                                     ==============
</TABLE>

Lines of Credit and Revolving Loans
As of June 30, 2002,  Telmark has credit  facilities  available from banks which
allow it to borrow up to an aggregate of $429,300.  Uncommitted  short-term line
of credit  agreements  permit borrowing up to $54,300 on an unsecured basis with
interest paid upon  maturity.  The lines bear interest at money market  variable
rates.  Committed  partially  collateralized  revolving loan facilities totaling
$375,000  permit  Telmark to draw  short-term  funds  bearing  interest at money
market rates or draw  long-term  debt at rates  appropriate  for the term of the
note  drawn.  The  total  amount  outstanding  as of June 30,  2002,  under  the
short-term  lines of credit and the revolving term loan facility was $51,300 and
$328,000, respectively.

                                       32
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

DISCONTINUED OPERATING ACTIVITIES (CONTINUED)

Lines of Credit and Revolving Loans (continued)
Telmark borrows under its short-term line of credit agreements and its revolving
term agreement from time to time to fund its operations.  Short-term debt serves
as interim  financing  between the issuances of long-term debt. In addition,  in
consideration of the potential sale of the business,  management made a decision
to use short-term  debt through a potential  closing date instead of pursuing an
issuance of additional long-term debt. In May 2002, after lengthy  negotiations,
Agway and a potential  buyer were unable to reach final  agreement  on a sale of
Telmark.  Accordingly,  Telmark  decided  to issue  additional  senior  notes to
insurance  companies.  On August 1, 2002,  Telmark issued  $100,000 of unsecured
senior  notes to insurance  companies.  Proceeds of these notes were used to pay
down the revolving term loan facility,  increasing  the  availability  under the
lines of credit and revolving loans discussed above.

Telmark  normally  renews  its  lines of  credit  annually.  However,  since the
previously  mentioned  announcement  of Agway's  intention to pursue the sale of
Telmark,   continuing  lenders  under  the  uncommitted  short-term  lines  have
shortened  their renewal periods to expire in six months or less. Of the $54,300
total lines, on June 30, 2002,  $39,300  presently  expire December 31, 2002 and
$15,000  expire  October 31, 2002.  Due to  uncertainty  related to the reported
financial condition of Agway Inc., at the request of two banks, Telmark has paid
down all amounts outstanding on the $15,000 line, which Telmark expects will not
renew in  October  2002,  and has paid down  $2,000 on a $6,000  line,  which is
scheduled to expire in December 2002. The $300,000 portion of the revolving loan
facility is available  through  December 31, 2002. In September  2002,  the bank
extended  $50,000 of the $75,000  remaining  revolving term facility to December
31, 2002. This combined  $350,000  revolving term facility by itself is expected
to be adequate to meet  Telmark's  needs through  December 31, 2002.  Telmark is
currently  negotiating with its lenders regarding extension of its various lines
of credit.

The ongoing  availability  of  adequate  financing  to maintain  the size of its
portfolio and to permit lease  portfolio  growth is key to Telmark's  continuing
profitability  and stability.  Telmark has been successful in arranging its past
financing needs.  Management  conducts ongoing discussions and negotiations with
existing and potential lenders for future financing needs. Telmark believes that
its current financial  arrangements are adequate to meet its immediate operating
requirements  and that its bank support will continue to be adequate to meet its
foreseeable  needs  as  Telmark  goes  through  this  period  of  transition  in
ownership.  There can be no  assurance,  however,  that  Telmark will be able to
obtain future financing in amounts,  or on terms, that are favorable to Telmark.
Telmark's  inability to obtain adequate  financing would have a material adverse
effect on its operations.

Unsecured Notes Payable to Insurance Companies
At June 30, 2002,  Telmark had  balances  outstanding  on unsecured  senior note
private placements totaling $106,677.  Interest is payable  semiannually on each
senior  note.  Principal  payments  are both  semiannual  and  annual.  The note
agreements  are  similar  to each  other and each  contains  specific  financial
covenants.  For the year ended June 30,  2002,  Telmark  has  complied  with all
covenants contained in its borrowing agreements.

Lease-Backed Notes Payable to Insurance Companies
Telmark  has  issued  lease-backed  notes,   through  two  wholly  owned,  fully
consolidated,  special purpose funding subsidiaries. The total outstanding under
Telmark Lease Funding II, LLC and Telmark Lease Funding III, LLC was $13,128 and
$39,781, respectively, as of June 2002.

Subordinated Debentures
In anticipation of the possible sale of Telmark,  effective as of March 6, 2002,
Telmark  ceased  issuing  debentures  to the public,  other than pursuant to the
interest  reinvestment  option of the debentures.  Under that option,  debenture
holders  may elect to receive  interest on  debentures  either in cash or in the
form of  additional  principal  on the  debentures.  However,  once a  debenture
reaches  maturity,  the holder will not be  permitted  to invest the proceeds in
additional debentures.

                                       33
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

OTHER MATTERS

ENVIRONMENTAL ISSUES

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

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

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

OTHER ISSUES

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

AGRICULTURAL ECONOMY AND OTHER FACTORS

The financial  condition of Agway can be directly  affected by factors affecting
the agricultural economy, since these factors impact the demand for our products
and the  ability of our  customers  to make  payments  for  products or services
already purchased through credit extended by us. These factors may include:  (i)
the  continuing  consolidation  and  concentration  of  agriculture  in  certain
markets;  (ii) changes in  government  agricultural  programs that may adversely
affect  the  level of  income  of  customers  of  Agway;  (iii)  weather-related
conditions   which   periodically   occur  that  can  impact  the   agricultural
productivity  and income of the customers of Agway; and (iv) the relationship of
demand relative to supply of agricultural  commodities  produced by customers of
Agway.  Agway  can also be  affected  by major  international  events,  like the
downturn  in foreign  economies,  which can affect  such  things as the price of
commodities  we use in our  operations  as well as the general level of interest
rates.

                                       34
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)
OTHER MATTERS (CONTINUED)

AGRICULTURAL ECONOMY AND OTHER FACTORS (CONTINUED)

The financial  condition of Agway Energy Products is impacted by factors such as
weather  conditions in the Northeast and the  relationship  of supply and demand
for  petroleum  products  worldwide as well as within  Agway's  market.  Agway's
agricultural  business  can be  impacted  by  changes  in dairy  prices  paid to
producers and from fluctuations in the economy in the northeastern United States
that, in general,  affect consumer demand for products. To the extent that these
factors adversely affect our customers,  the financial  condition of Agway could
be adversely affected.

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

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

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

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

                                       35
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

OTHER MATTERS (CONTINUED)

CRITICAL ACCOUNTING POLICIES (CONTINUED)

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

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

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

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

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

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

                                       36
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

OTHER MATTERS (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 141, "Business Combinations," was issued in June 2001 and requires that
--------------------------------------
the  purchase  method  of  accounting  be  used  for all  business  combinations
initiated after June 30, 2001, and prohibits the use of the pooling-of-interests
method. The adoption of this standard has no impact on the financial  statements
of the Company.

SFAS No. 142,  "Goodwill and Other Intangible  Assets," was issued in June 2001.
-------------------------------------------------------
Under SFAS No. 142, amortization of goodwill,  including goodwill and intangible
assets with  indefinite  lives  recorded  in past  business  combinations,  will
discontinue upon adoption of this standard. In addition,  goodwill recorded as a
result of  business  combinations  completed  after  July 1,  2001,  will not be
amortized.  Instead,  all goodwill and intangible  assets with indefinite  lives
will be tested for  impairment  annually,  or more  frequently if  circumstances
indicate  potential  impairment,  through  a  comparison  of fair  value  to its
carrying amount.  The net book value of goodwill and other intangible  assets of
continuing operations was $7,700 at June 30, 2002.  Amortization of goodwill and
other  intangible  assets of continuing  operations  totaled  $1,800 and $1,700,
respectively,  for the years ended June 30, 2002 and 2001.  We have adopted this
standard  on July 1, 2002,  and we expect to  complete  the  initial  impairment
analysis by December 31, 2002.

SFAS No 143,  "Accounting for Asset Retirement  Obligations," was issued in June
-------------------------------------------------------------
2001 and is effective for the Company on July 1, 2002.  SFAS No. 143 establishes
financial accounting and reporting obligations associated with the retirement of
tangible  long-lived  assets and the associated  assets'  retirement  costs.  It
applies to all legal  obligations  associated  with the retirement of long-lived
assets that result from the acquisition,  construction,  development, and/or the
normal operation of a long-lived  asset. We believe that the  implementation  of
the statement  will not have a material  impact on the results of operations and
financial position of the Company.

SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
--------------------------------------------------------------------------------
was issued in August 2001. SFAS No. 144 provides new guidance on the recognition
of impairment  losses on long-lived assets to be held and used or to be disposed
of and also broadens the definition of what constitutes a discontinued operation
and how the results of discontinued operations are to be measured and presented.
SFAS No.  144  supersedes  SFAS  No.  121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and a portion of
Accounting   Principle   Board   (APB)  No.  30,   "Reporting   the  Results  of
Operations-Reporting  the Effects of Disposal of a Segment of a Business," while
retaining many of the requirements of these two statements.  Under SFAS No. 144,
discontinued  operations are no longer measured on a net realizable value basis,
and future operating  losses are no longer  recognized  before they occur.  This
statement  broadens the  presentation of  discontinued  operations in the income
statement  to  include a  component  of an entity  (rather  than a segment  of a
business). A component of an entity comprises operations and cash flows that can
be clearly  distinguished,  operationally and for financial  reporting purposes,
from the rest of the entity.

The Company early adopted this new standard on January 1, 2002,  and  recognized
no  impact  in its  financial  statements  regarding  the  new  guidance  on the
recognition  of impairment  losses on long-lived  assets to be held and used. As
further  described in Note 3, the Company has announced the  discontinuation  of
five of its  business  operations  and has adopted the  guidance of SFAS No. 144
regarding the  measurement,  recognition,  and disclosure of these  discontinued
operations.

SFAS  No.  146,   "Accounting  for  Costs   Associated  with  Exit  or  Disposal
--------------------------------------------------------------------------------
Activities,"  was  issued  June  2002  and is  effective  for  exit or  disposal
------------
activities  initiated after December 31, 2002. SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity  Including Certain Costs Incurred in a Restructuring."  We believe that
the  implementation  of the  statement  will not have a  material  impact on the
results of operations and financial position of the Company.

                                       37
<PAGE>
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                             (THOUSANDS OF DOLLARS)

Market risk represents the risk of loss that may impact the financial  position,
results  of  operations,  or cash  flows  of Agway  due to  adverse  changes  in
financial and commodity  market prices and rates.  We are exposed to market risk
in the areas of  interest  rates  and  commodity  prices.  These  exposures  are
directly  related to our normal funding and investing  activities and to our use
of agricultural and energy commodities in the operation of our business.

INTEREST RATE EXPOSURE
The following table provides  information about the other financial  instruments
that are sensitive to changes in interest  rates.  The table presents  principal
cash flows and related  weighted  average  interest  rates by expected  maturity
dates.
<TABLE>
<CAPTION>
                                                                                                                     Fair Value
LIABILITIES                          2003       2004       2005       2006       2007      Thereafter      Total     June 2002
                                    -------    -------    -------    -------    -------    ----------     -------    ---------
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>            <C>        <C>
Agway long-term debt, including
   current portion............      $   202    $   169    $   123    $    98    $    98    $  1,082       $  1,772   $  1,819
Weighted average interest rate        6.87%      6.28%      7.07%      6.32%      6.32%       6.32%
Agway subordinated debentures,
   including current portion        $36,917    $38,568    $49,047    $33,379    $52,701    $211,047       $421,659   $     (1)
Weighted average interest rate        6.34%      8.21%      8.75%      8.15%      7.73%       8.43%
Agway subordinated money market
   certificates, including current
   portion ...................      $     0    $ 3,707    $     0    $     0    $     0    $      0       $  3,707   $  3,867
Weighted average interest rate                   7.92%
</TABLE>

We do not use  derivatives or other interest rate  instruments to hedge interest
rate risk due to the fixed rate nature of the majority of our debt  obligations.
Agway's  subordinated  money market  certificates  (previously issued by AFC and
assumed by Agway) bear interest at a rate that is the greater of the stated rate
or a rate based upon an average discount rate of T-Bills,  with maturities of 26
weeks.  Based on the  T-Bill  rate of 1.78% at June 2002 as it  compares  to the
stated rates of the money market  certificates which range from 5.5% to 9.75% at
June 30, 2002,  we believe a reasonably  possible  near-term  increase in T-Bill
rates  and the  conversion  of Agway  debt to a  variable  rate  would not cause
material near-term losses in future earnings or cash flows.

(1)  Fair value of Agway subordinated debentures is not determinable at June 30,
     2002.  As  described  in Note 8,  effective  June  14,  2002,  the  Company
     suspended its voluntary practice of repurchasing  eligible Agway securities
     when presented prior to maturity.  Furthermore,  on October 1, 2002, Agway
     Inc. intends to file  voluntary  petitions for reorganization under Chapter
     11 of the U.S. Bankruptcy Code.

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

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its  commodity  instrument  positions as of June 30, 2002 and 2001.  The
fair value of such  position is a summation  of the fair values  calculated  for
each commodity  instrument by valuing each position at quoted futures prices or,
in the case of options,  a delta- adjusted  calculated price. The market risk of
the  commodity  position  is  estimated  as the  potential  loss in  fair  value
resulting  from a  hypothetical  10%  adverse  change  in  market  prices of the
underlying  commodities.  This estimated loss in fair value does not reflect the
offsetting  impact of market price  changes to the  underlying  commodities  for
which the commodity instruments are managing the price risk. As of June 30, 2002
and 2001, assuming a 10% hypothetical adverse change in the underlying commodity
price,  the potential  decrease in fair value of our Energy  business  commodity
instruments was $2,200 and $600, respectively.  The potential loss in fair value
of  commodity  instruments  for  Agriculture  and  Country  Products  Group  was
immaterial for both periods.

                                       38

<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

                          INDEX TO FINANCIAL STATEMENTS

                                                                                                                PAGES
                                                                                                                -----
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES:
      <S>                                                                                                        <C>
      Agway Inc. Report on Financial Statements................................................................  40

      Report of Independent Accountants........................................................................  41

      Consolidated Balance Sheets, June 30, 2002 and June 30, 2001.............................................  42

      Consolidated Statements of Operations, fiscal years ended June 30, 2002, June 30, 2001 and
            June 24, 2000......................................................................................  43

      Consolidated Statements of Comprehensive Income, fiscal years ended June 30, 2002, June 30, 2001 and
            June 24, 2000......................................................................................  44

      Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended June 30, 2002,
           June 30, 2001 and June 24, 2000.....................................................................  45

      Consolidated Statements of Cash Flows, fiscal years ended June 30, 2002, June 30, 2001 and
            June 24, 2000......................................................................................  46

      Notes to Consolidated Financial Statements...............................................................  47
</TABLE>

                                       39
<PAGE>
                    AGWAY INC. REPORT ON FINANCIAL STATEMENTS

The  accompanying  consolidated  financial  statements have been prepared by the
Company in  conformity  with  accounting  principles  generally  accepted in the
United States of America.  The integrity  and  objectivity  of the data in these
financial statements,  including estimates and judgments, are the responsibility
of Agway, as is all other information included in these financial statements.

The  consolidated  financial  statements  of Agway  Inc.  have been  audited  by
PricewaterhouseCoopers LLP, independent accountants, whose report follows. Agway
has made available to PricewaterhouseCoopers  LLP all of the Company's financial
records  and  related  data,  as well as the  minutes  of  Directors'  meetings.
Furthermore,    Agway    believes    that    all    representations    made   to
PricewaterhouseCoopers LLP during its audit were valid and appropriate.

Agway  maintains a system of internal  accounting  controls  intended to provide
reasonable  assurance,  given the inherent  limitations of all internal  control
systems, at appropriate costs, that transactions are executed in accordance with
Company  authorization,  are properly  recorded  and  reported in the  financial
statements, and that assets are adequately safeguarded.

The Audit Committee of the Board of Directors, which consists of three directors
who are not employees,  meets  periodically  with management and the independent
accountants   to  review  the  manner  in  which  they  are   performing   their
responsibilities  and to discuss auditing,  internal  accounting  controls,  and
financial reporting matters. The independent accountants have free access to the
Audit Committee.


                              AGWAY INC.




                                                     BY /s/ DONALD P. CARDARELLI
                                                        ------------------------
                                                         BY DONALD P. CARDARELLI
                                                               President and CEO
                                                              September 27, 2002




                                                     BY     /s/ PETER J. O'NEILL
                                                        ------------------------
                                                                PETER J. O'NEILL
                                                           Senior Vice President
                                                               Finance & Control
                                                              September 27, 2002

                                       40
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of Agway Inc.:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)(1)  on page 87  present  fairly,  in all  material
respects,  the financial position of Agway Inc. and its subsidiaries at June 30,
2002 and 2001, and the result of their  operations and their cash flows for each
of the three  years in the  period  ended  June 30,  2002,  in  conformity  with
accounting  principles  generally  accepted in the United States of America.  In
addition,  in our opinion, the financial statement schedules listed in the index
appearing  under  Item  14(a)(2)  on page 87  present  fairly,  in all  material
respects,  the information  set forth therein when read in conjunction  with the
related  consolidated  financial  statements.  These  financial  statements  and
financial   statement   schedules  are  the   responsibility  of  the  Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedules based on our audits. We conducted
our audits of these statements in accordance with auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, it is the Company's intention to file for protection under
Chapter 11 of the United States  Bankruptcy  Code on October 1, 2002 as a result
of recurring  losses from operations and substantial  constraints on its ability
to obtain continued  financing.  These matters raise substantial doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also described in Note 2. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

As further  discussed in Note 1, the Company  adopted the Statement of Financial
Accounting  Standard  No. 144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets" in 2002 and the financial  statements  have been restated to
reflect certain business operations as discontinued operations.




/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Syracuse, New York
September 27, 2002






                                       41
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                     ASSETS


                                                                                    JUNE 30,            JUNE 30,
                                                                                      2002                2001
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Current assets:
     Trade accounts receivable (including notes receivable of
         $1,988 and $2,197, respectively), less allowance for
         doubtful accounts of $4,723 and $7,355, respectively...................  $     76,733       $     108,525
     Advances and other receivables.............................................         4,757               4,895
     Inventories................................................................        29,178              38,876
     Deferred tax assets........................................................        17,840              34,501
     Prepaid expenses and other assets..........................................         9,136               8,804
                                                                                  -------------      --------------
         Total current assets...................................................       137,644             195,601
Security investments, net.......................................................        11,125              11,509
Properties and equipment, net...................................................       123,685             137,014
Net pension asset...............................................................       223,649             229,678
Other assets....................................................................        23,650              29,781
Total assets of discontinued operations.........................................     1,054,607           1,039,214
                                                                                  -------------      --------------
         Total assets...........................................................  $  1,574,360       $   1,642,797
                                                                                  =============      ==============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Notes payable..............................................................  $     34,180       $      61,342
     Current installments of long-term debt (including capital leases)..........         1,842               1,498
     Subordinated debt, current.................................................        36,917              47,628
     Accounts payable...........................................................        49,015              40,896
     Trade receivables with credit balances.....................................        28,079              15,780
     Other current liabilities..................................................        51,976              58,752
                                                                                  -------------      --------------
         Total current liabilities..............................................       202,009             225,896
Long-term debt (including capital leases).......................................        17,143              18,278
Subordinated debt...............................................................       388,449             401,710
Deferred tax liabilities........................................................        31,897              53,021
Other liabilities...............................................................        60,350              62,765
Total liabilities of discontinued operations....................................       810,410             711,797
                                                                                  -------------      --------------
         Total liabilities......................................................     1,510,258           1,473,467
Commitments and contingencies...................................................
Shareholders' equity:
     Preferred stock, less amount held in Treasury..............................        32,057              37,603
     Common stock ($25 par--300,000 shares authorized; 173,404 and 173,323
         shares issued, less amount held in Treasury)...........................         2,413               2,445
     Accumulated other comprehensive income (loss)..............................         1,195                 (61)
     Retained earnings..........................................................        28,437             129,343
                                                                                  -------------      --------------
         Total shareholders' equity.............................................        64,102             169,330
                                                                                  -------------      --------------
              Total liabilities and shareholders' equity........................  $  1,574,360       $   1,642,797
                                                                                  =============      ==============
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       42
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>


                                                                                   YEAR ENDED
                                                              -----------------------------------------------------
                                                                 JUNE 30,           JUNE 30,            JUNE 24,
                                                                   2002               2001                2000
                                                              -------------       -------------      --------------

<S>                                                           <C>                 <C>                <C>
Net sales and revenues......................................  $     899,934       $  1,134,712       $     982,353
                                                              -------------       -------------      --------------

Cost and expenses from:
     Products and plant operations..........................        833,037          1,056,042             913,722
     Selling, general and administrative activities.........         63,840             82,595              71,058
                                                              -------------       -------------      --------------
         Total operating costs and expenses.................        896,877          1,138,637             984,780
                                                              -------------       -------------      --------------

Operating earnings (loss)...................................          3,057             (3,925)             (2,427)
Interest expense, net of interest income of $3,428, $6,186..
     and $7,350, respectively...............................        (21,035)           (18,722)            (12,664)
Other income, net...........................................          1,083              3,448              24,317
                                                              -------------       -------------      --------------
Earnings (loss) from continuing operations before
     income taxes...........................................        (16,895)           (19,199)              9,226
Income tax expense (benefit)................................            656             (9,696)              4,176
                                                              -------------       -------------      --------------

Earnings (loss) from continuing operations..................        (17,551)            (9,503)              5,050

Discontinued operations:
     Earnings (loss) from operations, net of tax expense
         (benefit) of $2,168, $3,890 and $(4,625),
          respectively......................................          4,740              1,633             (12,085)
     Loss on disposal, net of tax (benefit) of $(17,800), $0
         and $(1,278), respectively.........................        (85,436)                 0              (2,342)
                                                              -------------       -------------      --------------
           Earnings (loss) from discontinued operations.....        (80,696)             1,633             (14,427)

Loss before cumulative effect of an accounting
     change.................................................        (98,247)            (7,870)             (9,377)
                                                              -------------       -------------      --------------

Cumulative effect of accounting change, net of tax
     benefit of $723........................................              0             (1,057)                  0
                                                              -------------       -------------      --------------

Net loss ...................................................  $     (98,247)      $     (8,927)      $      (9,377)
                                                              =============       =============      ==============
</TABLE>

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

                                       43
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                   YEAR ENDED
                                                              -----------------------------------------------------
                                                                 JUNE 30,           JUNE 30,            JUNE 24,
                                                                   2002               2001                2000
                                                              --------------      -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net loss  ..................................................  $     (98,247)      $     (8,927)      $      (9,377)

Other comprehensive income, net of tax:
     Unrealized gains (losses) on available-for-sale
         securities held in discontinued operations.........            633                927                (559)

     Deferred gains (losses) on cash flow hedges, net of tax:
         Cumulative effect of accounting change.............              0              3,061                   0
         Holding gains (losses) arising during period.......         (2,378)             2,448                   0
         Reclassification adjustment for (gains) losses
             included in net earnings.......................          3,300             (5,699)                  0

     Minimum pension liability adjustment, net of tax.......           (299)                 0                   0
                                                              --------------      -------------      --------------

Other comprehensive loss ...................................          1,256                737                (559)
                                                              --------------      -------------      --------------

Comprehensive loss..........................................  $     (96,991)      $     (8,190)      $      (9,936)
                                                              ==============      =============      ==============
</TABLE>

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

                                       44
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>


                                                                                 ACCUMULATED
                                                 COMMON STOCK                       OTHER
                                                (PAR VALUE $25)    PREFERRED    COMPREHENSIVE    RETAINED
                                              SHARES     AMOUNT      STOCK       INC (LOSS)      EARNINGS    TOTAL
                                             --------   ---------   ----------  -------------  -----------   -----------
<S>                                          <C>        <C>         <C>         <C>             <C>           <C>
Balance June 26, 1999.....................   100,241    $  2,506    $  42,917   $      (239)    $  153,763    $ 198,947

      Net earnings (loss).................                                                         (9,377)      (9,377)
      Dividends declared..................                                                         (3,165)      (3,165)
      Redeemed, net.......................    (1,342)        (33)      (3,222)                                  (3,255)
      Other comprehensive income..........                                             (559)                      (559)
                                            ---------   ---------   ----------  -------------   -----------   -----------

Balance June 24, 2000.....................    98,899       2,473       39,695          (798)      141,221       182,591

      Net earnings (loss).................                                                         (8,927)      (8,927)
      Dividends declared..................                                                         (2,951)      (2,951)
      Redeemed, net.......................    (1,124)        (28)      (2,092)                                  (2,120)
      Other comprehensive income..........                                              737                        737
                                            ---------   ---------   ----------  -------------   -----------   -----------

Balance June 30, 2001.....................    97,775    $  2,445    $  37,603   $       (61)    $ 129,343     $ 169,330

      Net earnings (loss).................                                                        (98,247)      (98,247)
      Dividends declared..................                                                         (2,659)       (2,659)
      Redeemed, net.......................    (1,268)        (32)      (5,546)                                   (5,578)
      Other comprehensive income..........                                            1,256                       1,256
                                            ---------   ---------   ----------  -------------   -----------   -----------

Balance June 30, 2002.....................    96,507    $  2,413    $  32,057   $     1,195     $  28,437     $  64,102
                                            =========   =========   ==========  =============   ==========    ===========
</TABLE>


Common shares, purchased at par value, held in Treasury at year-end were: 76,897
in 2002;  75,548 in 2001;  74,184 in 2000. A common stock  dividend per share of
$1.50 was declared for 2002, 2001 and 2000.  Dividend payments are restricted to
a maximum of 8% of par value per annum. See Note 11 for the details of preferred
stock activity.

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

                                       45
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>


                                                                                  YEAR ENDED
                                                               ---------------------------------------------------
                                                               JUNE 30, 2002      JUNE 30, 2001      JUNE 24, 2000
                                                               -------------      -------------      -------------
<S>                                                            <C>                <C>                <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
   Net loss.................................................   $    (98,247)      $     (8,927)      $     (9,377)
   Adjustments to reconcile net loss to net cash:
       Net (earnings) loss from discontinued operations.....         80,696             (1,633)            14,427
       Depreciation and amortization........................         20,808             20,357             19,309
       Receivables and other asset provisions...............          2,632              2,133                905
       Net pension income...................................         (4,202)           (16,223)           (19,563)
       Cumulative effect of accounting change, net of tax...              0              1,057                  0
       Patronage refund received in stock...................              0               (360)              (679)
       Deferred income tax benefit..........................         (5,115)            (2,996)            (9,965)
       (Gain) loss on disposition of:
           Businesses.......................................              0                  0             (1,098)
           Other security investments.......................            385                509              1,044
           Properties and equipment.........................           (817)            (1,537)           (13,426)
       Changes in assets and liabilities,  net of effects of
       businesses acquired or sold:
           Receivables......................................         29,299              6,058            (58,244)
           Inventory........................................          9,697             13,803            (17,213)
           Payables.........................................         20,632             (5,814)            11,471
           Other............................................          6,952            (19,858)            27,375
                                                               -------------      -------------      -------------
Net cash flows from (used in) continuing operations.........         62,720            (13,431)           (55,034)
Net cash flows from (used in) discontinued operations.......          2,522             31,926             33,655
                                                               -------------      -------------      -------------
Net cash from (used in) operating activities................         65,242             18,495            (21,379)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
   Purchases of properties and equipment....................         (7,785)           (15,667)           (21,000)
   Cash paid for acquisitions...............................              0               (484)            (2,900)
   Disposition of properties and equipment..................          7,535             12,936             18,322
   Purchases of investments in related cooperatives.........         (1,467)              (500)              (928)
   Proceeds from sale of investments in related cooperatives          1,465              1,460              1,017
   Proceeds from disposal of businesses.....................              0                  0              2,615
                                                               -------------      -------------      -------------
Net cash flows used in investing activities.................           (252)            (2,255)            (2,874)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
   Net change in short-term notes payable...................        (27,162)           (40,558)            63,400
   Proceeds from long-term debt.............................              0              1,202                 41
   Repayment of long-term debt..............................           (296)            (1,106)            (2,159)
   Proceeds from sale of subordinated debt..................         79,200            179,728            124,676
   Redemption of subordinated debt..........................       (103,172)          (167,866)          (135,869)
   Payments on capitalized leases...........................         (5,108)            (1,640)              (165)
   Proceeds from sale of stock..............................              2                  7                 14
   Redemption of stock......................................         (5,580)            (2,127)            (3,269)
   Cash dividends paid......................................         (2,874)            (3,021)            (3,275)
                                                               -------------      -------------      -------------
Net cash flows from (used in) financing activities..........        (64,990)           (35,381)            43,394
                                                               -------------      -------------      -------------

Net increase (decrease) in cash and equivalents.............              0            (19,141)            19,141
Cash and equivalents at beginning of year...................              0             19,141                  0
                                                               -------------      -------------      -------------
Cash and equivalents at end of year.........................   $          0       $          0       $     19,141
                                                               =============      =============      =============
</TABLE>

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

                                       46
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in De Witt, New York. Agway is an agricultural  cooperative
directly engaged within its continuing operations in manufacturing,  processing,
distribution,  and marketing of agricultural  feed products and services for its
farmer-members and other customers,  primarily in the northeastern United States
and Ohio.  In  addition,  Agway is  engaged in  repacking  and  marketing  fresh
produce.  Agway,  through a wholly owned subsidiary  Agway Energy  Products,  is
involved in the  distribution  of petroleum  products and the  installation  and
servicing of heating,  ventilation,  and air-conditioning equipment. On March 6,
2002, the Company announced details of a comprehensive  plan designed to refocus
capital  resources on four selected  businesses:  Animal Feed and Nutrition (the
principal  operation  within the Agriculture  segment),  Energy Products (Energy
segment),  Produce, and Agricultural Technologies (operations within the Country
Products  Group  segment).  This plan also disclosed our intentions to divest of
four business  operations:  Telmark  (Leasing  segment),  Agway  Insurance  (the
principal  operation  within the  Insurance  segment),  and Agronomy and Seedway
(components of the Agriculture segment).  After this plan was announced, as part
of its ongoing strategic assessment of remaining Agway businesses, including its
sunflower  business (an operation  included  within the Country  Products  Group
segment),  Agway engaged an investment  advisor to assist in the  exploration of
strategic  alternatives  involving the sunflower  business.  In June 2002, after
reviewing  a number of  written  indications  of  interest,  the Agway  Board of
Directors  affirmed  management's  intentions to actively  pursue a sale of this
business. As required by generally accepted accounting principles, the financial
statements  separately reflect the business  operations planned for divestiture,
or Actually divested, as discontinued  operations for all periods reported.  For
further  information on the  discontinued  operations,  refer to Note 3 of these
financial statements.

To date,  progress has been made regarding all divestiture  plans. On August 28,
2002,  Agway  announced the completion of the sale of its wholly owned insurance
subsidiary,  Agway  Insurance  Company,  to United Farm Family Mutual  Insurance
Company.  On  September  16, 2002,  Agway  completed  the sale of its  sunflower
business (an operation  historically  included within the Country Products Group
segment) to Cenex Harvest States  Cooperatives.  Finally, on September 27, 2002,
Agway  and  GROWMARK  announced  that  they had  signed a  definitive  agreement
regarding the sale of the Agronomy and Seedway  businesses and related assets to
GROWMARK.  As disclosed  on May 23,  2002,  with respect to the sale of Telmark,
after  lengthy  negotiations,  Agway and a potential  buyer were unable to reach
final  agreement on a sale of Telmark.  Goldman,  Sachs & Co. is  continuing  to
assist the  Company  in  exploring  potential  strategic  alternatives  for this
business.

Prior to July 1, 2001  Agway  Financial  Corporation  (AFC)  was a wholly  owned
subsidiary of Agway. AFC's principal business  activities  consisted of securing
financing  through bank  borrowings and issuance of corporate  debt  instruments
(the "Debt Securities") to provide funds for general corporate purposes to Agway
and  AFC's  wholly  owned  subsidiary,  Agway  Holdings  Inc.  (AHI),  and AHI's
subsidiaries. Major holdings of AHI included Agway Energy Products LLC and Agway
Energy Services Inc. (Energy Segment), Telmark LLC and its subsidiaries (Leasing
Segment),  and Agway Insurance Company and Agway General Agency Inc.  (Insurance
Segment) through June 30, 2001. In exemptive relief granted pursuant to a "no
action letter"  issued by the staff of the  Securities  and Exchange  Commission
(SEC),  AFC did not file periodic reports with the SEC for itself but did report
summarized  financial  information  in Agway's  financial  statement  footnotes.
Telmark  (Leasing  segment) and Agway Insurance (the principal  operation in the
Insurance  segment)  finance  their  activities  through  operations  or  with a
combination of their own short- and long-term credit facilities.  Telmark's debt
is not guaranteed by Agway.

                                       47
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Organization (continued)
Effective July 1, 2001, we simplified the Agway  corporate  structure by merging
AFC and AHI into Agway Inc. The more complex  structure was no longer  necessary
due to changed circumstances related to Agway's financing.  Additionally,  Agway
Inc.  assumed  all the assets and  liabilities  of AFC and AHI and  assumed  the
direct responsibility for securing financing,  as described above. In connection
with the assumption by Agway of the obligations under the Debt Securities,  AFC,
Agway  and The  Chase  Manhattan  Bank,  a New  York  banking  corporation  (the
Trustee),  entered into a Supplemental  Indenture dated as of July 1, 2001 which
provides  for the  assumption  by  Agway  of all  rights,  responsibilities  and
obligations  of AFC under existing  indentures and the Debt  Securities to which
they relate.

As a result of the  foregoing  transactions,  all of AHI's  direct  Subsidiaries
became direct  Subsidiaries of Agway Inc. Also effective July 1, 2001, Agway, as
the sole member of Milford  Fertilizer Company LLC, a Delaware limited liability
company  (Milford),  merged Milford with and into Agway Inc. As a result of this
merger, Agway Inc. has assumed all of the assets and liabilities of Milford. The
mergers  did not  result  in a  material  change in the  consolidated  financial
position or results of operations of Agway.

Fiscal Year
The fiscal year-end of Agway Inc. was June 30, 2002 and comprised 52 weeks.  The
fiscal year ended June 30, 2001,  was comprised of 53 weeks and the fiscal  year
ended June 24,  2000 was  comprised  of 52 weeks.  Effective  July 1, 2001,  the
fiscal  year-end was changed to June 30 each year for the company as a whole and
for  each  of its  divisions.  Quarterly  reports  previously  reported  are for
quarters ended on September 30, December 31, and March 31.

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

Cumulative Effect of Accounting Change
On June 25, 2000, upon adoption of Statement of Financial  Accounting  Standards
(SFAS) No. 133,  the Company  recorded a  net-of-tax  cumulative-effect  loss of
$1,100  to  recognize  at fair  value the time  value  component  of all  option
contracts  associated  with the Company's  Energy segment which is excluded from
the  assessment  of hedge  effectiveness  as  allowed by the new  standard.  The
Company  also  recorded a net-of-tax  cumulative-effect  gain of $3,100 in other
comprehensive  income to recognize at fair value all  derivative  instruments in
the  Company's  Energy  segment  that are  designated  and qualify as  cash-flow
hedges.  See Commodity  Instruments  Section of this Note for further details of
the Company's accounting for derivatives and hedging activities.

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

Comprehensive Income
Comprehensive  income  consists  of net  earnings  (loss),  the  net  change  in
unrealized gains and losses on available-for-sale  securities (relating to Agway
Insurance and included in discontinued  operations),  net of tax, deferred gains
and losses on cash flow hedges,  net of tax, and unrealized net periodic pension
cost. The unrealized  gains and losses on  available-for-sale  securities in the
statement of comprehensive income are net of tax expense (benefit) of $325, $477
and $(288) for 2002, 2001 and 2000, respectively.  The deferred gains and losses
on cash flow  hedges in the  statement  of  comprehensive  income are net of tax
expense  (benefit)  of $614 and  $(126)  for 2002 and  2001,  respectively.  The
unrealized net periodic  pension cost on minimum pension  liability  adjustments
are net of tax benefit of $(199) for 2002.

                                       48
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Equivalents
Agway  considers  all  investments  with a maturity of three months or less when
purchased to be cash equivalents.

Accounts Receivable
Agway uses the  allowance  method to account  for  doubtful  accounts  and notes
receivable.   Trade  receivables  with  credit  balances   represents   customer
prepayments.

Inventories
Inventories  are  stated at the lower of cost or market.  For those  inventories
stated at cost, we use the average unit cost or the first-in, first-out method.

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

The  Company's  Energy  segment  enters into a  combination  of  exchange-traded
futures and options  contracts and, in certain  circumstances,  over-the-counter
options  (collectively  "derivatives")  to manage the price risk associated with
future purchases of the commodities used in its operations,  principally heating
oil and propane.  Energy has fair value hedges  associated  with its fixed price
purchase  contracts  and cash  flow  hedges  for its  variable  priced  purchase
contracts.  The derivatives are specifically matched in volume and maturity with
the various  purchase  commitments of the business and generally expire within a
year.  Under SFAS No. 133, the value of option contracts that Energy enters into
has two components:  time and intrinsic  value. The intrinsic value is the value
by which the option is in the money.  The  remaining  amount of option  value is
attributable  to time  value.  Energy  does not include the time value of option
contracts in its assessment of hedge effectiveness and therefore records changes
in the time value  component of its options  currently in earnings.  At June 30,
2002,  Energy had a derivative  asset of $1,500.  An after-tax  total of $900 of
deferred net  unrealized  gains on derivative  instruments  were  accumulated in
other  comprehensive  income and are expected to be  reclassified  into earnings
during  the next 12  months.  The  pre-tax  earnings  impact  for the time value
component  of option  value not used in assessing  hedge  effectiveness  totaled
$1,800  upon the  initial  adoption  of SFAS  No.  133 at July 1,  2000,  and is
included, net of tax, in the cumulative effect of accounting change for the year
ended June 30,  2001.  For the years  ended June 30,  2002 and 2001,  $3,500 and
$3,700,  respectively,  are  included  in cost of goods  sold for the  change in
option time value not used in the assessment of hedge effectiveness.

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

                                       49
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Security Investments
Security  investments  consist of capital stock of a cooperative  bank and other
cooperative  suppliers acquired at par or stated value. This stock is not traded
and is  historically  redeemed on a periodic basis by the issuer at cost. By its
nature,  this stock is held to redemption and is reported at cost. We believe it
is not practical to estimate the fair value of these  investments since there is
no  established  market and it is  inappropriate  to estimate  future cash flows
which are largely dependent on future earnings of the cooperative bank and other
cooperative suppliers.

Patronage refunds received from the cooperative bank are recorded as a reduction
of interest expense and totaled  approximately $200, $300 and $100 for the years
ended June 2002, 2001 and 2000, respectively.  Patronage refunds received on the
stock of other cooperatives are reflected in other income.

Properties and Equipment
Properties and equipment are recorded at cost. Depreciation and amortization are
charged to operations,  principally on a straight-line basis, over the estimated
useful lives of the properties and equipment, and over the term of the lease for
capital  leases.  Ordinary  maintenance and repairs are charged to operations as
incurred.  Gains and losses on disposition or retirement of assets are reflected
in income as incurred.

Other Assets
Other  assets  include  approximately  $7,700  and $9,300 at June 2002 and 2001,
respectively,  of  costs in  excess  of the fair  value of net  tangible  assets
acquired in purchase  transactions  (goodwill)  as well as acquired  non-compete
agreements, customer lists, and trademarks. Goodwill and other intangible assets
are amortized on a straight-line  basis ($1,700 over 1 to 10 years,  $6,000 over
12  to  20  years).   Amortization   included  in  operating   results   totaled
approximately  $1,800, $1,700 and $1,700 for fiscal years ending June 2002, 2001
and 2000, respectively.  Other assets are reviewed for impairment,  as described
under  Impairment of Long-Lived  Assets  below.  (See Impact of Recently  Issued
Accounting Standards describing changes on the accounting for goodwill and other
intangible assets, effective for the Company as of July 1, 2002.)

Impairment of Long-Lived Assets
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was early  adopted by the Company on January 1, 2002,  and  supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of," while retaining many of the  requirements of SFAS No.
121. In accordance with SFAS No. 144,  long-lived  assets to be held and used by
an entity  are to be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If the sum of the expected future  undiscounted cash flows is less
than the carrying  amount of the asset,  an  impairment  loss is  recognized  by
reducing the recorded value to fair value.  The pre-tax charge for impairment is
included in other income, net, on the consolidated  statements of operations and
totaled $1,600, $2,300 and $0 in 2002, 2001 and 2000, respectively.

Disposal of Long-Lived Assets/Discontinued Operations
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was early adopted by the Company on January 1, 2002 and  supersedes  a portion
of  Accounting   Principle  Board  (APB)  No.  30,  "Reporting  the  Results  of
Operations  - Reporting  the  Effects of  Disposal of a Segment of a  Business,"
relating to reporting the effects of disposal of a segment of a business,  while
retaining many of the  requirements of this  statement.  Under SFAS No. 144, the
definition of what constitutes a discontinued operation is broader, discontinued
operations are no longer  measured on a net realizable  value basis,  and future
operating losses are no longer recognized before they occur.

As of June 30,  2002,  Agway  has a number of  operations  being  classified  as
discontinued  operations  for  financial  reporting  purposes.  See  Note  3 for
details.

                                       50
<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

Advertising/Research and Development Costs
Agway  expenses  advertising  and  research  and  development  costs as they are
incurred.  Advertising expenses included in selling,  general and administrative
expenses for the years ended June 2002, 2001 and 2000 were approximately $9,200,
$9,000 and  $10,200,  respectively.  Net  research  and  development  costs were
approximately  $300, $300 and $700 for the years ended June 2002, 2001 and 2000,
respectively.

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

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

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

Patronage Refunds
Patronage  refunds  are  declared  and paid at the  discretion  of the  Board of
Directors in accordance  with the  provision of the By-laws of Agway.  Patronage
refunds are based on taxable earnings on patronage  business and, when declared,
are paid in cash.  The Company has not  declared or paid a patronage  refund for
the years presented in these financial statements.



                                       51

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  as well as the  reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Impact of Recently Issued Accounting Standards
The  Financial  Accounting  Standards  Board  (FASB)  has  recently  issued  the
following:

SFAS No. 141, "Business Combinations," was issued in June 2001 and requires that
------------------------------------
the  purchase  method  of  accounting  be  used  for all  business  combinations
initiated after June 30, 2001, and prohibits the use of the pooling-of-interests
method. The adoption of this standard has no impact on the financial  statements
of the Company.

SFAS No. 142,  "Goodwill and Other Intangible  Assets," was issued in June 2001.
------------------------------------------------------
Under SFAS No. 142, amortization of goodwill,  including goodwill and intangible
assets with  indefinite  lives  recorded  in past  business  combinations,  will
discontinue upon adoption of this standard. In addition,  goodwill recorded as a
result of  business  combinations  completed  after  July 1,  2001,  will not be
amortized.  Instead,  all goodwill and intangible  assets with indefinite  lives
will be tested for  impairment  annually,  or more  frequently if  circumstances
indicate  potential  impairment,  through  a  comparison  of fair  value  to its
carrying amount.  The net book value of goodwill and other intangible  assets of
continuing operations was $7,700 at June 30, 2002.  Amortization of goodwill and
other  intangible  assets of continuing  operations  totaled  $1,800 and $1,700,
respectively,  for the years ended June 30, 2002 and 2001.  We have adopted this
standard  on July 1, 2002,  and we expect to  complete  the  initial  impairment
analysis by December 31, 2002.

SFAS No 143,  "Accounting for Asset Retirement  Obligations," was issued in June
-------------------------------------------------------------
2001 and is effective for the Company on July 1, 2002.  SFAS No. 143 establishes
financial accounting and reporting obligations associated with the retirement of
tangible  long-lived  assets and the associated  assets'  retirement  costs.  It
applies to all legal  obligations  associated  with the retirement of long-lived
assets that result from the acquisition,  construction,  development, and/or the
normal operation of a long-lived asset. The implementation of the statement will
not have a material  impact on the results of operations and financial  position
of the Company.

SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
--------------------------------------------------------------------------------
was issued in August 2001. SFAS No. 144 provides new guidance on the recognition
of impairment  losses on long-lived assets to be held and used or to be disposed
of and also broadens the definition of what constitutes a discontinued operation
and how the results of discontinued operations are to be measured and presented.
SFAS No.  144  supersedes  SFAS  No.  121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and a portion of
Accounting   Principle   Board   (APB)  No.  30,   "Reporting   the  Results  of
Operations-Reporting  the Effects of Disposal of a Segment of a Business," while
retaining many of the requirements of these two statements.  Under SFAS No. 144,
discontinued  operations are no longer measured on a net realizable value basis,
and future operating  losses are no longer  recognized  before they occur.  This
statement  broadens the  presentation of  discontinued  operations in the income
statement  to  include a  component  of an entity  (rather  than a segment  of a
business). A component of an entity comprises operations and cash flows that can
be clearly  distinguished,  operationally and for financial  reporting purposes,
from the rest of the entity.

The Company early adopted this new standard on January 1, 2002,  and  recognized
no  impact  in its  financial  statements  regarding  the  new  guidance  on the
recognition  of impairment  losses on long-lived  assets to be held and used. As
further described in Note 3, the Company has announced the  discontinuation of a
number of its business  operations  and has adopted the guidance of SFAS No. 144
regarding the  measurement,  recognition,  and disclosure of these  discontinued
operations.


                                       52

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impact of Recently Issued Accounting Standards (continued)

SFAS  No.  146,   "Accounting  for  Costs   Associated  with  Exit  or  Disposal
--------------------------------------------------------------------------------
Activities,"  was  issued  June  2002  and is  effective  for  exit or  disposal
----------
activities  initiated after December 31, 2002. SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity Including Certain Costs Incurred in a Restructuring."  The Company will
implement this  statement for all exit or disposal  activities  initiated  after
December 31, 2002. However, we believe that our current reporting of these types
of costs is not materially different than the requirements of this new standard.

2.  GOING CONCERN

Historically,  the principal  components of Agway's capital  structure have been
the preferred stock and  subordinated  debt issued through the Agway  securities
program,  borrowings from banks and other creditors,  and earnings retained from
operating  results over the years. Our common stock is different from the common
equity of a typical business corporation. Our common stock may be purchased only
by people who are entitled to be Agway members and the primary benefit of owning
common stock is that it provides  evidence  that the holder is a member of Agway
and is  entitled  to  certain  benefits.  Thus,  common  equity has never been a
significant  component of Agway's capital  structure or capital raising process.
Over the years, the unique nature of our common equity,  coupled with a decrease
in our retained  earnings,  has resulted in a leveraged capital structure with a
high proportion of debt versus equity. As reported in our periodic  reports,  in
recent  years  cash flow from  operations  for Agway  Inc.  and  certain  of its
business segments and subsidiaries has been supplemented by external  borrowings
and the sale of both discontinued business operations and other assets, in order
to  meet  the  cash  requirements  for  capital  improvements,   scheduled  debt
repayments,  and maintenance of a voluntary  repurchase  practice with regard to
Agway securities.

In addition,  effective in March 2001,  the support from our senior lender group
took on the form of an asset-based  loan facility.  As previously  reported,  we
have violated the financial  covenants  contained in that  agreement a number of
times  since its  origination,  principally  due to  insufficient  earnings.  As
previously reported,  based on Agway's June 30, 2001,  financial results,  Agway
was in violation of certain financial covenants within its Credit Agreement.  On
September 14, 2001,  the lenders agreed to waive these  violations,  and further
agreed to amend the covenants.  As previously  reported,  effective  January 31,
2002,  lenders  agreed to amend and waive (the  Second  Amendment  and Waiver to
Credit  Agreement)  violations of certain of the financial  covenants within the
Credit  Agreement for the twelve months ended  December 31, 2002. As of December
31, 2001,  after giving effect to this Credit Agreement  amendment,  the Company
met the amended  covenants and conditions under the Credit  Agreement.  Also, as
previously  reported,  Agway violated certain financial  covenants on its Credit
Agreement for the twelve months ended March 31, 2002.  Effective  April 3, 2002,
lenders  agreed to amend and waive  (the  Third  Amendment  and Waiver to Credit
Agreement)  certain of the financial  covenants  within the Credit Agreement for
the twelve  months  ended March 31,  2002.  As of March 31,  2002,  after giving
effect to this  Credit  Agreement  amendment,  the  Company  has met the amended
covenants and conditions under the Credit Agreement.



                                       53

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


2.  GOING CONCERN (CONTINUED)

To  address  our  level of debt,  the  cost of our debt  service,  and our
relatively  low  operating  cash  flow,  on March 6,  2002,  Agway  announced  a
restructuring   plan  which  included  the  sale  of  certain  of  its  business
operations,  including Telmark, Agway Insurance,  Agronomy, and Seedway,  within
the next year, and a focus of resources on four retained businesses: Animal Feed
and Nutrition,  Energy Products,  Fresh Produce,  and Agriculture  Technologies.
Agway  retained  Investment  banking  firms  to seek  potential  buyers  for the
businesses to be divested. Also on March 6, 2002, Agway stopped actively raising
capital through the sale of securities to the public, a major source of external
borrowing,  pending  a  restatement  of  its  financial  statements  to  reflect
discontinued  operations  accounting for business  operations to be sold. We had
discussed  this  plan  with our  senior  lenders  in  connection  with the third
amendment to the Credit  Agreement and also as a basis for  renegotiation of the
Credit Agreement as elements of the plan were consummated.

In addition, we also discussed the above restructuring plan with our surety bond
provider.  As previously  reported,  the Company's business insurance program is
supported in part by financial  guarantee surety bonds. The issuer of such bonds
indicated to us that, due to surety losses incurred by the industry in the prior
year,  reinsurers have withdrawn support of financial guarantee bonds similar to
those supporting our business insurance program. Our issuer indicated its desire
that we  replace  financial  guarantee  surety  bonds  supporting  our  business
insurance program with other forms of collateral.

The potential sale of Telmark was a significant  component of the plan. Based on
advice and  exploration  of market  interest at the time the plan was announced,
which was reinforced by subsequent  negotiations of a contract for sale in April
and May 2002,  we expected to close that sale by June 30,  2002.  The cash to be
generated  from the sale was the basis  for  renegotiated  lines of  credit  and
credit  terms with our senior  lender  group,  the  reopening  of sales of Agway
securities  following  the filing of our  restated  financial  information,  the
restructuring  of  collateral  for our  insurance  programs,  and a beginning of
restructuring and paydown of the Agway securities  program.  The negotiated sale
of  Telmark  was  subject  to the  approval  of the  Board of  Directors  of the
prospective buyer,  which was not received.  This unexpected event, as announced
on May 23, 2002,  created  uncertainty with regard to Agway's future  liquidity.
Because of that unexpected  uncertainty,  active sales of Agway  securities were
not restarted,  even though our restated  financial  information had been filed,
and we reopened  discussions with our lenders and surety bond providers,  taking
these changed circumstances into account.

After  further  assessing  our  financial  circumstances,  on June 17, 2002,  we
announced that  effective  June 14, 2002,  the Board of Directors  determined to
suspend the Company's historic practice of repurchasing, at face value, eligible
Agway Inc.  subordinated  debentures  prior to maturity and preferred stock when
presented for repurchase. As disclosed in the Company's periodic reports and the
prospectuses relating to the sale of those securities,  the Company was under no
obligation to repurchase such securities,  retained the right to stop or suspend
the practice at any time, and could be required to stop or suspend this practice
if the  conditions of its primary credit  agreement  with a syndicated  group of
lenders (the Credit Agreement) were not satisfied. The Credit Agreement required
the Company to maintain a minimum  balance,  ranging  from  $440,000 to $450,000
throughout the year of Agway preferred stock, subordinated debentures, and other
interest-bearing  debt  outstanding.  As of  June  14,  2002,  the  Company  had
approximately  $459,000 of such preferred  stock,  subordinated  debt, and other
interest-bearing  debt  outstanding  and  were  experiencing  higher-than-normal
redemption  requests  compared  to  prior  periods.   Suspending  the  voluntary
repurchase  program  also  allowed  us to  preserve  liquidity  in the event the
divestitures did not go as planned.



                                       54

<PAGE>

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

2.  GOING CONCERN (CONTINUED)

Subsequent  to year-end,  as  previously  disclosed  and as discussed in Note 3,
Discontinued  Operations,  we completed the sale of Agway  Insurance  Company on
August 28, 2002, to United Farm Family Mutual Insurance  Company and the sale of
Agway's sunflower business  (historically part of the Country Products Group) on
September  16, 2002,  to the Cenex  Harvest  States  Cooperatives.  Finally,  on
September  27,  2002,  Agway and  GROWMARK  announced  that they had  Signed a
definitive  agreement  regarding the sale of the Agronomy and Seedway businesses
and related assets to GROWMARK.  Further, as also previously  disclosed,  we are
continuing  to pursue the sale of Telmark.  However,  based on the expected cash
flow from our business operations,  the cash generated from asset sales to date,
and the uncertainty of both the amount and timing of cash from sales of business
operations  to come,  it is not  certain or likely  that we will have  generated
sufficient cash to pay our November 1, 2002,  maturity of  subordinated  debt of
$33,100. Further, without an amendment to the existing Credit Agreement, payment
of that maturity would be precluded  since it would  constitute a default of the
minimum Agway securities balance requirement in the Credit Agreement.

In addition,  earnings  through  September 30, 2002,  are not likely to meet the
financial covenant requirements of the Credit Agreement, and if they do not, the
lenders are under no obligation to waive any such covenant violations. Projected
cash flow from our business operations,  with appropriate senior debt financing,
is  expected  to be  sufficient  to meet  future  operating  needs but,  without
additional  sales of assets,  is not  expected  to be adequate to pay the future
interest  requirements  on Agway Inc.  unsecured debt or dividends on Agway Inc.
preferred stock. In July 2002, our surety provider issued  cancellation  notices
relative to $23,900 of surety bonds supporting our insurance programs.  This has
no impact on our insurance coverage, but it does give our insurance carriers the
right to demand payment of the collateral  amount provided by the bonds from the
issuer of the bonds. If our surety provider  chooses to pay cash to our insurers
rather than reissue bonds,  our surety would have a right to demand cash payment
from us. Our  insurers  have a right to make demand on our surety  provider  for
$4,625 starting late September and for $6,000 starting late October.  We dispute
the  right of the  surety  to  cancel  the  remaining  $13,275  at this time but
recognize  their right to cancel coverage in the spring of 2003 at the scheduled
renewal  dates.  It is unlikely we would meet those  demands and still have cash
availability  sufficient to meet our operating  needs. If we were unable to pay,
it would  constitute  a default  under our Credit  Agreement.  Further,  we have
concluded that having shut down the repurchase  practice of the Agway securities
program for Agway preferred stock and subordinated debt, it will not be possible
to  restore  investor   confidence  in  Company-issued   securities   without  a
comprehensive  restructuring  at the Agway Inc. level. In view of the foregoing,
we  determined  that such a  restructuring  can best be  accomplished  through a
Chapter 11 bankruptcy procedure. The Company intends to file voluntary petitions
for  reorganization  under Chapter 11 of the U.S.  Bankruptcy Code on October 1,
2002.  To that end,  we have a  generally  reached  agreement  of the terms of a
Debtor-in-Possession  financing arrangement with our present senior lender group
to provide a $125,000  facility  over the next 18 months,  which we believe will
provide  adequate  cash  resources  for  Agway  Inc.  to meet  future  operating
requirements while we restructure the business. This Debtor-in-Possession credit
facility is subject to approval by the Bankruptcy Court.

Agway Energy  Products is a separate  subsidiary  which  historically  generates
sufficient  cash to meet its needs.  Agway Energy Products  requires  short-term
borrowings  from the  Company's  lines of credit to meet  seasonal  and  working
capital requirements.  Such short-term financing will be made available to Agway
Energy  Products by our senior lenders as part of the $125,000  facility  above.
Agway Energy  Products  will  continue to operate as it has in the past and WILL
NOT be included in the Agway Inc. voluntary bankruptcy proceeding.

Telmark LLC is a separately  financed  subsidiary  with an  appropriate  capital
structure  for its  industry.  Telmark LLC has  historically  and is expected to
continue  to  generate  ample  earnings  and cash flow to meet its debt  service
requirements.  Telmark LLC will continue to operate  separately as it has in the
past and WILL NOT be included in the Agway Inc. voluntary bankruptcy proceeding.

At this  stage,  we  cannot  predict  the  impact  of the  intended  Chapter  11
proceeding on our financial condition and results of operations.  However, until
a plan of  reorganization  is developed and approved by the Bankruptcy Court and
our  creditors,  we will be prohibited  from paying  pre-petition  indebtedness,
including   principal,   interest,   and  maturities  on  our  outstanding  debt
securities.  Following  approval  of a plan of  reorganization,  payment  on our
securities will depend upon the terms of the plan.

                                       55
<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


3.  DISCONTINUED OPERATIONS

On March 6, 2002, the Company announced details of a comprehensive plan designed
to strengthen our capital  structure and reduce our debt.  This plan focuses our
capital  resources on four selected  businesses:  Animal Feed and Nutrition (the
principal  operation  within the Agriculture  segment),  Energy Products (Energy
segment),  Produce, and Agricultural Technologies (operations within the Country
Products Group segment).  This plan also disclosed our intentions to divest four
business  operations:  Telmark (the former  Leasing  segment),  Agway  Insurance
Company (the  principal  operation  within the former  Insurance  segment),  and
Agronomy and Seedway (formerly components of the Agriculture segment).

After this  restructuring  plan was announced,  as part of its ongoing strategic
assessment  of  remaining  Agway  businesses,  in June 2002,  the Agway Board of
Directors affirmed management's  intentions to actively pursue a sale of Agway's
Sunflower  business (an operation  formerly included within the Country Products
Group segment).


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

In the second  quarter of fiscal 2000,  the Agway Board of Directors  approved a
plan to restructure the retail store  distribution  system.  The plan called for
the sale or closure of 227 Agway retail  properties.  In the spring of 2000, the
Agway Board of Directors  authorized the sale of the wholesale  procurement  and
supply system to Southern  States  Cooperative,  Inc. An agreement for this sale
was  executed  on June 20,  2000 and  closed on July 31,  2000.  The sale of the
wholesale procurement and supply system, when combined with the sale and closure
of the Agway-owned or operated retail stores,  constituted a plan to discontinue
operations of the retail services  business.  The  discontinued  retail services
business was measured and recognized under APB No. 30, "Reporting the Results of
Operations-  Reporting the Effects of Disposal of a Segment of a Business."  For
financial reporting purposes,  the measurement date upon which this discontinued
operation plan became  effective was June 20, 2000. All retail store  operations
ceased during 2001, and the Company is continuing to market any remaining  store
properties  for sale.  No  adjustments  to the  estimated  net loss on  disposal
established as of the June 20, 2000 measurement date has been required.

For the businesses noted above that are reflected in discontinued  operations, a
summary of net sales and revenues and pre-tax  operating results for each of the
three years ended June 30, 2002, and total assets of discontinued operations and
total liabilities of discontinued  operations at June 30, 2002 and June 30, 2001
are detailed below. Furthermore, a portion of the Company's interest expense has
been  allocated  to  discontinued  operations  based  on  the  outstanding  debt
attributable to holding these  discontinued  operations.  Income taxes have been
allocated  between  continuing  and  discontinued  operations  for  all  periods
presented.




                                       56

<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

3.  DISCONTINUED OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                Discontinued Operations
                                                                               For the Years Ended June
                                                                  -------------------------------------------------
                                                                       2002             2001              2000
                                                                  --------------    -------------    --------------
<S>                                                               <C>               <C>              <C>
Total sales and revenues........................................  $     369,712     $    441,256     $     598,186
Pre-tax operating results.......................................         19,422           16,494            (6,003)
Interest expense allocated to discontinued operations...........         12,514           10,971            10,707
Earnings (Loss) from operations, before tax.....................          6,908            5,523           (16,710)
</TABLE>
<TABLE>
<CAPTION>
                                                                                        Discontinued Operations
                                                                                    -------------------------------
Discontinued Assets:                                                                  June 2002         June 2001
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
     Cash.........................................................................  $      2,832     $       3,329
     Restricted cash..............................................................         9,114             8,306
     Accounts receivable and notes receivable, net................................       102,425           110,008
     Total lease receivables, net.................................................       716,499           688,878
     Inventories..................................................................        42,909            48,095
     Prepaid and other current assets.............................................        55,473            42,119
     Marketable securities available for sale.....................................        39,826            37,556
     Other security investments...................................................        41,483            40,321
     Property, plant and equipment................................................        35,342            43,765
     Other assets.................................................................         8,704            16,837
                                                                                    -------------    --------------
         Total assets of discontinued operations..................................  $  1,054,607     $   1,039,214
                                                                                    =============    ==============

Discontinued Liabilities:
     Notes payable................................................................  $    204,263     $     140,638
     Current portion of long-term debt............................................       126,485           136,546
     Accounts payable.............................................................        22,909            24,899
     Other current liabilities....................................................       165,505            76,997
     Long-term debt...............................................................       258,569           303,301
     Other long-term liabilities..................................................        32,679            29,416
                                                                                    -------------    --------------
         Total liabilities of discontinued operations.............................  $    810,410     $     711,797
                                                                                    =============    ==============
</TABLE>
The loss on disposal of  discontinued  operations,  net of tax,  was  originally
recorded as of March 31, 2002,  and reported in Form 10-Q and has been  adjusted
to the current estimated loss at June 30, 2002, as follows:
<TABLE>
<CAPTION>
                                                                     March 31,                          June 30,
                                                                       2002          Adjustments          2002
                                                                  --------------    -------------    --------------
<S>                                                               <C>               <C>              <C>
Estimated loss on sale of businesses............................  $     (24,738)    $    (46,895)    $     (71,633)
Direct costs of sale............................................         (4,228)         (13,953)          (18,181)
Benefit plans curtailment loss..................................        (12,365)          (1,057)          (13,422)
                                                                  --------------    -------------    --------------
Pre-tax loss on disposal........................................        (41,331)         (61,905)         (103,236)
Income tax benefit on loss on disposal..........................         14,871            2,929            17,800
                                                                  --------------    -------------    --------------
Net loss on disposal of discontinued operations.................  $     (26,460)    $    (58,976)    $     (85,436)
                                                                  ==============    =============    ==============
</TABLE>
Since reporting an estimated net loss on disposal of discontinued  operations at
March 31, 2002,  several events have occurred  which  required  revisions to our
prior  estimates.  These events  included a charge for costs  incurred  from the
failed transaction on the sale of Telmark,  ongoing  negotiations with potential
buyers of businesses to be divested  reflecting further impairment of value than
originally  estimated,  changes in the estimate of direct transaction costs, and
finally, the inclusion in discontinued  operations of the Sunflower business and
the Company's investment in CF Industries.

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

                                       57

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


4.  INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                                    June 2002           June 2001
                                                                                  -------------      --------------
<S>                                                                              <C>                 <C>
Finished goods................................................................   $      26,646       $      35,324
Raw materials.................................................................             955               1,871
Supplies......................................................................           1,577               1,681
                                                                                 --------------      --------------
     Total inventories........................................................   $      29,178       $      38,876
                                                                                 ==============      ==============
</TABLE>
5.  PROPERTIES AND EQUIPMENT

Properties and equipment,  at cost, and capital leases  (including  those leases
with Telmark, a discontinued operation) consist of the following at:
<TABLE>
<CAPTION>
                                                                   Owned             Leased             Combined
                                                              -------------       -------------      --------------
June 2002
---------
<S>                                                           <C>                 <C>                <C>
Land and land improvements..................................  $      12,450       $      2,613       $      15,063
Buildings and leasehold improvements........................         46,894             11,617              58,511
Machinery and equipment.....................................        221,499              7,957             229,456
Capital projects in progress................................          3,016                  0               3,016
                                                              -------------       -------------      --------------
                                                                    283,859             22,187             306,046
Less: accumulated depreciation and amortization.............        175,755              6,606             182,361
                                                              --------------      -------------      --------------

Properties and equipment, net...............................  $     108,104       $     15,581       $     123,685
                                                              ===============     =============      ==============


                                                                   Owned             Leased             Combined
                                                              ---------------     -------------      --------------
June 2001
---------
Land and land improvements..................................  $      12,153       $      3,040       $      15,193
Buildings and leasehold improvements........................         52,004             15,057              67,061
Machinery and equipment.....................................        233,727              3,499             237,226
Capital projects in progress................................          1,354                  0               1,354
                                                              ---------------     -------------      --------------
                                                                    299,238             21,596             320,834
Less: accumulated depreciation and amortization.............        179,318              4,502             183,820
                                                              ---------------     -------------      ---------------

Properties and equipment, net...............................  $     119,920       $     17,094       $     137,014
                                                              ===============     =============      ===============
</TABLE>
Depreciation  and  amortization  expense  relating to  properties  and equipment
amounted to approximately  $19,000,  $18,600 and $17,600 in 2002, 2001 and 2000,
respectively.



                                       58

<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

6.  RETIREMENT BENEFITS

Pension Plan
The  Employees'  Retirement  Plan of Agway Inc.  is a  non-contributory  defined
benefit pension plan covering the majority of employees of Agway Inc. See Events
Impacting Pension and  Postretirement  Retirement  Benefits section of this Note
for  details on plan  amendments made during  fiscal  2002.  The plan's  benefit
formulae bases payment on a pension equity formula. Generally, pension costs are
funded  annually at no less than the amount required by law and no more than the
maximum allowed by federal income tax guidelines. Based on the overfunded status
of the plan, the Company had no funding  requirements to the plan during the two
years ended June 30, 2002 and 2001. The projected benefit obligation is based on
the actuarial  present value of the benefits that the employee would be entitled
to at the expected retirement date.

The Plan has assets that exceed the  benefit  obligation  by $149,800 as of June
30, 2002. The majority of the plan's investments  consist of U.S. government and
agency securities,  U.S. corporate bonds, U.S. and foreign equities,  equity and
bond funds and temporary investments (short-term investments in demand notes and
money market funds). At June 30, 2002 and 2001,  retirement plan assets included
Agway  debt  securities  and  preferred  stock  with face  values of $5,100  and
$10,100, respectively. Face value was considered fair value for these securities
while Agway Inc. had a practice of  repurchasing  such securities at face value.
As  described in Note 8,  effective  June 14, 2002,  the Company  suspended  its
voluntary  practice of  repurchasing  eligible Agway  securities  when presented
prior  to  maturity.   At  present,  fair  value  of  Agway  securities  is  not
determinable.  Furthermore,  on  October 1,  2002,  Agway  Inc.  intends to file
voluntary  petitions for reorganization  under Chapter 11 of the U.S. Bankruptcy
Code.

The funded status of the plan has decreased by $83,900 from $233,700 at June 30,
2001 to  $149,800  at June 30,  2002.  The  principal  components  of the change
include a $55,400  reduction  in market  value of plan assets as compared to the
expected return and $25,000 in recognized benefit increases from plan amendments
and curtailment charges.

The following  tables set forth the change in the plan's benefit  obligation and
plan assets from the  beginning  to the end of each year  presented,  the plan's
funded  status,  and the amounts  recognized in Agway's  consolidated  financial
statements at June 30, 2002 and 2001 as a net pension  asset.  Pension  (income)
expense is  reported as a reduction  or  increase in payroll  costs  included in
product and plant operations and selling,  general and administrative  expenses.
The  components  that comprise net pension  (income)  expense are summarized for
each of the three years ended June 30, 2002 as follows:
<TABLE>
<CAPTION>
Change in Benefit Obligation                                           2002                2001
----------------------------                                       -------------      --------------
<S>                                                                <C>               <C>
Benefit obligation at beginning of year..........................  $    333,134      $     338,503
Service cost (with interest).....................................         9,309              9,195
Interest cost....................................................        24,449             24,697
Actuarial loss ..................................................        21,936              4,650
Amendments (1)...................................................        19,522                419
Curtailment (1)..................................................         5,519                  0
Benefits paid....................................................       (40,296)           (44,330)
                                                                   -------------     --------------
Benefit obligation at end of year................................  $    373,573      $     333,134
                                                                   =============     ==============
Change in Plan Assets
---------------------
Fair value of plan assets at beginning of year...................  $    566,809      $      569,633
Actual return on plan assets.....................................        (3,141)             41,506
Benefits paid....................................................       (40,296)            (44,330)
                                                                   -------------     ---------------
Fair value of plan assets at end of year.........................  $    523,372      $      566,809
                                                                   =============     ===============

Funded status....................................................  $    149,799      $      233,675
Unrecognized prior service cost..................................        20,660              20,147
Unrecognized net actuarial (gain) loss...........................        53,190             (24,144)
                                                                   -------------     ---------------
Net pension asset................................................  $    223,649      $      229,678
                                                                   =============     ===============
</TABLE>
                                       59

<PAGE>

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

6.  RETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
Pension Plan (continued)

Components of Net Pension Expense (Income)                         2002               2001                2000
------------------------------------------                    -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Service cost (with interest)................................  $      9,309        $     9,195        $      9,975
Interest cost...............................................        24,449             24,697              24,661
Expected return on plan assets..............................       (52,257)           (53,606)            (53,350)
Amortization of:
    Transition obligation (Asset)...........................             0                  0              (4,705)
    Prior service cost......................................         2,416              3,491               4,134
    Actuarial gains and losses..............................             0                  0                (278)
Recognized curtailment loss (1)(2)..........................        10,231                  0               4,268
Recognized amendment/settlement (1).........................        11,881                  0                   0
                                                              -------------       -------------      --------------
Net pension expense (income)................................  $      6,029        $   (16,223)       $    (15,295)
                                                              =============       =============      ==============

Weighted-Average Assumptions as of June 30
------------------------------------------
Discount rate...............................................         7.00%               7.75%               7.75%
Expected return on plan assets..............................         9.00%               9.75%               9.75%
Rate of compensation increase...............................         4.50%               5.00%               5.00%
</TABLE>
(1)  See Events Impacting Pension and Postretirement Retirement Benefits section
     of this Note for details.
(2)  The curtailment charge in fiscal 2000  relates to the sale of the wholesale
     procurement  and  supply  system and the sale and closure of Agway-owned or
     operated retail stores.

Postretirement Benefits
Agway provides  postretirement  medical  benefits and life insurance to eligible
retirees and their dependents.  See Events Impacting Pension and  Postretirement
Retirement  Benefits  section of the Note for  details on plan  amendments  made
during  fiscal  2002.  Eligibility  for  benefits  depends upon age and years of
service. The benefit obligation under Agway's  postretirement  benefit plans are
general,  unsecured  obligations of the Company and are not funded.  The accrued
postretirement  benefit  cost  expected  to be paid in the next year is in other
current   liabilities,   while  the  remaining   amount  is  included  in  other
liabilities.  The change in the plan's benefit  obligation from the beginning to
the end of each year presented,  the reconciliation of funded status at June 30,
2002 and 2001,  and the  components  that  comprise net periodic  postretirement
benefit  cost  for the  years  ended  June 30,  2002 and 2001 and June 24,  2000
recognized in Agway's consolidated financial statements were as follows:
<TABLE>
<CAPTION>
Change in Benefit Obligation                                         2002                2001
----------------------------                                     -------------      --------------
<S>                                                              <C>                <C>
Benefit obligation at beginning of year........................  $     42,211       $      40,704
Service cost (with interest)...................................           649                 668
Interest cost..................................................         3,029               2,999
Estimated plan participant contributions.......................         1,000               1,108
Actuarial loss.................................................         1,844               2,269
Amendment (1)..................................................        (4,958)                  0
Curtailment (1)................................................        (2,125)                  0
Settlement (1).................................................       (11,428)                  0
Benefits paid..................................................        (5,283)             (5,537)
                                                                 -------------      --------------
Benefit obligation at end of year..............................  $     24,939       $      42,211
                                                                 =============      ==============

Funded status..................................................  $     24,939       $      42,211
Unrecognized prior service cost................................             0                (917)
Unrecognized net (gain) loss...................................          (881)                138
Unrecognized net transition obligation.........................             0             (13,886)
                                                                 -------------      --------------
Accrued postretirement benefit cost............................  $     24,058       $      27,546
                                                                 =============      ==============
</TABLE>
                                       60

<PAGE>

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

6.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits (continued)
<TABLE>
<CAPTION>
Components of Net Periodic Postretirement Benefit Cost              2002               2001                2000
------------------------------------------------------         -------------       -------------      --------------
<S>                                                            <C>                 <C>                <C>
Service cost (with interest).................................  $        649        $        668       $         685
Interest cost................................................         3,029               2,999               3,118
Amortization of:
    Transition obligation....................................         1,085               1,156               1,188
    Prior service cost.......................................           114                 121                 125
    Gains and losses ........................................           (36)                  0                   0
Recognized curtailment loss (1)(2)...........................         7,632                   0               1,451
Recognized settlement gain (1)...............................       (11,678)                  0                   0
                                                               -------------       -------------      --------------
Net periodic postretirement (income) expense.................  $        795        $      4,944       $       6,567
                                                               =============       =============      ==============
</TABLE>
(1)  See Events Impacting Pension and Postretirement Retirement Benefits section
     of this Note for details.
(2)  The curtailment charge in fiscal 2000 relates to the sale of the wholesale
     procurement  and  supply  system and the sale and closure of Agway-owned or
     operated retail stores.

In determining the benefit  obligation,  the weighted average discount rate used
was 7.75% for 2001 and the period of July 1, 2001 through  March 31,  2002.  The
rate used was 7.00% for the  period  of April 1,  2002  through  June 30,  2002.
Assumed  health care cost trend rates have a  significant  effect on the amounts
reported for the health care plans.  However, for persons over age 65, Agway has
an insured medical program limiting  Agway's subsidy to a per month/per  retiree
basis.  Additionally,  as a result of postretirement  plan amendments  described
below,  effective  January 1, 2003,  the Company will  eliminate  the pre-age 65
retiree medical benefits. As a result, there is no longer a medical trend on the
benefits of this plan as all benefits will be on a per month/per retiree basis.

Events Impacting Pension and Postretirement Retirement Benefits
During fiscal 2002, several events occurred that resulted in immediate or future
impacts to the Company's pension and  postretirement  medical and life insurance
benefit plans. The amendments listed below were all approved by Agway's Board of
Directors.

(a)  On March 6, 2002, the Company announced a comprehensive  plan that included
     the  exiting  of certain  of its  business  operations.  This  decision  is
     expected to result in  approximately  980  employees  leaving the  Company,
     which  constitutes  a  curtailment  of both the pension and  postretirement
     plans. A curtailment is defined as an event that significantly  reduces the
     expected years of future service of active plan  participants.  Curtailment
     accounting requires immediate recognition of actuarial gains and losses and
     prior service costs related to these  employees  that would  otherwise have
     been  recognized in the future over the future service lives of the related
     employees.  This results in  curtailment  losses which decrease the pension
     income and increase the net  periodic  postretirement  expense and increase
     (decrease)  the  benefit  obligation  for the year ended  June 30,  2002 as
     follows:
<TABLE>
<CAPTION>
                                                                                                   Postretirement
                                                                                   Pension             Benefit
                                                                               ----------------    --------------
     <S>                                                                       <C>                 <C>
     Increase (decrease) in benefit obligation.............................    $         5,519     $      (2,125)
     Decrease in pension income/increase in net periodic postretirement
         expense..........................................................     $        10,231     $       3,191*
</TABLE>
     The  curtailment  charge to pension income and net periodic  postretirement
     expense  noted  above  has  been  reported  in  the  loss  on  disposal  of
     discontinued operations (see Note 3).

     *When  combined  with the  curtailment  noted  in (b),  totals  the  $7,632
     recognized   curtailment   loss   in  the   components   of  net   periodic
     postretirement benefit costs in 2002.

                                       61
<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


6.  RETIREMENT BENEFITS (CONTINUED)

Events Impacting Pension and Postretirement Retirement Benefits (continued)

(b)  The Company amended its postretirement benefit plans so that effective July
     1, 2002 the retiree life insurance benefit that provided a $4 death benefit
     to retirees was  eliminated  and  effective  January 1, 2003 the pre-age 65
     retiree  medical  benefits will be  eliminated.  These  changes  reduce the
     postretirement  benefit  obligation by $4,958.  The  curtailment  charge to
     recognize  previously  unrecognized  gains (losses) and prior service costs
     increases the net periodic  expense by $4,441.  A portion of these benefits
     were settled  through the adoption in the pension plan of a social security
     supplement and additional  death benefit (see (c) below).  This resulted in
     an  accounting  settlement  in the  postretirement  plans that  reduced the
     postretirement  benefit  obligation  by $11,428 and the net  postretirement
     periodic expense by $11,678 for the year ended June 30, 2002.

(c)  The Company  amended the pension plan  effective July 1, 2002, to create an
     ancillary  benefit for certain  retirees and eligible active employees that
     consists of a social security  supplement and an additional  death benefit.
     These  changes  result in a positive  plan  amendment  that  increased  the
     benefit  obligation under the plan by $18,939 and decreased  pension income
     by $11,881  for the year ended June 30,  2002.  In  addition,  the plan was
     amended  to  reflect  legislated   increases  in  benefit  and  pensionable
     compensation  limits,  resulting  in an  increase  to  the  plan's  benefit
     obligation of $583. This latter amendment resulted in a similar decrease in
     obligation to the Benefit Equalization Plan.

(d)  Effective  April 1, 2002,  the Company  amended the pension  plan to add an
     "additional retirement benefit" to be paid to eligible participants who are
     involuntarily  terminated from employment with the Company between April 1,
     2002 and July 1, 2004  which is the  result of a work  force  reduction  as
     defined in the amendment.  The benefit  obligation varies and is based on a
     combination of a participant's  weekly base pay and the participant's years
     of service. There were no significant obligations of the pension plan as of
     June 30, 2002 as a result of this amendment.

(e)  Effective  May 1, 2002,  the  Company  amended  the  pension  plan to add a
     qualified supplemental employee retirement benefit. Under the terms of this
     amendment, the Human Resources Committee of the Board of Directors of Agway
     may,  at its  discretion  from  time  to  time,  direct  non-discriminatory
     qualified  supplemental   retirement  benefits  initially  restricted  from
     payment  by the  pension  plan,  and  otherwise  payable  from the  Benefit
     Equalization  Plan,  to be paid by the  pension  plan.  On August 1,  2002,
     subsequent  to the  Company's  fiscal  year ended June  30,2002,  the Human
     Resources  Committee  approved  a  non-discriminatory   benefit  that  will
     increase the benefit  obligation by $2,500 and decrease  pension  income in
     fiscal 2003 by $200.  Corresponding  offsetting  impacts  will occur in the
     Company's Benefit Equalization Plan.

Employees' Thrift Investment Plan
The  Agway  Inc.   Employees'   401(k)  Thrift  Investment  Plan  is  a  defined
contribution plan covering a substantial  majority of employees of Agway and its
subsidiaries.  Under the plan,  each  participant may invest up to 15% of his or
her  salary,  of  which  a  maximum  of  6%  qualifies  for  an  Agway  matching
contribution.  Participant  contributions  are  invested  at the  option  of the
participant  in any  combination  of eight funds.  One of the eight funds is the
Company  Security Fund which held Company debt  securities  and preferred  stock
totaling  approximately  $47,800  at June  30,  2002.  As  described  in Note 8,
effective  June 14,  2002,  the  Company  suspended  its  voluntary  practice of
repurchasing  eligible  Agway  securities  when  presented  prior  to   maturity
and all discretionary  transactions in and out of the Company Security Fund have
been  suspended.  Furthermore,  on October 1, 2002,  Agway Inc.  intends to file
voluntary  petitions for reorganization  under Chapter 11 of the U.S. Bankruptcy
Code.

Agway contributes,  as a matching  contribution,  an amount of at least 10%, but
not more than 50%, of each participant's regular  contributions,  as defined, up
to 6% of his or her salary on an annual basis. Agway  contributions to this plan
for years ended June 2002,  2001 and 2000 were  approximately  $600,  $1,700 and
$1,600,  respectively.  For the years  ended  June  2001 and 2000,  the Board of
Directors of Agway approved an additional match of 20% to supplement the minimum
contribution level of 10%.
                                       62
<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


6.  RETIREMENT BENEFITS (CONTINUED)

Benefit Equalization Plan
The Company also maintains a non-qualified,  unfunded benefit  equalization plan
(BEP) designed to provide pension and thrift benefits for employees whose normal
benefits  are  reduced  by  limitations  under the  Employee  Retirement  Income
Security ACT (ERISA) and the Internal Revenue Code. Net benefit expense relating
to the pension  component of the BEP was approximately  $1,500,  $1,000 and $900
for the years ended June 2002, 2001 and 2000, respectively.  The accrued pension
costs  under the BEP were  approximately  $6,500  and  $5,600 for 2002 and 2001,
respectively.  Net benefit expense  relating to the thrift component of the BEP,
including the Company matching  contributions,  totaled approximately $300, $300
and $400  for the  years  ended  June  2002,  2001 and  2000,  respectively.  In
determining the actuarial present values of the projected benefit obligations of
the pension  component of this plan, the same assumptions were used as those for
the Company's defined benefit pension plan.


                                       63

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


7.  INCOME TAXES

Tax Provision
The  Company's  consolidated  tax expense  (benefit)  for income  taxes has been
allocated  between  continuing and  discontinued  operations and consists of the
following:
<TABLE>
<CAPTION>
                                                                 June 2002          June 2001       June 2000
                                                              -------------       -------------   -------------
<S>                                                           <C>                 <C>             <C>
Continuing operations:
     Current:
         Federal............................................  $          0        $     (2,918)   $      1,393
         State..............................................           368                (471)           (218)
     Deferred...............................................        (7,030)             (7,821)          3,001
     Increase in valuation allowance........................         7,318               1,514               0
                                                              -------------       -------------   -------------
                                                              $        656        $     (9,696)   $      4,176
                                                              =============       =============   =============

Discontinued operations:
     Current:
         Federal............................................  $         55        $      2,919    $     (1,393)
         State..............................................           805               1,698           1,428
     Deferred...............................................       (32,909)               (727)         (5,938)
     Increase in valuation allowance........................        16,417                   0               0
                                                              --------------      -------------   -------------
                                                              $    (15,632)       $      3,890    $     (5,903)
                                                              ==============      =============   =============
</TABLE>
The effective  income tax rate on earnings  from  continuing  operations  before
income taxes differs from the federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
                                                                 June 2002          June 2001        June 2000
                                                              -------------       -------------   --------------
<S>                                                           <C>                 <C>             <C>
Statutory federal income tax rate...........................        (34.0%)            (34.0%)           35.0%

Tax effects of:
     Impact from change in legal structure (1)..............          0.0               (9.9)             0.0
     Adjustment to prior years' tax liabilities.............         (7.8)              (8.4)             0.0
     Valuation allowance (2)................................         44.6                7.5              0.0
     State income taxes, net of federal benefit (3).........         (0.9)              (3.0)             6.7
     Nondeductible items (4)................................          2.0                1.4              5.2
     Other items............................................          0.0               (3.4)            (1.4)
                                                              -------------       -------------   --------------
         Effective income tax rate..........................          3.9%             (49.8%)           45.5%
                                                              =============       =============   ==============
</TABLE>
(1)  In June 2001,  for reasons  described in Note 1, Agway's Board of Directors
     voted to simplify Agway's  corporate  structure by merging AFC and AHI into
     Agway  Inc,  effective  July  1,  2001.  The  change  in net  deferred  tax
     liabilities reflects the expected future tax rate from this structure.

(2)  See discussion below regarding valuation allowance.

(3)  For state  income tax  purposes,  Agway does not file  combined  income tax
     returns for all of its operations and is therefore  unable to recognize the
     benefit of certain net operating losses incurred by subsidiaries.

(4)  Nondeductible  items are principally  related to goodwill  amortization and
     meal and entertainment expenses.


                                       64

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


7.  INCOME TAXES (CONTINUED)

Deferred Taxes
Agway's  consolidated  net  deferred tax balances  have been  allocated  between
continuing and discontinued operations. On a consolidated basis, the Company has
a valuation  allowance on its gross  deferred tax assets of $25,249,  due to the
uncertainty of generating sufficient future taxable income to fully benefit from
the deferred tax assets. See Note 2. The valuation  allowance has been allocated
between continuing and discontinued operations,  as detailed below. The deferred
taxes of discontinued  operations are included in the assets and/or  liabilities
of discontinued operations as detailed in Note 3. The components of the deferred
tax assets and liabilities for continuing operations were as follows:
<TABLE>
<CAPTION>
                                                                           June 2002          June 2001
                                                                         -------------      --------------
<S>                                                                      <C>                <C>
Deferred tax assets:
     Net operating loss (NOL) carryforward.............................  $     42,621       $      28,206
     Medical liabilities...............................................         8,790              10,736
     Other liabilities.................................................         5,404               7,223
     Self-insurance reserves...........................................        10,643              11,024
     Alternative minimum tax (AMT) credit carryforward.................         7,530               7,530
     Deferred compensation.............................................         5,038               4,215
     Inventory allowance...............................................         2,190               3,893
     Accounts receivable allowance.....................................         1,613               3,491
     Environmental liabilities.........................................         1,448               1,735
     Investment tax credit (ITC) carryforward..........................         1,185               1,405
                                                                         -------------      --------------
         Gross deferred tax asset......................................        86,462              79,458
              Less valuation allowance.................................        (8,832)             (1,514)
                                                                         -------------      --------------
                  Total net deferred tax assets........................        77,630              77,944

Deferred tax liabilities:
     Pension assets....................................................        80,469              82,867
     Excess of tax-over-book depreciation..............................        11,675              12,254
     Prepaid medical expenses..........................................           269                 334
     Other assets .....................................................          (726)              1,009
                                                                         -------------      --------------
         Total deferred tax liability..................................        91,687              96,464
                                                                         -------------      --------------
              Net deferred tax liability...............................  $    (14,057)     $      (18,520)
                                                                         =============     ===============
</TABLE>
The  continuing  operations  net deferred tax liability at June 2002 and 2001 of
$14,057 and $18,520,  respectively,  consists of a net current  asset of $17,840
and $34,501 and a net long-term liability of $31,897 and $53,021,  respectively.
The total  continuing  operations gross deferred tax assets are partially offset
by a  valuation  allowance  of $8,832  and  $1,514  at June 2002 and June  2001,
respectively.  The  allowance  at June 2002  represents  the  write-down  to net
realizable value of ITC carryforward expiring in 2003, charitable  contributions
carryforward  that expire in 2002-2006,  and the write-off of the AMT tax credit
of $7,530 due to the  uncertainty  of  sufficient  future  taxable  income being
generated to  reasonably  assure usage of those  credits.  The allowance in June
2001 was  required  to  reflect  the net  realizable  value of ITC  carryforward
expiring in 2002 and 2003 and charitable contributions carryforward  that expire
in 2001-2005.

At June 2001, the federal AMT credit can be carried  forward  indefinitely.  The
net operating loss (NOL) carryforward  expires at various intervals between 2010
and 2020.


                                       65

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


7.  INCOME TAXES (CONTINUED)

Deferred Taxes (continued)
The  components  of the deferred  tax assets and  liabilities  for  discontinued
operations were as follows:
<TABLE>
<CAPTION>
                                                                          June 2002          June 2001
                                                                       -------------      --------------
<S>                                                                    <C>                <C>
Deferred tax assets:
     Other liabilities...............................................  $      7,173       $       7,288
     Self-insurance reserves.........................................           175                 142
     Deferred compensation...........................................           475                   0
     Inventory allowance.............................................         1,816               2,597
     Accounts receivable allowance...................................        14,419              13,282
     Environmental liabilities.......................................           217                 822
     Reserves for disposal of discontinued operations................        32,315                   0
                                                                       -------------      --------------
         Gross deferred tax asset....................................        56,590              24,131
              Less valuation allowance...............................       (16,417)                  0
                                                                       -------------      --------------
                  Total net deferred tax assets......................        40,173              24,131

Deferred tax liabilities:
     Excess of tax-over-book depreciation............................           299                (492)
     Lease receivables...............................................        24,231              19,936
     Other assets ...................................................         3,384               3,267
                                                                       -------------      --------------
         Total deferred tax liability................................        27,914              22,711
                                                                       -------------      --------------
              Net deferred tax asset.................................  $     12,259       $       1,420
                                                                       =============      ==============
</TABLE>
The total discontinued operations gross deferred tax assets are partially offset
by a valuation  allowance of $16,417 due to the uncertainty of generating future
taxable income to fully benefit from the deferred tax assets.

8.  SHORT-TERM NOTES PAYABLE

At June 30, 2002,  Agway had available under its Senior Debt program  (described
below) a $150,000  short-term line of credit, up to $35,000 of which can be used
for letters of credit.  The amount available under the Senior Debt is subject to
downward  adjustment,  as discussed  below. In addition,  subsequent to June 30,
2002,  the Senior Debt was amended to reduce the amount  available.  It was also
expected  that the Senior Debt will be replaced by the Debtor - in -  Possession
Financing.  See Note 2. At June 30, 2002, letters of credit issued, primarily to
back Agway  insurance  programs,  totaled  approximately  $23,800.  The carrying
amounts of Agway's short-term  borrowings  approximate their fair value and were
as follows:
<TABLE>
<CAPTION>
                                                                          June 30,           June 30,
                                                                           2002                2001
                                                                       -------------      --------------
<S>                                                                    <C>                <C>
Lines of credit......................................................  $     34,180       $      61,342
                                                                       =============      ==============
Weighted average interest rate.......................................         5.89%               7.22%
                                                                       =============      ==============
</TABLE>
The interest  rate charged on bank lines of credit ranged from 5.84% to 7.25% at
June 2002.



                                       66

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

8.  SHORT-TERM NOTES PAYABLE (CONTINUED)

Agway Senior Debt
The  Agway  Senior  Debt  (as  amended-see  discussion  below)  is a  syndicated
three-year  asset-based  revolving line of credit for up to $150,000 pursuant to
the terms of a credit agreement between Agway, certain of its subsidiaries and a
syndicated  group  of  lenders  (the  Credit  Agreement).   Interest  rates  are
determined, at the option of Agway, as either prime rate plus 2.5% or the London
Interbank Offered Rate (LIBOR) plus 4%. In this asset-based line of credit,  the
amount  available to Agway is the lesser of the  "collateral  borrowing base" or
the $150,000 upper limit of the line of credit.  The  collateral  borrowing base
consists of certain of Agway's  eligible  accounts  receivable and inventory (as
defined under the Credit  Agreement).  Certain  covenants and  conditions of the
Credit Agreement,  as more fully discussed below,  restrict the use of funds and
reduce the practical availability of financing under the agreement by $25,000 to
a maximum  of  $125,000  or,  if  lower,  to  $25,000  less than the  collateral
borrowing base. As of June 30, 2002, the collateral borrowing base was $115,200,
which adequately supported Agway's credit needs which totaled $58,100 as of that
date.

Subsequent to June 30, 2002, we sold Agway  Insurance  Company and the Sunflower
division of our CPG Group for  combined  gross  proceeds of $42,500.  The Credit
Agreement was amended in order to permit the release of collateral in each case.
The combined effect of these  amendments was to reduce the commitment level from
$150,000 to $125,000 and to require a $25,000  minimum  excess  availability  of
collateral,  which effectively  reduced the facility to the lower of $100,000 or
$25,000 less than the available  collateral borrowing base. This availability is
adequate  for our  immediate  needs  and is  expected  to be  replaced  by a new
Debtor-in-Possession line of credit (see Note 2.)

The current Credit Agreement,  dated March 28, 2001, as amended, has a number of
financial  covenants  which  restrict  our  capital  spending  and require us to
maintain minimum levels of earnings before interest,  taxes,  depreciation,  and
amortization (EBITDA), as defined in the Credit Agreement, and minimum ratios of
EBITDA to fixed charges and interest on senior debt.  The Credit  Agreement also
required a minimum  outstanding  balance of preferred stock,  subordinated debt,
and certain debt of a subsidiary.  That minimum  outstanding balance requirement
ranges from $440,000 to $450,000  throughout  the year.  This minimum  amount of
capital we must maintain is referred to as the Minimum Capital,  and, as of June
30,  2002,  the  amount of debt and  securities  outstanding  that  apply to the
Minimum Capital was $458,500 (see discussion below regarding  Minimum  Capital).
The Credit  Agreement  has been amended three times in response to violations of
financial covenants. In connection with those amendments,  those violations were
waived.  As of June 30, 2002, the Company has complied with all covenants
contained in its borrowing agreements.

Other conditions of the Credit Agreement  prevent us, in certain  circumstances,
from  using  funds we borrow  under the  Credit  Agreement  to pay  interest  or
dividends  on, or repurchase or repay  principal  of, our  subordinated  debt or
preferred stock. Effective June 14, 2002, we stopped the voluntary repurchase or
repayment  of our  subordinated  debt and  preferred  stock.  Consequently,  the
present  effect of these  restrictions  is on our  ability  to pay  interest  or
dividends. To avoid these use restrictions,  the Credit Agreement requires us to
have a minimum excess borrowing capacity as defined in the agreement (collateral
borrowing base in excess of outstanding amounts borrowed) of at least $20,000 if
we are not in default under the Credit Agreement. If we are in default under the
Credit Agreement, to avoid these use restrictions,  the minimum excess borrowing
capacity we must maintain  (collateral  borrowing  base in excess of outstanding
amounts borrowed) increases to $25,000.  Further, if we are in default under the
Credit Agreement, we are subject to these use restrictions if:

(a) we default on our payment of principal, interest or other amounts due to the
    lenders under the Credit Agreement;
(b) we fail to maintain the cash management procedures  we  agree  to  with  the
    lenders under the Credit  Agreement;
(c) we do not maintain the Minimum Capital  balance of $440,000 to $450,000;  or
(d) the agent under the Credit Agreement provides us with a written  notice that
    such payments are no longer permitted.

The $25,000 minimum excess availability  requirement  implemented  subsequent to
June 30, 2002, as discussed above, now imposes a more stringent event of default
covenant  than the above  conditions  which were the more  stringent  conditions
throughout the year.

                                       67

<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  DEBT

Long-Term Debt
Long-term  debt  held by Agway  and  Agway  Financial  Corporation  (see Note 1-
Organization) consists of the following:
<TABLE>
<CAPTION>
                                                                                   June 2002
                                                                 ---------------------------------------------
                                                                     Agway           AFC            Total
                                                                 -------------   -------------   -------------
<S>                                                              <C>             <C>             <C>
Total long-term debt, excluding capital leases.................  $      1,772    $     (b)       $       1,772
Obligations under capital leases (a)...........................        17,213          (b)              17,213
                                                                 -------------   -------------   --------------
Total long-term debt...........................................        18,985          (b)              18,985
Less: current portion..........................................         1,842          (b)               1,842
                                                                 -------------   -------------   --------------
                                                                 $     17,143    $     (b)       $      17,143
                                                                 =============   =============   ==============
<CAPTION>
                                                                                   June 2001
                                                                 ----------------------------------------------
                                                                     Agway            AFC            Total
                                                                 -------------   -------------   --------------
<S>                                                              <C>             <C>             <C>
Long-term debt, excluding capital leases.......................  $        278    $     1,790     $      2,068
Obligations under capital leases (a)...........................        16,569          1,139           17,708
                                                                 -------------   -------------   --------------
Total long-term debt...........................................        16,847          2,929           19,776
Less: current portion..........................................           429          1,069            1,498
                                                                 -------------   -------------   --------------
                                                                 $     16,418    $     1,860     $     18,278
                                                                 =============   =============   ==============
</TABLE>
(a)   Obligations  under  capital  leases  are  principally  with  Telmark,  a
      discontinued operation of the Company.
(b)   On July 1, 2001, AFC was merged into Agway Inc.

Agway Subordinated Debt
Agway  registers  with the  Securities  and Exchange  Commission  (SEC) to offer
debentures and money market  certificates  to the public.  (Since March 6, 2002,
the Company has suspended the sale of Company  securities,  as explained below.)
The debentures are unsecured and  subordinated to all senior debt of Agway.  The
Agway  subordinated  debt bears interest  payable  semiannually on January 1 and
July 1 of each year. The interest rates of Agway's money market certificates are
at the greater of the stated rate or a rate based upon an average  discount rate
for U.S.  Government  Treasury  Bills,  with  maturities  of 26  weeks.  Agway's
subordinated debt is not redeemable by the holder.

Effective  June  14,  2002,  the  Board  of  Directors  (the  "Board")  of Agway
determined to suspend the Company's  historic practice of repurchasing,  at face
value,  eligible  Agway  Inc.  subordinated  debentures  prior to  maturity  and
preferred  stock when  presented for  repurchase.  As disclosed in the Company's
periodic reports and the prospectuses  relating to the sale of those securities,
the Company was under no obligation to repurchase such securities,  retained the
right to stop or suspend  this  practice  at any time,  and could be required to
stop or suspend this practice if the conditions of the Credit Agreement were not
satisfied.

The primary reason for the Board's decision to suspend the Company's  repurchase
of eligible Agway Inc.  subordinated  debentures and Agway Inc.  preferred stock
was to preserve the Company's  liquidity during the implementation  phase of its
planned divestiture of certain business operations,  as discussed in Note 3, and
to provide the Company with greater  flexibility in the event those divestitures
do not go as planned. In addition, because the Company is not currently actively
raising  capital  through new sales of  securities,  the Board  determined  that
suspending the Company's  repurchase practice would become necessary in the near
future in order to allow the Company to satisfy the Minimum Capital  requirement
discussed  above under Agway Senior Debt.  As of June 30, 2002,  the Company had
$458,500 of preferred stock,  subordinated debentures and other interest bearing
debt outstanding.

                                       68

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  DEBT (CONTINUED)

Agway Subordinated Debt (continued)
<TABLE>
<CAPTION>
Subordinated debt at June 30, 2002 and 2001 consists of the following:
                                                                                                        June 2002
                                                                                                    --------------
<S>                                                                                                 <C>
Subordinated money market certificates, due October 2002 to October 2017,
      interest at a weighted average rate of 8.23% with a range of 5.5% to 9.75%.................   $      421,659
Subordinated debentures, due July 2003, interest at a weighted average rate of 7.92% with a
      range of 7.50% to 8.0%.....................................................................            3,707
                                                                                                    ---------------
Total subordinated debt..........................................................................          425,366
Less:  current portion...........................................................................           36,917
                                                                                                    ---------------
                                                                                                    $      388,449
                                                                                                    ===============


                                                                                                        June 2001
                                                                                                    ---------------
Subordinated money market certificates, due October 2001 to October 2016,
      interest at a weighted average rate of 8.2% with a range of 4.5% to 9.75%..................   $      442,551
Subordinated debentures, due July 2001 to July 2003, interest at a weighted average rate of 7.7%
      with a range of 7.0% to 8.0%...............................................................            6,787
                                                                                                    --------------
Total subordinated debt..........................................................................          449,338
Less:  current portion...........................................................................           47,628
                                                                                                    ---------------
                                                                                                    $      401,710
                                                                                                    ===============
</TABLE>
Agway's (formerly AFC's) subordinated debt is not redeemable by the holder. (See
discussion  of the  suspension  of the  sale of  securities  and  the  voluntary
repurchase  practice  relating to  subordinated  debt of the Company.) The Agway
subordinated debt bears interest payable semiannually on January 1 and July 1 of
each year. The interest rates of Agway (formerly AFC) money market  certificates
are at the greater of the stated  rate or a rate based upon an average  discount
rate for U.S. Government Treasury Bills, with maturities of 26 weeks.

Maturities:
Aggregate annual  maturities on long-term debt during the next five years ending
June 30 and thereafter are as follows:
<TABLE>
<CAPTION>
                                              Capital                                                 Subordinated
                                              Leases            Borrowings            Total               Debt
                                          -------------       -------------       -------------      --------------
<C>                                       <C>                 <C>                 <C>                <C>
2003....................................  $      3,530        $        202        $      3,732       $      36,917
2004....................................         3,475                 169               3,644              42,275
2005....................................         3,374                 123               3,497              49,047
2006....................................         3,325                  98               3,423              33,379
2007....................................         3,052                  98               3,150              52,701
Thereafter..............................         9,834               1,082              10,916             211,047
Imputed interest........................        (9,377)                  0              (9,377)                  0
                                          --------------      -------------       -------------      --------------
Total...................................  $     17,213        $      1,772        $     18,985       $     425,366
                                          ==============      =============       =============      ==============
</TABLE>



                                       69

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


10.  COMMITMENTS AND CONTINGENCIES

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

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

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

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

Agway rents or leases a variety of equipment, vehicles, and building space under
operating leases.  Rent expense for the years ended June 2002, 2001 and 2000 was
approximately  $12,500,  $12,400  and  $13,200,  respectively.   Future  minimum
payments under noncancelable  operating leases are approximately $8,200, $6,400,
$5,400,  $5,200  and  $4,400  for the  years  ending  June  2003  through  2007,
respectively, and approximately $4,100 thereafter.

Other Assets
The sale of the wholesale  procurement and supply system was paid for in part by
a note  receivable  in the  original  amount of $13,300 that was due and payable
January 2003. In connection  with a refinancing of the obligor in December 2001,
we agreed to extend the $12,500  remaining  outstanding  balance to February 15,
2003, with a possible extension to August 12, 2003 under certain conditions.  In
connection  with this agreement,  we became a secured party in an  intercreditor
agreement with the obligor's bank group. The June 30, 2002  outstanding  balance
of $11,400 is included in other assets on the balance sheet. The  collectibility
of that note  receivable is subject to the ongoing  successful  operation of the
obligor or our ability,  if necessary,  to realize value from the security under
the intercreditor agreement.



                                       70

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Insurance Coverage
The Company uses  various  insurance  companies  to insure its primary  casualty
insurance  risks  as  well  as  to  obtain  various  umbrella/excess   liability
coverages.  On October 3, 2001, the Commonwealth Court of Pennsylvania  approved
the  petition  of  the  Pennsylvania  Insurance  Commissioner  for an  Order  of
Liquidation for Reliance  Insurance Company (RIC).  Agway has obtained insurance
coverage  from RIC in various  segments of its  insurance  programs  since 1991.
Presently,  Agway has four claims  which could be affected by this  liquidation.
Total  covered  amounts by RIC on these claims as of June 30, 2002 are estimated
at $3,200. In addition, future claims could be affected by this liquidation. The
liquidation statute establishes certain priorities for payment of claims. Direct
policyholders are one of the top priorities for payment.  To the extent, if any,
RIC is unable  to meet its  claim  obligations  to its  policyholders  and other
creditors,  certain  state  insurance  guarantee  funds may  provide  additional
sources  of claim  payments.  The  Company  cannot  at this time  determine  the
ultimate  outcome  of this  liquidation,  its impact on  outstanding  and future
claims  against  RIC  policies  held by Agway,  or the  impact on the  Company's
financial results.  However, it is anticipated that due to this proceeding,  the
Company, at a minimum, can expect delays in receiving cash settlement for claims
outstanding  under RIC policies and that we will not receive full value for such
claims.  Therefore,  the Company has established a $1,500  allowance for loss on
amounts reimbursable from RIC.


In July 2002,  our surety  provider  issued  cancellation  notices  relative  to
$23,900 of surety bonds supporting our insurance programs. This has no impact on
our insurance  coverage,  but it does give our  insurance  carriers the right to
demand payment of the collateral amount provided by the bonds from the issuer of
the bonds.  If our surety  provider  chooses to pay cash to our insurers  rather
than  reissue  bonds,  our surety would have a right to demand cash payment from
us. Because of the  cancellation  notices  issued,  our insurers have a right to
make demand on our surety  provider for $4,625  starting late  September and for
$6,000  starting  late October.  We dispute the right of the surety  provider to
cancel the remaining  $13,275 at this time but  recognize  their right to cancel
coverage in the spring of 2003 at the scheduled renewal dates. It is unlikely we
would meet those demands and still have cash availability sufficient to meet our
operating  needs. If we were unable to pay, it would  constitute a default under
our Credit Agreement.



                                       71

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


11.  PREFERRED STOCK

Values are whole numbers except where noted as (000s).
<TABLE>
<CAPTION>
                                                                      Preferred Stock
                                      -----------------------------------------------------------------------------
                                                          Cumulative
                                      --------------------------------------------------    Honorary      Dollar
                                          6%           8%            8%           7%         Member       Amount
                                       Series A     Series B     Series B-1    Series C     Series HM     in 000s
                                      -----------  -----------  -----------  -----------    ---------   -----------
<S>                                   <C>          <C>          <C>          <C>          <C>           <C>
Par Value...........................  $      100   $      100   $      100   $      100   $       25
                                      ===========  ===========  ===========  ===========  ===========
Shares Authorized...................     350,000      250,000      140,000      150,000       80,000
                                      ===========  ===========  ===========  ===========  ===========
Shares Outstanding:
   Balance June 1999................     133,771      234,789       18,010       41,954        2,584    $    42,917
     Issued (redeemed), net.........     (10,451)      (2,044)           0      (19,702)        (100)        (3,222)
                                      -----------  -----------  -----------  -----------  -----------   ------------
   Balance June 2000................     123,320      232,745       18,010       22,252        2,484    $    39,695
     Issued (redeemed), net.........     (10,475)     (2,047)            0       (8,371)        (116)        (2,092)
                                      -----------  -----------  -----------  -----------  -----------   ------------
   Balance June 2001................     112,845      230,698       18,010       13,881        2,368    $    37,603
     Issued (redeemed), net               (6,573)     (26,687)     (16,897)      (5,272)         (93)        (5,546)
                                      -----------  -----------  -----------  -----------  -----------   ------------
   Balance June 2002                     106,272      204,011        1,113        8,609        2,275    $    32,057
                                      ===========  ===========  ===========  ===========  ===========   ============
<CAPTION>
                                                                      Preferred Stock
                                      ------------------------------------------------------------------------------
                                                          Cumulative
                                      --------------------------------------------------    Honorary
                                          6%           8%            8%           7%         Member
                                       Series A     Series B     Series B-1    Series C    Series HM
                                      -----------  -----------  -----------  -----------  -----------
<S>                                   <C>          <C>          <C>          <C>          <C>
Annual Dividends Per Share:
   June 2000........................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50
   June 2001........................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50
   June 2002........................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50

Shares Held in Treasury (purchased
 at par value):
   June 2000........................     226,680       17,255      121,990      127,748        1,202
   June 2001........................     237,155       19,302      121,990      136,119        1,331
   June 2002........................     243,728       45,989      138,887      141,391        1,436
</TABLE>
There are 10,000 shares of authorized preferred stock undesignated as to series,
rate,  and other  attributes.  The Series A preferred  stock has  priority  with
respect to the payment of dividends. The Series HM preferred stock may be issued
only to former  members of Agway and no more than one share of such stock may be
issued to any one person.  The preferred  stock has no pre-emptive or conversion
rights.

Agway had  historically  provided a market by  repurchasing,  at par,  preferred
stock as the holders elect to tender the securities for  repurchase,  subject to
Board of Directors' approval. However, we were under no obligation to repurchase
preferred stock when presented to us, retained the right to stop or suspend this
practice at anytime,  and could be required to stop or suspend this  practice if
the  conditions  of our primary  credit  agreement  with a  syndicated  group of
lenders were not satisfied.  Effective June 14, 2002, we suspended this practice
due to the financial  condition of the Company at that time, and the uncertainty
of the amount and timing of  proceeds  from our planned  divestiture  of certain
business operations as further described in Notes 2 and 8.

                                       72

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


12.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING

Agway reports its continuing  operations  principally in three business segments
as follows:

(1)    AGRICULTURE  engages in the  manufacturing,  processing,  marketing,  and
       direct  distribution  of various  animal  feeds,  and farm  supplies  and
       services  for its  farmer-members  and other  customers  primarily in the
       northeastern United States and Ohio.

(2)    COUNTRY  PRODUCTS  GROUP  engages in the  manufacturing,  processing  and
       repacking  of a variety of  agricultural  products  marketed  directly to
       consumers, retailers,  wholesalers and processors. Country Products Group
       also is involved in the exploration  and development of new  technologies
       to benefit agricultural and food businesses.

(3)    ENERGY operates a full-service  energy company which markets and services
       heating,  ventilation and air-conditioning  equipment and which sells and
       delivers fuel oil, kerosene,  propane,  gasoline and diesel fuel, as well
       as marketing  natural gas and electricity where  deregulation  makes that
       possible.

Total sales and revenues of each industry  segment includes the sale of products
and services to unaffiliated  customers,  as reported in the Agway  consolidated
statements of operations,  as well as sales to other segments of Agway which are
competitively priced.

The Other  category  within  the  summary  of  business  segments  includes  net
corporate  expenses,  the Agway General  Agency,  pension  income,  intersegment
eliminations and interest.  Total assets in the Other column consist principally
of  discontinued  assets,  as  detailed in Note 3, and other  corporate  assets,
including the pension asset.

As discussed in Note 3, as a result of the discontinuation of certain businesses
during the year ended June 30,  2002,  the  following  changes to  segments,  as
previously reported,  have been made: The Agriculture segment no longer includes
the results of Agronomy and Seedway, and the Leasing and Insurance segments have
been deleted.  The Country Products Group segment no longer includes  Sunflower.
The General Agency is now combined in the Other segment.
<TABLE>
<CAPTION>
                                                          Country
                                                          Products
Year ended June 2002                     Agriculture      Group           Energy          Other      Consolidated
--------------------                    -------------   ------------   -------------  ------------   -------------
<S>                                     <C>             <C>            <C>            <C>            <C>
Net sales and revenues to unaffiliated
   customers..........................  $    229,604    $   135,985    $    533,839   $       506    $    899,934
Intersegment sales and  revenues......             0          4,108             129        (4,237)              0
                                        -------------   ------------   -------------  ------------   -------------
     Total sales and revenues           $    229,604    $   140,093    $    533,968   $    (3,731)   $    899,934
                                        =============   ============   =============  ============   =============

Operating earnings (loss).............  $     (3,012)   $    (2,635)   $     15,002   $    (6,298)   $      3,057
Interest income.......................         2,102             16             746           564           3,428
Interest expense......................        (5,164)        (1,431)         (6,263)      (11,605)        (24,463)
Other income, net.....................          (389)           373           1,009            90           1,083
                                        -------------   ------------   -------------  ------------   -------------
Earnings (loss) from continuing
   operations before income taxes.....  $     (6,463)   $    (3,677)   $     10,494   $   (17,249)   $    (16,895)
                                        =============   ============   =============  ============   =============

Total assets..........................  $      74,031   $     35,714   $    150,233   $ 1,314,382    $  1,574,360
Depreciation and amortization.........          7,474          3,881          8,075         1,378          20,808
Capital expenditures..................            915            784          5,886           200           7,785
</TABLE>
                                       73

<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


12.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
                                                           Country
                                                           Products
Year ended June 2001                      Agriculture       Group           Energy          Other       Consolidated
--------------------                     -------------   -------------   -------------   ------------   -------------
<S>                                      <C>             <C>             <C>             <C>            <C>
Net sales and revenues to unaffiliated
   customers..........................   $    252,130    $    158,706    $    723,242    $       634    $  1,134,712
Intersegment sales and  revenues......            916           3,721             691         (5,328)              0
                                         -------------   -------------   -------------   ------------   -------------
     Total sales and revenues            $    253,046    $    162,427    $    723,933    $    (4,694)   $  1,134,712
                                         =============   =============   =============   ============   =============

Operating earnings (loss).............   $    (12,312)   $    (10,112)   $     21,297    $    (2,798)   $     (3,925)
Interest income.......................          3,631              68           1,382          1,105           6,186
Interest expense......................         (5,551)         (2,305)         (6,793)       (10,259)        (24,908)
Other income, net.....................            129            (887)          4,186             20           3,448
                                         -------------   -------------   -------------   ------------   -------------
Earnings (loss) from continuing
   operations before income taxes.....   $    (14,103)   $    (13,236)   $     20,072    $   (11,932)   $    (19,199)
                                         =============   =============   =============   ============   =============

Total assets..........................   $     90,057    $     43,185    $    181,800    $ 1,327,755    $  1,642,797
Depreciation and amortization.........          5,749           4,249           8,645          1,714          20,357
Capital expenditures..................          3,102             903          10,974            688          15,667
<CAPTION>
                                                           Country
                                                           Products
Year ended June 2000..................    Agriculture       Group           Energy           Other      Consolidated
--------------------                     -------------   -------------   -------------   ------------    -------------
<S>                                      <C>             <C>             <C>             <C>            <C>
Net sales and revenues to unaffiliated
   customers..........................   $    250,133    $    155,823    $    575,568    $       829    $    982,353
Intersegment sales and  revenues......          7,255           3,593             438        (11,286)              0
                                         -------------   -------------   -------------   ------------   -------------
     Total sales and revenues.........   $    257,388    $    159,416    $    576,006    $   (10,457)   $    982,353
                                         =============   =============   =============   ============   =============

Operating earnings (loss).............   $    (11,151)   $     (2,040)   $      9,001    $     1,763    $     (2,427)
Interest income.......................          3,664             153           1,078          2,455           7,350
Interest expense......................         (5,112)         (1,583)         (6,709)        (6,610)        (20,014)
Other income, net.....................          5,375             446          18,655           (159)         24,317
                                         -------------   -------------   -------------   ------------   -------------
Earnings (loss) from continuing
   operations before income taxes.....   $     (7,224)   $     (3,024)   $     22,025    $    (2,551)   $      9,226
                                         =============   =============   =============   ============   =============

Total assets..........................   $    103,513    $     48,855    $    183,462    $ 1,313,840    $  1,649,670
Depreciation and amortization.........          5,134           3,580           8,839          1,756          19,309
Capital expenditures..................         12,485           1,232           6,342            941          21,000

</TABLE>







                                       74

<PAGE>
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  AGRICULTURE REALIGNMENT

In the second  quarter of fiscal 2001,  the Agway Board of Directors  approved a
plan (the  Agriculture  Plan) to  realign  the  Agriculture  segment  of Agway's
business with the continuing  concentration of farming and our farmer-members in
the  northeastern  United  States.  The  realignment  into a Feed and  Nutrition
Division and an Agronomy Division has been completed. In addition, a total of 62
locations have been  converted to dealers,  sold, or closed and 397 employees at
these locations have been paid  severance.  The 62 locations were comprised of 4
feed mills,  12 feed storage and mix locations,  39 agronomy  facilities,  and 7
farm stores.  During the realignment  process,  gains experienced on the sale of
properties have been recognized when realized,  inventories have been reduced to
their estimated net realizable values, and operating costs during the transition
period are recognized when incurred.

As announced on March 6, 2002 (as further  described in Note 3), we have decided
to exit the  agronomy  business  (among  others) and have  reported the Agronomy
Division operations herein as discontinued operations.  Therefore, the financial
impact  associated with the  Agriculture  Plan for the years ended June 30, 2002
and 2001,  respectively,  has been  included  in the results of  continuing  and
discontinued operations as follows:
<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended June 30, 2002
                                                                           --------------------------------
                                                                             Continuing       Discontinued
                                                                             Operations        Operations
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
Net gain (loss)on sale of assets.........................................  $         (20)    $       1,443
Impairment on long-lived assets..........................................              -                 -
Gain (loss) on sale/liquidation of inventory.............................           ( 78)              695
Severance adjustment ....................................................            104                 -
Other transaction costs..................................................           (189)             (459)
                                                                           --------------    --------------
Net gain (loss) on realignment activity..................................  $        (183)    $       1,679
                                                                           ==============    ==============
<CAPTION>
                                                                           Fiscal Year Ended June 30, 2001
                                                                           --------------------------------
                                                                             Continuing       Discontinued
                                                                             Operations        Operations
                                                                           --------------    --------------
<S>                                                                        <C>               <C>
Net gain on sale of assets...............................................  $         462     $         417
Impairment on long-lived assets..........................................           (398)             (373)
Loss on sale/liquidation of inventory....................................            (99)             (261)
Severance cost...........................................................         (1,503)           (1,960)
Other transaction costs..................................................            (38)              (22)
                                                                           --------------    --------------
Net loss on realignment activity.........................................  $      (1,576)    $      (2,199)
                                                                           ==============    ==============
</TABLE>
14.  OTHER INCOME (EXPENSE)

The components of other income (expense) for the years ended June 2002, 2001 and
2000 are summarized below:
<TABLE>
<CAPTION>
                                                            2002                2001              2000
                                                       ---------------    ---------------    ---------------
<S>                                                    <C>                <C>                <C>
Rent and storage revenue...........................    $          501     $          466     $        2,753
Gain (loss) on disposition of:
     Businesses....................................                 0                  0              1,098
     Other security investments....................              (385)              (509)            (1,044)
     Properties and equipment......................               817              1,537             13,426
Negotiated settlement..............................                 0                  0              5,049
Other, net.........................................               150              1,954              3,035
                                                       ---------------    ---------------    ---------------
                                                       $        1,083     $        3,448     $       24,317
                                                       ===============    ===============    ===============
</TABLE>


                                       75

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


15.  SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS
<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                              -------------------------------------------------
                                                                   2002              2001             2000
                                                              -------------     -------------    --------------
<S>                                                           <C>               <C>              <C>
Additional disclosure of operating cash flows:
    Cash paid during the year for:
         Interest...........................................  $     25,337      $     25,981     $      20,828
                                                              =============     =============    ==============
         Income taxes.......................................  $        970      $        290     $       2,727
                                                              =============     =============    ==============

Additional disclosure for non-cash investing and
 financing activities:

     Dividends declared but unpaid at fiscal year-end.......  $      1,307      $      1,521     $       1,592
                                                              =============     =============    ==============
     Note receivable from sale of business..................  $          0      $     12,522     $      -
                                                              =============     =============    ==============
     Capital lease obligations..............................  $      4,600      $     18,900     $       2,595
                                                              =============     =============    ==============
</TABLE>
16.  FINANCIAL AND COMMODITY INSTRUMENTS

Fair Value
Carrying amounts of trade notes and accounts receivable,  financial  instruments
included in other  assets and other  liabilities,  notes  payable,  and accounts
payable  approximate  their fair values because of the short-term  maturities of
these  instruments.  The fair value of Agway's  long-term debt and  subordinated
debentures  is  estimated  based on  discounted  cash  flow  computations  using
estimated  borrowing rates available to Agway ranging from 5.5% to 9.75% in 2002
and 4.5% to 9.75% in 2001.

The carrying amounts and estimated fair values of Agway's significant  financial
instruments  held for purposes other than trading at June 30, 2002 and 2001 were
as follows:
<TABLE>
<CAPTION>
                                                              2002                               2001
                                                 ------------------------------     -------------------------------
                                                   Carrying            Fair           Carrying            Fair
                                                    Amount             Value           Amount             Value
                                                 -------------    -------------     -------------    --------------
<S>                                              <C>              <C>               <C>              <C>
Liabilities:
Long-term debt (excluding capital leases)......  $      1,772     $      1,819      $      2,068     $       2,204
Subordinated debentures........................  $    425,366     $         (1)     $    449,338     $     448,717
</TABLE>
Agway  determines the fair value of its  exchange-traded  contracts based on the
settlement  prices for open contracts,  which are established by the exchange on
which the  instruments  are traded.  The fair value of Agway's  over-the-counter
contracts is determined  based on quotes from brokers.  As of June 30, 2002, the
carrying and fair value of Agway's  investment  in commodity  futures and option
contracts was an asset of $4,000.  As of June 30, 2001,
the  carrying  and fair value of Agway's  investment  in  commodity  futures and
option contracts was an asset of $1,700.

(1)   Fair value of Agway  subordinated  debentures is not  determinable at June
      30, 2002.  As described in Note 8,  effective  June 14, 2002,  the Company
      suspended its voluntary practice of repurchasing eligible Agway securities
      when presented prior to maturity. Furthermore, on  October 1, 2002,  Agway
      Inc.  intends to file voluntary petitions for reorganization under Chapter
      11 of the U.S. Bankruptcy Code.


                                       76

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


16.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

Off-Balance-Sheet Risk
In the normal  course of  business,  Agway has  letters  of credit,  performance
contracts,  and other  guarantees  that are not  reflected  in the  accompanying
consolidated  balance sheets. In the past, no significant  claims have been made
against these financial instruments. However, as discussed in Note 2, our surety
provider  issued  cancellation  notices  relative  to  $23,900  of surety  bonds
supporting our insurance programs. This has no impact on our insurance coverage,
but it does give our  insurance  carriers  the right to  demand  payment  of the
collateral  amount  provided  by the bonds from the issuer of the bonds.  If our
surety  provider  chooses to pay cash to our insurers rather than reissue bonds,
our surety  would have a right to demand cash  payment  from us.  Because of the
cancellation  notices  issued,  our insurers  have a right to make demand on our
surety  provider for $4,625 starting late September and for $6,000 starting late
October.  We dispute the right of the surety to cancel the remaining  $13,275 at
this time but recognize  their right to cancel coverage in the spring of 2003 at
the scheduled renewal dates.

Credit Risk
Agway, operating as an agricultural  cooperative primarily in the Northeast, has
a concentration of accounts  receivable due from  farmer-members  throughout the
region. This concentration of agricultural  customers may affect Agway's overall
credit risk in that the repayment of  farmer-member  receivables may be affected
by inherent risks  associated with (1) the overall  economic  environment of the
region;  (2) the impact of adverse regional weather  conditions on farming;  and
(3) changes in the level of government  expenditures  on farm programs and other
changes in government  agricultural  programs that adversely affect the level of
income of farmers.  Agway mitigates this credit risk by analyzing  farmer-member
credit positions prior to extending credit and requiring collateral on long-term
arrangements.

Energy  extends  unsecured  credit  to  petroleum  wholesalers  and  residential
fuel-oil  customers.  The credit  function  within  the  Energy and  Agriculture
businesses  manages  credit  risk  associated  with these trade  receivables  by
routinely assessing the financial strength of its customers.

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



                                       77

<PAGE>



ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL  DISCLOSURE There were no changes in or disagreements with accountants
on accounting or financial disclosure.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS
The directors of Agway  determine  Agway policy.  The following  directors  were
nominated on a district  representation basis by committees representing members
within each district. See page 11, Stockholder, Membership and Control of Agway,
for a description  of the process of nominating and electing  directors.  Two of
the Company's directors,  John R. Cook and Thomas Hardy, resigned effective June
12, 2002. In their letters of  resignation  to the Board,  neither Mr. Hardy nor
Mr. Cook expressed any  disagreement  with the Company on any matter relating to
the Company's operations, policies or practices.

Separately,  at its June 12, 2002  meeting,  the  Company's  Board of  Directors
decided  to reduce  the size of the Board  from  seventeen  directors  to twelve
directors, effective as of the 2002 Agway annual meeting.

In  addition  to the  resignations  noted  above,  three  directors,  Robert  L.
Marshman,  Carl D. Smith and Joel L.  Wenger,  will retire from the Board at the
end of their current terms.

 Each of the following directors,  except Mr. Cardarelli,  is a full-time farmer
and has been engaged in full-time farming during the past five years:
<TABLE>
<CAPTION>
                                                                                        Year Became
Name                           Age    Office                    Name of Business         A Director    Term Expires
-----------------------      -------  -----------------------   ---------------------   ------------   ------------
<S>                            <C>    <C>                       <C>                         <C>        <C>
Gary K. Van Slyke(1)           59     Chairman of the           VanSlyke's Dairy Farm       1994       October 2003
                                      Board and Director
Andrew J. Gilbert              43     Vice Chairman of the
                                      Board and Director        Adon Farms                  1995       October 2004
Stanley J. Burkholder          52     Director                  Burk-Lea Farms              2001       October 2002
Donald P. Cardarelli           46     Chief Executive Officer   Agway Inc.                  2001       October 2002
                                      and Director
John R. Ligo                   45     Director                  LiTerra                     2001       October 2004
Robert L. Marshman             63     Director                  Marshman Farms              1989       October 2002
Jeffrey B. Martin              43     Director                  Martin Farms                1997       October 2003
Samuel F. Minor                64     Director                  The Spring House            1987       October 2003
Matt E. Rogers                 44     Director                  Roberts Farm                2001       October 2004
Richard H. Skellie             58     Director                  Richland Farms              1999       October 2002
Carl D. Smith                  67     Director                  Hillacre Farms              1984       October 2002
Joel L. Wenger                 71     Director                  Weng-Lea Farms              1987       October 2002
Edwin C. Whitehead             61     Director                  White Ayr Farms             1994       October 2003
Dennis C. Wolff                50     Director                  Pencol Farms                2000       October 2003
William W. Young               49     Director                  Will-O-Crest Farm           1989       October 2004
</TABLE>
In addition, Andrew J. Gilbert, Samuel F. Minor, Edwin C. Whitehead, and William
W. Young are also  directors  of  Telmark  LLC,  Agway's  wholly  owned  leasing
subsidiary  that is a reporting  company  under the  Securities  Exchange Act of
1934, as amended. Gary K. Van Slyke, Chairman of the Board of Directors,  earned
$60,000 and Andrew J. Gilbert,  Vice Chairman of the Board of Directors,  earned
$46,000 for their  services  for the year ended June 30,  2002.  The Chairman is
paid at an annual  retainer  effective  rate of $60,000 and the Vice Chairman is
paid at an annual  retainer  effective  rate of  $45,000.  All  other  directors
receive a retainer of $25,000 per year, paid quarterly, for participation on the
Agway Inc.  Board. In addition,  Board  Committee  Chairmen earned an additional
annual  retainer  fee of $3,000 and each  director of Agway Inc.  who was also a
member of the Agway Insurance  Company or Telmark LLC Board of Directors  earned
an  additional  $400 or $1,000,  respectively;  a fee of $200 was also earned by
such directors for each day they were involved in business for the Company other
than the days where the Agway Inc.  Board of Directors was in session.  Expenses
of Board members  incurred in connection with Company business are reimbursed by
Agway.

                                       78

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS (CONTINUED)

Any  director of Agway may elect to defer  compensation  for  distribution  at a
later date.  Deferred  amounts earn interest and may be paid in a lump sum or in
annual installments over a period of up to 20 years.

A retirement  benefit plan for Board members requires annual payments to retired
or permanently  disabled  directors who served a minimum of six full years as of
December 31, 1995. The benefit is computed at $250 for each full year of service
and is paid to the director or surviving  spouse for a period equal to the years
served on the Board through December 31, 1995, the date the plan was terminated.
As of June 30, 2002, the present value of  accumulated  benefits under this plan
was approximately $429,200.

(1)   All correspondence in relation to operational matters should be addressed
      to D.P. Cardarelli, President  and  Chief  Executive  Officer, Agway Inc.,
      P.O. Box 4933, Syracuse, New York 13221.

                                       79

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS

The  executive  officers  of Agway  provide  operating  control to carry out the
policies  established  by the Board of Directors and serve at the  discretion of
the Board with no guarantee of employment.  As of July 1, 2002,  Mr.  Cardarelli
was the only full-time  executive  officer of Agway who is a member of the Board
of Directors.  The principal  occupation of all executive  officers of Agway for
the past five years, except for Mr. Lubetkin, has been as an officer or employee
of Agway. The following is a listing of these officers as of June 30, 2002:
<TABLE>
<CAPTION>
                                                                                                      Years Served
          Name                      Age      Office                                                    As Officer
-----------------------           ------     ------------------------------------------------------   ------------
<S>                                 <C>      <C>                                                           <C>
Donald P. Cardarelli                46       President and Chief Executive Officer                         11
Daniel J. Edinger                   51       President, Telmark LLC                                         4
John F. Feeney                      41       Corporate Controller                                           3
Christopher W. Fox                  54       Senior Vice President, General Counsel and Secretary           1
Stephen H. Hoefer                   47       Senior Vice President, Public Affairs                          8
Michael R. Hopsicker                37       Executive Vice President, Agriculture and Energy and
                                             President, Agway Energy Products LLC                           6
Roy S. Lubetkin                     45       President, Country Products Group                              1
Karen J. Ohliger                    40       Treasurer                                                      3
Peter J. O'Neill                    55       Senior Vice President, Finance & Control                      13
William L. Parker                   55       Vice President and Chief Information Officer                   7
Gerald R. Seeber                    55       Senior Vice President and Chief Administrative Officer
                                             and Chairman and President, Agway Insurance Group              4
G. Leslie Smith                     59       Vice President and Chief Investment Officer                    5
</TABLE>
More detailed biographies of each person listed above are set forth below:

Mr. Cardarelli served as General Manager and CEO from January 1995; as President
and CEO from  February  1995 to October  2001;  and as a  President  and CEO and
Director from October 2001 to present.

Mr. Edinger served as President and Director, Telmark LLC, from February 1988 to
present.

Mr. Feeney  served as Director,  Corporate  Reporting,  from July 1995 to August
1998; and as Corporate Controller from August 1998 to present.

Mr. Fox served as Associate  General Counsel,  from July 1996 to August 2000; as
Vice  President,  Deputy  General  Counsel  and  Secretary  from  August 2000 to
December 2000; and as Senior Vice President, General Counsel and Secretary, from
January 2001 to present.

Mr.  Hoefer served as Vice  President,  Public  Affairs,  from June 1994 to July
1997; and as Senior Vice President, Public Affairs, from July 1997 to present.

Mr. Hopsicker served as Director,  Financial Planning,  Finance & Control,  from
December  1994 to October  1995; as Director,  Business  Development,  ARS, from
October 1995 to April 1996; as Vice President, Agway Energy Products, from April
1996 to July 1997;  as President,  Agway Energy  Products LLC, from July 1997 to
October  2001;  and as  Executive  Vice  President,  Agriculture  and Energy and
President, Agway Energy Products LLC, from October 2001 to present.

Mr. Lubetkin  served as President,  Country  Products Group,  from April 2001 to
present.  Prior to joining  Agway,  Mr.  Lubetkin  served as  President,  Churny
Company (a manufacturer  and marketer of specialty foods and subsidiary of Kraft
Foods), from February 1995 to February 1999; and as Regional General Manager and
Executive  Vice  President,  Metz Baking Company (a commercial  manufacturer  of
fresh baked goods), from February 1999 to March 2000.


                                       80

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS (CONTINUED)

Ms.  Ohliger  served as Assistant  Treasurer from September 1992 to August 1998;
and as Treasurer from August 1998 to present.

Mr. O'Neill served as Senior Vice  President,  Finance & Control,  Treasurer and
Controller,  from  November 1994 to August 1998;  and as Senior Vice  President,
Finance & Control,  from August 1998 to present.  Mr. O'Neill is also a Director
of Telmark  LLC,  a wholly  owned  subsidiary  of Agway,  and of Planet  Polymer
Technologies,  Inc., of which Agway owns  approximately  33% of the  outstanding
equity.

Mr. Parker served as Vice President,  Information Services,  from September 1994
to May 1996; and as Vice President,  Chief Information Officer, from May 1996 to
present.

Mr. Seeber served as President, Agway Insurance Group, from October 1993 to July
1997; as Senior Vice  President,  Administrative  Services and President,  Agway
Insurance  Group,  from July 1997 to November 2000; and as Senior Vice President
and Chief  Administrative  Officer and Chairman and President,  Agway  Insurance
Group,  from November 2000 to August 28, 2002, at which time he left the Company
in connection with the sale of the Agway Insurance Company.

Ms. Smith served as Director,  Trust  Investments,  from September 1993 to April
1997;  and as Vice  President  and  Chief  Investment  Officer  from May 1997 to
present.




                                       81

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

The  following  table  sets forth  information  regarding  annual and  long-term
compensation  for services in all  capacities  to Agway for the years ended June
30, 2002 and 2001 and June 24, 2000 of those persons who served as (i) the chief
executive  officer  (CEO) at any time  during the year,  and (ii) the other four
most highly  compensated  executive  officers of Agway  (other than the CEO) who
were  serving  in such  capacity  at June 30,  2002  (collectively,  the  "Named
Executive Officers").
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------
                               Annual Compensation
                             -----------------------
Name and                                                                          ALL OTHER
Principal Position               YEAR         SALARY(1)       BONUS(1)(2)      COMPENSATION(3)(4)
-----------------------------   --------   --------------   ---------------    -----------------
<S>                              <C>          <C>              <C>                    <C>
Donald P. Cardarelli             2002         $560,040               $0               $21,504
   President and Chief           2001          547,521          332,008                26,059
   Executive Officer             2000          521,548                0                25,530


Michael R. Hopsicker             2002         $373,309         $420,000                $7,122
   Executive Vice                2001          255,008          210,750                 8,390
   President, Agriculture        2000          248,278           51,000                 9,168
   and Energy and
   President, Agway
   Energy Products LLC

Roy S. Lubetkin                  2002         $350,012         $437,567              $255,551
  President,                     2001           60,579           29,167               126,423
  Country Products Group         2000                -                -                     -

Daniel J. Edinger                2002         $230,022         $298,000                $6,831
   President                     2001          230,022          222,680                 8,721
   Telmark LLC                   2000          224,637          184,950                 8,548

Gerald R. Seeber                 2002         $335,020          $67,600               $12,597
   Senior Vice President         2001          276,743          161,003                14,587
   and Chief                     2000          228,288           78,250                15,602
   Administrative Officer
   and Chairman and
   President, Agway
   Insurance Group
</TABLE>
(1)  Salary and bonus are used in determining  the average  annual  compensation
     pursuant to the  Employees' Retirement Plan of Agway Inc. (see page 84-85).
     This amount includes all deferred  amounts under the Agway Inc.  Employees'
     401(k)  Thrift  Investment  Plan  and the  Agway  Inc.  Employees'  Benefit
     Equalization Plan.

(2)   Members  of the chief  executive  officer's  staff  and  other  executives
      designated   by  Agway's   chief   executive   officer  are  eligible  for
      participation in the Agway Inc.  management  incentive policy.  Contingent
      upon each individual's performance as determined by the President and CEO,
      Agway's  net  earnings,  and  other  performance  factors,  each  eligible
      executive  may be paid a bonus.  Bonuses are  reflected in the fiscal year
      earned regardless of payment date.

(3)   Amounts shown for all officers include contributions  made by Agway to the
      Agway  Inc. Employees'   401(k)Thrift  Investment  Plan,  the  Agway  Inc.
      Employees' Benefit Equalization Plan, the Agway Inc.  Employees'  Deferred
      Compensation  Program,   and  any   other   payments   not   appropriately
      characterized  as salary or bonus.  Additionally, includes premium payment
      on a supplemental disability insurance policy paid for by the Company.

(4)   There were no perquisites paid by Agway in excess of the lesser of $50,000
      or 10% of an executive's total salary and bonus  for  the years disclosed.
      Except for Mr.Lubetkin. In 2002 and 2001, amounts for Mr. Lubetkin include
      reimbursement  of  moving-related expenses incurred in connection with his
      relocation  to  Agway  Corporate  Headquarters, (DeWitt, New York).  Total
      expenses of $248,926 and $125,883 for 2002 and 2001 respectively,  include
      tax "gross ups"  of  approximately $119,236 and $64,000 for 2002 and 2001,
      respectively.

                                       82

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

CERTAIN AGREEMENTS WITH EXECUTIVES

Agway  does not have  formal  employment  contracts  with  its  named  executive
officers;  all officers are considered employees at will. In connection with the
announcement  by  Agway of its  intention  to  pursue a sale of Agway  Insurance
Company and Telmark,  retention incentive agreements were put into place for Mr.
Seeber,  and Mr. Edinger.  Mr. Seeber's  retention  agreement  provides that any
voluntary termination of his employment in connection with a sale of the Company
will be considered  termination  for "good reason,"  thereby  entitling him to a
severance  payment in an amount equal to one times base salary,  plus a pro rata
portion of his annual and multi-year incentive bonuses through the date of sale.
In addition,  if Mr.  Seeber  remains  employed as President of Agway  Insurance
through  the date of sale prior to  December  31,  2002 (or March 31,  2003 if a
definitive  agreement of sale has been executed prior to December 31, 2002),  he
will  receive an  incentive  bonus  equal to the greater of 2% of the gross sale
price for the company or $338,000. However, no amount will be paid if Mr. Seeber
continues his employment with Agway following the date of sale.

The current  retention  agreement with Mr.  Edinger  provides that any voluntary
termination of his  employment in connection  with a sale of the Company will be
considered  termination for "good reason," thereby  entitling him to a severance
payment in an amount equal to one times base salary,  plus a pro rata portion of
his annual bonus accrued  through the date of sale. In addition,  if Mr. Edinger
remains  employed as President of the Company during the period ended  September
30,  2003,  he will receive a retention  incentive  of up to $230,022,  with 50%
payable on March 31, 2003 and 50% payable on September  30,  2003.  In the event
Mr. Edinger is employed on the date of a sale of the Company to a third party on
or prior to September 30, 2003,  the unpaid  portion of the foregoing  incentive
will be  accelerated;  in addition,  Mr. Edinger will receive an incentive bonus
payment of $985,000 in  connection  with the sale,  less any amounts  payable in
connection with the sale or previously paid under the retention agreement.

The amount  payable to both Mr. Seeber and Mr.  Edinger are subject to reduction
to the extent  necessary to avoid adverse tax  consequences  under Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended.

Each of the  Company's  named  executive  officers have  incentive  compensation
arrangements  related  to the  achievement  of  specific  goals  established  in
advance,  which are  typically  tied to financial  performance  of a division or
subsidiary.  Those  incentive  arrangements  also provide that, in the event the
officer leaves for good reason, is terminated  without cause,  dies,  retires or
becomes  permanently  disabled (each as defined in the incentive  arrangements),
the officer will receive  100% (200% in the case of Mr.  Cardarelli  and 150% in
the case of Mr.  Lubetkin) of annual base  salary,  plus the pro rata payment of
the  incentive  amounts  accrued the relevant  date. In the event of a change of
control during the plan period,  the officer will receive 100% (200% in the case
of Mr.  Cardarelli and 150% in the case of Mr.  Lubetkin) of annual base salary,
plus payment of the entire incentive amount.  In addition,  the officers will be
eligible to benefit continuation and may also receive outplacement services.

                                       83
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN

The  Employees'  Retirement  Plan of  Agway  Inc.  (the  Retirement  Plan)  is a
non-contributory  defined  benefit  plan  covering  nearly  all  employees.  The
Retirement Plan was amended  effective July 1, 1998, to include a pension equity
formula,  as  well  as  to  recognize  incentive   compensation  as  pensionable
compensation  for all employees.  It provides for retirement  benefits up to the
limits provided by law, based upon average annual  compensation  received during
the  highest 36  consecutive  months in the last 10 years of service and credits
earned for years of service  with Agway.  Full credits are earned for service on
and after July 1,  1998,  and  credits  equal to  approximately  3/4 of the full
credits are earned for service prior to July 1, 1998.  The benefit is defined as
an account balance and can be paid out as a lump sum or an annuity.  An employee
is 100% vested in his benefit  after  completing 5 years of service or attaining
age 55 after completing one year of service.

The following  table shows  estimated  annual  benefits  payable upon retirement
using the credit  formula in effect for service  after June 27,  1998,  based on
certain 3-year average remuneration levels and years-of-service classifications.
Under  the  formula,  base  credits  are  applied  to the total  average  annual
compensation  and excess credits are applied to the average annual  compensation
in excess of one-half the Social  Security Wage Base. In developing  this table,
both base and  excess  credits  have been  applied to the total  average  annual
compensation.  Further,  the table was developed assuming a normal retirement at
age 65 and an annuity conversion factor based on a 6% interest rate.
<TABLE>
<CAPTION>
                               PENSION PLAN TABLE
                                  (NEW FORMULA)
                            YEARS OF CREDITED SERVICE
-------------------------------------------------------------------------------------------------------------------
 3-YEAR AVERAGE
  REMUNERATION         5              10          15              20             25           30            35
----------------  -----------  -----------   -------------   ------------   -----------   -----------  ------------
    <S>               <C>        <C>           <C>            <C>            <C>            <C>           <C>
    $300,000          $21,200    $ 40,300      $  59,400      $  77,100      $  94,800      $111,000      $127,300
     350,000           24,800      47,000         69,300         89,900        110,600       129,500       148,500
     400,000           28,300      53,700         79,200        102,800        126,400       148,000       169,700
     450,000           31,800      60,500         89,100        115,600        142,100       166,500       190,900
     500,000           35,400      67,200         99,000        128,500        157,900       185,100       212,200
     550,000           38,900      73,900        108,900        141,300        173,700       203,600       233,400
     600,000           42,400      80,600        118,800        154,200        189,500       222,100       254,600
     650,000           46,000      87,300        128,700        167,000        205,300       240,600       275,800
     700,000           49,500      94,100        138,600        179,900        221,100       259,100       297,000
     750,000           53,000     100,800        148,500        192,700        236,900       277,600       318,200
     800,000           56,600     107,500        158,400        205,600        252,700       296,100       339,500
     850,000           60,100     114,200        168,300        218,400        268,500       314,600       360,700
     900,000           63,600     120,900        178,200        231,300        284,300       333,100       381,900
     950,000           67,200     127,700        188,100        244,100        300,100       351,600       403,100
</TABLE>
Active  participants  are  entitled  to  receive no less than the value of their
benefits  accrued  under the old  Retirement  Plan benefit  formula which was in
effect through June 27, 1998. In addition,  most active  participants  whose age
plus  service  totaled 55 years or more as of July 1,  1998,  will  receive  the
greater of the benefit  determined under the new formula described above, or the
benefit determined had the old formula remained in effect (grandfathered).

The  old  Retirement   Plan  benefit   formula  is  based  upon  average  annual
compensation  received  during the highest 60 consecutive  months in the last 10
years of service and credited years of service.  Optional earlier retirement and
other  benefits are also  provided.  The old formula  pays a monthly  retirement
benefit based on the greater amount  calculated under two formulas.  The benefit
amount under one formula is subject to an offset for social security benefits.



                                       84

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN (CONTINUED)

The following  table shows  estimated  annual  benefits under the old Retirement
Plan formula in effect for service before July 1, 1998,  based on certain 5-year
average remuneration levels and years-of-service classifications.  The table was
developed  assuming a normal retirement at age 65 and does not reflect an offset
for up to 50% of  the  Social  Security  benefit,  subject  to  certain  minimum
benefits.
<TABLE>
<CAPTION>
                               PENSION PLAN TABLE
                                  (OLD FORMULA)
                            YEARS OF CREDITED SERVICE
-------------------------------------------------------------------------------------------------------------------
 3-YEAR AVERAGE
  REMUNERATION         5              10          15              20             25           30            35
----------------  -----------  -----------   -------------   ------------   -----------   -----------  ------------
    <S>              <C>        <C>            <C>             <C>            <C>           <C>           <C>
    $300,000         $24,000    $  48,000      $  72,000       $  96,000      $120,000      $144,000      $168,000
     350,000          28,000       56,000         84,000         112,000       140,000       168,000       196,000
     400,000          32,000       64,000         96,000         128,000       160,000       192,000       224,000
     450,000          36,000       72,000        108,000         144,000       180,000       216,000       252,000
     500,000          40,000       80,000        120,000         160,000       200,000       240,000       280,000
     550,000          44,000       88,000        132,000         176,000       220,000       264,000       308,000
     600,000          48,000       96,000        144,000         192,000       240,000       288,000       336,000
     650,000          52,000      104,000        156,000         208,000       260,000       312,000       364,000
     700,000          56,000      112,000        168,000         224,000       280,000       336,000       392,000
     750,000          60,000      120,000        180,000         240,000       300,000       360,000       420,000
     800,000          64,000      128,000        192,000         256,000       320,000       384,000       448,000
     850,000          68,000      136,000        204,000         272,000       340,000       408,000       476,000
     900,000          72,000      144,000        216,000         288,000       360,000       432,000       504,000
     950,000          76,000      152,000        228,000         304,000       380,000       456,000       532,000
</TABLE>
amounts  under the  Retirement  Plan may be subject to reduction  because of the
limitations imposed under the Internal Revenue Code. The extent of any reduction
in payments from the Retirement Plan will vary in individual  cases according to
circumstances  existing at the time pension  payments  commence.  The Agway Inc.
Employees'  Benefit  Equalization  Plan is a non-qualified  plan  established to
provide that the amount of any reduction in annual  pension  benefits  under the
Retirement  Plan will be paid by Agway Inc.  Under terms of an  amendment to the
Retirement  Plan,  adopted by the Agway Inc.  Board of Directors on May 1, 2002,
the Human  Resources  Committee of the Agway Inc. Board of Directors may, at its
discretion from time to time, direct  non-discriminatory  qualified supplemental
retirement  benefits  initially  restricted from payment by the Retirement Plan,
and  otherwise  payable from the Benefit  Equalization  Plan,  to be paid by the
Retirement  Plan.  As discussed in Note 6, on August 1, 2002,  subsequent to the
Company's  fiscal  year  ended  June 30,  2002,  the Human  Resources  Committee
approved a  non-discriminatory  benefit.  this  change will not impact the total
benefit payable to affected participants.

The benefits  shown are computed on a straight  line basis and do not reflect an
offset for up to 50% of the Social Security benefit,  subject to certain minimum
benefits.  Also,  the benefits are based on  continuing  the  Retirement  Plan's
benefit formulas as in effect on June 2002. as of June 2002, the named executive
officers  and their  respective  number of credited  years of service  under the
Retirement Plan were as follows: Messrs. Cardarelli, 17; Edinger, 23; Hopsicker,
13; Lubetkin, 1; and Seeber, 32. "Compensation" is defined as the regular salary
or wages,  as reported in the Salary column of the Summary  Compensation  Table,
which is paid to an employee for services rendered to Agway, including overtime,
vacation  pay, or special pay and bonuses as reported in the Bonus Column of the
Executive Compensation disclosure on page 82.




                                       85

<PAGE>



11.  EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

For a discussion of director compensation,  see Directors and Executive Officers
of the Registrant (Item 10) of this Form 10-K.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

Agway has a committee  of certain  directors,  including  the  Chairman and Vice
Chairman of the Board of Directors,  which determines the compensation of Donald
P.  Cardarelli,  President and CEO of Agway Inc. The  compensation  of the other
executive  officers of Agway Inc. is determined by Mr.  Cardarelli.  Salaries of
all executive  officers are included in the annual  operating  budget,  which is
approved by the entire Board of Directors of Agway Inc.

None of the executive  officers or directors  who  participate  in  establishing
compensation   policies  had  interlocks  reportable  under  Section  402(J)  of
Regulation S-K.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

None  of  the  executive  officers  of  Agway,  either  individually  or in  the
aggregate,  owns greater than 1% of any class of equity securities of Agway Inc.
or its  subsidiaries.  Agway  is an  agricultural  cooperative  and  each of its
members,  including each director, owns one share of $25 par value common stock.
None of the directors,  either  individually  or in the aggregate,  owns greater
than 1% of any class of equity security of Agway Inc. or its subsidiaries.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Agway's  members,  including  its  directors,  are customers of Agway and/or its
subsidiaries.  They  purchase  products  from  Agway  in the  normal  course  of
operating  their farm businesses and may sell certain  agricultural  products to
Agway at market  prices.  The prices,  terms,  and conditions of any purchase or
sale transaction are on the same basis for all of Agway's members.




                                       86

<PAGE>



                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
                                                                                                             PAGE
     (A) INDEX TO DOCUMENT LIST                                                                            LOCATION
                                                                                                           --------
         (1)  FINANCIAL STATEMENTS

              Among  the  responses  to this  Item  14(a)(1)  are the  following
              financial statements, which are included in Item 8 on page 39:

         <S>                                                                                                     <C>
              (i)   Report of Independent Accountants.........................................................   41

              (ii)  Consolidated Balance Sheets, June 30, 2002 and June 30, 2001 .............................   42

              (iii) Consolidated Statements of Operations, fiscal years ended June 30, 2002, June 30, 2001
                      and June 24, 2000.......................................................................   43

              (iv)  Consolidated Statements of Comprehensive Income, fiscal years ended June 30, 2002,
                      June 30, 2001 and June 24, 2000.........................................................   44

              (v)   Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended
                      June 30, 2002, June 30, 2001 and June 24, 2000..........................................   45

              (vi)  Consolidated Statements of Cash Flow, fiscal years ended June 30, 2002, June 30, 2001
                      and June 24, 2000.......................................................................   46

              (vii) Notes to Consolidated Financial Statements................................................   47

         (2)  FINANCIAL STATEMENT SCHEDULES

              (i)   The following schedules are presented:

                    Schedule I       -     Condensed Financial Information of Registrant, each of
                                           the three years in the period ended June 30, 2002..................   88

                    Schedule II      -     Valuation and Qualifying Accounts, fiscal years ended
                                           June 30, 2002, June 30, 2001 and June 24, 2000.....................   92
</TABLE>
Schedules  other  than  these  listed  above  have been  omitted as they are not
required,   inapplicable,  or  the  required  information  is  included  in  the
consolidated financial statements or notes thereto.



                                       87

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------
                          AGWAY INC. (PARENT CO. ONLY)
                            CONDENSED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                    JUNE 30,            JUNE 30,
                                                                                      2002                2001
                                                                                  -------------      --------------
Current assets:
<S>                                                                               <C>                <C>
     Cash.......................................................................  $      5,801       $       5,244
     Trade accounts receivable (including notes receivable of $1,426 and
         $0, respectively), less allowance for doubtful accounts of
         $2,526 and $1,823, respectively........................................        25,658              28,448
     Inventories................................................................        12,186              13,831
     Operating advance receivables from subsidiaries, net.......................        40,065              86,163
     Other current assets.......................................................        27,068              44,597
                                                                                  -------------      --------------
         Total current assets...................................................       110,778             178,283

Investments in subsidiaries.....................................................        72,905              65,390

Properties and equipment, net...................................................        45,161              54,133

Net pension asset...............................................................       223,649             229,678

Other assets  ..................................................................        15,215              21,811

Total assets and investments in discontinued operations.........................       314,446             363,806
                                                                                  -------------      --------------

         Total assets...........................................................  $    782,154       $     913,101
                                                                                  =============      ==============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable...........................................................  $     10,584       $      11,035
     Other current liabilities..................................................       125,954             153,061
                                                                                  -------------      --------------
         Total current liabilities..............................................       136,538             164,096

Other liabilities...............................................................       476,352             516,717

Total liabilities of discontinued operations....................................       105,162              62,958

Shareholders' equity............................................................        64,102             169,330
                                                                                  -------------      --------------

         Total liabilities and shareholders' equity.............................  $    782,154       $     913,101
                                                                                  =============      ==============
</TABLE>



                                       88

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------
                          AGWAY INC. (PARENT CO. ONLY)
            CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                                                 JUNE 30,         JUNE 30,           JUNE 24,
                                                                   2002             2001              2000
                                                              -------------     -------------     -------------
<S>                                                           <C>               <C>               <C>
Total net sales and revenues from product sales.............  $    281,086      $    305,999      $    311,720

Cost and expenses from:
     Products and plant operations..........................       251,560           271,930           276,290
     Selling, general and administrative activities.........        41,198            52,416            45,489
                                                              --------------    -------------     -------------
         Total operating costs and expenses.................       292,758           324,346           321,779
                                                              --------------    -------------     -------------

Operating loss..............................................       (11,672)          (18,347)          (10,059)
Interest expense, net.......................................       (16,706)          (13,344)           (6,298)
Other income, net...........................................          (243)              477             9,690
                                                              --------------    -------------     -------------
Earnings (loss) from operations before income taxes
     and equity in earnings of subsidiaries ................       (28,621)          (31,214)           (6,667)
Income tax (expense) benefit ...............................         3,746            16,518             6,064
                                                              --------------    -------------     -------------
Income (loss) before equity in earnings of subsidiaries.....       (24,875)          (14,696)             (603)
Equity in earnings (loss) of unconsolidated subsidiaries....         7,324             5,193             5,653
                                                              --------------    -------------     -------------
Earnings from continuing operations.........................       (17,551)           (9,503)            5,050
Discontinued operations:
     Earnings (Loss)from operations, net of tax expense
         (benefit) of $2,168, $3,890 and $(4,625),
          respectively......................................         4,740             1,633           (12,085)
     Loss on disposal, net of tax (benefit) of
         $(17,800), $0 and $(1,278), respectively...........       (85,436)                0            (2,342)
                                                              --------------    -------------     -------------
Earnings (Loss) from discontinued operations................       (80,696)            1,633           (14,427)

Loss before cumulative effect of an accounting change.......       (98,247)           (7,870)           (9,377)
Cumulative effect of accounting change, net of tax
     benefit of $723........................................             0            (1,057)                0
                                                              --------------    -------------     -------------
Net earnings (loss).........................................       (98,247)           (8,927)           (9,377)
Retained earnings - beginning of year.......................       129,343           141,221           153,763
Dividends...................................................        (2,659)           (2,951)           (3,165)
                                                              --------------    -------------     -------------
Retained earnings - end of year.............................  $     28,437      $    129,343      $    141,221
                                                              ==============    =============     =============
</TABLE>


                                       89

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------
                          AGWAY INC. (PARENT CO. ONLY)
                        CONDENSED STATEMENTS OF CASH FLOW
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                                                 JUNE 30,           JUNE 30,            JUNE 24,
                                                                   2002               2001                2000
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net cash flows from (used in) continuing operations........   $     53,600        $    (38,271)      $     (28,785)
Net cash flows from (used in) discontinued operations......          1,502              33,006              11,685
                                                              -------------       -------------      --------------
Net cash flows from (used in) operating activities.........         55,102              (5,265)            (17,100)
Cash flows from investing activities:
     Purchases of property, plant and equipment............         (1,526)             (4,303)            (13,345)
     Proceeds from disposal of business....................              0                   0               2,615
     Disposition of properties and equipment...............          6,071               6,473                 229
     Other.................................................           (385)                600                (749)
                                                              -------------       -------------      --------------
Net cash flows used in investing activities................          4,160               2,770             (11,250)
Cash flows from financing activities:
     Net change in short-term notes payable................        (27,162)            (40,558)             63,400
     Proceeds from sale of subordinated debt...............         79,200             179,729             124,676
     Redemption of subordinated debt.......................       (103,172)           (167,820)           (135,869)
     Payments on capitalized leases........................         (5,254)             12,153               2,259
     Cash dividends paid...................................         (2,874)                  0              (3,275)
     Other.................................................              0                (150)             (3,700)
                                                              -------------       -------------      --------------
Net cash flows used in financing activities................        (59,262)            (16,646)             47,491
Net increase in cash and equivalents.......................              0             (19,141)             19,141
Cash and equivalents at beginning of year..................              0              19,141                   0
                                                              -------------       -------------      --------------
Cash and equivalents at end of year........................   $          0        $          0       $      19,141
                                                              =============       =============      ==============
</TABLE>



                                       90

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------
                          AGWAY INC. (PARENT CO. ONLY)
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                             (THOUSANDS OF DOLLARS)


BASIS OF PRESENTATION
In the preceding  condensed  financial  statements,  which  represent the parent
company only,  Agway's  investment in subsidiaries is stated at cost plus equity
in undistributed  earnings of subsidiaries since the date of acquisition.  These
financial  statements  should be read in conjunction  with Agway's  consolidated
financial statements.

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

INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                                    JUNE 2002           JUNE 2001
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Finished goods..................................................................  $      1,029       $       1,871
Raw materials...................................................................        10,086              10,690
Supplies........................................................................         1,071               1,270
                                                                                  -------------      --------------
                                                                                  $     12,186       $      13,831
                                                                                  =============      ==============
</TABLE>
RELATED PARTY TRANSACTIONS
Transactions  between  Agway Inc.  and its  unconsolidated  subsidiaries  are as
follows:
<TABLE>
<CAPTION>
                                                                               YEARS ENDED
                                                              ----------------------------------------------
                                                                JUNE 2002        JUNE 2001       JUNE 2000
                                                              ------------     -------------    ------------
<S>                                                           <C>              <C>              <C>
Net sales and revenues......................................  $       222      $          0     $       198
Product and plant operation expenses........................        1,244             2,837           2,873
Recovery of selling, general and administrative expenses....        7,818             8,026          12,778
Interest income, net........................................  $    (4,028)     $     (5,520)    $    (6,624)
</TABLE>
CONTINGENCIES
Agway is also subject to various  investigations,  claims, and legal proceedings
covering  a wide  range of  matters  that  arise in the  ordinary  course of its
business activities.  Each of these matters is subject to various uncertainties,
and it is possible  that some of these  matters may be resolved  unfavorably  to
Agway. Agway has established  accruals for matters for which payment is probable
and amounts  reasonably  estimable.  Management  believes any liability that may
ultimately  result  from the  resolution  of these  matters in excess of amounts
provided  under the above stated policy will not have a material  adverse effect
on the results of operations, financial position, or liquidity of Agway.



                                       91

<PAGE>

ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
                   COL. A                              COL. B              COL. C              COL. D       COL. E
---------------------------------------------------------------------------------------------------------------------
                                                                          ADDITIONS
                                                       BALANCE      CHARGED TO  CHARGED TO                  BALANCE
                                                     AT BEGINNING    COSTS AND    OTHER                      AT END
                 DESCRIPTION                          OF PERIOD      EXPENSES    ACCOUNTS     DEDUCTIONS   OF PERIOD
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 30, 2002
---------------------------------------------------------------------------------------------------------------------
Reserves deducted in the balance sheet from assets to which they apply:
     <S>                                             <C>            <C>           <C>         <C>           <C>
     Allowance for doubtful notes and accounts
         receivable (current)......................  $   7,355      $   1,532     $      0    $  4,164(a)   $   4,723
                                                     =========      =========     ========    ===========   =========
     Reserve for other security investments........  $     871      $       0     $      0    $    32       $     839
                                                     =========      =========     ========    ===========   =========
     Reserve for obsolete and slow moving inventory  $     644      $      85     $      0    $   437       $     292
                                                     =========      =========     ========    ===========   =========
     Surplus property reserve......................  $     174      $       0     $      0    $     0       $     174
                                                     =========      =========     ========    ===========   =========
     Income tax valuation allowance-continuing
         operations................................  $   1,514      $   7,319     $      0    $     0       $   8,832
                                                     =========      =========     ========    ===========   =========
     Income tax valuation allowance-discontinued
         operations................................  $       0      $  16,417     $      0    $     0       $  16,417
                                                     =========      =========     ========    ===========   =========
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 30, 2001
-------------------------------------------------------------------------------------------------------------------

Reserves deducted in the balance sheet from assets to which they apply:
     <S>                                             <C>            <C>           <C>         <C>           <C>
     Allowance for doubtful notes and accounts
         receivable (current)....................    $   5,222      $   5,480     $      0    $  3,347(a)   $   7,355
                                                     =========      =========     ========    ===========   =========
     Reserve for other security investments......    $   1,427      $     509     $      0    $  1,065      $     871
                                                     =========      =========     ========    ===========   =========
     Reserve for obsolete and slow moving inventory  $     428      $     343     $      0    $    127      $     644
                                                     =========      =========     ========    ===========   =========
     Surplus property reserve....................    $     623      $       0     $      0    $    449(b)   $     174
                                                     =========      =========     ========    ===========   =========
     Income tax valuation allowance-continuing
         operations..............................    $       0      $   1,514     $      0    $     0       $   1,514
                                                     =========      =========     ========    ===========   =========
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 24, 2000
-------------------------------------------------------------------------------------------------------------------

Reserves deducted in the balance sheet from assets to which they apply:
     <S>                                             <C>            <C>           <C>        <C>            <C>
     Allowance for doubtful notes and accounts
         receivable (current)......................  $   4,317      $   1,658     $      0   $     753(a)   $   5,222
                                                     =========      =========     ========   ============   =========
     Reserve for other security investments........  $   1,010      $     417     $      0   $       0      $   1,427
                                                     =========      =========     ========   ============   =========
     Reserve for obsolete and slow moving inventory  $     683      $      13     $      0   $     268      $     428
                                                     =========      =========     ========   ============   =========
     Surplus property reserve......................  $     623      $       0     $      0   $      0       $     623
                                                     =========      =========     ========   ============   =========
</TABLE>
(a)  Accounts charged off, net of recoveries.
(b)  Locations sold.


                                       92

<PAGE>

ITEM 14(B).       REPORTS ON FORM 8-K

                  AGWAY FILED  REPORTS ON FORM 8-K DURING THE FOURTH  QUARTER OF
                  THE COMPANY'S FISCAL YEAR ENDED JUNE 30, 2002, AS FOLLOWS:

                  May 15, 2002
                  ------------
                  To provide  restated audited  financial  statements as of June
                  30,  2001 and June 24,  2000 and for each of the three  fiscal
                  years in the  period  ended  June 30,  2001 that  reflect  the
                  businesses to be divested, as previously disclosed on March 6,
                  2002, as discontinued operations.

                  May 23, 2002
                  ------------
                  To provide an update on the divestment process. The process to
                  sell Agway Insurance,  Agronomy and Seedway is moving along on
                  schedule.  With respect to the sale of Telmark,  after lengthy
                  negotiations, Agway and a potential buyer were unable to reach
                  final  agreement  on a sale of  Telmark.  At this  stage,  the
                  impact of the delay in the sale of  Telmark  on our  liquidity
                  cannot be predicted with certainty.

                  June 17, 2002
                  -------------
                  To  announce  that  effective  June  14,  2002,  the  Board of
                  Directors of Agway Inc.  determined  to suspend the  Company's
                  historic  practice of  repurchasing,  at face value,  eligible
                  Agway  Inc.  subordinated  debentures  prior to  maturity  and
                  preferred stock when presented for repurchase. We additionally
                  announced  several  events that have  occurred  recently  that
                  significantly  impact the Company's business prospects and our
                  ability  to  meet  our  payment  obligations  relating  to the
                  securities.  Finally,  we announced  that two of the Company's
                  directors,  John R.  Cook  and  Thomas  Hardy,  have  resigned
                  effective  June 12, 2002 and did not express any  disagreement
                  with the Company on any matter.  In  addition,  the  Company's
                  Board of  Directors  decided  to reduce  the size of the Board
                  from seventeen  directors to twelve directors  effective as of
                  the date of the Company's 2002 annual meeting..

                  AGWAY FILED REPORTS ON FORM 8-K SUBSEQUENTLY TO JUNE 30, 2002,
                  BUT PRIOR TO FILING OF THIS FORM 10-K DATED JUNE 30, 2002,  AS
                  FOLLOWS:

                  July 31, 2002
                  -------------
                  To announce that Agway Inc. and GROWMARK, Inc. signed a Letter
                  of  Intent  that  provides  GROWMARK  with exclusive rights to
                  negotiate  for  the  possible  acquisition of Agway's Agronomy
                  and Seedway businesses and related assets.

                  September 4, 2002
                  -----------------
                  On August 28, 2002, Agway announced the completion of the sale
                  of its wholly  owned  insurance  subsidiary,  Agway  Insurance
                  Company, to Indiana Farm Bureau Insurance Companies.

                  September 13, 2002
                  ------------------
                  To announce  that CHS  Cooperatives  and Agway Inc.  announced
                  that  they  signed a  definitive  agreement  under  which  the
                  Harvest States Division of CHS will acquire  Agway's  Grandin,
                  N.D.- based Sunflower business.

                                       93


<PAGE>



ITEM 14(C)(1).    EXHIBITS  REQUIRED  BY  SECURITIES   AND EXCHANGE  COMMISSION
                  REGULATION S-K

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

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

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

                  ARTICLES OF INCORPORATION AND BY-LAWS

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

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

                  3(c)   - Agway Inc.  By-Laws,  as  amended  May 2, 2002, filed
                           by reference to Exhibit 3(d) of Form 10-Q as of March
                           31, 2002, dated May 15, 2002.

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

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

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

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

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

                                       94


<PAGE>



ITEM 14(C)(1).    EXHIBITS  REQUIRED  BY  SECURITIES  AND  EXCHANGE  COMMISSION
                  REGULATION S-K

                  INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
                  INDENTURES (CONTINUED)

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

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

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

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

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

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

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

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

                                     95



<PAGE>



ITEM 14(C)(1).    EXHIBITS  REQUIRED  BY  SECURITIES  AND  EXCHANGE  COMMISSION
                  REGULATION S-K

                  MATERIAL CONTRACTS

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

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

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

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

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

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

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

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

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

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

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

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

                  ARTICLES OF INCORPORATION AND BY-LAWS

                   3(d) - Restated Certificate of Incorporation dated October 3,
1989, filed herewith.

                  MATERIAL CONTRACTS

                  10(l) - Consent  and  Fourth  Amendment  to Credit  Agreement,
dated July 30, 2002, filed herewith.

                  10(m) - Consent  and  Fifth  Amendment  to  Credit  Agreement,
                          dated September 13, 2002, filed herewith.

                  10(n) - Directors  -  Deferred  Compensation  Agreement, filed
herewith.

                  10(o) - Board  Officers  -  Deferred  Compensation  Agreement,
filed herewith.

                                       96

<PAGE>



ITEM 14(C)(1).  EXHIBITS   REQUIRED  BY  SECURITIES  AND  EXCHANGE  COMMISSION
                REGULATION S-K

                  MATERIAL CONTRACTS (CONTINUED)

                  10(p)  - Incentive plans for period beginning July 1, 2002 for
                           Mr. Donald P. Cardarelli, filed  herewith.

                  10(q)  - Incentive plans for period beginning July 1, 2003 for
                           Mr. Donald P. Cardarelli, filed herewith.

                  10(r)  - Incentive plans for period beginning July 1, 2002 for
                           Mr. Michael R. Hopsicker, filed herewith.

                  10(s)  - Incentive plans for period beginning July 1, 2003 for
                           Mr. Michael R. Hopsicker, filed herewith.

                  10(t)  - Letter dated  October 26, 2001 between Mr. Michael R.
                           Hopsicker   and   Mr.  Donald  P. Cardarelli,  filed
                           herewith.

                  10(u)  - Letter dated April 20, 2001 between Mr. Roy Lubetkin
                           and Mr. Donald P. Cardarelli, filed herewith.

                  10(v)  - Indemnification  agreement  dated  April  30,  2001
                           between Agway and Mr. Roy Lubetkin, filed herewith.

                  10(w) - Incentive plans for period  beginning July 1, 2002 for
                          Mr. Roy Lubetkin, filed herewith.

                  10(x) - Incentive plans for period  beginning July 1, 2003 for
                          Mr. Roy Lubetkin, filed herewith.

                  10(y) - Incentive plans for period  beginning July 1, 2002 for
                          Mr. Dan Edinger, filed herewith.

                  10(z) - Incentive plans for period  beginning July 1, 2003 for
                          Mr. Dan Edinger, filed herewith.

                  10(aa)- Letter  dated  September 26, 2002 to Mr. D. J. Edinger
                          from  Mr. Donald  P. Cardarelli  concerning  stay pay,
                          filed herewith.

                  10(ab)- Incentive  plans for period beginning July 1, 2002 for
                          Mr. Jerry Seeber, filed herewith.

                  10(ac)- Letter dated January 14, 2002 to Mr. G. R. Seeber from
                          Mr. Donald P.  Cardarelli  concerning  stay pay, filed
                          herewith.

                  10(ad)- Stock Purchase Agreement Between Agway Inc. and United
                          Farm  Family  Mutual Insurance Company, dated June 14,
                          2002, filed herewith.

                  10(ae)- Asset  Purchase  Agreement  By and Between Agway, Inc.
                          and  Cenex  Harvest  States  Cooperatives, dated as of
                          September 10, 2002, filed herewith.

                  12    - STATEMENT RE COMPUTATION OF RATIOS

                  21    - SUBSIDIARIES OF THE REGISTRANT

                  23    - CONSENTS OF EXPERTS AND COUNSEL

                  99    - SARBANES-OXLEY ACT OF 2002 CERTIFICATIONS
                          - - 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                          - - 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER

                                     97

<PAGE>




                                   SIGNATURES

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

                                   AGWAY INC.
                                  (Registrant)

                                   By     /s/ Donald P. Cardarelli
                                      -----------------------------------------
                                             DONALD P. CARDARELLI
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                                AND DIRECTOR
                                          (PRINCIPAL EXECUTIVE OFFICER)


                                   Date       September 27, 2002
                                        ----------------------------------------

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
                      SIGNATURE                        TITLE                                           DATE
                      ---------                        -----                                           ----


          <S>                                          <C>                                       <C>
           /s/ Donald P. Cardarelli                    President and Chief Executive             September 27, 2002
            (DONALD P. CARDARELLI)                         Officer and Director
                                                           (Principal Executive Officer)



             /s/ Peter J. O'Neill                      Senior Vice President,                    September 27, 2002
              (PETER J. O'NEILL)                           Finance & Control
                                                           (Principal Financial Officer
                                                           & Principal Accounting Officer)



             /s/ Gary K. Van Slyke                     Chairman of the                           September 27, 2002
              (GARY K. VAN SLYKE)                          Board and Director



             /s/ Andrew J. Gilbert                     Vice Chairman of the                      September 27, 2002
              (ANDREW J. GILBERT)                          Board and Director



           /s/ Stanley J. Burkholder                   Director                                  September 27, 2002
           (STANLEY J. BURKHOLDER)



               /s/ John R. Ligo                        Director                                  September 27, 2002
                (JOHN R. LIGO)


</TABLE>

                                       98


<PAGE>
<TABLE>
<CAPTION>


                   SIGNATURE                           TITLE                                           DATE
                   ---------                           ------                                          ----


            <S>                                        <C>                                       <C>
            /s/ Robert L. Marshman                     Director                                  September 27, 2002
             (ROBERT L. MARSHMAN)



             /s/ Jeffrey B. Martin                     Director                                  September 27, 2002
              (JEFFREY B. MARTIN)



              /s/ Samuel F. Minor                      Director                                  September 27, 2002
               (SAMUEL F. MINOR)



              /s/ Matt E. Rogers                       Director                                  September 27, 2002
               (MATT E. ROGERS)



            /s/ Richard H. Skellie                     Director                                  September 27, 2002
             (RICHARD H. SKELLIE)



               /s/ Carl D. Smith                       Director                                  September 27, 2002
                (CARL D. SMITH)



              /s/ Joel L. Wenger                       Director                                  September 27, 2002
               (JOEL L. WENGER)



            /s/ Edwin C. Whitehead                     Director                                  September 27, 2002
             (EDWIN C. WHITEHEAD)



              /s/ Dennis C. Wolff                      Director                                  September 27, 2002
               (DENNIS C. WOLFF)



             /s/ William W. Young                      Director                                  September 27, 2002
              (WILLIAM W. YOUNG)
</TABLE>

                                       99

<PAGE>



               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14
               --------------------------------------------------

                     AND 15D-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------


I, Donald P. Cardarelli, certify that:

1.   I have reviewed this annual report on Form 10-K of Agway Inc.;

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

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



Date:    September 27, 2002
         --------------------------------------------

         /s/ Donald P. Cardarelli
         --------------------------------------------
         Donald P. Cardarelli
         President and Chief Executive Officer



                                       100

<PAGE>



               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13A-14
               --------------------------------------------------

                     AND 15D-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------


I, Peter J. O'Neill, certify that:

1.   I have reviewed this annual report on Form 10-K of Agway Inc.;

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

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



Date:    September 27, 2002
         --------------------------------------------

         /s/ Peter J. O'Neill
         --------------------------------------------
         Peter J. O'Neill
         Senior Vice President, Finance & Control





                                       101

<PAGE>


SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

As of the date of this filing on Form 10-K, the Registrant has not had available
to be sent to security  holders the annual report for fiscal year ended June 30,
2002. Subsequent to the filing of the annual report on Form 10-K, the Registrant
shall furnish security holders and the Commission with the annual report.






                                       102

<PAGE>


<TABLE>
<CAPTION>
                                    AGWAY INC.
                                    FORM 10-K
                                    JUNE 2002
                                  EXHIBIT INDEX

Exhibit
Number       Title
-------      -----
<S>          <C>
( 3)         Articles of incorporation and by-laws
             (d)  -   Restated articles of incorporation, dated as of October 3, 1989

(10)         Material contracts
             (l)  -   Consent and Fourth Amendment to Credit Agreement, dated July 30, 2002
             (m)  -   Consent and Fifth Amendment to Credit Agreement, dated  September 13, 2002
             (n)  -   Directors - Deferred Compensation Agreement
             (o)  -   Board Officers - Deferred Compensation Agreement
             (p)  -   Incentive plans for period beginning July 1, 2002 for Mr. Donald P. Cardarelli
             (q)  -   Incentive plans for period beginning July 1, 2003 for Mr. Donald P. Cardarelli
             (r)  -   Incentive plans for period beginning July 1, 2002 for Mr. Michael R. Hopsicker
             (s)  -   Incentive plans for period beginning July 1, 2003 for Mr. Michael R. Hopsicker
             (t)  -   Letter dated October 26, 2001 between Mr. Michael R. Hopsicker and Mr. Donald P. Cardarelli
             (u)  -   Letter dated April 20, 2001 between Mr. Roy Lubetkin and Mr. Donald P. Cardarelli
             (v)  -   Indemnification agreement dated April 30, 2001 between Agway and Mr. Roy Lubetkin
             (w)  -   Incentive plans for period beginning July 1, 2002 for Mr. Roy Lubetkin
             (x)  -   Incentive plans for period beginning July 1, 2003 for Mr. Roy Lubetkin
             (y)  -   Incentive plans for period beginning July 1, 2002 for Mr. Dan Edinger
             (z)  -   Incentive plans for period beginning July 1, 2003 for Mr. Dan Edinger
             (aa) -   Letter dated September 26, 2002 to Mr. D. J. Edinger from Mr. Donald P. Cardarelli concerning
                      stay pay
             (ab) -   Incentive plans for period beginning July 1, 2002 for Mr. Jerry Seeber
             (ac) -   Letter dated January 14, 2002 to Mr. G. R. Seeber from Mr. Donald P. Cardarelli concerning
                      stay pay
             (ad) -   Stock Purchase Agreement Between Agway Inc. and United Farm Family Mutual Insurance
                      Company, dated June 14, 2002
             (ae) -   Asset Purchase Agreement By and Between Agway, Inc. and Cenex Harvest States
                      Cooperatives, dated as of September 10, 2002

(12)         Statement re computation of ratios

(21)         Subsidiaries of the registrant

(23)         Consents of experts and counsel

(99)         Sarbanes-Oxley Act of 2002 Certifications
             - -  99.1 Certification of Chief Executive Officer
             - -  99.2 Certification of Chief Financial Officer
</TABLE>
Note:        The annual report on Form 11-K for the year ended June 30, 2002 of
             Agway Inc. Employees' 401(k)  Thrift Investment Plan will be  filed
             separately at a later date.