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<SEC-DOCUMENT>0001021408-01-511463.txt : 20020413
<SEC-HEADER>0001021408-01-511463.hdr.sgml : 20020413
ACCESSION NUMBER:		0001021408-01-511463
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011217

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			APPLIED EXTRUSION TECHNOLOGIES INC /DE
		CENTRAL INDEX KEY:			0000874389
		STANDARD INDUSTRIAL CLASSIFICATION:	UNSUPPORTED PLASTICS FILM & SHEET [3081]
		IRS NUMBER:				510295865
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-19188
		FILM NUMBER:		1815680

	BUSINESS ADDRESS:	
		STREET 1:		3 CENTENNIAL DRIVE
		CITY:			PEABODY
		STATE:			MA
		ZIP:			01960
		BUSINESS PHONE:		9785381500

	MAIL ADDRESS:	
		STREET 1:		3 CENTENNIAL DR
		CITY:			PEABODY
		STATE:			MA
		ZIP:			01960
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K DATED 09/30/01
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934 (the "Act")
                  For the fiscal year ended September 30, 2001

                           Commission File No. 0-19188

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                     51-0295865
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)

                               3 Centennial Drive
                          Peabody, Massachusetts 01960
                                 (978) 538-1500
    (Address, including zip code and telephone number, of principal executive
                                    offices)


Securities registered pursuant to Section 12(b) of the Act:
                                                    Name of Each Exchange
          Title of Each Class                        On Which Registered
          -------------------                        --------------------

                 None                                        None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock ($.01 Par Value)
                     Junior Preferred Stock Purchase Rights
                               (Title of Classes)

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

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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K [_].

The aggregate market value of the Registrant's voting stock held by
non-affiliates was approximately $94,960,069 on December 3, 2001, based on the
closing sales price of the Registrant's common stock, $.01 par value (the
"Common Stock"), as reported on the NASDAQ National Market System as of such
date.

The number of shares of the Registrant's Common Stock outstanding as of December
3, 2001 was 12,797,853 shares. The number of shares of the Registrant's Junior
Preferred Stock Purchase Rights outstanding as of December 3, 2001 was
12,797,853 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference:

Portions of the registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the 2002 Annual Meeting of Stockholders
are incorporated by reference into Part III.

<PAGE>

                                 FORM 10-K INDEX

<TABLE>
<S>                                                                                               <C>
                                               PART I

Item 1.       Business ......................................................................      1

Item 2.       Properties ....................................................................      9

Item 3.       Legal Proceedings .............................................................      9

Item 4.       Submission of Matters to a Vote of Security Holders ...........................      9

Item 4a.      Executive Officers ............................................................     10



                                              PART II

Item 5.       Market for the Registrant's Common Equity and Related Stockholder Matters .....     12

Item 6.       Selected Financial Data .......................................................     13

Item 7.       Management's Discussion and Analysis of Financial Condition
              and Results of Operation ......................................................     14

Item 7a.      Quantitative and Qualitative Disclosures about Market Risk ....................     17

Item 8.       Financial Statements and Supplementary Data ...................................     18

Item 9.       Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure ......................................................     18



                                              PART III

Item 10.      Directors and Executive Officers of the Registrant ............................     19

Item 11.      Executive Compensation ........................................................     20

Item 12.      Security Ownership of Certain Beneficial Owners and Management ................     20

Item 13.      Certain Relationships and Related Transactions ................................     20



                                              PART IV

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8K ................     21

              Signatures ....................................................................     24
</TABLE>

                                        i



<PAGE>

                                     PART I

ITEM 1.  BUSINESS

General

Applied Extrusion Technologies, Inc. ("AET" or the "Company") is the largest
North American manufacturer and seller of highly specialized oriented
polypropylene films, or OPP films, which are used primarily in consumer product
labeling, flexible packaging, overwrap and industrial applications. AET has a
leading position in most of the major high-end OPP films end-use product
categories in North America. In addition, the Company believes that it is the
number one or two supplier in North America of OPP films used for labels on
bottles and cans, packaging for confectionery and snack foods, and overwrap for
a number of other consumer products. AET estimates that it currently has the
leading share, at approximately 25 percent, of North American OPP films capacity
and approximately 30 percent of the total sales in this market based on volumes
for 2000, and is one of the largest producers of OPP films worldwide.

AET offers one of the most extensive product lines in the OPP films industry
ranging from high-margin, specialized labels and high barrier films to basic
heat sealable lower barrier films. With an experienced technology group and
state-of-the-art production facilities, the Company works directly with its
customers to develop innovative products to meet their specialized requirements.
AET believes that its combination of leadership position, innovative
capabilities, strong sales force and highly efficient manufacturing will allow
it to achieve future growth and profitability.

End users of AET's films are consumer product companies whose labels and
packages require special attributes such as vivid graphics, exceptional clarity
and moisture barriers to preserve freshness. Our OPP films product line is
classified into four categories - labels, packaging, overwrap and industrial.
Our labels are used on soft drink containers for Coca-Cola(R) and Pepsi-Cola(R).
Our packaging applications are used for food products produced by Frito-Lay(R),
Nabisco(R), Kellogg's(R) and Hershey(R) Foods. Our overwrap products are used by
companies such as Sony(R) and Lipton(R).

Business Strategy

AET's business strategy is to maintain a leadership position in the OPP films
industry and maximize profitability by continuing to:

Focus on Developing Innovative Products

AET intends to continue its extensive research and development efforts and
consistent investment in product and process technologies to create superior
films for both existing packaging and labeling applications and to take
advantage of the industry trend to substitute OPP films for other label and
packaging materials. For example, the Company is developing new films for
pressure sensitive and cut-and-stack labels to be used on products such as beer
and water bottles, food cans, and other products that have traditionally used
other packaging materials. It is also starting to produce films for lamination
to paperboard containers in order to provide enhanced graphic and holographic
capabilities, and has developed films used to package fresh-cut produce that
increase shelf life by allowing vegetables to "breathe" at controlled rates.
Innovations such as these, along with the cost competitive nature of
polypropylene compared to other plastics, have historically driven, and will
continue to drive, the substitution of OPP films for materials ranging from
cellophane, polyester and polyethylene films to paper and printing on cans,
significantly expanding the demand for OPP films.

                                        1

<PAGE>

Increase Our High-End Product Mix

AET has historically focused on the identification and development of innovative
products that it believes have higher margins. As a result, the majority of the
Company's sales volume has historically been in high-end, high margin markets
with only a minor portion of sales volume in low margin, sealable film products.
With the rapid expansion of our capacity over the past four years, sales of
these low-margin film products have increased to nearly a quarter of sales
volume, as the Company focused on minimizing the price impact of its capacity
expansion efforts in the high end markets. Notwithstanding this, during this
same period, AET's high-end sales grew at a nearly seven percent compounded
annual growth rate. This growth rate, which exceeds the over six percent
compounded annual growth rate experienced by the industry historically, results
from the focus on continuing to expand these high-end applications. The
Company's current strategy is to continue to grow sales in high-end products
without impairing market pricing, and thereby increase the proportion of total
sales represented by these higher margin products.

Take Advantage of Tightening Capacity Utilization

Over the past several years, the North American OPP films industry has
experienced one of its lowest capacity utilization levels and most competitive
pricing dynamics of its over 40-year history. The Company believes that industry
capacity utilization levels are in the process of improving as the growth rate
in demand for OPP films outpaces the announced capacity additions.

As announced in July 2001, the Company acquired certain assets of QPF, LLC, the
OPP films business of Hood Companies, for approximately $22,000,000. On June 29,
2001, Hood Companies permanently closed the QPF production facility, which had
approximately 40 million pounds of OPP film production capacity, thereby further
tightening industry capacity utilization. During the fourth fiscal quarter of
2001 the Company began to sell the inventory acquired from QPF, and plans to
sell the remainder of the inventory over the next six months. We expect the
benefits in operating results from the QPF acquisition to become more evident in
the second half of fiscal 2002.

Maximize Operating Efficiencies and Reduce Costs

AET intends to continue to seek opportunities to reduce costs and enhance
productivity. Since 1995, it has nearly doubled its capacity and now
approximately 140 million pounds, or more than half of its total capacity, is on
new eight and ten meter production lines. The efficiency of these newer and
larger lines is significantly greater than the older lines prevalent in the
industry, manufacturing up to four times as much OPP film without a
proportionate increase in the number of operators, power or other fixed costs.
Since the beginning of fiscal 1998, the Company has pursued a comprehensive
program to improve process and production efficiencies in terms of line speeds,
equipment up-time and material yields. As a result of this new and efficient
capacity and these process improvement programs, a 30 percent reduction in
non-material unit production costs has been achieved since the beginning of
fiscal 1998.

Focus on Industry Leadership

AET has become the largest OPP films manufacturer and seller in North America
and has a leading position in most major high-end OPP films end-use product
categories in North America. It has accomplished this by assembling what the
Company believes is the industry's most experienced and technologically
competent sales force, by developing strong customer and end-user relationships,
and by establishing a reputation for innovative new product development. The
Company's strategy is to utilize this position and these relationships to
continue to identify and develop new value-added packaging, labeling or other
applications for OPP films to meet the complex requirements of its customers.
AET also intends to continue to strengthen relationships with its customers by
making it easier for them to do business with the Company, by, for example,
providing supply chain integration tools such as our new proprietary fully
automated, internet

                                        2

<PAGE>

accessible, order and logistics tracking system. The Company believes that the
combination of its leadership position, innovative capabilities, strong sales
force and highly efficient manufacturing positions it to achieve future growth
and profitability. As a result of its focus on building its industry leadership
position, AET continually explores opportunities to acquire related technologies
or businesses.

Industry Overview

OPP films are highly specialized films developed and manufactured through a
complex process of polymer design, extrusion, controlled multi-directional
stretching, heating and cooling, and surface treatment. Depending on the
application, finished products can then be further processed to add high barrier
or metallized coatings and are often designed to be laminated with other films
to provide highly specialized attributes required by end-users.

Recent advancements in film extrusion and resin technology have produced new,
sophisticated films that are thinner and stronger and have better barrier and
scalant properties than other materials or predecessor films. These
technological advances have allowed many traditional forms of rigid packaging to
be replaced with film-based, flexible packaging that is lighter, lower in cost
and has enhanced performance characteristics, such as oxygen and moisture
barriers, printability and durability. In addition, flexible packaging is often
recyclable.

According to the Flexible Packaging Association, the size of the North American
flexible packaging industry was estimated at $19.0 billion in 2000, of which the
specialty films segment accounted for approximately $3.7 billion of shipments.
OPP films represent approximately 25 percent of the specialty films segment, or
890 million pounds in 2000, and has grown at a compound annual growth rate of
over six percent from 1980 through 2000, averaging about two times the rate of
growth of the United States Gross Domestic Product over this same time period.
The Company believes that this growth rate can be sustained due to three
fundamental trends:

   .  the growth in demand for established end-market consumer products, such as
      snack foods, soft drinks and confectionary products, which positively
      impacts the demand for OPP films;

   .  the trend away from rigid towards flexible packaging materials that use
      OPP films, such as for labels, the trend from cans and glass bottles to
      plastic beverage containers, and for packaging materials, the trend from
      boxes to stand-up pouches; and

   .  the use of OPP films in place of other competing flexible materials
      because OPP films have superior performance characteristics, such as
      improved protection against light, oxygen and moisture, advanced
      machinability, printability and durability, and exceptional clarity; in
      addition, as the least dense plastic packaging and labeling material,
      polypropylene provides greater coverage at a lower cost than any other
      plastic film material.

Production capacity in the North American OPP films industry increased by more
than 35 percent from 1996 to 1999. As a result, capacity utilization levels
declined from approximately 95 percent to a low in the mid-80 percent levels.
This decline in capacity utilization led to sharp declines in selling prices of
OPP films and adversely impacted profitability in the OPP films industry. The
adverse effects on profitability were compounded in fiscal 2000 by the rapid,
unforeseen escalation in resin costs, which increased 70 percent in 18 months,
peaking in the last quarter of fiscal 2000, and driven primarily by the
substantial increase in crude oil prices. Most of this increase could not be
passed on to customers in the form of price increases due to this low capacity
utilization level. However, when capacity utilization has reached the mid-90
percent levels, the OPP films industry has historically been able to increase
prices of its products and pass on a significant portion of any increases in the
cost of raw materials to customers. For example, in 1995, when capacity
utilization was at the mid-90 percent level, the industry was able to pass on to

                                        3

<PAGE>

customers resin cost increases similar to those experienced in 2000, allowing
the industry to achieve one of its most profitable years.

Capacity utilization in the North American OPP films industry has been
recovering and is currently near 90 percent. As the expected growth in demand
outpaces the announced capacity additions, industry capacity utilization levels
will further improve. Because a substantial capital investment is required to
build a new line and the industry has recently experienced low capacity
utilization levels, the industry will be cautious about introducing new lines.
To the Company's knowledge, only AET and ExxonMobil Corporation, the two largest
North American producers of OPP films, have announced plans for the addition of
production capacity, and these are for two small lines. In addition, since at
least two years are required to design and construct a new OPP films line, and
another year is required to fully ramp up production, supply estimates are
reasonably predictable over the near term.

Competitive Strengths

AET is well positioned to compete successfully in the OPP films market and to
increase sales and profitability due to its:

   .  Substantial Industry Presence - The Company is the largest manufacturer
      and seller of OPP films in North America and has a leading market position
      in substantially all of the major high-end OPP films end-use product
      categories in North America.

   .  Technological Leadership and Superior Product Development Capabilities -
      The Company has one of the largest technology groups in the industry with
      more than 60 chemists, engineers and technicians and has invested over
      $20.0 million in product research and development over the past three
      years.

   .  Efficient, Modern Production Facilities - AET believes that its cost to
      produce OPP films is one of the lowest in the North American industry and
      is the lowest for any manufacturer in this market with a full-breadth
      product line.

   .  Breadth of Product Line and Diversity of Customer Base - With more than 80
      product groups sold to over 600 customers, AET believes that it has the
      broadest product lines and customer base of any North American OPP films
      producer.

   .  Experienced Management - AET believes that its senior and operational
      management team is among the most experienced in the OPP films business.

Products

The Company's OPP films product line is classified into the following four broad
categories:

   .  Labels - AET's OPP film labels are used on containers for soft drinks,
      beverages, food and other consumer products requiring a high-quality print
      surface for superior graphics and properties that permit high speed
      labeling. Examples of end uses include soft drink containers for
      Coca-Cola(R)and Pepsi-Cola(R), branded water bottles for Aquafina(R) and
      Dasani(R), and juice containers for Tropicana(R) and Dole(R). In addition,
      the Company's films are used on products such as Folgers(R) and Hills
      Brothers(R) coffee cans and aerosol cans for shaving creams and air
      fresheners. On its unique tubular production assets, the Company
      manufactures ultra-thin clear slip films, which are used as the outside
      layer of a laminated label by over 85 percent of the North American soft
      drink market. AET's opaque products are used as the inside layer of these
      laminated labels, and provide a high-quality print surface and excellent
      machinability.

                                        4

<PAGE>

   .  Packaging - AET's OPP films are used in a broad range of packaging
      applications, principally for food products, where they provide enhanced
      protection against moisture, light and air. The Company's OPP films are
      used to make packages for products such as Frito-Lay(R) snacks,
      Nabisco(R), Kellogg's(R), General Foods(R) and Hershey Foods(R) products,
      individual size condiment pouches, and baked goods packaging. In
      applications where barrier is important, AET offers metallized,
      polyvinylide choloride, also known as saran, coated and polymer modified
      films. High barrier metallized films provide an enhanced barrier for
      snacks packaged in nitrogen gas to maintain freshness and extend shelf
      life.

   .  Overwrap - The Company produces OPP films that are exceptionally clear,
      thin and strong and provide barriers to protect products. Examples of end
      uses include overwrap for boxes of Lipton(R) tea bags and Schrafft(R)
      candies, Sony(R) and TDK(R) compact discs and DVDs, and cigarette boxes
      for British American Tobacco(R). End-users of these products require
      durable films with high barrier properties that also offer exceptional
      clarity and thinness to maximize visibility of their products. A
      significant portion of these films are sold in narrow widths, 10 to 20
      inches wide, for which AET has unique slitting capabilities.

   .  Industrial - OPP films are used in a variety of industrial applications,
      such as packaging tape, insulation facing, cable wrap, synthetic paper,
      ream wrap, and photopolymer processing. AET has focused its industrial OPP
      films on applications that are more profitable, such as insulation facing
      and cable wrap.

Through the end of fiscal 2001, the Company developed, manufactured and sold a
broad range of oriented apertured films (also known as nets) and nonwoven
materials for specialized filtration and medical applications. On September 28,
2001, the Company entered into an agreement to sell its specialty nets and
nonwovens business to DelStar Technologies, Inc., a Delaware corporation, and
the transaction closed with an effective date of September 30, 2001.

Marketing and Customers

AET's OPP films products are sold primarily through its direct sales
organization. Its highly skilled sales force, whose principal role is to develop
sales opportunities and provide customer support, has considerable technical
expertise and industry experience. Marketing activities have historically been
focused primarily in North and South America, although the Company also has a
sales presence in Europe and Asia. In addition, the sales people, customers,
end-users, and research and development scientists work together to create new
films, as well as new applications for existing OPP films.

AET's OPP films sales are predominantly to converters, who print and laminate
films before selling to end-users. One such converter accounted for
approximately 18 percent of sales in both fiscal 2001 and fiscal 2000. The
Company also sells OPP films directly to end-users, and considers it an
important part of its marketing effort to maintain direct relations with major
end-users, who generally direct packaging design efforts and provide detailed
specifications to converters about the films used in their labeling and
packaging applications. Sales and marketing efforts and customer relationships
are enhanced by the numerous customer-specific technical approvals that have
been secured. These approvals typically involve significant customer time and
effort and result in a strong competitive position for qualified products. Once
qualified, products are often referenced in end-user specifications or qualified
product lists. These qualification processes also reinforce the partnership
between AET and its customers and can lead to additional sales and marketing
opportunities.

                                        5

<PAGE>

Acquisition of Assets from QPF, L.L.C.

On June 19, 2001, AET purchased certain assets of QPF, which was the OPP films
business of the Hood Companies, Inc. The acquired assets principally represented
equipment, intellectual property and intangible assets. Included in the purchase
was QPF inventory produced through June 30, 2001, the day on which the QPF
facility was shut down. The Company did not purchase the QPF facility and the
cost to close the facility was borne by Hood. The net purchase price for the QPF
assets, including inventory, was $21.7 million.

Manufacturing and Technology

OPP films are manufactured and processed through either the tenter or the
tubular process. AET is the only North American OPP films producer that has both
tenter and tubular manufacturing capabilities. Additionally, these films can be
further processed through value-adding secondary operations.

Tenter Process

In the tenter process, specifically formulated polypropylene resins are combined
and melted, sometimes with additives, and extruded from a flat die into a thick
film containing from one to five distinct layers, which are then chilled,
reheated and stretched lengthwise in the machine direction and widthwise in the
transverse direction while still heated. This dual stretching process is known
as "biaxial orientation." The specific characteristics demanded of each film are
controlled throughout this complex process by a multitude of variables,
including proprietary polymer design, application of unique skin layers, timed
variations of the heating, cooling and stretching processes, alteration of
molecular surface characteristics through the application of flame or
high-voltage electrical discharge and controlled winding tension. AET has seven
tenter lines, ranging from 5.5 to 10 meters. The tenter process is a more
economical way than the tubular process to manufacture thicker films.

Tubular Process

In the tubular process, molten resin is extruded from a circular die to form a
thick tube which is stretched lengthwise and widthwise with air pressure and
gravity at controlled temperatures. Tubular processed films offer "balanced
biaxial orientation," meaning that the film is stretched equally both widthwise
and lengthwise. This process results in improved stability and a more uniform
thickness for thinner films. The Company's believes that its tubular
manufacturing capacity enables it to manufacture thinner films, while preserving
clarity, machinability and other performance characteristics of thicker film.
These thinner films use less materials, thereby improving performance relative
to cost. AET currently operates nine tubular lines.

Secondary Processes

In addition to the tenter and tubular manufacturing processes, AET also performs
operations to apply coatings and metal to its films. In the coating process,
various materials are applied in a liquid form to the surface of a film
structure and then dry the film in-line. These coatings are applied uniformly at
varying thicknesses and layers to impart desired properties of increased
barrier, printing and converting machinability. In the metallization process,
the film is run through a vacuum and a thin layer of aluminum is applied to the
surface of a film structure providing barrier and appearance properties.

Through the end of fiscal 2001, the Company also manufactured apertured films
and nonwoven media. Delnet(R) and other apertured film products were produced by
a proprietary process similar to the tenter process, in which film is forced
through high-precision embossing rollers prior to being oriented through a
stretching process similar to OPP films. Delpore(R) and other meltblown nonwoven
materials were produced in a high pressure extrusion process, forming the
filtration

                                        6

<PAGE>

media used in liquid and air filtration markets. These assets were sold in
conjunction with the divestiture of the Company's Specialty Nets and Nonwovens
Division.

Research and Development

AET believes that it has one of the largest and most experienced technology
groups in the industry with more than 60 chemists, engineers and technicians,
and has invested over $20 million in product research and development over the
past three years. Utilizing extensive laboratory and film testing facilities,
advanced pilot film production lines, and an array of end-use packaging and
labeling equipment, the Company's technology group has introduced nearly 50 new
or enhanced products in the past three fiscal years. The Company believes that
this strength in innovation will continue to drive higher growth levels for
differentiated, higher margin products, and provide an advantage to customers
who work with AET in the development of new labeling, packaging and overwrap
products and applications. During fiscal 1999, 2000 and 2001, the Company spent
approximately $7.1 million, $6.8 million and $6.4 million, respectively, on
research and development.

Polypropylene and Other Raw Materials

AET manufactures its principal products primarily from polypropylene resin. The
relatively low density and low cost of polypropylene resins allow OPP films to
provide very cost-efficient material for packaging applications. In addition,
polypropylene possesses superior clarity and natural barrier qualities, and can
be modified to add other attributes or features such as metallization, which
make it a higher performing and more cost-efficient material than other plastic
resins.

Four suppliers provide the majority of the Company's resin supply requirements.
However, these materials are generally available from a large number of
suppliers in sufficient quantities to meet ongoing requirements. Historically,
there have not been any significant disruptions in supply as a result of
shortages in raw materials, demand and the price of petrochemical raw materials,
including crude oil and natural gas.

Historically, the price of polypropylene has fluctuated, and in recent years the
price has increased significantly due to the increased price of crude oil. As a
result of low capacity utilization levels, AET has not been able to pass through
a significant portion of the increases in the costs of polypropylene raw
materials to end users. Resin prices are declining from the peak experienced
late in fiscal 2000 due to increased capacity in the resin industry and a
decline in polypropylene resin demand caused by the general economic slowdown.
On average, polypropylene resin costs in fiscal 2001 were down $.02 per pound,
or 6.1 percent, over fiscal 2000. According to Chemical Data Inc., polypropylene
resin prices have declined from an average of $0.42 per pound in the fourth
fiscal quarter of 2000 to an average of $0.31 per pound at the end of fiscal
2001.

Competition

AET competes with manufacturers of OPP films and other specialty films, such as
cellophane and polyester, as well as with producers of traditional packaging
materials, such as paper, foil, metal, glass and other containers. The flexible
packaging industry is very competitive, and some competitors are subsidiaries of
larger corporations that have significantly greater financial resources than the
Company. There are approximately eight primary manufacturers in North America
producing OPP films for resale. Out of these eight manufacturers, only AET and
ExxonMobil Corporation have a greater than 20 percent market share. The Company
believes that ExxonMobil Corporation, which is the second largest OPP films
manufacturer in North America, is the only other broad-line OPP films supplier
based in North America. Competition in OPP films markets is based primarily on
customer relationships, product performance characteristics such as
machinability and quality, reliability and price. Competition also depends on
developing new and enhanced products for customers. The Company also sells
products in countries outside North

                                        7

<PAGE>

America and may face international competition. Most of AET's customers and end
users have a short lead time for ordering products, so foreign competitors are
at a disadvantage with North American customers because of their longer shipping
times and higher shipping costs.

The Company believes that it has various competitive advantages including:

   .   advanced proprietary manufacturing processes required to produce a varied
       range of OPP films products;
   .   proprietary OPP films product formulations;
   .   research and development expertise required to sustain product
       innovation; and
   .   one of the most efficient manufacturing operations in the North American
       OPP films market.

Although this is an asset intensive business and the cost to enter is high, it
cannot be assumed that the markets into which the Company sells its products
will not attract additional competitors that could have significantly greater
financial, technological, manufacturing and marketing resources than AET.

Patents and Trademarks

AET currently holds approximately 85 active domestic and international patents
and applications and has approximately 70 domestic and international trademark
registrations and applications. The termination, expiration or infringement of
one or more patents or trademarks would not have a material adverse effect on
the business.

Government Regulation

Due to the nature of AET's business, its operations are subject to a variety of
federal, state and local laws, regulations and licensing requirements. The
Company believes that its operations are in substantial compliance with those
laws, regulations and requirements. Compliance with federal, state and local
requirements relating to the protection of the environment has not had and is
not expected to have a material effect on capital expenditures, financial
condition, results of operations or competitive position.

Employees

The Company employs approximately 993 full-time employees. Approximately 130
production and maintenance employees at the Covington, Virginia facility are
represented by the Paper Allied Industrial Chemical and Energy Workers
International Union, Local 2-0884 under a collective bargaining agreement that
expires in June, 2005. All employee relations are considered to be satisfactory.

                                        8

<PAGE>

ITEM 2.  PROPERTIES

The following table provides information with respect to AET's facilities:

<TABLE>
<CAPTION>
                                                                                            Owned/
                                   Location                               Square Feet       Leased
                                   --------                               -----------       ------
<S>                                <C>                                    <C>              <C>
OPP Films                          Terre Haute, Indiana                       821,000       Owned
                                   Covington, Virginia                        517,000       Owned
                                   Varennes, Quebec, Canada                   163,000       Owned
                                   New Castle, Delaware:                       50,000      Leased
                                       Administration and Research Center
Specialty Nets & Nonwovens         Middletown, Delaware                       145,000        Owned*
Corporate                          Peabody, Massachusetts                       7,858       Leased
</TABLE>

*On September 28, 2001, the Company entered into an agreement to sell its
Specialty Nets and Nonwovens business to DelStar Technologies, Inc., a Delaware
corporation. This transaction closed with an effective date of September 30,
2001. In connection with this transaction, the Company sold its Middletown,
Delaware facility and amended its bank credit facility accordingly.

All of AET's owned real property is collateral under the Company's revolving
credit facility. The Company believes that its facilities are suitable for their
currently intended purposes and adequate for its level of operations.

Environmental, Health and Safety Matters

AET is subject to stringent environmental, health and safety requirements,
including laws and regulations relating to air emissions, wastewater management,
the handling and disposal of waste and the cleanup of properties affected by
hazardous substances. The Company believes that its operations have been and are
in substantial compliance with environmental, health and safety requirements,
and that it has no liabilities arising under such requirements, except as would
not be expected to have a material adverse effect on operations, financial
condition or competitive position.

In the last four years, the Company has received no requests for information or
related correspondence from the United States Environmental Protection Agency
and other third parties indicating that we might be responsible under the
Comprehensive Environmental Response, Compensation and Liability Act or other
environmental laws for costs associated with the investigation and cleanup of
contaminated sites. The Company believes that any future involvement in matters
arising under various environmental laws will not have a material adverse effect
on its operations, liquidity or financial condition.

ITEM 3.  LEGAL PROCEEDINGS

The Company is periodically subject to legal proceedings and claims which have
arisen in the ordinary course of the business and have not been fully
adjudicated. It is not a party to litigation or other legal proceedings which it
believes, either singly or in the aggregate, could reasonably be expected to
have a material adverse effect on the Company's business, financial condition
and results of operations.

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

AET did not submit any matters to a vote of the security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.

                                        9

<PAGE>

ITEM 4a.  EXECUTIVE OFFICERS

The executive officers of AET are as follows:

<TABLE>
<CAPTION>
Executive Officer
       Name                 Age                 Position                                   Since
       ----                 ---                 --------                                   ------
<S>                         <C>     <C>                                                <C>
Amin J. Khoury              62      Chairman of the Board/(1)/                          October 1986
Thomas E. Williams          55      President, Chief Executive Officer                 December 1992
                                        and Director/(2)/
David N. Terhune            55      Executive Vice President and                       February 1994
                                        Chief Operating Officer/(3)/
Mark S. Abrahams            50      Vice President and General Manager,                December 1993
                                        Specialty Nets & Nonwovens Division/(4)/
Anthony J. Allott           37      Senior Vice President and Chief Financial              July 1994
                                        Officer/(5)/
</TABLE>

_______________________

(1) The Company has entered into a four-year Employment Agreement dated as of
    April 1, 1999 with Mr. Khoury pursuant to which he currently serves as
    Chairman of the Board of the Company.
(2) The Company has entered into a four-year Employment Agreement dated as of
    April 1, 1999 with Mr. Williams pursuant to which he currently serves as
    President and Chief Executive Officer of the Company.
(3) The Company has entered into a four-year Employment Agreement with Mr.
    Terhune dated April 1, 1999 pursuant to which he currently serves as
    Executive Vice President and Chief Operating Officer of the Company.
(4) Mr. Abrahams' employment with the Company ceased in October 2001 in
    connection with the sale of the Company's Specialty Nets and Nonwovens
    Division.
(5) The Company has entered into a three-year Employment Agreement dated April
    1, 1999 with Mr. Allott pursuant to which he currently serves as Senior Vice
    President and Chief Financial Officer of the Company.

AET's executive officers are elected annually by the Board of Directors
following the annual meeting of stockholders and serve at the discretion of the
Board of Directors.

Business Experience of Executive Officers

Amin J. Khoury - Founder and Chairman of the Board of Directors of the Company
since October 1986; from October 1986 to August 1993, Chief Executive Officer of
the Company; President of the Company from August 1988 through November 1992;
Founder and Chairman of the Board of Directors of BE Aerospace, Inc., a
manufacturer of aircraft cabin interior products; Member of the Board of
Directors of Brooks Automation, Inc., a leader in semiconductor tool and factory
automation solutions for the global semiconductor industry; Director of
Synthes-Stratec, Inc., one of the world's leading orthopedic trauma companies.

Thomas E. Williams - Director, President and Chief Executive Officer of the
Company since December 1992; Chief Executive Officer of the Company since August
1993; from 1988 until 1992, President and Chief Executive Officer of Home
Innovations, Inc., a home furnishings company; from 1980 until 1988, held a
number of executive positions with PepsiCo, Inc.

David N. Terhune - Executive Vice President and Chief Operating Officer of the
Company since July 1996; from February 1994 to June 1996, Senior Vice President
and Chief Financial Officer of the Company; from 1972 until 1993, as Chief
Operating Officer for seven years and Chief Financial Officer for fourteen years
for five primarily public companies in the technology, banking, real estate,
food service and manufacturing industries.

                                       10

<PAGE>

Mark S. Abrahams - Vice President and General Manager of Specialty Nets and
Nonwovens from December 1993 to October 2001; from November 1990 through July
1993, President of the Cybex Division of Lumex Corporation, a manufacturer and
distributor of physical therapy and fitness equipment; from November 1988
through October 1990, Chief Operating Officer of Cambridge Medical Instruments,
a manufacturer of diagnostic medical equipment.

Anthony J. Allott - Senior Vice President and Chief Financial Officer of the
Company since July 1996; from July 1994 to January 2001, Treasurer of the
Company; from May 1995 to June 1996, Vice President of AET; from December 1992
to July 1994, Corporate Controller of Ground Round Restaurants, Inc., an
operator and franchiser of full-service family restaurants; from 1986 to 1992,
employed by Deloitte & Touche LLP, an independent auditing firm, most recently
as audit manager.

The information presented under the heading, "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the 2001 Annual Meeting of Stockholders
is incorporated herein by reference.

                                       11

<PAGE>

                                     PART II

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

The Company's Common Stock has been quoted on the NASDAQ National Market System
since June 6, 1991 under the symbol "AETC." Before June 6, 1991, no established
public trading market existed for the Company's Common Stock. Below is the range
of high and low sales information for the Common Stock for the two most recently
completed fiscal years, as quoted on the NASDAQ National Market System:

<TABLE>
<CAPTION>
                                                         Fiscal Year 2001      Fiscal Year 2000
                                                          High       Low       High        Low
                                                          ----       ---       ----        ---
          <S>                                            <C>        <C>        <C>        <C>
          Quarter ended December 31                      $3.41      $1.25      $7.88      $5.44

          Quarter ended March 31                          4.03       2.13       9.25       6.25

          Quarter ended June 30                           7.47       2.90       8.44       5.25

          Quarter ended September 30                      8.47       5.98       6.25       3.06
</TABLE>

The Company has not paid any cash dividends on its Common Stock, and the
Company's Board of Directors intends, for the foreseeable future, to retain any
earnings to repay debt and finance the future growth of the Company. As of
November 29, 2001, there were approximately 232 registered holders of record and
more than 3,700 beneficial holders of the Company's Common Stock.

                                       12

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report. The following information is in
thousands, except per share amounts:

<TABLE>
<CAPTION>
Income Statement Data:                                  2001            2000            1999            1998            1997
                                                        ----            ----            ----            ----            ----
<S>                                                  <C>             <C>             <C>             <C>             <C>
Sales                                                $ 279,840       $ 268,375       $ 237,042       $ 245,334       $ 262,271
Cost of sales                                          218,430         215,256         188,601         195,174         205,037
                                                     ---------       ---------       ---------       ---------       ---------
Gross profit                                            61,410          53,119          48,441          50,160          57,234
Operating expenses:
    Selling, general and administrative                 28,639          27,152          26,550          23,754          23,819
    Research and development                             6,419           6,759           7,123           7,326           8,221
    Restructuring and impairment charges                     -               -               -          21,506           4,500
    Start-up costs                                           -               -               -           1,539               -
    Loss on sale of assets                               7,054               -               -               -               -
    Share incentive plan                                   861               -               -               -               -
    QPF acquisition costs                                2,548               -               -               -               -
                                                     ---------       ---------       ---------       ---------       ---------
Operating profit (loss)                                 15,889          19,208          14,768          (3,965)         20,694
Non-operating expenses:
    Interest expense, net                               24,659          21,096          18,909          15,868          16,868
    Acquisition costs and other                              -               -           3,641             250           1,500
                                                     ---------       ---------       ---------       ---------       ---------
Income (loss) before income taxes
        and change in accounting                        (8,770)         (1,888)         (7,782)        (20,083)          2,326
Income tax expense (benefit)                             9,872            (679)         (3,113)         (8,033)            930
                                                     ---------       ---------       ---------       ---------       ---------
Income (loss) before change in
    accounting and extraordinary item                  (18,642)         (1,209)         (4,669)        (12,050)          1,396
Change in accounting, net of related tax
    benefits of $568                                         -               -               -            (852)              -
Extraordinary loss on early extinguishment
   of debt, net of taxes of $1,112                      (1,977)              -               -               -               -
                                                     ---------       ---------       ---------       ---------       ---------
Net income (loss)                                    $ (20,619)      $  (1,209)      $  (4,669)      $ (12,902)      $   1,396
                                                     =========       =========       =========       =========       =========

Earnings (loss) per common share:
Basic:
    Before change in accounting or extraordinary
        item                                         $   (1.50)      $    (.10)      $    (.41)      $   (1.11)      $    0.14
    Change in accounting or extraordinary
        item                                              (.16)              -               -           (0.07)              -
                                                     ---------       ---------       ---------       ---------       ---------
        Net income (loss)                            $   (1.66)      $    (.10)      $    (.41)      $   (1.18)      $    0.14
                                                     =========       =========       =========       =========       =========
Diluted:
    Before change in accounting or extraordinary
        item                                         $   (1.50)      $    (.10)      $    (.41)      $   (1.11)      $    0.13
    Change in accounting or extraordinary
        item                                              (.16)              -               -           (0.07)              -
                                                     ---------       ---------       ---------       ---------       ---------
        Net income (loss)                            $   (1.66)      $    (.10)      $    (.41)      $   (1.18)      $    0.13
                                                     =========       =========       =========       =========       =========

Balance Sheet Data:
Working capital                                      $  73,892       $  43,419       $  27,918       $  33,471       $  33,600
Total assets                                           423,338         389,250         375,050         370,726         376,493
Current portion of long-term debt                            -               -               -               -           4,000
Long-term debt, less current portion                   277,462         209,500         182,500         185,500         196,500
Stockholders' equity                                    78,777          99,913          99,041         100,437         112,183
</TABLE>

                                       13

<PAGE>

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

The following discussion and analysis of financial condition and results of
operations is qualified in its entirety by, and should be read in conjunction
with, consolidated financial statements and related notes included elsewhere in
this Annual Report. This discussion contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in the forward-looking statements as a result of factors
including, but not limited to, those discussed in Exhibit 99 to this Annual
Report, "Business" and elsewhere in this Annual Report. The Company disclaims
any obligation to update information contained in any forward-looking statement.
All dollar amounts are in thousands.

Introduction

The Company derives its revenues, earnings and cash flows primarily from the
sale of highly specialized oriented polypropylene films, referred to as OPP
films, used in consumer product labeling, flexible packaging and overwrap
applications. AET has a leading position in substantially all of the major
high-end OPP films end-use product categories in North America, and offers one
of the most extensive product lines in the OPP films industry, ranging from
high-margin, specialized label and high barrier films to basic heat sealable
lower barrier films.

Results of Operations

The following table sets forth, for the periods indicated, the percentages of
AET sales represented by various income and expense items in their income
statements:

<TABLE>
<CAPTION>
                                                         Years Ended September 30
                                                         ------------------------
                                                   2001            2000           1999
                                                   ----            ----           ----
<S>                                             <C>              <C>            <C>
         Sales                                    100.0%          100.0%         100.0%
         Cost of sales                             78.1            80.2           79.6
         Gross profit                              21.9            19.8           20.4
         Selling, general and administrative       10.2            10.1           11.2
         Research and development                   2.3             2.5            3.0
         Operating profit                           5.7             7.2            6.2
         Interest expense, net                      8.8             7.9            8.0
         Net loss                                  (7.4)           (0.5)          (2.0)
</TABLE>

Fiscal 2001 Compared with Fiscal 2000

Sales for fiscal 2001 increased 4.3 percent to $279,840 due to the realization
of higher average selling prices, volume gains and continued improvement in
sales mix. Sales outside the United States were 15.8 and 18.3 percent of sales
for the fiscal year ended September 30, 2001 and 2000, respectively, and
generated operating profit of 12.0 percent and 4.6 percent of total operating
profit in those same periods.

Gross profit increased in fiscal 2001 to $61,410, or 21.9 percent of sales,
compared with $53,119, or 19.8 percent of sales, in the same period of fiscal
2000. The increase in gross profit in fiscal 2001 is due to higher average
selling prices and lower raw material costs, as well as continued improvements
in manufacturing efficiencies. Capacity utilization is expected to continue to
tighten over the next several years due to the continued growth in demand for
OPP films and minimal anticipated capacity additions. Raw material costs
declined throughout fiscal 2001 and are expected to increase only slightly in
fiscal 2002. Although impacted in the short term by the tragic events of
September 11 and the resulting economic weakness, long-term margin expansion is
expected to continue due to further improvement in sales mix, absorption of QPF
sales and further tightening of industry capacity utilization.


                                       14

<PAGE>

Total operating expenses for the fiscal year ended September 30, 2001 increased
to $45,521, as compared to $33,911 for the fiscal year ended September 30, 2000
due primarily to $2,548 in costs incurred in conjunction with the acquisition of
QPF, the $861 non-cash charge recorded in the first quarter of fiscal 2001
related to the share incentive plan for non-executive employees, and the $7,054
loss on sale of assets resulting from the sale of the Specialty Nets and
Nonwovens business. Research and development expense was $6,419 in fiscal 2001
compared with $6,759 in fiscal 2000 as the Company continued to invest in new
product development.

Net interest expense in fiscal 2001 of $24,659 was $3,563 higher than interest
expense in fiscal 2000 due primarily to a higher average outstanding debt
balance in fiscal 2001 reflecting the $275,000 Senior Notes issued in June 2001,
offset in part by a lower interest rate on the Senior Notes and interest income
earned on cash and cash equivalents.

Income tax expense (benefit) was $9,872 and ($679) for the fiscal years ended
September 30, 2001 and September 30, 2000, respectively. In fiscal 2001, the
Company recorded a $13,030 valuation allowance for certain state and federal
deferred tax assets resulting from temporary differences for which the potential
to realize the tax benefit given recent results is uncertain in accordance with
Financial Accounting Standards No. 109.

Fiscal 2000 Compared with Fiscal 1999

Sales for fiscal 2000 of $268,375 were $31,333, or 13.2 percent higher, than
fiscal 1999 sales of $237,042 due to a 12.0 percent increase in OPP films sales
volume combined with higher average selling prices. Fiscal 2000 represents the
first year since 1995 where average selling prices increased, as the industry
began passing on a portion of higher raw material costs and industry
overcapacity continued to ease. Average annual OPP films industry demand growth
of approximately 6.0 percent continued to absorb excess industry capacity. Sales
outside the United States, primarily in Canada, comprised 18.3 percent of total
fiscal 2000 sales compared to 18.7 percent of total 1999 sales and operating
profit for sales outside the United States was 4.6 percent of total operating
profit compared to 19.4 percent in 1999.

Gross profit for 2000 of $53,119 includes $2,400 of temporary plant shutdown
costs. Excluding these costs, gross profit for 2000 was $55,519, an increase of
$4,173 or, 8.1 percent, from the fiscal 1999 level of $51,346, while gross
margin declined from 21.7 percent of sales to 20.7 percent of sales due to
significantly higher raw material costs. The cost of polypropylene resin, the
Company's primary raw material, rose unexpectedly as a result of the dramatic
increase in the price of crude oil.

Polypropylene resin prices increased over 30 percent in the twelve months ended
September 30, 2000 and 70 percent in the eighteen months ended September 30,
2000, and only a small portion of these resin cost increases were successfully
passed on to customers in the form of price increases, due to the excess
capacity that still existed in the OPP films industry. In addition, the Company
held firm on a price increase in fiscal 2000, losing some sales volume.
Therefore, all OPP films operations were shut down for one week in September,
resulting in $2,400 of unabsorbed fixed costs incurred in the quarter.

Research and development expense decreased by $364 to $6,759, or 2.5 percent of
sales in fiscal 2000, due primarily to differences in timing of research and
development spending between fiscal 1999 and fiscal 2000.

Selling, general and administrative expenses of $27,152 in fiscal 2000
represented 10.1 percent of sales compared with $26,550, or 11.2 percent of
sales in fiscal 1999, as operating expenses were held to relatively constant
levels despite significant increases in volume manufactured and sold during the
year. This resulted in a 30.1 percent increase in operating profit from fiscal
1999 to fiscal 2000.


                                       15

<PAGE>

Net interest expense increased $2,187 to $21,096 in fiscal 2000, from $18,909 in
fiscal 1999, due to a higher average debt balance and higher interest rates on
the bank credit facility in fiscal 2000.

Income tax as a percentage of before tax income was 36 percent for 2000 and 40
percent for fiscal 1999. The lower percentage reflected the benefit of tax
planning.

Liquidity and Capital Resources

AET maintains a credit agreement with a group of lenders whereby it has a
$80,000 revolving credit facility with a final maturity of January 29, 2003. The
bank credit facility is secured by all of the Company's assets. It includes
covenants which limit borrowings based on certain asset levels, requires a
minimum tangible net worth and specified interest coverage and leverage ratios,
restricts payment of cash dividends to stockholders and establishes maximum
capital expenditure levels. It also contains other covenants customary in
transactions of this type. The Company was not in compliance with the net worth
covenant, and has received a waiver from its banks. In June 2001, the Company
paid all amounts outstanding on the bank credit facility, other than $12,435 in
outstanding letters of credit in connection with the issuance of its Senior
Notes. AET also has $6,500 of revenue bonds outstanding which are due November
4, 2004 and which are partially secured by a letter of credit issued under the
bank credit facility.

On June 19, 2001, the Company issued $275,000 of 10-3/4 percent Senior Notes due
2011 (the "Senior Notes"). The Senior Notes are unsecured senior obligations of
AET. The net proceeds, after deducting fees and expenses, from the sale of the
Senior Notes, were approximately $261.1 million. Of those proceeds, $155.2
million was used to fund the redemption of and interest on the 11-1/2 percent
senior notes due 2002, $9.0 million was used to fund the portion of the purchase
price of the acquisition of the assets of QPF, $74.1 million was used to repay
existing indebtedness and interest due under the revolving credit facility, and
the remainder is being held for general corporate purposes and to fund future
growth opportunities.

In conjunction with the redemption of the 11-1/2 percent senior notes due 2002,
the Company recorded a loss on the early extinguishment of debt of $1,977 or
$.15 per share, net of taxes. This amount is comprised of unamortized debt
issuance costs and interest incurred during the 30-day period.

On June 30, 2001, the Company completed its acquisition of certain assets of
QPF, L.L.C. Assets acquired included: machinery and equipment; intellectual
property; intangibles; and inventory of the business. The purchase price for the
QPF assets was $21,744. In conjunction with the QPF acquisition, the Company
incurred certain one-time costs directly related to the acquisition and
transition of the QPF business such as legal, incentive compensation and
accounting costs that were recorded as an operating expense during the third
quarter.

Effective September 30, 2001, the Company sold its specialty nets and nonwovens
business to DelStar Technologies, Inc. The business, located in Middletown,
Delaware, generated annual sales in fiscal 2001 of approximately $20,000 through
the manufacture and sale of nets and nonwoven media. This business was non-core
to the Company. The gross proceeds of the transaction were approximately
$23,000. The Company recorded a loss in the fourth fiscal quarter of 2001 of
$7,054 on the sale of this business, reflecting the difference between the
selling price and the net book value of the specialty nets and nonwovens assets,
as well as transactions costs such as legal, banking, incentive compensation and
accounting costs incurred in connection with the sale of the business.

Operating activities for the fiscal year ended September 30, 2001 generated
$4,425 of cash, which was the result of earnings before depreciation and
amortization and other non-cash expenditures of $8,513, and a decrease in
working capital of $4,088. The net working capital increase was primarily the
result of decreases in accounts payable and accrued expenses of $9,260, a
decrease in inventory of $9,144 and increases in prepaid expenses and other
current assets of $2,226, and


                                       16

<PAGE>

accounts receivable of $1,746. Decreases in accounts payable and inventory
primarily reflect the lower cost of polypropylene resin. During the year,
payments against restructuring reserves, representing payments on an operating
lease, reduced such accounts by $900 to a balance of $8,887 at September 30,
2001.

Inflation

Management regularly reviews the prices charged for its products. When market
conditions allow, price adjustments are made to reflect changes in demand or
product costs due to fluctuations in the cost of materials, labor and inflation.
The costs of raw materials make up a significant portion of costs and have
historically fluctuated. It cannot be assumed, however, that future market
conditions will support any correlation between raw material cost fluctuations
and finished product films pricing, as evidenced by the market dynamics in the
second half of fiscal year 2000 when the price of polypropylene resin
significantly increased due to the rising price of crude oil. During that
period, the Company was only able to pass on a portion of the cost increase to
customers due to overcapacity in the OPP films market.

Seasonal Nature of Some OPP Films Markets

Some of the end-use markets for OPP films are seasonal. For example, demand in
the snack food, soft drink and candy markets is generally higher in the spring
and summer. As a result, sales and net income are generally higher in those
periods, although actual results can be influenced by numerous factors, such as
raw material costs, competitive prices and other factors mentioned in this
prospectus.

New Accounting Pronouncements

In 2001 the FASB issued SFAS No. 141, 142, 143 and 144. Those statements are
discussed in the footnotes to the consolidated financial statements.


ITEM 7a.     QUANTITATIVE AND QUALITATIVE DISCLOSURES
             ABOUT MARKET RISK

Foreign Exchange Contracts

The Company had entered into foreign exchange contracts, the last of which
expired in May 2000, to hedge firm purchase commitments for the purchase of
equipment denominated in German Marks and Pounds Sterling. Gains and losses on
the contracts which resulted from market risk associated with changes in the
market values of the underlying currencies were deferred and reported as part of
capitalized assets. For the fiscal year ended September 30, 2001, the Company
did not enter into foreign exchange contracts for trading or speculative
purposes.

Short-Term and Long-Term Debt

AET is exposed to interest rate risk primarily through its borrowing activities.
The Company's policy has been to utilize United States dollar denominated
borrowings to fund working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements, while long-term debt is
generally used to finance long-term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The
Company maintains a revolving credit facility which bears interest at LIBOR plus
2.75 percent or Prime plus 1.25 percent. Average borrowings under this facility
were approximately $43,958 for the year ended September 30, 2001. Had market
rates increased 10 percent from the average rate used for each of these periods,
net earnings would have been negatively impacted by approximately $352 for the
year ended September 30, 2001. At September 30, 2001, The Company had no


                                       17

<PAGE>

outstanding short-term debt and long-term debt outstanding of $277,462, all of
which was at a fixed interest rate.

The Company does not enter into financial instrument transactions for trading or
other speculative purposes or to manage interest rate exposure.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required under this item is set forth on pages F-1 through F-18
of this Report.

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

Not applicable.







                                       18

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this Item 10 with respect to Executive Officers
of the Company is set forth in Item 4a. on pages 10-11 of this report.

The directors of AET are as follows:

<TABLE>
<CAPTION>
  Director Name            Age           Position                             Since
  -------------            ---           --------                             -----
<S>                        <C>     <C>                                     <C>
Amin J. Khoury             62      Chairman of the Board                   October 1986
Thomas E. Williams         55      President, Chief Executive Officer      December 1992
                                         and Director
Nader A. Golestaneh*+      41      Director                                October 1986
Richard G. Hamermesh*      53      Director                                October 1986
Mark M. Harmeling+         48      Director                                October 1986
Joseph J. O'Donnell*       57      Director                                October 1986
</TABLE>

_________________
* Member Audit Committee
+ Member Stock Option and Compensation Committee

All directors hold office until the next annual meeting of stockholders or until
their successors are duly elected and qualified.

Business Experience of Directors

Amin J. Khoury - Founder and Chairman of the Board of Directors of the Company
since October 1986; from October 1986 to August 1993, Chief Executive Officer of
the Company; President of the Company from August 1988 through November 1992;
Founder and Chairman of the Board of Directors of BE Aerospace, Inc., a
manufacturer of aircraft cabin interior products; Member of the Board of
Directors of Brooks Automation, Inc., a leader in semiconductor, tool and
factory automation solutions for the global semiconductor industry; Director of
Synthes-Stratec, Inc., one of the world's leading orthopedic trauma companies.

Thomas E. Williams - Director, President and Chief Executive Officer of the
Company since December 1992; Chief Executive Officer of the Company since 1993;
from 1988 until 1992, President and Chief Executive Officer of Home Innovations,
Inc., a home furnishings company; from 1980 until 1988, held a number of
executive positions with PepsiCo, Inc.

Nader A. Golestaneh - Director of the Company since 1986; since 1990, President
of Centremark Properties, Inc., a real estate management and development
company; since 1986, attorney in private practice in Boston, Massachusetts.

Richard G. Hamermesh - Director of the Company since 1986; since 2000, senior
lecturer at the Harvard Business School; co-founded and served until 2000 as a
Managing Partner for the Center for Executive Development, an independent
executive education and training firm; Director of BE Aerospace, Inc., a
manufacturer of aircraft cabin interior products.

Mark M. Harmeling - Director of the Company since 1986; since 2001, partner of
TA Realty Associates, a real estate advisory firm; from 1991 to 2000, President
of Bay State Realty Advisors, a real estate consulting firm; from 1997 to 1999,
an executive of the A. G. Spanos Corporation, a leading developer of multifamily
residential complexes; from 1985 to 1991, President of

                                       19

<PAGE>

Intercontinental Real Estate Corporation, a real estate holding and development
corporation; Director of Universal Holding Corporation, an insurance holding
company.

Joseph J. O'Donnell - Director of the Company since 1986: Chairman of the Board
and Chief Executive Officer of Boston Concessions Group, Inc., a company that
manages food service operations in approximately 40 states in the leisure and
recreation markets.

ITEM 11.  EXECUTIVE COMPENSATION

"Executive Compensation" described in the Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the 2002 Annual Meeting of
Stockholders is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

"Beneficial Ownership of Shares" described in the Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the 2002 Annual
Meeting of Stockholders is incorporated herein by reference.

 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

"Certain Transactions" described in the Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the 2002 Annual Meeting of
Stockholders is incorporated herein by reference.

                                       20

<PAGE>

                                     PART IV

ITEM  14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K

The following documents are filed as part of this report:

A. Financial Statements

   Consolidated Balance Sheets, September 30, 2001 and 2000
   Consolidated Statements of Operations for the Years Ended September 30, 2001,
   2000 and 1999
   Consolidated Statements of Stockholders' Equity for the Years Ended
      September 30, 2001, 2000 and 1999
   Consolidated Statements of Cash Flows for the Years Ended September 30, 2001,
      2000 and 1999
   Notes to Consolidated Financial Statements

   Financial Statement Schedules

   Schedule II - Valuation and Qualifying Accounts for the Years Ended September
      30, 2001, 2000 and 1999

   All other schedules are omitted as the required information is not applicable
      or is included in the financial statements or related notes.

B. Exhibits

3.1(a)     Amended and Restated Certificate of Incorporation.
3.1.1(f)   Amendment dated February 26, 1992 to Amended and Restated Certificate
           of Incorporation.
3.1.2(h)   Amendment dated March 21, 1999 to Amended and Restated Certificate of
           Incorporation.
3.2(f)     Amended and Restated By-Laws.
4.3(a)     Specimen Common Stock Certificate.
4.4(h)     Rights Agreement dated as of March 2, 1998 between the Company and
           BankBoston, N.A., as Rights Agent.
10.1(h)    Amended and Restated Credit Agreement dated as of March 15, 1999
           between the Registrant and The Chase Manhattan Bank as
           Administrative Agent.
10.1.1(h)  Amendment No. 1 dated as of April 23, 1999 to the Amended and
           Restated Credit Agreement dated as of March 15, 1999.
10.1.2(j)  Amended and Restated Credit Agreement dated as of April 12, 2000.
10.1.3(f)  Amended and Restated Credit Agreement dated as of September 30, 2000.
10.1.4(m)  Amended and Restated Credit Agreement dated as of April 15, 2001,
           between Registrant and the Chase Manhattan Bank, as Administrative
           Agent.
10.1.5(m)  Waiver and Amendment No. 1 to the Credit Agreement dated as of June
           15, 2001.
10.1.6*    Amendment No. 2 to the Credit Agreement dated September 28, 2001.
10.2(b)    1986 Stock Option Plan, as amended.
10.3(e)    Amendment dated December 7, 1999 to the 1986 Stock Option Plan.
10.4(c)    1991 Stock Option Plan, as amended.
10.5(e)    Amendment dated December 7, 1999 to the 1991 Stock Option Plan.
10.6(1)    2001 Stock Option Plan for Directors.
10.7(e)    Amendment dated August 4, 1999 to the 1991 Stock Option Plan for
           Directors, as amended.
10.8(d)    1994 Stock Option Plan, as amended.
10.9(e)    Amendment dated December 7, 1999 to the 1994 Stock Option Plan.

                                       21

<PAGE>

10.11(i)     Employment Agreement dated as of April 1, 1999 between the
             Registrant and David N. Terhune.
10.12(i)     Employment Agreement dated as of April 1, 1999 between the
             Registrant and Amin J. Khoury.
10.13(i)     Employment Agreement dated as of April 1, 1999 between the
             Registrant and Thomas E. Williams.
10.14(i)     Employment Agreement dated as of April 1, 1999 between the
             Registrant and Anthony J. Allott.
10.15.1(h)   Amended and Restated Executive Deferred Compensation Retirement
             Plan dated December 31, 1999.
10.15.2*     Amended and Restated Executive Deferred Compensation Retirement
             Plan dated August 10, 2001.
10.16.1(e)   1999 Supplemental Executive Retirement Plan dated November 30,
             1999.
10.16.2*     Amended and Restated 1999 Supplemental Executive Retirement Plan
             dated August 14, 2001.
10.17.1(e)   1999 Deferred Compensation Trust dated November 30, 1999.
10.18.1(g)   Equipment Lease Agreement dated as of December 29, 1997 between
             Registrant and Lasalle National Leasing Corporation.
10.18.2(i)   Letter Agreement dated April 28, 1999 amending Equipment Lease
             Agreement dated as of December 29, 1997.
10.19(g)     Asset Purchase and Sale Agreement dated as of April 6, 1998 between
             the Registrant and ProNet Corporation.
10.20(m)     Asset Purchase Agreement among Applied Extrusion Technologies,
             Inc., QPF, L.L.C. and Hood Companies, Inc., dated as of May 3, 2001
10.20.1(m)   Amendment No. 1 to Asset Purchase Agreement by and among Applied
             Extrusion Technologies, Inc., QPF, L.L.C. and Hood Companies, Inc.,
             dated June 12, 2001.
10.21(m)     Form of Exchange Note due 2001 (filed as an Exhibit to Item
             10.20.1).
10.22(m)     Indenture dated as of June 19, 2001 by and among the Registrant,
             Applied Extrusion Technologies (Canada), Inc. and the Wells Fargo
             Bank Minnesota, National Association, as Trustee.
10.23(m)     Registration Rights Agreement dated as of June 19, 2001 by and
             among the Registrant, Merrill Lynch & Co., Merrill Lynch, Pierce,
             Fenner & Smith Incorporated, Chase Securities, Inc., Credit Suisse
             First Boston Corporation and Deutsche Bank Alex. Brown, Inc.
21(d)        Subsidiaries of the Registrant.
23*          Independent Auditors' Consent - Deloitte & Touche LLP.
99*          Cautionary Statement for Purposes of the "Safe Harbor" Provisions
             of the Private Securities Litigation Reform Act of 1995.

_________________
     *Filed herewith
    **Contained in Exhibits to the Registrant's Registration Statement on
      Form S-4 (No. 33365294) filed with the Commission on July 18, 2001.

  (a) Contained in Exhibits to Registrant's Registration Statement on Form S-1,
      as amended (No. 33-40145), filed with the Commission on April 24, 1991.
  (b) Contained in Exhibits to the Registrant's Registration Statement on Form
      S-8 (No. 33-44449), filed with the Commission on December 18, 1991.
  (c) Contained in Exhibits to the Registrant's Registration Statement on Form
      S-8 (No. 33-48841), filed with the Commission on June 25, 1992.
  (d) Contained in Exhibits to the Registrant's Registration Statement on Form
      S-4 (No. 33-78006), filed with the Commission on April 21, 1994.
  (e) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
      ended September 30, 1999.
  (f) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
      ended September 30, 2000.

                                       22

<PAGE>

(g) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended December 31, 1997.
(h) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended June 30, 1998.
(i) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended December 31, 1999.
(j) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended March 31, 1999.
(k) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended December 31, 1999.
(l) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended March 31, 2001.
(m) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended June 30, 2001.

The above-referenced exhibits are, as indicated, either filed herewith or have
heretofore been filed with the Commission under the Securities Act and the
Exchange Act and are referred to and incorporated herein by reference to such
filings.

C.  Reports on Form 8-K

Current Report on Form 8-K reporting the closing of the acquisition of the
assets of QPF, L.L.C. filed on July 3, 2001, and amended on July 19, 2001 and
October 16, 2001.

                                       23

<PAGE>

                                   SIGNATURES

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

                                  APPLIED EXTRUSION TECHNOLOGIES, INC.

                                  By: /s/ Anthony J. Allott
                                      ------------------------------------------

                                      Anthony J. Allott, Senior Vice President
                                      and Chief Financial Officer
                                      December 4, 2001


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

/s/ Amin J. Khoury                             /s/ Nader A. Golestaneh
- -------------------------------------------    ---------------------------------
Amin J. Khoury, Chairman of the Board          Nader A. Golestaneh, Director
December 4, 2001                               December 4, 2001



/s/ Thomas E. Williams                         /s/ Joseph J. O'Donnell
- -------------------------------------------    ---------------------------------
Thomas E. Williams, President                  Joseph J. O'Donnell, Director
Chief Executive Officer and Director           December 4, 2001
December 4, 2001



/s/ Mark M. Harmeling                          /s/ Richard G. Hamermesh
- -------------------------------------------    ---------------------------------
Mark M. Harmeling, Director                    Richard G. Hamermesh, Director
December 4, 2001                               December 4, 2001



/s/ Anthony J. Allott
- -------------------------------------------
Anthony J. Allott, Senior Vice President
and Chief Financial Officer
December 4, 2001

                                       24

<PAGE>


             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
Consolidated Financial Statements:
<S>                                                                          <C>
Consolidated Balance Sheets, September 30, 2001 and 2000...................  F-2

Consolidated Statements of Operations for the Years Ended
    September 30, 2001, 2000 and 1999......................................  F-3

Consolidated Statements of Stockholders' Equity for the
    Years Ended September 30, 2001, 2000 and 1999..........................  F-4

Consolidated Statements of Cash Flows for the Years
    Ended September 30, 2001, 2000 and 1999................................  F-5

Notes to Consolidated Financial Statements.................................  F-6


Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts for the
    Years Ended September 30, 2001, 2000 and 1999.......................... F-17


Independent Auditors' Report............................................... F-18
</TABLE>

                                      F-1




<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 2001 and 2000
                     (In thousands, except per share amount)

<TABLE>
<CAPTION>
                                                                                    2001           2000
                                                                                    ----           ----
<S>                                                                              <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                    $  22,176      $   3,265
    Short-term receivable                                                           23,212              -
    Accounts receivable, net of allowance for doubtful
        accounts of $1,801 and $1,856 at September 30,
        2001 and 2000, respectively                                                 41,117         43,131
    Inventory                                                                       34,889         43,059
    Prepaid expenses and other assets                                                1,495          9,013
                                                                                 ---------      ---------
            Total current assets                                                   122,889         98,468
Property, plant and equipment, net                                                 265,536        280,300
Intangibles and deferred finance charges, net                                       23,363          2,372
Other assets                                                                        11,550          8,110
                                                                                 ---------      ---------
                                                                                 $ 423,338      $ 389,250
                                                                                 =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                               $12,860      $  17,862
    Accrued expenses and other current liabilities                                  27,552         27,216
    Accrued interest                                                                 8,585          9,971
                                                                                 ---------      ---------
            Total current liabilities                                               48,997         55,049
Long-term debt                                                                     277,462        209,500
Long-term liabilities and deferred taxes                                            18,102         24,788
Commitments and contingencies


Stockholders' equity:
Preferred stock, $.01 par value; authorized, 1,000 shares, of which 300 are
    designated Junior Preferred Stock; no stock outstanding
Common stock, $.01 par value; authorized, 30,000 shares, 12,796 and 12,019
    shares issued at September 30, 2001 and 2000, respectively                         128            120
Additional paid-in capital                                                         101,580        100,266
Retained earnings (deficit)                                                        (16,559)         4,060
Accumulated other comprehensive loss                                                (3,795)        (2,277)
                                                                                 ---------      ---------
                                                                                    81,354        102,169

Treasury stock, at cost, and other, 250 and 248 shares
    at September 30, 2001 and 2000, respectively                                    (2,577)        (2,256)
                                                                                 ---------      ---------
           Total stockholders' equity                                               78,777         99,913
                                                                                 ---------      ---------
                                                                                 $ 423,338      $ 389,250
                                                                                 =========      =========
</TABLE>

See notes to consolidated financial statements.

                                      F-2

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended September 30, 2001, 2000 and 1999
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  2001            2000            1999
                                                                  ----            ----            ----
<S>                                                             <C>            <C>             <C>
Sales                                                           $ 279,840      $ 268,375       $ 237,042
Cost of sales                                                     218,430        215,256         188,601
                                                                ---------      ---------       ---------
Gross profit                                                       61,410         53,119          48,441
Operating expenses:
    Selling, general and administrative                            28,639         27,152          26,550
    Research and development                                        6,419          6,759           7,123
    Loss on sale of assets                                          7,054              -               -
    QPF acquisition costs                                           2,548              -               -
    Share incentive plan                                              861              -               -
                                                                ---------      ---------       ---------
       Total operating expenses                                    45,521         33,911          33,673

Operating profit                                                   15,889         19,208          14,768

Non-operating expenses:

    Interest expense, net                                          24,659         21,096          18,909
    Acquisition costs                                                   -              -           3,641
                                                                ---------      ---------       ---------
       Total non-operating expenses                                24,659         21,096          22,550

Loss before income taxes                                           (8,770)        (1,888)         (7,782)
Income tax expense (benefit)                                        9,872           (679)         (3,113)
                                                                ---------      ---------       ---------
Loss before extraordinary item                                  $ (18,642)     $  (1,209)      $  (4,669)

Extraordinary loss on early extinguishment
    of debt, net of taxes of $1,112                                (1,977)             -               -
                                                                ---------      ---------       ---------

Net loss                                                        $ (20,619)     $  (1,209)      $  (4,669)
                                                                =========      =========       =========

Loss per common share before extraordinary item
    Basic and diluted                                           $   (1.50)     $   (0.10)      $   (0.41)
Loss per common share
    Basic and diluted                                           $   (1.66)     $   (0.10)      $   (0.41)
Average common shares outstanding
    Basic and diluted                                              12,420         11,829          11,282
</TABLE>


See notes to consolidated financial statements.

                                       F-3

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended September 30, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                          Accumlated

                                                   Voting          Additional               Other

                                                Common Stock        Paid-in   Retained   Comprehensive Comprehensive  Treasury

                                              Shares      Amount    Capital   Earnings       Loss          Loss        Stock
                                            ---------------------------------------------------------------------------------------
<S>                                         <C>         <C>         <C>        <C>       <C>           <C>          <C>
Balance, September 30, 1998 .............     11,357    $    114    $ 95,867   $  9,938    $ (2,396)                $ (3,086)
    Net loss ............................                                        (4,669)               $ (4,669)
    Profit sharing contribution .........         28         229
    Stock issued for 401(k) match .......         73           1         828                                             456
    Stock issued for employee purchases .         64           1         399
    Treasury shares and other ...........                                                                                113
    Exercise of stock options ...........         53                     354
    Exchange rate changes ...............                                                       868         868
    Tax benefits of early disposition of
        stock options ...................                                 24
                                            --------    --------    --------   --------    --------    --------     --------
    Comprehensive loss ..................                                                              $ (3,801)
                                                                                                       ========
Balance, September 30, 1999 .............     11,575         116      97,701      5,269      (1,528)                  (2,517)
    Net loss ............................                                        (1,209)                 (1,209)
    Profit sharing contribution .........         98           1         575
    Stock issued for 401(k) match .......        216           2       1,286
    Stock issued for employee purchases .         93           1         445
    Treasury shares and other ...........                                                                                261
    Exercise of stock options ...........         37         253
    Exchange rate changes ...............                                                      (749)       (749)
    Tax benefits of early disposition of
        stock options ...................                                  6
                                            --------    --------    --------   --------    --------    --------     --------
    Comprehensive loss ..................                                                              $ (1,958)
                                                                                                       ========
Balance, September 30, 2000 .............     12,019         120     100,266      4,060      (2,277)                  (2,256)
    Net loss ............................                                       (20,619)                (20,619)
    Profit sharing contribution .........         91           1         170
    Stock issued for share incentive plan        593           6         830
    Stock issued for employee purchases .         77           1         202
    Treasury shares and other ...........                                                                               (321)
    Exercise of stock options ...........         16                     109
    Exchange rate changes ...............                                                    (1,518)     (1,518)
    Tax benefits of early disposition of
        stock options ...................                                  3
                                            --------    --------    --------   --------    --------    --------     --------
    Comprehensive loss ..................                                                              $(22,137)
                                                                                                       ========
Balance, September 30, 2001 .............     12,796    $    128    $101,580   $(16,559)   $ (3,795)                $ (2,577)
                                            ========    ========    ========   ========    ========                 ========
</TABLE>

See notes to consolidated financial statements.

                                      F-4

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended September 30, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                        2001         2000        1999
                                                                     ----------   ----------   ---------
<S>                                                                  <C>          <C>          <C>
OPERATING ACTIVITIES:
    Net loss                                                         $ (20,619)   $  (1,209)   $  (4,669)
    Adjustments to reconcile net loss to net cash used
       in operating activities:
        Provision for doubtful accounts                                    400          472        1,217
        Depreciation and amortization                                   22,362       21,025       19,484
        Deferred taxes and other credits                                (3,367)     (10,306)     (10,526)
        Stock issued for retirement plans                                  171        1,861        1,513
        Stock issued for share incentive plan                              861           --           --
        Loss on sale of assets                                           7,054           --           --
        Write-off of deferred debt issuance costs included
           in extraordinary loss on early extinguishment of debt         1,651           --           --
        Changes in assets and liabilities, net of assets acquired
          and divested:
           Prepaid expenses and other current assets                    (2,226)      (3,224)      (1,900)
           Accounts payable and accrued expenses                        (9,260)      (4,345)       4,037
           Accounts receivable and inventory                             7,398      (11,194)       1,398
                                                                     ---------    ---------    ---------
               Net cash provided by (used in) operating activities       4,425       (6,920)      10,554


INVESTING ACTIVITIES:

    Additions to property, plant and equipment                         (21,785)     (22,096)     (22,781)
    Proceeds from sale-leaseback transactions                               --           --       29,940
    Acquisition of assets                                              (21,744)          --      (13,316)
                                                                     ---------    ---------    ---------
               Net cash used in operating activities                   (43,529)     (22,096)      (6,157)

FINANCING ACTIVITIES:
    Proceeds from issuance of bonds                                    270,859           --           --
    Redemption of $150,000 senior notes                               (150,000)          --           --
    Borrowings (repayments) under line of credit agreement, net        (53,000)      27,000       (3,000)
    Debt issuance costs                                                 (9,786)          --           --
    Proceeds from issuance of stock, net                                   (30)         707          779
                                                                     ---------    ---------    ---------
               Net cash provided by (used in) financing activities      58,043       27,707       (2,221)

    Effect of exchange rate changes on cash                                (28)        (749)         868
                                                                     ---------    ---------    ---------
    Increase (decrease) in cash and cash equivalents, net               18,911       (2,058)       3,044

    Cash and cash equivalents, beginning                                 3,265        5,323        2,279
                                                                     ---------    ---------    ---------
    Cash and cash equivalents, ending                                $  22,176    $   3,265    $   5,323
                                                                     =========    =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
       Interest, including capitalized interest of $2,757, $2,442
       and $3,050, respectively                                      $  28,823    $  21,888    $  21,058
       Income taxes                                                        201          210           --
</TABLE>

See notes to consolidated financial statements.

                                      F-5

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended September 30, 2001, 2000 and 1999
               (In thousands, except share and per share amounts)


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Applied Extrusion Technologies, Inc. and its subsidiaries (collectively AET or
the Company) operate in a single business segment, which consists of the
development and manufacture of highly specialized, single and multilayer
oriented polypropylene ("OPP") films used in consumer product labeling and
flexible packaging applications.

Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Applied Extrusion Technologies, Inc. and its
subsidiaries. All intercompany accounts and transactions have been eliminated.

Accounting estimates were made in connection with the preparation of the
Company's consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America. These estimates
affect reported amounts and disclosure of assets, liabilities, revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

Cash and cash equivalents consist of cash and highly liquid debt instruments
such as commercial paper and money market securities purchased with an original
or remaining maturity of less than three months.

Financial instruments are recorded in accordance with accounting principles
generally accepted in the United States of America for each particular
instrument. Appropriate disclosure about fair value is provided for all
financial instruments, whether recognized or not in the balance sheet, for which
it is practicable to estimate that value. For financial instruments such as
accounts receivable, accounts payable and accrued expenses which reprice or
mature within three months of the reporting date, carrying amounts generally
approximate fair value. At September 30, 2001 and 2000, the carrying amounts of
long-term debt approximate their fair values. The aggregate fair value amounts
presented may not fully represent the underlying fair value to the Company.

Inventory is stated at the lower of cost or market, with cost determined using
an average-cost method.

Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided using the straight-line method over estimated
useful lives. Estimated useful lives are 30 years for building and improvements
and 5 to 15 years for machinery and equipment. Leasehold improvements are
amortized using the straight-line method over the lesser of the estimated life
of the improvement or the remaining lease term.

Intangibles and deferred finance charges include intellectual property, patents,
licenses, organization costs, covenants not to compete, customer lists, goodwill
and costs associated with the issuance of debt. Amortization of intangibles is
being recognized using the straight-line method based upon the economic useful
lives of the assets, principally over ten years. Amortization of deferred
finance charges is included in net interest expense.

Income taxes are recorded using an asset and liability approach that recognizes
deferred tax assets and liabilities for the differences between the financial
statement carrying amount and the tax basis of existing assets and liabilities.
These differences arise principally from the use of accelerated depreciation
methods for income tax reporting purposes and the straight-line method for
financial statement purposes. Deferred tax assets and liabilities are measured
using enacted tax rates in

                                      F-6

<PAGE>

effect for the year in which these temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the period that includes the enactment date.

Sales are recognized upon shipment of products when title and risk of loss have
passed to the customer.

Foreign operations. Assets and liabilities of foreign operations are translated
into U.S. dollars at the exchange rate on the balance sheet date. The results of
foreign subsidiary operations are translated using average rates of exchange
during each reporting period. Gains and losses upon translation are deferred and
reported as a component of other comprehensive income. The Company has
periodically entered into foreign currency exchange contracts to hedge firm
purchase commitments denominated in foreign currencies.

Earnings per share. Basic loss per share is based on the weighted-average shares
outstanding during each reporting period. Diluted loss per share includes the
effect of potential shares from exercise of options, except where such potential
shares would be anti-dilutive.

Impairment of long-lived assets. The Company periodically assesses the
recoverability of its long-lived assets by comparing the undiscounted cash flows
expected to be generated by those assets to their carrying value. If the sum of
the undiscounted cash flows is less than the carrying value of the assets, an
impairment charge is recognized.

Comprehensive income (loss). The only item that the Company currently records as
comprehensive income or loss, other than net income or loss, is the change in
the cumulative translation adjustment resulting from the changes in exchange
rates and the effect of those changes upon translation of the financial
statements of the Company's foreign operations.

Certain new accounting pronouncements. In June 1998 the financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that all companies record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The company adopted SFAS No. 133, as amended, on
October 1, 2000. The adoption of this standard had no effect on the Company's
operations or financial position.

During fiscal 2001 the Company adopted Securities and Exchange Commission Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." This SAB was
intended to clarify certain elements of revenue recognition. It has been
supplemented by a "frequently asked questions" document. Adoption of this SAB
did not materially impact the Company's revenue recognition practices.

In July 2001 the FASB issued SFAS No. 141, "Business Combinations," which
supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 142,
"Goodwill and Intangible Assets," which supersedes APB Opinion No. 17,
"Intangible Assets." SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and modifies the application of the
purchase accounting method. The elimination of the pooling-of-interests method
is effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS No. 141 will be effective for transactions accounted for
using the purchase method that are completed after June 30, 2001. SFAS No. 142
eliminates the current requirement to amortize goodwill and indefinite-lived
intangible assets, addresses the amortization of intangible assets with a
defined life and addresses the impairment testing and recognition for goodwill
assets arising from transactions completed before and after the Statement's
effective date. This standard will be adopted by the Company in fiscal 2002.
Upon adoption the company will cease to incur amortization expense on its
indefinite life assets. At September 30, the Company had $13,926 of net goodwill
recorded in

                                      F-7

<PAGE>

the financial statements and would avoid approximately $348 of annual
amortization before any impairments.

In June 2001, the FASB issued SFAS 143 "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. We do not expect the adoption of SFAS 143 to have
a material impact on our financial position or results of operations.

In October 2001, the FASB issued SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS 144
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and also supersedes the
accounting and certain reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. The Company is in the process of determining
the impact of this new accounting standard.

2. ACQUISITIONS AND DIVESTITURES

On June 30, 2001, the Company completed its acquisition of certain assets of
QPF, L.L.C. Assets acquired included: machinery and equipment; intellectual
property; intangibles; and inventory of the business. The purchase price for the
QPF assets was $21,744. In conjunction with the QPF acquisition, the Company
incurred certain one-time costs directly related to the acquisition and
transition of the QPF business such as legal, incentive compensation, and
accounting costs that were recorded as an operating expense during the third
quarter.

Effective September 30, 2001, the Company sold its specialty nets and nonwovens
business to DelStar Technologies, Inc. The business, located in Middletown,
Delaware, generated annual sales in fiscal 2001 of approximately $20,000 through
the manufacture and sale of nets and nonwoven media. This business was non-core
to the Company. The gross proceeds of the transaction were approximately
$23,000. The Company recorded a loss in the fourth fiscal quarter of 2001 of
$7,054 on the sale of this business, reflecting the difference between the
selling price and the net book value of the specialty nets and nonwovens assets,
as well as transaction costs such as legal, banking, incentive compensation and
accounting costs incurred in connection with the sale of the business.

3. INVENTORY

Inventory consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                2001     2000
                                                ----     ----
                <S>                           <C>       <C>
                Raw materials ..............  $ 6,963   $ 9,336
                Finished goods .............   27,926    33,723
                                              -------   -------
                                              $34,889   $43,059
                                              =======   =======
</TABLE>

                                      F-8

<PAGE>

4. PROPERTY, PLANT, EQUIPMENT AND LEASE COMMITMENTS

Property, plant and equipment consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                      2001       2000
                                                      ----       ----
         <S>                                        <C>        <C>
         Land ..................................    $  1,684   $  1,778
         Buildings and improvements ............      41,814     45,649
         Machinery and equipment ...............     261,366    277,983
                                                    --------   --------
                                                     304,864    325,410
         Less accumulated depreciation .........      90,505     82,751
                                                    --------   --------
                                                     214,359    242,659
         Machinery and equipment in progress ...      51,177     37,641
                                                    --------   --------
                                                    $265,536   $280,300
                                                    ========   ========
</TABLE>

Approximately $46,359 of fixed assets are located outside of the United States.
Depreciation expense for the years ended September 30, 2001, 2000 and 1999 was
$20,499, $18,593 and $18,465, respectively.

The Company leases certain property and equipment under agreements generally
with terms of five to seven years and which may include certain renewal options.
Rental expense for the years ended September 30, 2001, 2000 and 1999 was
approximately $14,572, $10,487 and $10,043, respectively.

The minimum annual rental commitments under noncancellable operating leases are
as follows for each of the five years subsequent to September 30, 2001:

<TABLE>
         <S>                                                    <C>
         2002 ...............................................    14,580
         2003 ...............................................    14,430
         2004 ...............................................    11,867
         2005 ...............................................     2,035
         2006 ...............................................       234
                                                                -------
                                                                $43,146
                                                                =======
</TABLE>


5. INTANGIBLES AND DEFERRED FINANCE CHARGES

Intangibles and deferred finance charges consisted of the following at September
30:

<TABLE>
<CAPTION>
                                                      2001     2000
                                                      ----     ----
           <S>                                      <C>      <C>
           Deferred financing charges ............. $ 9,437  $ 1,809
           Goodwill ...............................  11,344       --
           Other intangible assets ................   3,911    1,611
                                                    -------  -------
                                                     24,692    3,420
           Less accumulated amortization ..........   1,329    1,048
                                                    -------  -------
                                                    $23,363  $ 2,372
                                                    =======  =======
</TABLE>

                                      F-9

<PAGE>

6. LONG-TERM DEBT

Long-term debt consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                                 2001      2000
                                                               --------  --------
<S>                                                            <C>       <C>
Industrial Revenue Bond payable November 4, 2004 at
    5.25% effective rate at September 30, 2001                 $  6,500  $  6,500
Senior Notes payable on April 7, 2002 with 11.5% interest
    due semiannually on October 1 and April 1                        --   150,000
Senior Notes payable on June 19, 2011 with 10.75% interest
    due semiannually on January 1 and July 1                    270,962        --
Revolving Credit Facility of $80,000 bearing interest at
    LIBOR plus 2.75% or prime plus 1.25% on utilized portions
    and .5% for unused commitments                                   --    53,000
                                                               --------  --------
                                                                277,462   209,500

         Less current portion                                        --        --
                                                               --------  --------
               Total long-term debt                            $277,462  $209,500
                                                               ========  ========
</TABLE>

On June 19, 2001 the Company issued $275,000 of 10-3/4 percent Senior Notes due
2011 (the "Senior Notes"). The Senior Notes are unsecured senior obligations of
AET. The issue price of each Senior Note was $984.94 per $1,000 principal amount
at maturity, and each Senior Note carries a yield to maturity of 11 percent. The
bond discount is being amortized to interest expense. The net proceeds to the
Company from the sale of the Senior Notes after deducting discount, fees and
expenses were approximately $261.1 million. Of those proceeds, $155.2 million
was used to fund the redemption of and interest on the 11-1/2 percent senior
notes due 2002 (the "2002 Notes"), $9.0 million was used to fund a portion of
the purchase price of the acquisition of the assets of QPF, L.L.C., $74.1
million was used to repay existing indebtedness and interest due under the
Company's line of credit (the "Credit Facility"), and the remainder is being
held for general corporate purposes and to fund future growth opportunities.

The Senior Notes were issued by the parent company, which has no independent
assets or operations. These notes are fully and unconditionally guaranteed by
one of the Company's wholly-owned subsidiaries. The assets and operations of the
Company's other non-guarantor subsidiary are minor.

In conjunction with the redemption of the 2002 Notes, the Company recorded a
loss on the early extinguishment of debt of $1,977, or $.16 per share, net of
taxes. This amount is comprised of unamortized debt issuance costs and interest
incurred during the 30-day call period.

AET maintains a credit agreement with a group of lenders whereby the Company has
a $80,000 revolving credit facility (the "Credit Facility") with a final
maturity of January 29, 2003. The Credit Facility is secured by all the assets
of AET. It includes covenants which limit borrowings based on certain asset
levels, require AET to maintain a minimum tangible net worth and specified
interest coverage and leverage ratios, restrict payment of cash dividends to
stockholders and establish maximum capital expenditure levels. It also contains
other covenants customary in transactions of this type. The Company was not in
compliance with the net worth covenant at September 30, 2001, and has received a
waiver from its banks. The Company also has $6,500 of revenue bonds outstanding,
which are due November 4, 2004 and which are partially secured by a letter of
credit issued under the Credit Facility.

                                      F-10

<PAGE>

7.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accrued expenses consisted of the following at September 30:

                                                               2001       2000
                                                               ----       ----

        Accrued restructuring ..........................   $  2,470   $  2,172
        Deferred gain on sale-leaseback ................      9,424      9,519
        Payroll & benefits .............................      3,166      5,524
        Market development .............................      4,813      4,252
        Taxes and other ................................      7,679      5,749
                                                           --------   --------
                                                           $ 27,552   $ 27,216
                                                           ========   ========

Included in accounts payable are outstanding checks of $4,812 and $4,435 at
September 30, 2001 and 2000, respectively. During the year payments against a
restructuring reserve related to lease payments for certain manufacturing
equipment reduced such accounts by $900 to $8,887. Approximately $7,987 and
$7,615 of these restructuring costs are included in deferred taxes and other
credits at September 30, 2001 and 2000, respectively.

8.    INCOME TAXES

The provision for income taxes consisted of the following for the years ended
September 30:

                                               2001       2000           1999
                                               ----       ----           ----

        Deferred:
            U.S. Federal .................    (2,719)      (642)        (2,724)
            State ........................      (439)       (37)          (389)
            Valuation Allowance ..........    13,030         --             --
                                             -------    -------       --------
            Total ........................   $ 9,872    $  (679)      $ (3,113)
                                             =======    =======       ========


The components of the net deferred tax asset were as follows at September 30:

<TABLE>
<CAPTION>

                                                                          2001          2000
                                                                          ----          ----
        <S>                                                           <C>            <C>
        Current Deferred Tax:
            Accounts receivable ................................      $      510     $      421
            Inventory ..........................................           3,219          3,274
            Other assets .......................................              (6)            (6)
            Other liabilities ..................................           4,912          4,944
            Valuation allowance ................................          (7,951)          (125)
                                                                      ----------     ----------
                Net Current Deferred Tax Asset .................      $      684     $    8,508
                                                                      ==========     ==========

        Non Current Deferred Tax:
            Property, plant and equipment ......................         (45,246)       (40,284)
            Other assets .......................................           5,070          8,004
            Other liabilities ..................................             228            145
            Tax credits and loss carryforwards .................          44,777         33,808
            Valuation allowance ................................          (5,513)          (309)
                                                                      ----------     ----------
              Net Non-Current Deferred Tax Asset/(Liability) ...            (684)         1,364
                                                                      ----------     ----------
        Total Net Deferred Tax Asset ...........................      $        0     $    9,872
                                                                      ==========     ==========
</TABLE>

Deferred tax expense reflects adjustments made for previously provided deferred
taxes. In addition, due to recent historical losses, a valuation allowance in
accordance with SFAS No. 109 has been established for certain state and federal
deferred tax assets resulting from temporary differences for which the potential
to realize the tax benefit given recent results is uncertain. The Company
believes, however, that it will be able to utilize the tax benefits in the
future.

                                      F-11

<PAGE>

At September 30, 2001, the Company has, for income tax reporting purposes,
federal net operating loss carryforwards of $97,175 (expiration commencing in
2006 through 2020) and state net operating loss carryforwards of $93,881
(limited by certain state tax statutes and expiration). The Company also has
research and development credit carryforwards of $443, alternative minimum tax
credit carryforwards of $4,717 and state investment tax credits of $319
expiration commencing in 2005.

A reconciliation of the statutory federal income tax rate to the effective rate
of the provisions for income taxes for the years ended September 30, 2001, 2000
and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                           2001         2000       1999
                                                                           ----         ----       ----
       <S>                                                              <C>          <C>        <C>
       Statutory tax rate ........................................          35.3%         35.0%       35.0%
       State income taxes, net of federal tax benefits ...........           3.7%          3.4%        3.8%
                                                                        --------      --------   ---------
           Subtotal ..............................................          39.0%         38.4%       38.8%
       Valuation allowance .......................................         (77.5%)        (2.4%)       1.2%
                                                                        --------      --------   ---------
           Total .................................................         (38.5%)        36.0%       40.0%
                                                                        ========      ========   =========
</TABLE>


9.    STOCKHOLDERS' EQUITY

Tax benefits resulting from stock compensation expense allowable for U.S.
federal income tax purposes in excess of the expense recorded in the
consolidated statements of operations have been credited to additional paid-in
capital.

Until December 2000, the Company had an employee stock purchase plan, under
which employees could defer a portion of their compensation and purchase AET
shares at a discount. Purchases through payroll deductions were made on a
semiannual basis. Approximately 77,233 shares were purchased under this plan in
fiscal 2001, and at September 30, 2001, 76,766 shares were available under the
plan for future purchases.

A total of 67,347 shares are held in treasury under a deferred compensation
plan, which is discussed in further detail in Note 14.

In March 1998, the Company adopted a shareholder rights plan, and the Board of
Directors declared a dividend consisting of one right, called a "Junior
Preferred Stock Purchase Right" (a "Right") to each share of Common Stock
outstanding on March 9, 1998. Each share of Common Stock issued after that date
will be issued with an attached Right. Each Right entitles the holder, upon the
occurrence of certain events, to purchase 1/100th of a share of Preferred Stock
at an initial exercise price of $36, subject to adjustments for stock dividends,
splits and similar events. The Rights are exercisable only if a person or group
acquires 20 percent or more of AET's Common Stock or announces an intention to
commence a tender or exchange offer, the consummation of which would result in
ownership by such person or group of 20 percent or more of AET's Common Stock.
The Rights may be redeemed by the Board of Directors at any time prior to the
expiration of the rights plan on March 2, 2008 at a redemption price of $.01
each, and may be amended by the Board at any time prior to becoming exercisable.
At September 30, 2001, there were 12,796,353 Junior Preferred Stock Purchase
Rights outstanding.

In the first quarter of fiscal 2001, the Company recorded a one-time, non-cash
charge of $861 for shares issued to non-executive employees as part of an
incentive and retention program. Under this program the Company issued
approximately 600,000 shares of stock to its top 125 non-executive managers in
exchange for 1,200,000 of their vested and unvested stock options. These new
shares vest over two years and were granted in lieu of annual incentive bonuses
for these managers for fiscal 2000 and 2001.

                                      F-12

<PAGE>

10.    STOCK OPTIONS

The Company maintains common stock option plans for key employees, directors and
consultants under which the exercise price is generally not less than the fair
value of the shares at the date of grant. The options generally vest at a rate
of 25 percent per year. Vested employee options generally expire within three
months of employment termination or three years after the death of the employee.
Vested director options generally expire within three months of the resignation
or within six months of the death of a director. All options expire upon the
occurrence of the tenth anniversary of the grant date or upon other termination
events specified in the plans. As of September 30, 2001, an aggregate of
4,269,918 shares were reserved for issuance under the plans.

The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, no compensation cost has been recognized
for fixed stock option grants since the options granted to date have exercise
prices per share of not less than the fair value of the Company's common stock
at the date of the grant.

If compensation cost for stock option grants and the Company's Employee Stock
Purchase Plan had been determined based on the fair value of the grant for 2001,
2000 and 1999, the Company's fiscal 2001, 2000 and 1999 net loss and loss per
share on a pro forma basis would have been as follows:

<TABLE>
<CAPTION>
                                                               2001         2000         1999
                                                               ----         ----         ----
              <S>                                           <C>          <C>          <C>
              Net Loss:
                  As reported ........................      $  (20,619)  $ (1,209)    $ (4,669)
                  Pro forma ..........................         (22,030)    (2,937)      (5,889)
              Basic and Diluted Loss per Share:
                  As reported ........................           (1.66)      (.10)        (.41)
                  Pro forma ..........................           (1.77)      (.25)        (.52)
</TABLE>

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999: expected volatility ranging
from 59 to 56 percent, risk-free interest rates of approximately 4 percent and
expected lives of 7 to 10 years. The weighted-average grant date fair value of
options granted during the year was $2.41, $5.89 and $3.99 for 2001, 2000 and
1999 respectively.

Information concerning the Company's option plans is as follows:

<TABLE>
<CAPTION>
                                                                   Weighted-
                                                                    Average
                                 Shares under           Option     Exercise
                                    Option              Prices      Price     Exercisable
                                 ------------           ------     --------    -----------
<S>                              <C>              <C>              <C>         <C>
As of September 30, 1998            2,697,625    $   4.630-14.875   $ 7.55       1,923,125
                                                                               ===========
     Granted                          469,500         5.563-8.063     5.90
     Exercised                        (52,999)        6.625-8.250     6.69
     Canceled                         (10,251)        7.000-8.250     7.51
                                -------------
As of September 30, 1999            3,103,875        4.630-14.815     7.32       2,130,993
                                =============                                  ===========
     Granted                          598,750         4.563-8.500     7.74
     Exercised                        (37,250)        6.625-7.250     6.81
     Canceled                         (45,750)        5.563-9.000     6.98
                                -------------
As of September 30, 2000            3,619,625        4.563-14.875     7.39       2,442,750
                                =============                                  ===========
     Granted                        1,119,625         1.6875-7.34     4.82
     Exercised                        (16,000)        5.6560-7.25     6.80
     Canceled                      (1,520,937)         3.00-12.00     7.61
                                -------------
As of September 30, 2001            3,202,313      1.6875-14.8750     6.39       1,703,811
                                =============                                  ===========
</TABLE>

                                      F-13



<PAGE>

The following table summarizes information regarding stock options outstanding
at September 30, 2001:

<TABLE>
<CAPTION>
                                                                                Options
                                      Options Outstanding                     Exercisable
                           ------------------------------------------------------------------------------
                                             Weighted-
                                              Average       Weighted-                       Weighted-
                             Outstanding     Remaining      Average        Exercisable      Average
            Range of            as of       Contractual     Exercise          as of         Exercise
        Exercise Price        09/30/01     Life in Years     Price          09/30/01         Price
        -------------------------------------------------------------------------------------------------
        <S>                 <C>             <C>             <C>             <C>          <C>
        $   1.00-5.00         555,625           7.0        $ 3.0423          180,750       $ 4.7935
            5.01-7.50       1,646,687           7.0          6.1849          701,936         6.2974
           7.51-10.00         922,500           4.8          8.2140          743,625         8.2602
          10.01-12.50          23,750           5.7         11.7500           23,750        11.7500
          12.51-15.00          53,751           4.2         13.8372           53,750        13.8372
                            ---------           ---        --------        ---------       --------
                            3,202,313           6.3        $ 6.3939        1,703,811       $ 7.3084
                            =========           ===        ========        =========       ========
</TABLE>

11.    EARNINGS PER SHARE

In 2001, 2000 and 1999, 147,000, 129,000 and 150,000 potential shares from
options were excluded from the computation of diluted loss per share, as the
effect of including these shares in the calculation would be anti-dilutive.

12.    RELATED-PARTY TRANSACTIONS

The Company has entered into employment agreements extending for periods of up
to four years with certain key officers of the Company. These officers, who in
some cases also serve on the Board of Directors and are stockholders of the
Company, are also eligible for performance bonuses.

13.    COMMITMENTS AND CONTINGENCIES

The Company had entered into foreign exchange contracts, the last of which
expired in May 2000, to hedge firm purchase commitments for the purchase of
equipment denominated in German Marks and Pounds Sterling. Gains and losses on
the contracts which result from market risk associated with changes in the
market values of the underlying currencies were deferred and included as part of
capitalized assets. At September 30, 2001, the Company had no outstanding
foreign exchange contracts. The Company does not enter into foreign exchange
contracts for trading or speculative purposes.

From time to time, the Company becomes involved in litigation which is
incidental to its business. Management does not believe that the outcome of
currently pending matters, either individually or in the aggregate, will have a
material impact on financial position in the results of operations.

14.    EMPLOYEE BENEFIT PLANS

Substantially all employees with more than three months of service (as defined)
are eligible to participate in a Company savings and profit sharing plan. The
plan provides for board-approved matching contributions in varying amounts based
on employee contribution percentages up to 3.5 percent of gross salary in
Company stock or cash which are fully accrued in the accompanying consolidated
financial statements. The plan also provides for profit sharing contributions at
the discretion of the Board of Directors. Aggregate contributions were made with
Company stock valued at $171, and $1,311 of cash in 2001. These contributions
were made with Company stock in 2000 and 1999, valued at $1,861 and $1,058,
respectively.

                                      F-14

<PAGE>

The Company has a non-qualified deferred compensation plan for certain
management employees. This plan allows these employees to defer all or a portion
of their salary and bonus until retirement or termination of their employment.
At its election, the Company can make contributions to this plan representing a
percentage of employee salary. Contributions made were $448, $502 and $0 in
2001, 2000 and 1999, respectively. Assets of this plan of $3,246 at September
30, 2001 are carried in other assets.

In April 1999, the Company implemented a Supplemental Executive Retirement Plan
under which certain executive employees will receive benefits annually equal to
an average of their compensation for a period of 10 years after retirement. As
of September 30, 2001, the projected benefit obligation under the plan is
$6,600, and during the year the Company recorded $4,900 of net periodic benefit
costs. The plan is unfunded; however, the Company has designated approximately
$6,700 of its cash and cash equivalents to provide for the eventual funding of
the liability, which are carried in other assets.

15.    CONCENTRATION OF CREDIT RISK AND EXPORT SALES

The Company sells its products under normal credit terms to a diverse base of
customers in the packaging film conversion market, consumer product and health
care markets, as well as other industries. The Company performs ongoing credit
evaluations of its customers, and generally does not require collateral,
although letters of credit may be required on certain foreign sales. A
significant amount of sales were to converters of packaging films for end users
in the beverage, candy and snack food industries. One converter customer
accounted for approximately 18 percent of sales in fiscal 2001, 18 percent of
sales in 2000 and 20 percent of sales in 1999, with no other customer accounting
for more than 10 percent of sales in 2001, 2000 or 1999.

Information by geographic location was as follows for the years ended September
30:

<TABLE>
<CAPTION>
                                                           2001           2000        1999
                                                           ----           ----        ----
   <S>                                                  <C>           <C>           <C>
   Sales:
      United States................................     $  235,521    $  219,295    $ 192,627
      Foreign......................................         44,319        49,080       44,415
                                                        ----------    ----------    ---------
                                                        $  279,840    $  268,375    $ 237,042
                                                        ==========    ==========    =========
   Operating profit:
      United States................................     $   13,989    $   18,324    $  11,902
      Foreign......................................          1,900           884        2,866
                                                        ----------    ----------    ---------
                                                        $   15,889    $   19,208    $  14,768
                                                        ==========    ==========    =========
</TABLE>

No individual country, other than the United States, comprised more than 10
percent of consolidated sales or operating profit.

                                      F-15

<PAGE>

16. SELECTED QUARTERLY DATA (UNAUDITED)

Summarized quarterly financial data for fiscal 2001, 2000 and 1999 were as
follows:

<TABLE>
<CAPTION>
                                                                    Earnings     Earnings
                                                                     (Loss)       (Loss)
                                                     Net Income     Per Share    Per Share
                         Net Sales    Gross Profit    (Loss)/(a)/    Basic/(a)/   Basic/(a)/
                         ---------    ------------     ----          -----        -----
<S>                      <C>          <C>            <C>            <C>          <C>
September 30, 1999
    1/st/ quarter        $  55,445    $   7,941      $  (4,735)     $  (.43)     $  (.43)
    2/nd/ quarter           58,979       11,652           (863)        (.08)        (.08)
    3/rd/ quarter           62,269       13,757            194          .02          .02
    4/th/ quarter           60,349       15,091            735          .06          .06
September 30, 2000
    1/st/ quarter        $  60,151    $  14,876      $   1,158      $   .10      $   .10
    2/nd/ quarter           68,745       16,787          1,803          .15          .15
    3/rd/ quarter           73,700       14,302             21          .00          .00
    4/th/ quarter           65,779        7,154         (4,191)        (.35)        (.35)
September 30, 2001
    1/st/ quarter        $  62,724    $  11,378      $  (2,144)     $  (.18)     $  (.18)
    2/nd/ quarter           72,989       15,097            633          .05          .05
    3/rd/ quarter           72,414       17,306          1,645          .13          .13
    4/th/ quarter           71,713       17,629            951          .08          .08
</TABLE>


__________________

     (a) Excludes $551, net of taxes, of non-cash charges related to the share
         incentive plan for non-executive employees in December 2000; $1,631,
         net of taxes, of QPF transaction costs and $1,977, net of taxes, of
         loss on early extinguishment of debt in June 2001; and $7,054 of loss
         on sale of assets and tax valuation allowance of $13,030 in September
         2001.

                                      F-16

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended September 30, 2001, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                          Additions
                            Balance at    charged to
                            beginning      costs and                    Balance at
          Description       of period      expenses      Deductions    end of period
          -----------       ---------     ---------      ----------    -------------
<S>                         <C>           <C>            <C>           <C>
Allowance for doubtful
accounts:
            2001            $  1,856      $   400        $   455       $    1,801
            2000               1,554          472            170            1,856
            1999               1,056        1,217            719            1,554
</TABLE>

                                      F-17

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Applied Extrusion Technologies, Inc.:


We have audited the accompanying consolidated balance sheets of Applied
Extrusion Technologies, Inc. and its subsidiaries as of September 30, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 2001. Our audits also included the financial statement schedule listed in
Item 14A. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Applied Extrusion Technologies,
Inc. and its subsidiaries at September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information shown therein.



/s/ Deloitte and Touche LLP
- ---------------------------
Deloitte & Touche LLP

Boston, Massachusetts
November 20, 2001

                                      F-18

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1.6
<SEQUENCE>3
<FILENAME>dex1016.txt
<DESCRIPTION>EXHIBIT 10.1.6 - AMENDMENT 2 - CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                  Exhibit 10.1.6

                                                                  CONFORMED COPY

                                          AMENDMENT NO. 2

     AMENDMENT NO. 2 (the "Amendment") dated as of September 28, 2001 of the
Credit Agreement dated as of April 7, 1994 and amended and restated as of
January 29, 1998, as amended by Waiver and Amendment No. 1 dated as of December
16, 1998, further amended and restated as of March 15, 1999, further amended by
Amendment No. 1 dated as of April 23, 1999, further amended and restated as of
April 12, 2000 and September 30, 2000, further amended by Amendment No. 1 dated
as of December 31, 2000, further amended and restated as of April 15, 2001 and
further amended by Waiver and Amendment No. 1 dated as of June 15, 2001 (the
"Credit Agreement"), among APPLIED EXTRUSION TECHNOLOGIES, INC. (the "Company"),
the LENDERS party thereto (the "Lenders") and THE CHASE MANHATTAN BANK, as
Administrative Agent (the "Administrative Agent").

                              W I T N E S S E T H :

     WHEREAS, the Company and the Lenders have agreed to permit the disposition
of certain assets and make certain related changes and the Administrative Agent
has, with the Lenders' consent, agreed to release the security interests in such
assets, all as more fully set forth below;

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1. Definitions; References. Unless otherwise specifically defined
in the recitals above, each term used herein which is defined in the Credit
Agreement shall have the meaning assigned to such term in the Credit Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall, from and after the date
hereof, refer to the Credit Agreement as amended hereby.

     Section 2. Section 1.01. Section 1.01 of the Credit Agreement is amended by
adding in appropriate alphabetical order the following definition:

     "Specialty Nets and Nonwoven Assets" shall mean the assets used in the
      ----------------------------------
manufacture and sale of (x) nets and embossed film products of the type
currently marketed under the "Delnet", "Stratex" and "Plastinet" names, and (y)
nonwoven fabric and apertured film products of the type currently marketed under
the "Delpore" name for sale to, among others, manufacturers selling products to
the filtration, medical and speciality textile markets, which assets (other than
certain


<PAGE>

inventory located elsewhere) are all currently located at or part of the plant
in Middletown, Delaware or at Applied Extrusion Technologies, Ltd.'s offices at
Suite 28, Aztec Centre, Aztec West, Almondsbury, Bristol, U.K.

     Section 3. Section 9.12. Section 9.12 of the Credit Agreement is amended by
amending clause (viii) to add after the words "of the Terre Haute Tubular
Assets" the following words ", of the Specialty Nets and Nonwoven Assets", and
to add after the words "Section 3.02(b)(i)(4)" the words "(except in the case of
the disposition of the Specialty Nets and Nonwoven Assets, which shall not be
subject to such conditions, notwithstanding anything to the contrary set forth
in Section 3.02(b)(i)(4)".

     Section 4. Release. The Administrative Agent hereby releases the security
interests created by the Security Documents in the Specialty Nets and Nonwoven
Assets (the "Assets") effective upon the consummation of the sale of the Assets
pursuant to the Asset Purchase Agreement between the Company and DelStar
Technologies, Inc. substantially in the form provided to the Administrative
Agent and the Lenders on September 28, 2001. The Lenders consent to such
release.

     Section 5. Representations of Company. The Company represents and warrants
that (i) the representations and warranties of the Company and its Subsidiaries
made in each Basic Document shall be true (or, in the case of Basic Documents
which are not Financing Documents, true in all material respects) on and as of
the Amendment Effective Date (as hereinafter defined) to the same extent as they
would be required to be under Section 7.01(b) on the occasion of any Loan or
issuance of any Letter of Credit and (ii) no Default will have occurred and be
continuing on such date.

     Section 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     Section 7. Counterparts; Effectiveness. This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Amendment shall become effective on the date (the "Amendment Effective Date")
when the Administrative Agent shall have received from each of the Company, the
Administrative Agent and the Majority Lenders a counterpart hereof signed by
such party or facsimile or other written confirmation (in form satisfactory to
the Administrative Agent) that such party has signed a counterpart hereof.

                                       2

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.


                                         APPLIED EXTRUSION TECHNOLOGIES,
                                         INC.


                                         By /s/ Anthony J. Allott
                                            ------------------------------------
                                            Name:  Anthony J. Allott
                                            Title: Senior Vice President and
                                                   Chief Financial Officer


                                         THE CHASE MANHATTAN BANK, as
                                         Lender and as Administrative Agent



                                         By /s/ Peter A. Dedousis
                                           -------------------------------------
                                           Name:  Peter A. Dedousis
                                           Title: Managing Director

                                         LASALLE BUSINESS CREDIT, INC.



                                         By /s/ John S. Eby
                                           -------------------------------------
                                           Name:  John S. Eby
                                           Title: Vice President


                                         FLEET NATIONAL BANK



                                         By /s/ Daniel Durkin
                                            ------------------------------------
                                            Name:  Daniel Durkin
                                            Title: Authorized Officer

                                       3

<PAGE>

                                          PNC BANK, N.A.



                                          By ___________________________________
                                             Name:
                                             Title:


                                          FIRST UNION NATIONAL BANK



                                          By /s/ John T. Trainor
                                             -----------------------------------
                                             Name:  John T. Trainor
                                             Title: Vice President

                                          PROVIDENT BANK

                                          By /s/ Cary M. Sierzputowski
                                             -----------------------------------
                                             Name:  Cary M. Sierzputowski
                                             Title: Vice President

                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15.2
<SEQUENCE>4
<FILENAME>dex10152.txt
<DESCRIPTION>EXHIBIT 10.15.2 - EXEC. DEFERRED COMP. RET. PLAN
<TEXT>
<PAGE>

                                                                 Exhibit 10.15.2



                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                 EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN

                  (Amended and Restated as of August 10, 2001)

<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                 EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN
                  (Amended and Restated as of August 10, 2001)

Article 1. - INTRODUCTION

     1.1. Amendment and Restatement. This Plan amends, restates and continues,
          -------------------------
effective August 10, 2001, the Applied Extrusion Technologies, Inc. Executive
Deferred Compensation Plan, originally established effective September 1, 1994
and amended, restated and renamed as of December 31, 1999. Except as otherwise
expressly provided herein, the rights of Participants who ceased to be employees
prior to August 10, 2001 and do not subsequently become Eligible Employees shall
be determined in accordance with the terms of the Plan as in effect when they
ceased to be employees.

     1.2. Purpose of Plan. Applied Extrusion Technologies, Inc. has adopted the
          ---------------
Plan set forth herein to provide a competitive level of retirement benefits to
certain designated employees by allowing them to defer receipt of designated
percentages of their compensation and to provide additional Company Credits in
certain cases.

     1.3. Status of Plan. The Plan is intended to be "a plan which is unfunded
          --------------
and is maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6) of
ERISA, and shall be interpreted and administered to the extent possible in a
manner consistent with that intent.

Article 2. - DEFINITIONS

     Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:

     2.1. "Account" means, for each Participant, the account established for his
or her benefit under Section 5.1.

     2.2. "Administrator" means a committee comprised of such members of the
Board of Directors or executive officers of the Company as may be appointed by
its Chief Executive Officer from time to time.

     2.3. "Code" means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes reference
to any comparable

                                      -1-

<PAGE>

or succeeding provisions of any legislation which amends, supplements or
replaces such section or subsection.

     2.4. "Company" means Applied Extrusion Technologies, Inc., any affiliates
that adopt the Plan with the knowledge and consent of the Administrator, and any
successor to all or a major portion of the Company's assets or business which
assumes the obligations of the Company generally.

     2.5. "Company Credit" means any credit which is received by a Participant
under Section 4.2.

     2.6. "Company Credit Eligible Employee" means each employee of the Company
selected by the Administrator as eligible for Company Credits under Section 4.2
from among the group of highly compensated or managerial employees of the
Company, provided such individual has been employed by the Company for at least
90 days, and is not a participant in the Applied Extrusion Technologies, Inc.
1999 Supplemental Executive Retirement Plan.

     2.7. "Elective Deferral" means the portion of Compensation which is
deferred by a Participant under Section 4.1.

     2.8. "Elective Deferral Eligible Employee" means each employee of the
Company selected by the Administrator as eligible for Elective Deferrals under
Section 4.1. from among the group of highly compensated or managerial employees
of the Company, provided such individual has been employed by the Company for at
least 90 days.

     2.9. "Eligible Employee" means an employee of the Company who is a Company
Credit Eligible Employee, an Elective Deferral Eligible Employee, or both.

     2.10. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
which amends, supplements or replaces such section or subsection.

     2.11. "Participant" means any individual who participates in the Plan in
accordance with Article 3.

     2.12. "Plan" means the Applied Extrusion Technologies, Inc. Executive
Deferred Compensation Retirement Plan set forth herein and all subsequent
amendments hereto.

     2.13. "Plan Year" means the 12-month period ending each September 30.

Article 3. - PARTICIPATION

                                      -2-

<PAGE>

     3.1. Commencement of Participation. Any individual who is an Eligible
          -----------------------------
Employee and who has elected to defer part of his or her regular salary or bonus
for the Plan Year in accordance with Section 4.1, or who has been selected to
receive a Company Credit in accordance with Section 4.2, shall become a
Participant on the date such election or credit is made.

     3.2. Continued Participation. Subject to Section 3.3, an individual who has
          -----------------------
become a Participant in the Plan shall continue to be a Participant so long as
any amount remains credited to his or her Account.

     3.3. Termination of Participation. The Administrator may terminate an
          ----------------------------
employee's participation in the Plan prospectively or retroactively for any
reason, including but not limited to the Administrator's determination that such
termination is necessary in order to maintain the Plan as a "plan which is
unfunded and is maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees" within the meaning of sections 201(2), 301(a)(3), 401(a)(1), and
4021(b)(6) of ERISA. Amounts credited to a Participant's Account shall be paid
out to such Participant in a single lump sum cash payment as soon as reasonably
practical following termination of participation hereunder.

Article 4. - DEFERRALS AND CREDITS

     4.1. Elective Deferrals.
          ------------------

           (a) In general. An Elective Deferral Eligible Employee may elect to
     defer a designated portion of regular salary to be earned during a Plan
     Year, by filing a written election with the Administrator prior to the
     first day of the Plan Year in which such salary is to be earned. Such
     Eligible Employee may also elect to defer a designated portion of any bonus
     to be earned during a Plan Year (which would otherwise be determined and
     payable after the end of the Plan Year) by filing a written election with
     the Plan Administrator no later than March 31st of the Plan Year. An
     individual who first becomes an Elective Deferral Eligible Employee on or
     after the first day of any Plan Year may elect to defer a portion of base
     salary and/or bonus to be earned during the remainder of the Plan Year and
     after the written election is filed with the Administrator.

           (b) Nature of Election. Each election under this Section 4.1 for a
     Plan Year (or the balance of a Plan Year) shall be made on a form approved
     or prescribed by the Administrator, shall be irrevocable by the Participant
     for the Plan Year, and (except as provided in Section 4.1(a)) shall apply
     only to regular salary or bonus earned after the date the election form is
     completed and filed with the Administrator. The election form shall also
     specify whether the deferral election is to apply to payments of base
     salary,

                                      -3-

<PAGE>

     bonuses, or both, and shall specify the whole percentage or flat dollar
     amount of each that is to be deferred. The deferred amounts shall be
     credited to the Participant's Account as of the date such compensation
     would otherwise have been paid to the Participant.

4.2. Company Credits.
     ---------------

          (a) In general. As of June 30, 2002, and each June 30 thereafter, the
     Company will credit to the Account of each individual who is a Company
     Credit Eligible Employee as of such date, a Company Credit equal to either
     (a) if such individual is a Vice President or Senior Vice President of the
     Company, 15.0% (or such other amount determined by the Company's Board of
     Directors) of the Company Credit Eligible Employee's "Compensation" for the
     year or (b) if such individual is not a Vice President or Senior Vice
     President of the Company, 7.5% (or such other amount determined by the
     Company's Board of Directors) of the Company Credit Eligible Employee's
     "Compensation" for the year. "Compensation" for purposes of this section
     4.2 (a) means the sum of (i) the actual amount of base salary paid to the
     eligible Employee for the 12-month period ending on the applicable June 30,
     and (ii) the amount of any cash bonus actually received by the Eligible
     Employee from the Company during the 12-month period ending on the
     applicable June 30."

          (b) In the event of death. Notwithstanding section 4.2(a), in the
     event that a Company Credit Eligible Employee, who at the time of his death
     is fully vested in his Company Credits pursuant to section 5.4 below, dies
     in service prior to a particular June 30, the Company will credit his
     Account with a Company Credit equal to 7.5% (or such other amount
     determined by the Company's Board of Directors) of his "Compensation."
     "Compensation" for purposes of this section 4.2(b) means the sum of (i) the
     actual amount of base salary paid to the Eligible Employee for the period
     beginning on the July 1 immediately preceding his death and ending on the
     date of his death, and (ii) the amount of any cash bonus actually received
     by the Eligible Employee from the Company during the period beginning on
     the July 1 immediately preceding his death and ending on the date of his
     death. Any Company Credit made pursuant to this section 4.2(b) will be made
     as of either the date of the Company Credit Eligible Employee's death, or
     the immediately following June 30, in the discretion of the Company.

Article 5. - ACCOUNTS; INTEREST

     5.1. Accounts. The Administrator shall establish an Account for each
          --------
Participant reflecting Elective Deferrals, Company Credits, and any adjustments
hereunder. As soon as

                                      -4-

<PAGE>

reasonably practical after the end of each Plan Year, the Administrator shall
provide the Participant with a statement of his or her Account.


     5.2. Earnings Measurement. The Administrator shall identify one or more
          --------------------
funds (such as mutual funds, bank collective funds, or a hypothetical fund
comprised solely of Company common stock) from time to time for the purpose of
measuring earnings credits to Participants' Accounts. Each Participant may
specify which one or more of such funds he or she wishes to be used as a
measuring vehicle for designated percentages of his or her Account, in such form
and manner, and with such notice, as the Administrator may prescribe, provided
that such directions may be given on a prospective basis only. Changes in
Participant directions hereunder may be made as of the first business day of any
calendar quarter (or such other times as the Administrator may prescribe). Each
Participant's Account shall be adjusted from time to time (at least quarterly)
to reflect the fair market value that would be ascribed to the Account if the
amounts credited to the Account were actually invested in the funds as directed
by the Participant. For purposes of Company Credits, earnings credits (if any)
shall begin to accrue as of the actual date of contribution and investment by
the Company of Funds into a grantor trust pursuant to Section 9.1 hereof.

     5.3. Payments. Each Participant's Account shall be reduced by the amount of
          --------
any payment made to or on behalf of the Participant under Article 6 as of the
date such payment is made.

     5.4. Vesting. A Participant will at all times be 100% vested in the portion
          -------
of his or her Account attributable to Elective Deferrals, and will earn a
nonforfeitable interest to be vested in the portion of the Account attributable
to any Company Credits according to the following schedule, based on his or her
aggregate years of service with the Company or its affiliates, including all
service prior to the date Company Credits are first made.

             Years of Service                   % Vested
             ----------------                   --------
             less than 5                            0
             5 or more                            100


Article 6. - PAYMENTS

     6.1. Severe Financial Hardship (Elective Deferrals). A Participant who
          ----------------------------------------------
believes he or she is suffering a severe financial hardship may apply to the
Administrator for a distribution under the Plan in order to alleviate such
hardship. The Administrator, in its sole discretion (but after taking into
account, among other factors, the nature and foreseeability of the alleged
hardship, the Participant's other resources, and the effect of making a
distribution on the intended tax status of the deferrals made under the Plan),
may direct the Company to pay to the Participant an amount which it determines
is necessary or appropriate, not to exceed the

                                      -5-

<PAGE>

     Participant's Account balance attributable to Elective Deferrals under
     Section 4.1, if any, and the Company shall pay such amount to the
     Participant in a single lump sum cash payment.

     6.2. Termination of Employment. As soon as reasonably practical following
          -------------------------
termination of employment for any reason including retirement or death, a
Participant shall receive distributions as follows:


           (a) Payment will normally be made in five annual cash installments,
     the first such installment to be made as soon as reasonably practicable
     following termination of employment, and succeeding installments to be made
     approximately at each of the four following anniversaries thereof. The
     amount of each installment shall be determined by dividing the
     Participant's Account balance (adjusted through the day before the
     installment) by the number of installments remaining.

           (b) Notwithstanding paragraph (a) above at least 13 months prior to
     the Participant's termination of employment he or she may elect to receive
     payment:

                (i)  in either three or ten annual cash installments, such
          installments to be determined in a manner similar to that described in
          Section 6.2(a) above, adjusted appropriately to reflect the three-year
          or ten-year term, or

                (ii) in a single lump sum cash payment to be received as soon as
          reasonably practicable following such termination, provided, however,
          that if the Participant's total Account balance exceeds $50,000 a lump
          sum payment shall not be made without the approval of the
          Administrator in its sole discretion after taking into account the
          Participant's other resources, the financial obligations of
          Participant with respect to which the lump sum is sought, and the
          impact of such payment on the cash needs and tax position of the
          Company.

     Any election made under this Section 6.2 shall be made in writing on a form
     prescribed or approved by the Administrator, and may be similarly revoked
     at any time prior to the beginning of the 13-month period described above.
     In addition, if a Participant dies prior to the complete distribution of
     his or her Account, the remaining balance shall be distributed to his or
     her beneficiary as determined under Section 6.3 below as soon as reasonably
     practicable following the Participant's death.

     6.3. Beneficiary Designation. A Participant shall designate a beneficiary
          -----------------------
who shall be entitled to receive the single lump sum payment due the Participant
under the Plan in the event of the Participant's death. Such designation shall
be made in writing on a form approved or prescribed by the Administrator, and
may be changed by the Participant at any time. If there is no such designation
or no designated beneficiary survives the Participant, payment shall be made to
the Participant's estate.

                                      -6-

<PAGE>

Article 7. - ADMINISTRATOR

         7.1. Plan Administration and Interpretation. The Administrator shall
              --------------------------------------
oversee the administration of the Plan. The Administrator shall have complete
discretionary control and authority to administer all aspects of the Plan,
including without limitation the power to appoint agents and counsel, and to
determine the rights and benefits and all claims, demands and actions arising
out of the provisions of the Plan of any Participant, beneficiary, deceased
Participant, or other person having or claiming to have any interest under the
Plan, in a manner consistent with Section 7.2. The Administrator shall have the
exclusive discretionary power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final, conclusive and
binding on all Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that the
Administrator acted arbitrarily and capriciously. Any individual serving as
Administrator, or on a committee acting as Administrator, who is a Participant
will not vote or act on any matter relating solely to himself or herself. When
making a determination or calculation, the Administrator shall be entitled to
rely on information furnished by a Participant, a beneficiary, or any other
person or entity. The Administrator shall be deemed to be the Plan administrator
with responsibility for complying with any reporting and disclosure requirements
of ERISA.

         7.2. Claims Procedure.
              ----------------

                  (a) In general. If any person believes he or she is being
         denied any rights or benefits under the Plan, such person may file a
         claim in writing with the Administrator. If any such claim is wholly or
         partially denied, the Administrator will notify such person of its
         decision in writing. Such notification will contain (i) specific
         reasons for the denial, (ii) specific reference to pertinent plan
         provisions, (iii) a description of any additional material or
         information necessary for such person to perfect such claim and an
         explanation of why such material or information is necessary and (iv)
         information as to the steps to be taken if the person wishes to submit
         a request for review. Such notification will be given within 90 days
         after the claim is received by the Administrator (or within 180 days,
         if special circumstances require an extension of time for processing
         the claim, and if written notice of such extension and circumstances is
         given to such person within the initial 90 day period). If such
         notification is not given within such period, the claim will be
         considered denied as of the last day of such period and such person may
         request a review of his or her claim.

                  (b) Appeals. Within 60 days after the date on which a person
         receives a written notice of a denied claim (or, if applicable, within
         60 days after the date on which such denial is considered to have
         occurred) such person (or his or her duly authorized representative)
         may (i) file a written request with the Administrator for a review of
         his or her denied claim and of pertinent documents and (ii) submit
         written issues and comments to the Administrator. The Administrator
         will notify such person of its

                                      -7-

<PAGE>

         decision in writing. Such notification will be written in a manner
         calculated to be understood by such person and will contain specific
         reasons for the decision as well as specific references to pertinent
         plan provisions. The decision on review will be made within 60 days
         after the request for review is received by the Administrator (or
         within 120 days, if special circumstances require an extension of time
         for processing the request, such as an election by the Administrator to
         hold a hearing, and if written notice of such extension and
         circumstances is given to such person within the initial 60 day
         period). If the decision on review is not made within such period, the
         claim will be considered denied.

         7.3. Indemnification of Administrator. The Company agrees to indemnify
              --------------------------------
and to defend to the fullest extent permitted by law any director, officer or
employee of the Company or any affiliated company who serves as the
Administrator or as a member of a committee appointed to serve as Administrator,
or who assists the Administrator in carrying out its duties as part of his
employment (including any such individual who formerly served in any such
capacity) against all liabilities, damages, costs and expenses (including
attorneys' fees and amounts paid in settlement of any claims approved by the
Company) occasioned by any act or omission to act in connection with the Plan,
if such act or omission is in good faith.

Article 8. - AMENDMENT, TERMINATION OR ASSIGNMENT

         8.1. Amendments. Prior to a Change of Control as defined in Appendix A
              ----------
hereof the Company shall have the right to amend this Plan (including Appendix
A) from time to time, subject to Section 8.4, by an instrument in writing which
has been executed on its behalf by an officer thereof or by vote of its Board of
Directors. No amendment to the Plan with respect to any Participant may be made
after a Change in Control without the written consent of such Participant (or
beneficiary, if applicable).

         8.2. Net Worth Test. Notwithstanding any provision to the contrary in
              --------------
this Plan, in the event that as of the last day of any fiscal quarter of the
Company that occurs after the Effective Date, either (i) the Tangible Net Worth
of the Company is less the $25,000,000, or (ii) the Interest Coverage Ratio of
the Company shall be below 0.9:1, then the Plan immediately shall terminate, and
the Company shall distribute to each Participant his or her Account balance, in
a lump sum payment, as soon as practicable thereafter. For purposes of this
Plan:

              (a) "Tangible Net Worth" shall mean at any date the consolidated
         stockholders' equity of the Company and its subsidiaries determined as
         of such date, less any intangible assets included on the balance sheet
         at the same date;

              (b) "Interest Coverage Ratio" shall mean the Cash Flow of the
         Company for the trailing four quarters divided by the Interest Expense
         of the Company for the trailing four quarters;

                                      -8-

<PAGE>

          (c) "Cash Flow" shall mean for any period, (i) the sum (without
     duplication), determined on a consolidated basis for the Company and its
     subsidiaries, of (x) the operating profit of the Company and its
     subsidiaries (calculated before provision for income taxes, interest
     expense, extraordinary and non-recurring items and income attributable to
     equity in affiliates) for such period, plus (y) depreciation, amortization
     and other non-cash items (to the extent deducted in determining operating
     profit) for such period minus (ii) proceeds received by the Company and its
     subsidiaries during such period (to the extent included in determining
     operating profit) of any property insurance policy.

          (d) "Interest Expense" shall mean for any period, the sum (determined
     without duplication) of the aggregate amount of interest accruing during
     such period on indebtedness of the Company and its subsidiaries (on a
     consolidated basis), including the interest portion of payments under
     capital lease obligations and any capitalized interest, and excluding
     amortization of debt discount and expense.

     8.3. Termination of Plan. This Plan is strictly a voluntary undertaking on
          -------------------
the part of the Company and shall not be deemed to constitute a contract between
the Company and any Eligible Employee (or any other employee) or a consideration
for, or an inducement or condition of employment for, the performance of
services by any Eligible Employee (or other employee). The Company reserves the
right to terminate this Plan at any time, subject to Section 8.4, by an
instrument in writing which has been executed its behalf by an officer thereof
or by vote of its Board of Directors.

     8.4. Existing Rights. No amendment or termination of the Plan shall
          ---------------
adversely affect the rights of any Participant with respect to amounts credited
to his or her Account as of the date of such amendment or termination (subject
to future adjustments as a result of investment measurements).

     8.5. Assignment. The rights and obligations of the Company shall enure to
          ----------
the benefit of and shall be binding upon the its successors and assigns.

Article 9. - MISCELLANEOUS

                                      -9-

<PAGE>

     9.1. Grantor Trust. The Company shall establish a trust of which the
          -------------
Company is treated as the owner under Subpart E of Subchapter J, Chapter 1 of
the Internal Revenue Code of 1986, as amended (a "grantor trust") and as soon as
practicable (but in any event within 30 days) after an amount is credited to an
Account hereunder, shall deposit with the trustee of the trust an amount of cash
or marketable securities (including, in the Company's discretion, Company stock
to the extent such stock is an earnings measurement under the Plan) sufficient
to cause the fair market value of the assets held in the trust to be not less
than the sum of the Account balances under the Plan. Any such deposits shall be
irrevocable and for the exclusive purpose of paying benefits under the Plan and
such other purposes as may be set forth in the trust. Except for the foregoing,
nothing in this Plan will be construed to create a trust or to obligate the
Company or any other person to segregate a fund, purchase an insurance contract,
set aside any shares of Company stock, or in any other way currently to fund the
future payment of any benefits hereunder, nor will anything herein be construed
to give any employee or any other person rights to any specific assets of the
Company or of any other person. Any benefits which become payable hereunder that
are not paid out of the grantor trust shall be paid from the general assets of
the Company.

     9.2. Nature of Claim for Payment. Each Participant and beneficiary will be
          ---------------------------
an unsecured general creditor of the Company with respect to all benefits
payable under the Plan. Except with respect to amounts deposited in a grantor
trust and consistent with the terms of any such trust, nothing in this Plan will
be construed to give any individual rights to any specific assets of the Company
or other person or entity.

     9.3. Nonalienation of Benefits. None of the benefits, payments, proceeds or
          -------------------------
claims of any Participant or beneficiary shall be subject to any claim of any
creditor and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor, nor shall any Participant or
beneficiary have any right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds which he may expect to
receive, contingently or otherwise, under this Plan.

     9.4. No Contract of Employment. Participation in this Plan shall not give
          -------------------------
any Eligible Employee the right to be retained in the employ of the Company or
any right or interest in the Plan other than as herein provided. The Company
reserves the right to dismiss any Eligible Employee without any liability for
any claim against the Company, except to the extent provided herein.

     9.5. Receipt and Release. Any payment to any Participant or beneficiary in
          -------------------
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Company and the Administrator under
this Plan, and the Administrator may require such Participant or beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Administrator to
be incompetent by reason of physical or mental disability (including minority)
to give a valid receipt and release, the Administrator may cause the payment or

                                     -10-

<PAGE>

payments becoming due to such person to be made to another person for his or her
benefit without responsibility on the part of the Administrator or the Company
to follow the application of such funds.

     9.6. Severability of Provision. If any provision of this Plan shall be held
          -------------------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and this Plan shall be construed and enforced as if
such provision had not been included.

     9.7. Government Regulations. It is intended that this Plan will comply with
          ----------------------
all applicable laws and government regulations, and the Company shall not be
obligated to perform an obligation hereunder in any case where, in the opinion
of the Company's counsel, such performance would result in the violation of any
law or regulation.

     9.8. Governing Law. This Plan shall be construed, administered, and
          -------------
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.

     9.9. Headings and Subheadings. Headings and subheadings in this Plan are
          ------------------------
inserted for convenience only and are not to be considered in the construction
of the provisions hereof.

     IN WITNESS WHEREOF, Applied Extrusion Technologies, Inc. has caused this
Plan to be executed by its duly authorized officer this 10th day of August,
2001.


                                            APPLIED EXTRUSION TECHNOLOGIES. INC.


                                            By: ________________________________

                                      -11-

<PAGE>

                                    EXHIBIT A
                                    ---------

     A Change of Control will occur for purposes of this Plan if (i) any
individual, corporation, partnership, company or other entity (including a
"group" of the type referred to in Rule 13d-5 under the Securities Exchange Act
of 1934, as amended (the "Act"), (a "Person") becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act) of securities of the Company representing
more than 30% of the combined voting power of the Company's then outstanding
securities (other than as a result of acquisitions of such securities from the
Company), (ii) there is a change of control of the Company of a kind which would
be required to be reported under Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Act (or a similar item in a similar schedule or form),
whether or not the Company is then subject to such reporting requirement, (iii)
the Company is a party to, or the stockholders approve, a merger, consolidation,
or other reorganization (other than (a) a merger, consolidation, or other
reorganization which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent, either by
remaining outstanding or by being converted into voting securities of the
surviving entity, more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger, consolidation, or other reorganization, or (b) a merger,
consolidation, or other reorganization effected to implement a recapitalization
of the Company, or similar transaction, in which no Person acquires more than
20% of the combined voting power of the Company's then outstanding securities),
a sale of all or substantially all assets, or a plan of liquidation, or (iv)
individuals who, at the date hereof, constitute the Board cease for any reason
to constitute a majority thereof; provided, however, that any director who is
                                  --------  -------
not in office at the date hereof but whose election by the Board or whose
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at the date hereof or whose election or nomination for election was
previously so approved (other than an election or nomination of an individual
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
shall be deemed to have been in office at the date hereof for purposes of this
definition.

     Notwithstanding the foregoing provisions of this Exhibit A, a "Change of
Control" will not be deemed to have occurred solely because of the acquisition
of securities of the Company (or any reporting requirements under the Act
relating thereto) by an employment benefit plan maintained by the Company for
its employees.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16.2
<SEQUENCE>5
<FILENAME>dex10162.txt
<DESCRIPTION>EXHIBIT 10.16.2 - 1999 SUP. EXEC. RET. PLAN
<TEXT>
<PAGE>

                                                                 Exhibit 10.16.2

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                   1999 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                  (Amended and Restated as of August 14, 2001)

             -------------------------------------------------------


         This plan amends, restates and continues, effective August 14, 2001
(the "Plan") the 1999 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN made and entered
into on the 30/th/ day of November, 1999 by APPLIED EXTRUSION TECHNOLOGIES,
INC., a corporation organized and existing under the laws of the State of
Delaware (hereinafter referred to as the "Company").

                              W I T N E S S E T H:
                              - - - - - - - - - -

         WHEREAS, the Company desires to provide for an unfunded supplemental
executive retirement plan for the benefit of a select group of its management or
highly compensated employees, subject to certain conditions and pursuant to the
terms and provisions specified in this Plan;

         NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the Company hereby establishes the Plan pursuant to the
following terms and provisions.

                                    ARTICLE 1
                                    ---------

                                   DEFINITIONS

         1.1  "Average Compensation" shall mean the average Compensation paid by
the Company to the Participant for those three (3) fiscal years (whether or not
consecutive) of the Company ending on or after the Effective Date in which the
Participant earned the highest Compensation (or, if the Participant did not
receive Compensation for at least three (3) fiscal years ending on or after the
Effective Date, then over the number of fiscal years ending on or after the
Effective Date during which the Participant was employed by the Company for the
entire fiscal year); provided, however, that in no event shall the Average
Compensation be less than the Participant's Base Salary for the fiscal year in
which the Participant's Termination Date occurs.

         1.2  "Beneficiary" shall mean the person or persons designated by a
Participant, upon such forms as shall be provided by the Company, to receive
payments of the Participant's Normal Retirement Benefit after the Participant's
death. If the Participant shall fail to designate a Beneficiary, or if for any
reason such designation shall be ineffective, or if such Beneficiary shall

                                       -1-

<PAGE>

predecease the Participant or die simultaneously with him, then the Beneficiary
shall be the Participant's estate.

     1.3  "Benefit Percentage" shall mean a percentage between fifty percent
(50%) to seventy-five percent (75%) based on the highest average of any twenty
consecutive daily closing prices of the Corporation's common stock as reported
on NASDAQ at any time between August 14, 2001 and August 14, 2005 (the "Closing
Price") calculated as follows:

          The linear increase from 50% to 75% ratably equal to the
          Closing Price's increase from $7.00 to $14.00;

provided, however, that such percentage shall be no lower than 50% and no higher
than 75%; further provided, that if (i) participant's employment with the
Company is terminated pursuant to subsections 4(b) (Death), 4(c) (Incapacity),
4(e) (Termination by the Employer Other Than for Death, Incapacity or Cause) or
4(f) (Termination by Executive for Good Reason) of the Participant's Employment
Agreement or (ii) a Change in Control has occurred, the Benefit Percentage shall
be seventy-five percent (75%).

     1.4  "Change in Control" shall have the same meaning as set forth in
Exhibit A to the Company's 1991 Stock Option Plan for Directors.

     1.5  "Code" shall mean the Internal Revenue Code of 1986, as amended, and
successor tax laws.

     1.6  "Committee" shall mean the persons designated by the Company as the
Administrative Committee for the Plan pursuant to Section 3.1.

     1.7  "Company" shall mean APPLIED EXTRUSION TECHNOLOGIES, INC., a Delaware
corporation, its successors and assigns.

     1.8  "Compensation" shall mean the Base Salary and Bonuses paid by the
Company to the Participant for the fiscal year of the Company pursuant to
subsections 3(a) and 3(b) of the Participant's Employment Agreement.

     1.9  "Disability Benefit Offset Amount" shall mean the amounts (if any)
that the Participant receives concurrently from any disability insurance policy
paid or reimbursed by the Company for the benefit of the Participant.

     1.10 "Effective Date" shall mean April 1, 1999.

     1.11 "Employment Agreement" shall mean, with respect to a Participant, the
Employment Agreement entered into by and between the Company and the Participant
on or after the Effective Date, as amended from time to time.

     1.12 "Normal Retirement Benefit" means a monthly benefit, commencing on the
Participant's Retirement Payment Commencement Date and continuing for ten (10)
years thereafter, equal to one twelfth of the amount by which (i) the product of
the Participant's Benefit Percentage

                                        2

<PAGE>

multiplied by his or her Average Compensation, exceeds (ii) the Participant's
Disability Benefit Offset Amount, if any.

     1.13 "Participant" shall mean the Chief Executive Officer and any other
officer of the Company designated by the Board of Directors or the Stock Option
and Compensation Committee of the Board of Directors of the Company as being
eligible to participate in the Plan. An employee of the Company shall not be
eligible to be a Participant unless he or she is deemed to be among a select
group of management or highly compensated employees of the Company within the
meaning of Section 201(2) of ERISA.

     1.14 "Performance Target" shall have the same meaning as set forth in
subsection 3(f) of the Participant's Employment Agreement.

     1.15 "Plan" shall mean this amended and restated 1999 Supplemental
Executive Retirement Plan as herein set forth and as it may be amended from time
to time.

     1.16 "Plan Year" shall mean the twelve month period that begins October 1
and ends September 30.

     1.17 "Retirement Payment Commencement Date" shall mean the first day of the
month coincident with or next following the later of (a) the date the
Participant reaches, or would have reached if still living, age sixty (60), and
(b) the Participant's Termination Date.

     1.18 "Termination Date" shall have the same meaning as set forth in
subsection 4(a) of the Participant's Employment Agreement.

     1.19 "Trust" shall mean the Applied Extrusion Technologies, Inc. 1999
Deferred Compensation Trust, dated November 30, 1999, entered into by and
between the Company and Comerica Bank.

     1.20 "Year of Credited Service" shall mean the number of calendar months
during which a Participant was employed by the Company divided by twelve, with
any remainder rounded up to the next whole year.

                                    ARTICLE 2
                                    ---------

                               RETIREMENT BENEFITS

     2.1  Normal Retirement Benefit.
          -------------------------

          (a) A Participant who has completed a total of not less than ten (10)
Years of Credited Service (of which at least four (4) Years of Credited Service
have been completed subsequent to the Effective Date of this Plan) shall be
entitled to receive payment of his Normal Retirement Benefit commencing on his
Retirement Payment Commencement Date.

                                        3

<PAGE>

          (b)  For purposes of determining Years of Credited Service pursuant to
subsection 2.1(a) hereof, if a Participant's employment with the Company is
terminated pursuant to subsections 4(b) (Death), 4(c) (Incapacity), 4(e)
(Termination by the Employer Other Than for Death, Incapacity or Cause) or 4(f)
(Termination by Executive for Good Reason) of his or her Employment Agreement,
such Participant shall be deemed to have completed those Years of Credited
Service (or a portion thereof) that the Participant would have completed if the
Participant had been continuously employed with the Company through the
Expiration Date, as that term is used under his Employment Agreement.

     2.2  Termination Prior to Completing Requisite Years of Credited Service
          -------------------------------------------------------------------
Employment. If a Participant's employment with the Company terminates for any
- ----------
reason before the Participant has completed ten (10) Years of Credited Service,
or before he has completed four (4) Years of Credited Service after the
Effective Date of this Plan (in each case taking into account any Years of
Credited Service that the Participant may be deemed to have completed under
Section 2.1(b), hereof), then no benefits shall be paid to the Participant or
any Beneficiary of the Participant pursuant to this Plan.

     2.3  Death Benefit. If the Participant should die before distribution of
          -------------
his entire Normal Retirement Benefit has been made to him, any remaining amounts
shall be distributed to the Participant's Beneficiary in a lump sum payment,
using a five percent (5%) discount factor per annum, as soon as practicable
after the Participant's death, provided that notwithstanding the foregoing, no
amount shall be payable hereunder until that date on which the deceased
Participant would have reached age sixty (60) if still living.

     2.4  Change in Control. At any time after a Change in Control has occurred,
          -----------------
a Participant may elect to receive his or her Normal Retirement Benefit (or if
payment thereof has already commenced, any remaining payments of the
Participant's Normal Retirement Benefit) as a lump sum payment, using a five
percent (5%) discount factor per annum, commencing upon the later of (a) the
Participant's Retirement Payment Commencement Date, and (b) the date of the
Change in Control.

                                    ARTICLE 3
                                    ---------

                                 ADMINISTRATION

     3.1  Administrative Committee. The Company shall appoint a Committee for
          ------------------------
the administration of the Plan consisting of one or more persons. Any Committee
member may, but need not, be an officer or employee of the Company and each
shall serve until his successor shall be appointed in like manner. Any member of
the Committee may resign by delivering his written resignation to the Company.
The Company may remove any member of the Committee at any time.

     3.2  Powers and Duties. The Committee generally shall be responsible for
          -----------------
the discretionary management, operation, interpretation and administration of
the Plan. The Committee shall:

          (a)  Establish procedures for allocation of responsibilities of the
     Plan which are not allocated herein;

                                        4

<PAGE>

          (b)  Determine the names of those employees of the Company who are
     eligible to participate and such other matters as may be necessary to
     enable payment under the Plan;

          (c)  Construe all terms, provisions, conditions and limitations of the
     Plan;

          (d)  Correct any defect, supply any omission or reconcile any
     inconsistency that may appear in the Plan;

          (e)  Determine the amount, manner and time of payment of benefits
     hereunder and prescribe procedures to be followed by Participants to obtain
     benefits; and

          (f)  Perform such other functions and take such other actions as may
     be required by the Plan or as may be necessary or advisable to accomplish
     the purposes of the Plan.

The Company shall furnish the Committee with all data and information available
which the Committee may reasonably require in order to perform its functions
hereunder. The Committee may rely without question upon any such data or
information furnished by the Company. Any interpretation or other decision made
by the Committee shall be final, binding and conclusive upon all persons in the
absence of clear and convincing evidence that the Committee acted arbitrarily
and capriciously.

     3.3  Agents. The Committee may appoint a Secretary who may, but need not,
          ------
be a member of the Committee, and may employ such agents for clerical and other
services, and such counsel, accountants and other professional advisors as may
be required for the purpose of administering the Plan. The Committee may rely on
all tables, valuations, reports, certificates and opinions furnished by its
agents.

     3.4  Procedures. A majority of the Committee members shall constitute a
          ----------
quorum for the transaction of business. No action shall be taken except upon a
majority vote of the Committee. An individual shall not vote or decide upon any
matter relating solely to himself or vote in any case in which his individual
right or claim to any benefit under the Plan is particularly involved. In any
case in which a Committee member is so disqualified to act, and the remaining
members cannot agree on an issue, the Company shall appoint a temporary
substitute member to exercise all of the powers of the disqualified member
concerning the matter in which he is disqualified.

     3.5  Claims Procedure. In the event that any Participant or Beneficiary
          ----------------
claims to be entitled to benefits under the Plan and the Committee determines
that such claim should be denied in whole or in part, the Committee shall, in
writing, notify such claimant within ninety (90) days of receipt of such claim
that his claim has been denied, setting forth the specific reasons for such
denial. Such notification shall be written in a manner reasonably expected to be
understood by such Participant or Beneficiary and shall set forth the pertinent
sections of the Plan relied on, and where appropriate, an explanation of how the
claimant can obtain review of such denial. Within sixty (60) days after the
mailing or delivery by the Committee of such notice, such claimant may request,
by mailing or delivery of written notice to the Committee, a review and/or
hearing by the Committee of the decision denying the claim. If the claimant
fails to request such a review and/or hearing within such sixty (60) day period,
it shall be conclusively determined for all purposes of this Plan that the

                                        5

<PAGE>

denial of such claim by the Committee is correct. If such claimant requests a
hearing within such sixty (60) day period, the Committee shall designate a time
(which time shall not be less than seven (7) nor more than sixty (60) days from
the date of such claimant's notice to the Committee) and a place for such
hearing, and shall promptly notify such claimant of such time and place. A
claimant or his authorized representative shall be entitled to inspect all
pertinent Plan documents and to submit issues and comments in writing. If only a
review is requested, the claimant shall have sixty (60) days after filing a
request for review to submit additional written material in support of the
claim. After such review and/or hearing, the Committee shall promptly determine
whether such denial of the claim was correct and shall notify such claimant in
writing of its determination with sixty (60) days after such review and/or
hearing or after receipt of any additional information submitted.

     3.6  Indemnification. The Company shall indemnify each Committee member,
          ---------------
and each employee who assists the Committee in connection with his or her
employment duties against any liability or loss sustained by reason of any act
or failure to act made in good faith, including, but not limited to, those in
reliance on certificates, reports, tables, opinions or other communications from
any company or agents chosen by the Committee in good faith. Such
indemnification shall include attorneys' fees and other costs and expenses
reasonably incurred in defense of any action brought by reason of any such act
or failure to act.

                                    ARTICLE 4
                                    ---------

                                  MISCELLANEOUS

     4.1  Unfunded Plan. The obligations of the Company under this Plan shall be
          -------------
paid from the general assets of the Company or from the assets of the Trust.
Participants shall have the status of general unsecured creditors of the
Company, and the Plan constitutes a mere promise by the Company to make benefit
payments in the future. It is intended that this Plan shall constitute an
"unfunded" plan for a select group of management or highly compensated employees
under the Employee Retirement Income Security Act of 1974, as amended. Any
assets acquired by the Company relating to this Plan shall be subject to the
claims of the Company's creditors, and shall not be subject to any claims by any
Participant or Beneficiary. The assets of the Trust also shall be subject to the
Company's creditors in the event of the Company's Insolvency, as defined in the
Trust Agreement establishing the Trust. Nothing contained in this Plan shall be
interpreted to grant to any Participant or Beneficiary, any right, title or
interest in any assets of the Company or the Trust.

     4.2  Timing of Company Contributions. For each Plan Year, the Company shall
          -------------------------------
make contributions to the Trust in an amount that the Committee reasonably
determines to be sufficient to fund the benefits that have accrued and have
become vested under this Plan during that Plan Year. Notwithstanding the
foregoing, in the event of a Change in Control, or if the Committee determines,
in the Committee's view, and notifies the Company that a Change in Control is
imminent, the Company shall make a contribution to the Trust in an amount equal
to the aggregate value of all Participants' benefits hereunder, whether vested
or not.

                                       6

<PAGE>

     4.3  Impact on Other Participant Benefits. This Plan shall not be construed
          ------------------------------------
to impact or cause the denial of any benefits to which any Participant may be
entitled under any other welfare or benefit plan of the Company.

     4.4  Other Plans. Payments made to Participants under this Plan shall not
          -----------
be includable as salary or compensation for purposes of determining the amount
of employee benefits under any other retirement, pension, profit-sharing or
welfare benefit plans of the Company.

     4.5  Governing Law. To the extent not pre-empted by the laws of the United
          -------------
States, the construction, validity and administration of the Plan shall be
governed by the laws of the State of Delaware without reference to the
principles of conflicts of law therein.

     4.6  No Assignment or Other Transfer. The right to receive payment of any
          -------------------------------
benefits under the Plan shall not be subject in any manner to anticipation,
sale, alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's Beneficiary.

     4.7  Taxes. The Company shall withhold from any payment due under the Plan
          -----
any taxes it deems to be required to be withheld under applicable Federal, state
or local tax laws or regulations.

     4.8  Severability. If any provision of this Plan is found, held or deemed
          ------------
to be void, unlawful or unenforceable under any applicable statute or other
controlling law, the remainder of the Plan shall continue in full force and
effect.

     4.9  Headings and Subheadings. The headings and subheadings of the Plan are
          ------------------------
for reference only. In the event of a conflict between a heading or subheading
and the content of an article or paragraph, the content shall control.

     4.10 Gender. The masculine, as used herein, shall be deemed to include the
          ------
feminine and the singular to include plural, except where the context requires a
different construction.

     4.11 Amendment and Termination.
          -------------------------

          (a)  This Plan may be amended or terminated in any respect at any time
by the Company; provided, however, that no amendment or termination of the Plan
shall be effective to reduce any benefit that accrues before the adoption of
such amendment or termination without the prior written consent of the
Participants whose benefits would be reduced.

          (b)  Notwithstanding any provision to the contrary in this Plan, in
the event that as of the last day of any fiscal quarter of the Company that
occurs after the Effective Date, either (i) the Tangible Net Worth of the
Company is less the $25,000,000, or (ii) the Interest Coverage Ratio of the
Company shall be below .9:1, then the Plan immediately shall terminate, and the
Company shall distribute to each Participant his or her Normal Retirement
Benefit, in a lump sum payment, as soon as practicable thereafter. For purposes
of this Plan:

               (1)  "Tangible Net Worth" shall mean at any date the consolidated
               stockholders' equity of the Company and its subsidiaries
               determined as of

                                       7

<PAGE>

               such date, less any intangible assets included on the balance
               sheet at the same date;

               (2) "Interest Coverage Ratio" shall mean the Cash Flow of the
               Company for the trailing four quarters divided by the Interest
               Expense of the Company for the trailing four quarters;

               (3) "Cash Flow" shall mean for any period, (i) the sum (without
               duplication), determined on a consolidated basis for the Company
               and its subsidiaries, of (x) the operating profit of the Company
               and its subsidiaries (calculated before provision for income
               taxes, interest expense, extraordinary and non-recurring items
               and income attributable to equity in affiliates) for such period,
               plus (y) depreciation, amortization and other non-cash items (to
               the extent deducted in determining operating profit) for such
               period minus (ii) proceeds received by the Company and its
               subsidiaries during such period (to the extent included in
               determining operating profit) of any property insurance policy.

               (4) "Interest Expense" shall mean for any period, the sum
               (determined without duplication) of the aggregate amount of
               interest accruing during such period on indebtedness of the
               Company and its subsidiaries (on a consolidated basis), including
               the interest portion of payments under capital lease obligations
               and any capitalized interest, and excluding amortization of debt
               discount and expense.

     4.12  No Employment Contract. This Plan does not constitute a contract of
           ----------------------
employment or impose on any Participant or the Company any obligations to
retain the Participant as an employee, to change the status of the Participant's
employment, or to change the Company's policies regarding termination of
employment.

     IN WITNESS WHEREOF, the Company has caused the Plan to be executed the day
and year first above written.

                                           APPLIED EXTRUSIONS TECHNOLOGIES, INC.

                                           _____________________________________
                                           By:
                                           Title:

                                        8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>dex23.txt
<DESCRIPTION>EXHIBIT 23 - CONSENT - DELOITTE & TOUCHE
<TEXT>
<PAGE>


                                                                      Exhibit 23


INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-44449, 33-48841, 333-51354 and 333-61976 of Applied Extrusion Technologies,
Inc. on Form S-8 of our report dated November 20, 2001, appearing in this Annual
Report on Form 10-K of Applied Extrusion Technologies, Inc. for the year ended
September 30, 2001.


/s/ Deloitte & Touche LLP
Boston, Massachusetts
December 17, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>7
<FILENAME>dex99.txt
<DESCRIPTION>EXHIBIT 99 - SAFE HARBOR PROVISIONS
<TEXT>
<PAGE>

                                                                      Exhibit 99

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

         The following factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this report and presented elsewhere by management from time to time.

WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND OUR CUSTOMERS MAY NOT CONTINUE TO
PURCHASE OUR PRODUCTS.

         There are approximately eight primary North American manufacturers
producing OPP films for resale, including ExxonMobil Corporation, which is the
second largest OPP films manufacturer in North America, Toray Industries, Inc.,
Vifan Canada Inc. and Formosa Plastics Corporation, U.S.A. Some of our
competitors are subsidiaries of substantially larger, more diversified
corporations and have greater financial, personnel and marketing resources than
we have and therefore, may have some competitive advantages. Our competitors
also include manufacturers of flexible packaging products who offer a broad
range of products and maintain product and marketing facilities internationally.
We also sell products in countries outside the United States and may face
international competition. In addition, any of our converter customers could
become competitors by acquiring, or becoming, a supplier of OPP films.

         The markets in which we operate are highly competitive. Competition in
the OPP films market is based primarily on customer relationships, product
performance characteristics, such as machinability, quality, reliability, and
price. Our ability to be an effective competitor will depend on our ability to
compete on the basis of these characteristics. It will also depend on our
success in developing new and enhanced products for our customers. Although we
have broad product lines and are continually developing new and enhanced
products, our current customers may not continue to purchase our products, we
may not be successful in avoiding product obsolescence, and we may not be able
to compete effectively with these companies.

INDUSTRY OVERCAPACITY HAS NEGATIVELY AFFECTED OUR PROFITABILITY, AND COULD
CONTINUE TO NEGATIVELY AFFECT OUR PROFITABILITY.

         Production capacity in the OPP films industry increased over 35 percent
from 1995 to 1999 causing capacity utilization levels to decline from
approximately 95 percent to the low-80 percent levels. This decline in capacity
utilization led to sharp declines in selling prices of OPP films. In addition,
as a result of our excess capacity, we attempted to fill our capacity with sales
throughout the product line, while minimizing price disruption. This resulted in
an increase in sales of lower margin products, negatively affecting our
profitability.

         Only ourselves and ExxonMobil Corporation have announced any additional
new capacity, and both of these are relatively small lines, cumulatively
aggregating to less than one year's demand growth at the historical six percent
level. However, if additional unexpected capacity were added, industry capacity
utilization levels would fall, which could result in lower



<PAGE>

sales prices. In addition, if demand does not grow at the historical level and
capacity outgrows demand, industry overcapacity could harm our business and our
debt service capabilities.

WE HAVE SUBSTANTIAL DEBT OUTSTANDING THAT COULD LIMIT THE FLEXIBILITY OF OUR
BUSINESS OPERATIONS.

         We have a high level of debt compared to our assets and stockholders'
equity and, as a result, we have significant debt service obligations. As of
September 30, 2001, we had $277.4 million of consolidated outstanding debt, all
of which was senior debt. Our total consolidated debt as a percentage of
capitalization was 77.9 percent. Our annual debt service payment obligation for
outstanding debt is approximately $30 million. We and our subsidiaries may be
able to incur substantial additional indebtedness in the future. If new debt is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify.

         Our high debt level could have important consequences such as:

         .    limiting our ability to obtain additional financing to fund
              working capital, capital expenditures, debt service requirements
              or other purposes;

         .    limiting our ability to use operating cash flow in other areas of
              our business because we must dedicate a substantial portion of
              these funds to make principal payments and fund debt service;

         .    limiting our ability to compete with others who are not as highly
              leveraged; and

         .    increasing our vulnerability to adverse market conditions,
              changes in our industry and economic downturns.

         Our ability to service our debt and to fund working capital and capital
expenditures will depend on our ability to generate cash in the future. This
depends, to some extent, on prevailing economic conditions, and on business,
financial and other factors, including the other risk factors described in this
Exhibit. Many of these factors are beyond our control. If we cannot generate
sufficient cash flow from operations to make scheduled payments on our debt or
to meet our other obligations, we will need to refinance our debt, obtain
additional funds through the incurrence of additional debt or the sale of our
equity securities, or sell our assets. We may not be able to obtain additional
funds or sell assets sufficient to satisfy our debt service requirements on
terms satisfactory to us or at all, and we may not be able to refinance our bank
credit facility prior to its scheduled maturity in 2003 allowing for future
borrowings in an amount sufficient to enable us to pay our indebtedness or to
fund our other liquidity needs.

THE OPERATING AND FINANCIAL RESTRICTIONS AND COVENANTS IN OUR EXISTING AND
FUTURE DEBT AGREEMENTS MAY MATERIALLY ADVERSELY AFFECT OUR ABILITY TO FINANCE
OPERATIONS OR CAPITAL NEEDS OR TO ENGAGE IN OTHER BUSINESS ACTIVITIES AND MAY
SEVERELY LIMIT OUR ABILITY TO PLAN FOR OR RESPOND TO CHANGES IN OUR BUSINESS.

                                       -2-

<PAGE>

         The operating and financial restrictions and covenants in our debt
agreements, including the indenture governing our 10 3/4% Series B Senior Notes
due 2011 (the "Senior Notes"), our bank credit facility, and any future
financing agreements, may materially adversely affect our ability to finance
future operations or capital needs or to engage in other business activities.
For example, our bank credit facility includes covenants that require us to meet
certain financial ratios and financial conditions that may require that we take
action to reduce debt or to act in a manner contrary to our business objectives.
In addition, our bank credit facility restricts, among other things, our ability
to incur additional indebtedness and make acquisitions and capital expenditures
beyond a specified level. A breach of any of these restrictions or covenants
could cause a default under the Senior Notes, our bank credit facility and other
debt. A significant portion of our debt may then become immediately due and
payable. If we fail to comply with the restrictions in our bank credit facility
and the lenders declare the entire amount due and payable, they could prohibit
us from making payments of interest and principal on the Senior Notes until the
default is cured or all the debt is paid or otherwise satisfied in full. We are
not sure whether we would have, or be able to obtain, sufficient funds to make
these accelerated payments, including payments on the Senior Notes.

PRICE INCREASES AND SHORTAGES IN THE SUPPLY OF POLYPROPYLENE RAW MATERIALS COULD
DECREASE OUR PROFITABILITY.

         Polypropylene, which is a petroleum derivative, is the basic raw
material used in the manufacture of most of our products. The price of
polypropylene is a function of, among other things, manufacturing capacity,
demand and the price of petrochemical raw materials, including crude oil and
natural gas liquids. Historically, the price of polypropylene has fluctuated. In
recent years, we have not been able to pass through a significant portion of
increases in the costs of polypropylene raw materials to end-users due to OPP
films industry capacity, and we may not be able to do so in the future. Due to
our high fixed costs, a decrease in the spread between the selling price of our
products and the cost of polypropylene raw material has a disproportionate
impact on our results of operations. For example, each $.01 decrease in the
spread between our selling price per pound and resin costs per pound in fiscal
2001 would have reduced our EBITDA by $2.4 million. As a result, increases in
the price of raw materials could adversely affect our operating margins and our
debt service capabilities.

         The majority of our resin supply requirements are met by four
suppliers. If any of our suppliers were not able to meet our requirements, we
would incur costs in connection with engaging a new supplier. In addition, the
cancellation of one or more of our favorable resin supply contracts could have a
material adverse effect on our financial condition, results of operation or cash
flows.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AGAINST COMPETITORS,
MAINTAIN ITS VALUE, OR CONTINUE TO DEVELOP INNOVATIVE PROPRIETARY TECHNOLOGY.

         Our success is partially dependent on our trade secrets, know-how,
patents, trademarks and other proprietary information. We generally have a
number of new patent applications

                                       -3-

<PAGE>

pending at any given time relating to product enhancements and new product
developments. We may not obtain patents on the basis of our applications, any
patents that we hold may not provide us with adequate protection for the covered
products, technology, or target markets and any patents or other rights that we
hold may not be sufficient protection for our intellectual property in foreign
countries. Additionally, our confidentiality agreements may not adequately
protect our trade secrets, know-how or other proprietary information. Further,
our activities may infringe on the patents, trademarks or proprietary rights of
others and we may not be able to obtain licenses, on reasonable terms or
otherwise, to technology that we may need to conduct or expand our business.

         Our continued success will depend to a large extent upon our ability to
maintain a superior technology capability and to continue to identify, develop
and commercialize innovative products for specialty applications to replace
existing products, the margins of which tend to decline as a result of the entry
of competitive products into existing specialized markets. We may not be able to
accomplish this and technological developments by our competitors may place some
of our products at a competitive disadvantage in the future.

THE LOSS OF A KEY CUSTOMER COULD DECREASE OUR PROFITABILITY.

         Approximately 53.3 percent of our sales in fiscal 2001 consisted of
sales to ten converters, with one accounting for over 18 percent of sales.
Substantially all of the converted products are resold by the converters to a
relatively small number of large consumer products companies or end-users. Both
converters and end-users participate in the selection of OPP films suppliers. As
is customary in the industry, we generally have no long-term contracts with our
customers, and substantially all of our relationships can be terminated on short
notice. We believe that our relationships with these customers and end-users are
good, but we may not be able to maintain these relationships or continue to
supply our customers at current levels. Unless replaced, the loss of a
significant converter or end-user of our OPP films products could materially
adversely affect our results of operations and cash flows and ability to service
our debt.

THE SEASONAL FLUCTUATION OF OUR OPERATING RESULTS OR AN UNFORESEEN REVENUE
SHORTFALL COULD HAVE A SUBSTANTIAL IMPACT ON OUR BUSINESS.

         The sales of some of our products have historically fluctuated due to
stronger demand in some seasons than in others. For example, demand for our
products in the snack food and soft drink markets is generally higher in the
spring and summer. Our results have typically followed a similar seasonal
pattern, with stronger operating performance in the second and third fiscal
quarters. In addition, we plan our operating expenses, many of which are
relatively fixed in the short term, on the basis that our revenues will continue
to grow. A revenue shortfall, however, could arise from any number of factors
including, but not limited to, lower than expected demand, price pressures,
supply constraints, delays in the availability of new products, transit
interruptions, overall economic conditions or natural disasters. Even a
relatively small revenue shortfall may cause a period's results to fall below
expectations.

                                       -4-

<PAGE>

WE ARE DEPENDENT UPON KEY PERSONNEL AND COULD HAVE A NEED TO HIRE AND TRAIN
ADDITIONAL QUALIFIED PERSONNEL.

         We believe that our future success depends in part upon our ability to
attract and retain skilled senior management and technical, professional,
marketing, and sales personnel. We, along with other technology-oriented
manufacturing companies, face competition in hiring and retaining skilled
technical, professional, marketing, and sales personnel. In certain areas, such
as chemical and process engineering, and sales and marketing, the supply of such
people is limited. The process of locating personnel with the combination of
skills and attributes required to carry out our strategy is often lengthy. Our
employees may voluntarily terminate their employment with us at any time. The
loss of service of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on our business.

OUR BUSINESS IS SUBJECT TO SUBSTANTIAL HEALTH AND ENVIRONMENTAL REMEDIATION AND
COMPLIANCE COSTS AND ANY COSTS THAT RESULT FROM FUTURE LIABILITIES OR
OBLIGATIONS MAY REDUCE THE RESOURCES WE CAN DEDICATE TO ATTEMPTING TO
SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY.

         We are subject to extensive and changing federal, state and foreign
laws and regulations establishing health and environmental quality standards,
and may be subject to liability or penalties for violations of those standards.
We are also subject to law and regulations governing remediation of
contamination at facilities currently or formerly owned or operated by us or to
which we have sent hazardous substances or wastes for treatment, recycling or
disposal. We believe that we are currently in compliance, in all material
respects, with all such laws and regulations. However, we may be subject to
future liabilities or obligations as a result of new or more stringent
interpretations of existing laws and regulations. In addition, we may have
liabilities or obligations in the future if we discover any environmental
contamination or liability at any of our facilities, or at facilities we may
acquire. Any additional liability may reduce the resources we can dedicate to
attempting to successfully implement our business strategy.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE CURRENT AND FUTURE ACQUISITIONS
WHICH MAY INTERRUPT OUR BUSINESS AND IMPAIR OUR ABILITY TO GROW.

         We continually explore opportunities to acquire related businesses,
some of which could be material to us. We currently have no agreements to
acquire any businesses or assets. Our ability to continue to grow may depend
upon identifying and successfully acquiring attractive companies, effectively
integrating such companies, achieving cost efficiencies and managing these
businesses as part of our company.

         We may not be able to effectively integrate the acquired companies and
successfully implement appropriate operational, financial and management systems
and controls to achieve the benefits expected to result from these acquisitions.
Our efforts to integrate these businesses could be affected by a number of
factors beyond our control, such as regulatory developments, general economic
conditions, increased competition and the loss of customers resulting from the

                                       -5-

<PAGE>

acquisitions. In addition, the process of integrating these businesses could
cause an interruption of, or loss of momentum in, the activities of our existing
business and the loss of key personnel and customers. The diversion of
management's attention and any delays or difficulties encountered in connection
with the integration of these businesses could negatively impact our
profitability and results of operations if any of the above adverse effects were
to occur. Further, the benefits that we anticipate from these acquisitions may
not develop.

LABOR DISRUPTIONS AT OUR UNIONIZED AND NON-UNIONIZED FACILITIES COULD INCREASE
OUR MANUFACTURING COSTS, CAUSING OUR PROFITABILITY TO DECLINE.

         We employ approximately 1,000 full-time employees. Approximately 125
production and maintenance employees at our plant in Covington, Virginia are
represented by the Paper Allied Industrial Chemical and Energy Workers
International Union, Local 2-0884 under a collective bargaining agreement that
expires in June, 2005. A labor-related work stoppage by these unionized
employees could increase our manufacturing costs, causing our profitability to
decline. In addition, it is possible that any labor union efforts to organize
employees at our non-unionized facilities might be successful and that any
labor-related work stoppages at these non-unionized facilities in the future
could have the same negative results.

OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO ADDITIONAL CURRENCY
CHANGE, POLITICAL, INVESTMENT AND OTHER RISKS THAT MAY DECREASE PROFITABILITY.

         We sell products in several countries outside the United States.
Operations outside the United States include a manufacturing facility in Canada
and sales offices in Asia, Europe and Canada. As a result, we are subject to
risks associated with selling and operating in foreign countries. These risks
include devaluations and fluctuations in currency exchange rates, unstable
political conditions, imposition of limitations on conversion of foreign
currencies into United States dollars and remittance of dividends and other
payments by foreign subsidiaries. The imposition or increase of withholding and
other taxes on remittances and other payments by foreign subsidiaries, and
imposition or increase of investment and other restrictions by foreign
governments could decrease profitability.

A LARGE PART OF OUR PRODUCTION OCCURS AT A SINGLE LOCATION.

         Our largest manufacturing facility, which accounts for approximately 75
percent of our overall OPP films production capacity, is located in Terre Haute,
Indiana. Though we also have significant manufacturing capacity at other
facilities, a fire, flood or other force majeure event at our Terre Haute
facility could cause a significant disruption in our ability to manufacture at
or near our capacity. While we believe we are adequately insured against the
short-term impact of losses and business interruptions of this kind, any such
disruption could have a material adverse effect on our business.

ANTITAKEOVER PROVISIONS COULD NEGATIVELY IMPACT THE SALE OR SALE PRICE OF THE
COMPANY.

                                       -6-

<PAGE>

         Our Certificate of Incorporation and Bylaws contain provisions that
could prevent or delay the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise in which stockholders might receive a
premium over the then current market price of our stock. These provisions
include advance notice procedures for stockholders to submit proposals for
consideration at stockholders' meetings or to nominate persons for election as
directors and provide for a staggered Board of Directors. We are also subject to
Section 203 of the Delaware General Corporation Law, which limits transactions
between a publicly held company and "interested stockholders" (generally, those
stockholders who, together with their affiliates and associates, own 15% or more
of the company's outstanding capital stock).

         We also have issued to our shareholders rights to purchase shares of
our Junior Preferred Stock, which rights become exercisable for shares of our
Common Stock at a price favorable to the holder upon the occurrence of certain
change of control events. In addition, upon the occurrence of specific kinds of
change of control events, as defined in the indenture, we will be required to
offer to repurchase all of the outstanding Senior Notes at 101% of the principal
amount thereof, plus accrued interest to the date of repurchase. The existence
of each of these rights may discourage attempts to acquire the Company by
increasing the cost of the transaction to any potential acquirer.

                                       -7-

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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