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<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0930
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<FORM-TYPE>S-4
<ACT>33
<FILE-NUMBER>333-65294
<FILM-NUMBER>1683503
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<STREET1>3 CENTENNIAL DRIVE
<CITY>PEABODY
<STATE>MA
<ZIP>01960
<PHONE>9785381500
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<DESCRIPTION>FORM S-4
<TEXT>

<PAGE>

     As filed with the Securities and Exchange Commission on July 18, 2001
                                                        Registration No. 333-

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ---------------
                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                                ---------------
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)
                                ---------------
         Delaware                    3089                    51-0295865
     (State or other          (Primary Standard           (I.R.S. Employer
     jurisdiction of              Industrial           Identification Number)
     incorporation or        Classification Code
      organization)                Number)
                 APPLIED EXTRUSION TECHNOLOGIES (CANADA), INC.
             (Exact name of registrant as specified in its charter)

         Delaware                    3089                    04-3365719
     (State or other          (Primary Standard           (I.R.S. Employer
     jurisdiction of              Industrial           Identification Number)
     incorporation or        Classification Code
      organization)                Number)
                               3 Centennial Drive
                          Peabody, Massachusetts 01960
                                 (978) 538-1500
         (Address, including zip code, and telephone number, including
          area code, of each registrant's principal executive offices)

                                ---------------
                               Anthony J. Allott
                            Chief Financial Officer
                      Applied Extrusion Technologies, Inc.
                               3 Centennial Drive
                          Peabody, Massachusetts 01960
                                 (978) 538-1500
  (Name and address, including zip code, and telephone number, including area
                                     code,
             of agent for service of process for each registrant )

                                ---------------
                                With copies to:
                            Winthrop G. Minot, Esq.
                                  Ropes & Gray
                            One International Place
                          Boston, Massachusetts 02110
                                 (617) 951-7000

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

      APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.

      If the securities registered on this form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]

      If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

      If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

                        CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                         Proposed
                                         Maximum        Proposed
                            Amount      Aggregate       Maximum      Amount of
                            to be     Offering Price   Aggregate    Registration
         Title            Registered     Per Unit    Offering Price     Fee
--------------------------------------------------------------------------------
<S>                      <C>          <C>            <C>            <C>
10 3/4% Series B Senior
 Notes due 2011......... $275,000,000      100%       $275,000,000    $68,750
--------------------------------------------------------------------------------
Guarantees of 10 3/4%
 Series B Senior Notes
 Due 2011............... $275,000,000      (2)            (2)         None(2)
--------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
    accordance with Rule 457(f) under the Securities Act of 1933.
(2) No further fee is payable pursuant to Rule 457(n) under the Securities Act
    of 1933.

      The registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a).

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and is not soliciting an offer to buy these    +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                   Subject to completion, dated July  , 2001

Prospectus

                      Applied Extrusion Technologies, Inc.

                               Offer to Exchange
                         All Outstanding 10 3/4% Senior
                                 Notes Due 2011
                       ($275,000,000 Aggregate Principal
                              Amount Outstanding)
                                      For
                            10 3/4% Series B Senior
                                 Notes Due 2011

                                 Guaranteed By
                               Applied Extrusion
                          Technologies (Canada), Inc.,
                          its wholly-owned subsidiary

                            Terms of Exchange Offer

  --Expires 5:00 p.m., New York City time,               , 2001, unless
    extended

  --Not subject to any condition other than that the exchange offer not
    violate applicable law or any applicable interpretation of the Staff of
    the Securities and Exchange Commission

  --All outstanding notes that are validly tendered and not validly withdrawn
    will be exchanged

  --Tenders of outstanding notes may be withdrawn any time prior to 5:00 p.m.
    on the expiration date of the exchange offer

  --The exchange of notes will not be a taxable exchange for the U.S. federal
    income tax purposes

  --We will not receive any proceeds from the exchange offer

  --The terms of the notes to be issued are substantially identical to the
    outstanding notes, except for the elimination of certain transfer
    restrictions and registration rights relating to the outstanding notes

                                  ----------

    You should carefully review the "Risk Factors" beginning on page 24 in
connection with this exchange offer and an investment in the notes to be issued
in the exchange offer.

                                  ----------

    Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer, nor have any of these organizations determined that this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

                  The date of this prospectus is        , 2001
<PAGE>


<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   5
Risk Factors.............................................................  24
Use of Proceeds..........................................................  31
The Exchange Offer.......................................................  31
Capitalization...........................................................  38
Selected Financial Information...........................................  39
Unaudited Pro Forma Combined Financial Statements........................  41
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  47
Industry.................................................................  54
Business.................................................................  56
Management...............................................................  65
Security Ownership of Certain Beneficial Owners and Management...........  67
Description of the Exchange Notes........................................  69
United States Federal Tax Considerations.................................  98
Plan of Distribution..................................................... 102
Legal Matters............................................................ 103
Experts.................................................................. 103
Where You Can Find Information........................................... 103
Incorporation of Certain Information by Reference........................ 104
Index to Consolidated Financial Statements of Applied Extrusion
 Technologies, Inc. and Schedule......................................... F-1
Index to Consolidated Financial Statements of QPF, L.L.C................. F-1
</TABLE>

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

                           FORWARD-LOOKING STATEMENTS

      This prospectus and documents incorporated by reference herein and other
materials we have filed or may file with the Securities and Exchange Commission
(the "SEC") include or may include forward-looking statements. Forward-looking
statements can generally be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "believe," "should," "plans," or "continue" or the negative of
these words or any variation of these words or any similar terminology. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to risks, uncertainties, and assumptions about our business, and include
statements regarding:

    .  our anticipated growth strategies, our intention to seek synergies
       and other cost savings related to our manufacturing processes and our
       recent acquisition of QPF, L.L.C.;

    .  our intention to develop and introduce new products;

    .  anticipated trends in our businesses, including trends in the
       capacity of and market for oriented polypropylene films and the cost
       of raw materials;

    .  future expenditures for capital projects;

    .  our ability to manage costs and maintain quality; and

    .  our future financial position, business strategy, budgets, projected
       costs, and plans and objectives of management for future operations.

      These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Without
limiting the foregoing, forward-looking statements appear in this prospectus
under the captions "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry," "Business," and
"Unaudited Pro Forma Combined Financial Statements." These forward-looking
statements are subject to a number of risks and uncertainties,

                                       3
<PAGE>

including, without limitation, those identified under "Risk Factors" and
elsewhere in this prospectus and other risks and uncertainties described from
time to time in our filings with the SEC. We undertake no obligation, except as
required by SEC regulations, to publicly update or revise any forward-looking
statements in this prospectus, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this prospectus might not occur.

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

      This prospectus contains summaries of the terms of several material
documents. These summaries include the terms that we believe to be material,
but are qualified in their entirety by reference to the full and complete text
of the related documents. We will make copies of these documents available to
you at your request.

      This exchange offer is not being made to, and we will not accept
surrenders for exchange from, holders of the outstanding notes in any
jurisdiction in which the exchange offer or its acceptance would not comply
with the securities or blue sky laws of that jurisdiction.

      All resales must be made in compliance with state securities or blue sky
laws. Compliance with these laws may require that the exchange notes be
registered or qualified in a state or that the resales be made by or through a
licensed broker-dealer, unless exemptions from these requirements are
available. We assume no responsibility for compliance with these requirements.

      This prospectus and the accompanying letter of transmittal contain
important information. You should read this prospectus and the letter of
transmittal carefully before deciding whether to tender your notes.

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

                INDUSTRY AND MARKET DATA AND RELATED INFORMATION

      We rely on and refer to information we have received from various
industry analysts regarding the markets for our principal products. We believe
that this information is reliable but the accuracy and completeness of this
information is not guaranteed and we have not independently verified this
market data nor have we ascertained the underlying economic assumptions relied
upon therein. Similarly, we believe that our internally produced analyses are
reliable based upon management's knowledge of the industry but we have not had
them verified by independent sources, and the accuracy and completeness of the
information cannot be assured.

      The comparative production, sales and industry data that we present in
this prospectus are based upon estimates by management, utilizing our internal
surveys and/or various third party sources where available. While we believe
that these estimates are reasonable and reliable, in many cases, these
estimates cannot be verified by information available from independent sources.
Consequently, we cannot assure you that the comparative production, sales and
industry data presented in this prospectus are accurate or complete in all
material respects. While we are not aware of any misstatements regarding our
industry data presented in this prospectus, our estimates involve risks and
uncertainties and are subject to change based on various factors, including
those discussed under the heading "Risk Factors" in this prospectus.

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

                                   TRADEMARKS

      Delnet(R) and Delpore(R) are trademarks of Applied Extrusion
Technologies, Inc. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.

                                       4
<PAGE>

                                    SUMMARY

      This summary highlights material information appearing elsewhere in this
prospectus. It may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial and pro
forma data and related notes, before making an investment decision. When we
refer to our company in this prospectus we are referring to Applied Extrusion
Technologies, Inc. as a combined entity after giving effect to the acquisition
of assets from QPF, L.L.C., except where it is made clear that we mean to refer
only to our historical operations. Applied Extrusion Technologies (Canada),
Inc. is our only domestic subsidiary and is wholly owned by us. The operations
of Applied Extrusion Technologies (Canada), Inc. are reported on a consolidated
basis. References to pro forma information give effect to the QPF acquisition,
which is described below, as if it had occurred on October 1, 1999. Our fiscal
year ends on September 30 of each year and references to a fiscal year for our
company refer to a year ending on September 30. QPF's fiscal year, however,
ends on December 31 of each year and accordingly, references to a fiscal year
of QPF refer to a year ending on December 31.

                               THE EXCHANGE OFFER

      On June 19, 2001, we completed the private offering of $275 million of
our 10 3/4% senior notes due 2011. We entered into a registration rights
agreement with the initial purchasers in the private offering in which we
agreed, among other things, to deliver to you this prospectus and to complete
the exchange offer within 150 days of the issuance of the 10 3/4% senior notes
due 2011. You are entitled to exchange in the exchange offer your outstanding
notes for registered notes with substantially identical terms. If the exchange
offer is not completed within 150 days of the issuance of the 10 3/4% senior
notes due 2011, then the interest rate on the notes will be increased to 11
1/4% per year. You should read the discussion under the heading "--Summary
Description of the Exchange Notes" and "Description of the Exchange Notes" for
further information regarding the registered notes.

      We believe that the notes issued in the exchange offer will be freely
transferable by holders other than our affiliates without further registration
under the Securities Act of 1933, as amended (the "Securities Act"), if the
holder of the exchange notes represents that it is acquiring the exchange notes
in the exchange offer in the ordinary course of its business, that it has no
arrangement or understanding with any person to participate in the distribution
of the exchange notes and that it is not one of our affiliates, as these terms
are interpreted by the SEC. You should read the discussion under the headings
"Summary of the Terms of Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and resale of the notes.

                                  OUR COMPANY

General

      We are 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. We have a leading position in substantially all of the
major high-end OPP films end-use product categories in North America. In
addition, we believe that we are 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. We estimate that we currently have 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. We are
also one of the largest producers of OPP films worldwide.

      We offer 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 our experienced technology group
and state-of-the-art production facilities, we work directly with our customers
to develop innovative products to meet their specialized requirements. We
believe that the combination of our leadership position, innovative
capabilities, strong sales force and highly efficient manufacturing positions
us to achieve

                                       5
<PAGE>

future growth and profitability. For the twelve months ended March 31, 2001, we
generated pro forma net sales of $317.5 million and pro forma adjusted EBITDA
of $60.9 million.

      Our OPP films product line is classified into the following four
categories:

    .  Labels--Our 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, our films are used on products such as Folgers(R) and Hills
       Brothers(R) coffee cans and aerosol cans for shaving creams and air
       fresheners.

    .  Packaging--Our 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. Our 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(R) Foods
       products, individual size condiment pouches, and baked goods
       packaging.

    .  Overwrap--We produce 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 R.J. Reynolds(R) Tobacco Company and 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.

    .  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. We have
       focused our industrial OPP films on applications that we believe are
       more profitable, such as insulation facing and cable wrap.

      In addition to OPP films, we develop, manufacture and sell a broad range
of oriented apertured films, also known as nets, and nonwoven materials for
specialized filtration and medical applications.

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.

      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. We believe that 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. We believe 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;

                                       6
<PAGE>


  .  the trend away from rigid towards flexible packaging materials that use
     OPP films, such as for labels, cans and glass bottles to plastic
     beverage containers, and for packaging materials, 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 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. This
was compounded last year by the rapid, unforeseen escalation in resin costs,
which increased 70 percent in 18 months, peaking in the last quarter of fiscal
2000, due primarily to 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 customers resin cost increases
similar to those experienced in 2000, allowing the industry to achieve one of
its most profitable years.

      Due to continued growth in demand for OPP films, capacity utilization in
the North American OPP films industry has been recovering and is currently
approximately 90 percent. As a result of the shutdown of the QPF manufacturing
facility, we expect capacity utilization to reach approximately 94 percent by
the end of this year. As the expected growth in demand outpaces the announced
capacity additions, we believe 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, we believe the industry will be cautious about introducing new lines.
To our knowledge, only we 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, we believe supply
estimates are reasonably predictable over the near term.

      Additionally, 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. According
to Chemical Data Inc., polypropylene resin prices have declined from an average
of $0.42 per pound in our fourth fiscal quarter of 2000 to an average of
approximately $0.38 per pound in our second fiscal quarter of 2001 and are
predicted to decrease an additional $0.05 per pound by the end of fiscal 2001.

Competitive Strengths

      We believe that we are well positioned to compete successfully in the OPP
films market and to increase sales and profitability due to our:

Substantial Industry Presence

      We are the largest manufacturer and seller of OPP films in North America.
Due to our differentiated product line, technological leadership and effective
sales force, we have a leading market position in substantially all of the
major high-end OPP films end-use product categories in North America.

                                       7
<PAGE>


      For example, we believe that we are the number one or two supplier of OPP
films used:

    .  for labels on bottles and cans, with more than a 50% share of this
       product category;

    .  for overwrap applications, with an approximately 45% share of this
       product category;

    .  for confectionery packaging, with an approximately 40% share of this
       product category; and

    .  for snack packaging, with more than a 35% share of this product
       category.

Technological Leadership and Superior Product Development Capabilities

      We have one of the largest technology groups in the industry with more
than 60 chemists, engineers and technicians. We have also invested over $20.0
million in product research and development over the past three years.
Utilizing extensive laboratory and film testing facilities, advanced pilot
production lines, and an array of end-use packaging and labeling equipment, our
technology group has introduced more than 40 new or enhanced products in the
past four fiscal years. We believe this strength in innovation will continue to
drive higher growth levels for our differentiated, higher-margin products, and
provide an advantage to our customers who work with us in the development of
new labeling, packaging and overwrap products and applications.

Efficient, Modern Production Facilities

      We believe that our 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. We have invested over
$200.0 million in the last five years in state-of-the-art equipment, creating
what we believe are among the world's fastest and most efficient production
facilities. Since fiscal 1994, we have nearly doubled our capacity without
increasing headcount, thereby increasing annual production per employee from
136,000 pounds in fiscal 1994 to over 270,000 pounds today pro forma for the
QPF acquisition. We believe that our efficient and modern production facilities
provide us a cost advantage over our competitors that should be further
enhanced as we increase the utilization of our assets.

Breadth of Product Line and Diversity of Customer Base

      With more than 80 product groups sold to over 600 customers, we believe
that we have the broadest product lines and customer bases of any North
American OPP films producer. In addition, we have a leading market position in
substantially all of the major high-end OPP films product categories in North
America while still producing a broad range of lower cost films to meet the
diverse requirements of our customers. Our product scope and diversity is
important both in terms of participating in a wide range of growth
opportunities and in providing a broad array of packaging solutions for a large
and diverse customer base. This enables us to meet the specific needs of our
customers and minimize our dependence on any single product. With the
relatively high costs and disruption of changing suppliers, our customers
generally prefer to foster long-term relationships which allow them to achieve
volume purchasing benefits and improved product quality control. As a result,
the significant majority of our major customers five years ago remain as our
major customers today.

Experienced Management

      We believe that our senior and operational management team is among the
most experienced in the OPP films business. Our management team has been
successful in diversifying our product lines, increasing our sales and market
shares, strengthening customer and supplier relationships, improving
manufacturing efficiencies and productivity and developing new technologies to
enhance our competitive strengths. Our management team also has significant
experience integrating acquisitions, including the 1994 acquisition of the OPP
films business of Hercules Incorporated and the 1999 acquisition of assets of
the OPP films business of

                                       8
<PAGE>

AEP Industries Inc. Since the Hercules acquisition, we have nearly doubled
sales and significantly reduced non-raw material unit production costs. When we
acquired the assets of AEP, we successfully retained over 90 percent of the
sales targeted for retention. These accomplishments are also the direct result
of the strength of our operations and sales management team, who together
average over 20 years of experience in OPP films and have strong, long-term
relationships with our customer base.

Business Strategy

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

Take Advantage of Tightening Capacity Utilization

      Over the past four 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. As a result of the shutdown of
the QPF manufacturing facility, we expect industry capacity utilization to
increase from its current level of approximately 90 percent to approximately 94
percent by the end of 2001. We believe that industry capacity utilization
levels will further improve as we expect the anticipated growth rate in demand
for OPP films to outpace the announced capacity additions. As a result, we
believe that this will significantly improve profitability levels in the
industry as prices of OPP films stabilize and increase. As the leader of the
North American OPP films industry, our strategy is to support high capacity
utilization by not adding any significant increments of new capacity. In
addition, by absorbing the QPF sales, we will improve our own capacity
utilization. Based on this strategy of supporting high industry capacity
utilization and maximizing use of our own capacity and our strong market
position, we stand to benefit significantly from a tightening of industry
capacity. During periods of tightened capacity, a small increase in the spread
between our selling price per pound and resin costs per pound can have a
significant impact on our profitability. For example, every $0.01 per pound
increase in this spread in fiscal 2000 would have increased our pro forma
EBITDA by $2.7 million. This spread has ranged over the last five years from a
high in fiscal 1995 of $0.95 per pound to a low in fiscal 2000 of $0.68 per
pound. This spread has been improving and was $0.75 per pound by our second
fiscal quarter of 2001.

Focus on Developing Innovative Products

      We intend to continue our extensive research and development efforts and
our 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, we are 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. We are also starting to produce films for lamination to
paperboard containers in order to provide enhanced graphic and holographic
capabilities. In addition, we have 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 we believe 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.

Increase Our High-End Product Mix

      We have historically focused on the identification and development of
innovative products that we believe have higher margins. As a result, the
majority of our sales have historically been in high-end, high margin markets
with only a minor portion of our sales volume in low margin, sealable film
products. With the

                                       9
<PAGE>

rapid expansion of our capacity over the past four years our sales of these
low-margin film products have increased to nearly a quarter of sales volume, as
we focused on minimizing the price impact of our capacity expansion efforts in
the high end markets. Notwithstanding this, during this same period, our high-
end sales grew at a nearly seven percent compounded annual growth rate. This
growth rate, which exceeds the industry's historical over six percent
compounded annual growth rate, results from our focus on continuing to expand
these high-end applications. Our current strategy is to continue to grow our
sales in high-end products without impairing market pricing, and thereby
increase the proportion of our total sales represented by these higher margin
products. In connection with this, through the acquisition of QPF, we have
eliminated our need to attract additional volumes to fill our current capacity.
As a result, our efforts to enhance our product mix will be accelerated.

Maximize Operating Efficiencies and Reduce Costs

      We intend to continue to seek opportunities to reduce costs and enhance
productivity. Since 1995, we have nearly doubled our capacity and now
approximately 140 million pounds, or 52 percent, of our 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, we have 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, we have achieved a 30 percent reduction in
non-raw material unit production costs since the beginning of fiscal 1998. With
the acquisition of QPF, we expect to fill our excess capacity and further
reduce our unit production costs, thereby allowing us to enhance our
competitive cost advantage and improve profitability levels.

      In addition, historically we purchase approximately 240 million pounds of
polypropylene resin each year, which we believe is more than any other North
American OPP films manufacturer and gives us a purchasing advantage over
smaller manufacturers such as QPF. As a result, we expect to be able to produce
the additional products to satisfy QPF's customers with lower resin costs than
were available to QPF. We also expect to benefit from further reductions in our
resin unit purchasing price, as a result of the additional resin purchasing
volume arising from the acquisition of QPF, and such a reduction has already
been negotiated with several of our suppliers.

Focus on Industry Leadership

      We have become the largest OPP films manufacturer and seller in North
America and have a leading position in substantially all major high-end OPP
films end-use product categories in North America. We have accomplished this by
assembling what we believe is the industry's most experienced and technical
sales force, by developing strong customer and end-user relationships and by
establishing a reputation for innovative new product development. Our 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 our customers. We also intend to continue
to strengthen relationships with our customers by making it easier for them to
do business with us, by, for example, providing supply chain integration tools
such as our new proprietary fully automated, internet accessible, order and
logistics tracking system. We believe that the combination of our leadership
position, innovative capabilities, strong sales force and highly efficient
manufacturing positions us to achieve future growth and profitability. As a
result of our focus on building our industry leadership position, we
continually explore opportunities to acquire related businesses and to divest
those that do not fit our overall strategy. Accordingly, we have begun an
investigation of the possible divestiture of our netting and nonwovens
business.

                                       10
<PAGE>


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

      On June 19, 2001, we 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. We also
purchased QPF inventory produced through June 30, 2001, the day on which the
QPF facility was shut down. We did not purchase the QPF facility and the cost
to close the facility will be borne by Hood.

      The net purchase price for the QPF assets, not including inventory, was
$15.0 million, comprised of $2.0 million that we paid with the signing of the
purchase agreement, $4.0 million that we placed in escrow and released at the
closing, and $9.0 million that we paid in cash at the closing. Additionally, we
issued an inventory note to QPF on June 30, 2001, in the amount of
approximately $6.7 million for the QPF inventory that we acquired. It is
anticipated that this note will be repaid as we liquidate the inventory.

      QPF was a niche manufacturer of OPP films with 40 million pounds of
volume produced in fiscal 2000. We believe we can retain QPF's business and run
this production on our own facilities. As a result of the QPF facility closure,
North American capacity of OPP films will drop by approximately 40 million
pounds. Our acquisition of QPF is expected to have the following impacts:

    .  It will increase the North American OPP films industry capacity
       utilization from approximately 90 percent to 94 percent by the end of
       2001.

    .  We expect to retain a substantial majority of QPF's existing customer
       base. Several key account managers of QPF have joined our sales force,
       and have facilitated a smooth and expeditious transition by continuing
       to call on their QPF accounts.

    .  Except for several key QPF account managers, we did not retain any
       other QPF manufacturing, administrative or management personnel. By
       not continuing the QPF operations, we will not incur other QPF costs
       of production, such as power, maintenance, insurance, property taxes,
       capital expenditures and depreciation.

    .  It will improve our capacity utilization and cash flows by allowing
       our excess capacity to be used to satisfy sales to QPF's existing
       customer base, with additional costs being largely the direct raw
       material costs and minor incremental production costs.

    .  It will offset some of our future capital requirements with some of
       the acquired assets. The remainder of the acquired assets will be used
       for spare parts or scrapped. Dismantling of all QPF machinery and
       equipment began shortly after the closing.

      For more information on the projected effects of the QPF transaction, see
"Summary Pro Forma Combined Financial Data," and the notes thereto.

Principal Executive Offices

      Our principal executive offices are located at 3 Centennial Drive,
Peabody, MA 01960. Our telephone number at that location is (978) 538-1500.

                                       11
<PAGE>

                   SUMMARY OF THE TERMS OF THE EXCHANGE OFFER

      The exchange offer relates to the exchange of up to $275 million
aggregate principal amount of outstanding notes for an equal aggregate
principal amount of exchange notes. The exchange notes will be obligations of
our company entitled to the benefits of the indenture governing the outstanding
notes. The form and terms of the exchange notes are identical in all material
respects to the form and terms of the outstanding notes except that the
exchange notes have been registered under the Securities Act, will bear a
Series B designation and different CUSIP number from the outstanding notes,
will not bear legends restricting their transfer, and are not entitled to the
benefits of the registration rights granted under the registration rights
agreement, executed as part of the offering of the outstanding notes, dated
June 19, 2001, among us and the initial purchasers in the private offering,
including Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities, Inc., Credit Suisse First Boston Corporation,
and Deutsche Banc Alex. Brown Inc., including the provisions providing for
liquidated damages relating to the timing of the exchange offer.

Registration rights           You are entitled to exchange your notes for
agreement...................  registered notes with substantially identical
                              terms. The exchange offer is intended to satisfy
                              these rights. After the exchange offer is
                              complete, you will no longer be entitled to any
                              registration rights with respect to your notes.

The exchange offer..........  We are offering to exchange $1,000 principal
                              amount of 10 3/4% Series B senior notes due 2011,
                              which have been registered under the Securities
                              Act, for each $1,000 principal amount of our
                              outstanding 10 3/4% senior notes due 2011, which
                              were issued in June 2001 in a transaction exempt
                              from registration under the Securities Act in
                              accordance with Rule 144A. In order to be
                              exchanged, an outstanding note must be properly
                              tendered and accepted. All outstanding notes that
                              are validly tendered and not validly withdrawn
                              will be exchanged. As of this date there are $275
                              million principal amount of notes outstanding. We
                              will issue registered notes promptly after the
                              expiration of the exchange offer.

Resale of the new notes.....  We believe that you may offer for resale, resell
                              or otherwise transfer the notes issued in the
                              exchange offer without compliance with the
                              registration and prospectus delivery provisions
                              of the Securities Act provided that you:

                              .  acquire the notes issued in the exchange offer
                                 in the ordinary course of business;

                              .  are not participating, do not intend to
                                 participate, and have no arrangement or
                                 understanding with any person to participate,
                                 in the distribution of the notes issued to you
                                 in the exchange offer;

                              .  are not a broker-dealer who purchased such
                                 outstanding notes directly from us for resale
                                 pursuant to Rule 144A or any

                                       12
<PAGE>

                                 other available exemption under the Securities
                                 Act of 1933; and

                              .  you are not an "affiliate" of ours.

                              We have based our belief on interpretations of
                              the staff of the SEC set forth in no action
                              letters issued to other companies. We have not,
                              however, requested the SEC to issue an
                              interpretation with respect to resales of the
                              notes issued in the exchange offer, and we do not
                              expect to do so in the future. If our belief is
                              inaccurate and you transfer any note issued to
                              you in the exchange offer without delivering a
                              prospectus meeting the requirement of the
                              Securities Act or without an exemption from
                              registration of your notes from such
                              requirements, you may incur liability under the
                              Securities Act. We do not assume or indemnify you
                              against such liability.

                              Each broker-dealer that receives notes in the
                              exchange offer for its own account in exchange
                              for notes that were acquired by such broker-
                              dealer as a result of market-making or other
                              trading activities, must acknowledge that it will
                              deliver a prospectus meeting the requirements of
                              the Securities Act, in connection with any resale
                              of the notes issued in the exchange offer. See
                              "Plan of Distribution". The letter of transmittal
                              states that by so acknowledging and by delivering
                              a prospectus, such broker-dealer will not be
                              deemed to admit that it is an "underwriter"
                              within the meaning of the Securities Act. A
                              broker-dealer may use this prospectus for an
                              offer to resell or other retransfer of the notes
                              issued to it in the exchange offer. We have
                              agreed that, for a period of 180 days after the
                              closing of the exchange offer, we will make this
                              prospectus and any amendment or supplement to
                              this prospectus available to any such broker-
                              dealer for use in connection with any such
                              resales. We believe that no registered holder of
                              the outstanding notes is an affiliate (as such
                              term is defined in Rule 405 of the Securities
                              Act) of ours.

                              The exchange offer is not being made to, nor will
                              we accept surrenders for exchange from, holders
                              of outstanding notes in any jurisdiction in which
                              this exchange offer or the acceptance thereof
                              would not be in compliance with the securities or
                              blue sky laws of such jurisdiction. Furthermore,
                              persons who acquire the notes in the exchange
                              offer are responsible for compliance with these
                              securities or blue sky laws regarding resales. We
                              assume no responsibility for compliance with
                              these requirements.

Expiration date.............  The exchange offer will expire at 5:00 p.m., New
                              York City time,       , 2001, unless we decide to
                              extend the expiration date.

Accrued interest on the
exchange notes and the
outstanding notes...........
                              Interest on the exchange notes will accrue from
                              the last date on which interest was paid on the
                              notes being tendered for exchange or, if no
                              interest has been paid, from June 19, 2001.
                              Holders of outstanding notes whose notes are
                              accepted for exchange will be

                                       13
<PAGE>

                              deemed to have waived the right to receive any
                              payment of interest on such outstanding notes
                              accrued from June 19, 2001 to the date of the
                              issuance of the exchange notes. Consequently,
                              holders who exchange their outstanding notes for
                              exchange notes will receive the same interest
                              payment on January 1, 2002 (the first interest
                              payment date with respect to the outstanding
                              notes and the exchange notes to be issued in the
                              exchange offer) that they would have received had
                              they not accepted the exchange offer.

Termination of the exchange   We may terminate the exchange offer if we
offer.......................  determine that our ability to proceed with the
                              exchange offer could be materially impaired due
                              to any legal or governmental action, new law,
                              statute, rule or regulation or any interpretation
                              of the staff of the SEC of any existing law,
                              statute, rule or regulation. We do not expect any
                              of the foregoing conditions to occur, although we
                              cannot assure you that such conditions will not
                              occur. Holders of outstanding notes will have
                              certain rights against us under the registration
                              rights agreement executed as part of the offering
                              of the outstanding notes should we fail to
                              consummate the exchange offer.

Procedures for tendering
outstanding notes...........
                              If you are a holder of a note and you wish to
                              tender your note for exchange pursuant to the
                              exchange offer, you must transmit to Wells Fargo
                              Bank Minnesota, National Association, as exchange
                              agent, on or prior to the expiration date of the
                              exchange offer:

                                 either

                              .  a properly completed and duly executed letter
                                 of transmittal, which accompanies this
                                 prospectus, or a facsimile of the letter of
                                 transmittal, including your outstanding notes
                                 and all other documents required by the letter
                                 of transmittal, to the exchange agent at the
                                 address set forth on the cover page of the
                                 letter of transmittal; or

                              .  if you are effecting delivery by book entry
                                 transfer, a computer-generated message
                                 transmitted by means of Automated Tender Offer
                                 Program system of The Depository Trust
                                 Company, also known as DTC, and received by
                                 the exchange agent and forming a part of a
                                 confirmation of book entry transfer in which
                                 you acknowledge and agree to be bound by the
                                 terms of the letter of transmittal;

                                 and, either

                              .  if you are effecting delivery by book entry
                                 transfer, a timely confirmation of book-entry
                                 transfer of your outstanding notes into the
                                 exchange agent's account at DTC pursuant to
                                 the procedure for book-entry transfers
                                 described in this prospectus under the heading
                                 "The Exchange Offer--Procedure for Tendering,"
                                 must be received by the exchange agent on or
                                 prior to the expiration date of the exchange
                                 offer; or

                              .  the documents necessary for compliance with
                                 the guaranteed delivery procedures described
                                 below.

                                       14
<PAGE>


                              By executing and delivering the letter of
                              transmittal or effecting delivery by book entry
                              transfer, each holder will represent to us that,
                              among other things, (i) the notes to be issued in
                              the exchange offer are being obtained in the
                              ordinary course of business of the person
                              receiving such exchange notes whether or not such
                              person is the holder, (ii) neither the holder nor
                              any such other person has an arrangement or
                              understanding with any person to participate in
                              the distribution of such exchange notes and that
                              the holder is not engaged in, and does not intend
                              to engage in, the distribution of such exchange
                              notes and (iii) neither the holder nor any such
                              other person is an "affiliate" of ours as defined
                              in Rule 405 under the Securities Act.

Special procedures for
beneficial owners...........
                              If you are the beneficial owner of notes and your
                              name does not appear on a security position
                              listing of DTC as the holder of such notes or if
                              you are a beneficial owner of registered notes
                              that are registered in the name of a broker,
                              dealer, commercial bank, trust company or other
                              nominee and you wish to tender such notes or
                              registered notes in the exchange offer, you
                              should contact such person in whose name your
                              notes or registered notes are registered promptly
                              and instruct such person to tender on your
                              behalf. If such beneficial holder wishes to
                              tender on his own behalf, such beneficial holder
                              must, prior to completing and executing the
                              letter of transmittal and delivering its
                              outstanding notes, either make appropriate
                              arrangements to register ownership of the
                              outstanding notes in such holder's name or obtain
                              a properly completed bond power from the
                              registered holder. The transfer of record
                              ownership may take considerable time.

Guaranteed delivery           If you wish to tender your notes and time will
procedures..................  not permit your required documents to reach the
                              exchange agent by the expiration date of the
                              exchange offer, or the procedure for book-entry
                              transfer cannot be completed on time or
                              certificates for registered notes cannot be
                              delivered on time, you may tender your notes
                              pursuant to the procedures described in this
                              prospectus under the heading "The Exchange
                              Offer--Guaranteed Delivery Procedure."

Withdrawal rights...........  You may withdraw the tender of your notes at any
                              time prior to 5:00 p.m., New York City time, on
                              the expiration date.

Acceptance of outstanding
notes and delivery of
exchange notes..............  Subject to certain conditions as summarized above
                              in "Termination of the Exchange Offer" and
                              described more fully under "The Exchange Offer--
                              Termination," we will accept for exchange any and
                              all outstanding notes which are properly tendered
                              and not validly withdrawn in the exchange offer
                              prior to 5:00 p.m., New York City time, on the
                              expiration date of the exchange offer. The notes
                              issued pursuant to the exchange offer will be
                              delivered promptly following the expiration date.

                                       15
<PAGE>


United States federal
income tax consequences.....
                              The exchange of the notes should not be a taxable
                              exchange for United States federal income tax
                              purposes. See "United States Federal Tax
                              Considerations."

Use of proceeds.............  We will not receive any proceeds from the
                              issuance of notes pursuant to the exchange offer.
                              We will pay all expenses incident to the exchange
                              offer.

Exchange agent..............  Wells Fargo Bank Minnesota, National Association
                              is serving as exchange agent in connection with
                              the exchange offer. The exchange agent can be
                              reached at Corporate Trust Services, 213 Court
                              Street, Suite 902, Middletown, CT 06457. For more
                              information with respect to the exchange offer,
                              the telephone number for the exchange agent is
                              (860) 704-6216 and the facsimile number for the
                              exchange agent is (860) 704-6219.

                   SUMMARY DESCRIPTION OF THE EXCHANGE NOTES

Notes offered...............  $275,000,000 aggregate principal amount of 10
                              3/4% Series B senior notes due 2011.

Maturity date...............  July 1, 2011.

Interest payment dates......  January 1 and July 1 of each year, commencing
                              January 1, 2002.

Ranking.....................  The exchange notes will be unsecured and rank
                              equally with our senior indebtedness and senior
                              to our subordinated indebtedness. Each guarantee
                              will be unsecured and rank equally with senior
                              indebtedness of the guarantor and senior to all
                              subordinated indebtedness of the guarantor. The
                              exchange notes and the guarantees will
                              effectively rank junior to our secured
                              indebtedness as to the assets securing such
                              indebtedness. Borrowings under our bank credit
                              facility will be secured by substantially all of
                              our assets and those of our subsidiaries. The
                              exchange notes will also effectively rank junior
                              to the liabilities of any of our subsidiaries
                              that are not guarantors of the notes. The
                              exchange notes will rank equally with any notes
                              issued in the original offering that are not
                              exchanged pursuant to the exchange offer.

                              As of March 31, 2001, after giving pro forma
                              effect to the offering of the outstanding notes
                              and our use of the net proceeds and related
                              transactions:

                              .  we would have had outstanding $13.2 million of
                                 senior indebtedness (excluding the notes),
                                 $12.9 million of which would have been secured
                                 senior indebtedness:

                              .  our subsidiaries that are guarantors would
                                 have had outstanding $6.5 million of
                                 indebtedness (excluding the guarantees of the
                                 notes), $6.2 million of which would have
                                 represented guarantees of borrowings under the
                                 bank credit facility; and

                                       16
<PAGE>


                              .  our subsidiaries that are not guarantors would
                                 have had outstanding less than $1.0 million of
                                 indebtedness and other liabilities.

Optional redemption ........  We may redeem the exchange notes, in whole or in
                              part, at any time on or after July 1, 2006, at
                              the redemption prices set forth in this
                              prospectus.

Equity offering optional      Before July 1, 2004, we may, from time to time,
redemption .................  redeem up to 35% of the aggregate principal
                              amount of the exchange notes with the net
                              proceeds of one or more equity offerings at a
                              redemption price of 110.75% of the principal
                              amount thereof, plus accrued interest, if at
                              least 65% of the aggregate principal amount of
                              the exchange notes originally issued remains
                              outstanding after such redemption. See
                              "Description of the Exchange Notes--Optional
                              Redemption."

Change of Control ..........  Upon certain changes of control events, each
                              holder of exchange notes may require us to
                              repurchase all or a portion of its exchange notes
                              at a purchase price equal to 101% of the
                              principal amount thereof, plus accrued interest.
                              See "Description of the Exchange Notes--Certain
                              Definitions" for the definition of a Change of
                              Control.

Certain covenants ..........  The indenture governing the exchange notes
                              contains covenants that, among other things,
                              limit our ability and the ability of our
                              restricted subsidiaries to:

                              .  incur additional indebtedness,

                              .  pay dividends on, redeem or repurchase our
                                 capital stock,

                              .  make investments,

                              .  issue or sell capital stock of restricted
                                 subsidiaries,

                              .  transfer assets to non-guarantor subsidiaries,

                              .  create certain liens,

                              .  sell assets and dispose of proceeds of such
                                 sales,

                              .  in the case of our restricted subsidiaries,
                                 restrict payments of dividends or other
                                 distributions to us,

                              .  in the case of our restricted subsidiaries,
                                 guarantee indebtedness,

                              .  engage in transactions with affiliates,

                              .  create unrestricted subsidiaries, and

                              .  consolidate, merge or transfer all or
                                 substantially all our assets and the assets of
                                 our subsidiaries on a consolidated basis.

                              These covenants are subject to important
                              exceptions and qualifications, which are
                              described under the heading "Description of the
                              Exchange Notes" in this prospectus.

                                       17
<PAGE>


Exchange offer;               Under a registration rights agreement executed as
registration rights.........  part of the offering of the outstanding notes we
                              agreed to:

                              .  file a registration statement within 30 days
                                 after the issue date of the outstanding notes
                                 enabling note holders to exchange the
                                 privately placed notes for publicly registered
                                 notes with substantially identical terms,

                              .  use our best efforts to cause the registration
                                 statement to become effective within 120 days
                                 after the issue date of the outstanding notes,

                              .  consummate the exchange offer within 150 days
                                 after the effective date of our registration
                                 date, and

                              .  use our best efforts to file a shelf
                                 registration statement for the resale of the
                                 outstanding notes if we cannot effect an
                                 exchange offer within the time periods listed
                                 above and in certain other circumstances.

                              The interest rate on the outstanding notes will
                              increase if we do not comply with our obligations
                              under the registration rights agreement. See "The
                              Exchange Offer."

Risk Factors................  See "Risk Factors" for a discussion of factors
                              you should carefully consider before deciding to
                              invest in the exchange notes.

                                       18
<PAGE>

                               Summary Pro Forma
                            Combined Financial Data
                             (dollars in thousands)

      The following table sets forth our unaudited summary pro forma combined
financial data for the periods indicated. The pro forma statement of operations
and other data gives effect to our acquisition of the assets of QPF and the
offering of the outstanding notes and the application of net proceeds as if the
transactions occurred on the first day of each period described below. The pro
forma balance sheet data gives effect to the acquisition of the assets of QPF
and the offering of the outstanding notes and the application of the net
proceeds as if they had occurred on March 31, 2001. The unaudited summary pro
forma combined financial data do not purport to represent what our results of
operations would actually have been had the QPF acquisition and the offering of
the outstanding notes in fact occurred as of such dates or to project our
results of operations for any future period. The unaudited summary pro forma
combined financial data should be read in conjunction with the Unaudited Pro
Forma Combined Statements of Operations and the notes thereto appearing
elsewhere in this offering memorandum.

<TABLE>
<CAPTION>
                                          Pro Forma(a)
                         -----------------------------------------------
                                       Six Months Ended
                          Year Ended       March 31,      Twelve Months
                         September 30, ----------------- Ended March 31,
                             2000        2000     2001       2001(b)
                         ------------- -------- -------- ---------------
<S>                      <C>           <C>      <C>      <C>             <C> <C> <C>
Statement of Operations
 Data:
 Net sales..............   $310,464    $147,739 $156,565    $317,476
 Cost of sales..........    236,247     105,985  120,109     248,613
                           --------    -------- --------    --------
 Gross profit...........     74,217      41,754   36,456      68,863
 Operating expenses:
  Selling general and
   administrative.......     27,602      13,688   14,442      28,356
  Research and
   development..........      6,759       3,394    3,261       6,626
  Share incentive
   plan(c)..............        --          --       861         861
                           --------    -------- --------    --------
 Income from
  operations............     39,856      24,672   17,892      33,020
 Interest expense, net..     29,407      14,977   15,661      29,797
                           --------    -------- --------    --------
 Income before income
  taxes.................     10,449       9,695    2,231       3,223
   Income taxes.........      3,762       3,490      803       1,160
                           --------    -------- --------    --------
 Net income.............   $  6,687    $  6,205 $  1,428    $  2,063
                           ========    ======== ========    ========
Other Financial Data:
 EBITDA(d)..............................................    $ 55,779
 Adjusted EBITDA(e).....................................      60,921
 Capital expenditures...................................      23,405
 Ratio of adjusted EBITDA to interest expense, net(f)...         2.0x
 Ratio of net debt to adjusted EBITDA(g)................         4.0x
 Ratio of long-term debt to adjusted EBITDA.............         3.6x
Balance Sheet Data (at
 end of period):
 Working capital(h).....................................    $ 74,174
 Total assets...........................................     449,160
 Long-term debt.........................................     277,359
 Stockholders' equity...................................      94,396
</TABLE>

                                                   (footnotes on following page)

                                       19
<PAGE>

--------
(a) Summary of pro forma adjustments as a result of QPF acquisition:
<TABLE>
<CAPTION>
                                                                  Twelve Months
                                 Year Ended   Six Months Ended        Ended
                                September 30,     March 31,         March 31,
                                    2000        2000      2001        2001
                                ------------- --------  --------  -------------
<S>                             <C>           <C>       <C>       <C>
  Elimination of duplicative
   QPF manufacturing labor
   costs(1)....................   $ (6,521)   $ (3,233) $ (3,654)   $ (6,808)
  Elimination of duplicative
   QPF production costs(2).....     (5,996)     (2,989)   (2,231)     (6,266)
  Reduction in depreciation and
   amortization(3).............     (1,843)       (898)     (931)     (1,857)
  Reduction in raw material
   costs from new resin price
   agreements(4)...............     (3,300)     (1,650)   (1,650)     (3,300)
                                  --------    --------  --------    --------
  Total adjustments to cost of
   sales.......................   $(17,660)    $(8,770)  $(8,466)   $(18,231)
                                  ========    ========  ========    ========
  Elimination of duplicative
   QPF selling, general and
   administrative costs(5).....   $ (3,781)   $ (1,687) $ (2,042)   $ (3,776)
                                  ========    ========  ========    ========
  Elimination of duplicative
   QPF research and development
   costs(5)....................   $ (1,682)   $   (903) $   (931)   $ (1,655)
                                  ========    ========  ========    ========
</TABLE>
  --------
  (1) In conjunction with our acquisition of assets from QPF, Hood Companies,
      Inc., parent of QPF, discontinued all manufacturing operations at QPF's
      Streamwood, Illinois facility and severed the workforce. Prior to
      delivery of the assets to us, QPF eliminated approximately 110
      duplicative manufacturing positions. We have excess manufacturing
      capacity within our system and therefore, we will manufacture OPP films
      to supply QPF's customers utilizing our existing assets with minimal
      incremental labor costs to produce QPF's volume on our assets. The
      benefits from producing QPF's volume on our assets will be recognized
      over time as we sell the inventory purchased from QPF and replace this
      with products manufactured by us. Because the former QPF employees have
      already been terminated and because we had excess capacity prior to the
      transaction, such labor costs have been eliminated from this pro forma
      presentation.
  (2) Because we did not acquire the QPF facility, we will avoid incurring
      most of QPF's non-labor production costs, including power, insurance,
      property taxes and other support costs. Because of the nature of our
      business, which requires us to continually operate our equipment, we
      believe that we will not incur incremental non-labor production costs.
      Accordingly, these costs incurred by QPF have been substantially
      eliminated from this pro forma presentation. We will incur minimal
      incremental non-labor production costs to produce QPF's volume on our
      assets.
  (3) The application of purchase accounting is expected to result in a
      decrease in depreciation and amortization because not all of the QPF
      assets were purchased and the acquired assets were purchased at a
      discount to historical book value. We valued the purchased property,
      plant and equipment at fair value and we expect to depreciate it over
      their estimated useful lives, ranging from five to 15 years. Intangible
      assets realized as a result of this transaction are expected to be
      amortized over their estimated useful lives. We are currently in the
      process of obtaining an independent valuation of such intangible
      assets.
  (4) With the acquisition of QPF, we will increase our annual polypropylene
      resin purchases by 40 million pounds to over 270 million pounds. As a
      result of this increased volume, we have obtained agreements for more
      favorable resin pricing from several of our resin suppliers related to
      our ongoing raw material purchases. This adjustment reflects the newly
      contracted pricing.
  (5) QPF maintained a full sales, product development and administrative
      infrastructure. We did not maintain either the administrative structure
      of QPF or the products under development by QPF. QPF eliminated more
      than 55 duplicative selling, general and administrative personnel.
      General administrative functions such as finance, information systems
      and planning are being performed within our existing infrastructure.

                                       20
<PAGE>

(b) AET's unaudited twelve months ended March 31, 2001 statement of operations
    was derived from AET's financial statements for the six months ended March
    31, 2000 and 2001 and for the fiscal year ended September 30, 2000. QPF's
    unaudited twelve months ended March 31, 2001 statement of operations was
    derived from QPF's financial statements for the three months ended March
    31, 2000 and 2001 and for the fiscal year ended December 31, 2000.
(c) In the first quarter of fiscal 2001, we recorded a non-cash charge of $861
    for shares issued to non-executive employees as part of an incentive and
    retention program. Under this program, we issued approximately 600,000
    shares of stock to our top 125 non-executive managers in exchange for
    1,200,000 of their vested and unvested stock options. These new shares were
    granted in lieu of annual incentive bonuses for these managers for fiscal
    2000 and 2001.
(d) EBITDA is calculated as net income before net interest expense, income tax
    expense, and depreciation and amortization expense. EBITDA includes the net
    expense associated with sale/leaseback transactions, comprised of rent
    expense, less deferred gain recognized over the term of the lease. We
    believe that EBITDA provides useful information regarding our ability to
    service debt but should not be considered in isolation or as a substitute
    for the combined statement of operations or cash flow data prepared in
    accordance with the generally accepted accounting principles and included
    elsewhere in this offering memorandum or as a measure of our operating
    performance, profitability or liquidity. While EBITDA is frequently used as
    a measure of operations and the ability to meet debt service requirements,
    it is not necessarily comparable to other similarly titled captions of
    other companies due to differences and methods of calculation.
(e) Adjusted EBITDA reflects the elimination of certain non-recurring items
    that affected historical amounts and certain changes in our cost structure
    that are expected to occur as a direct result of the acquisition of QPF, as
    set forth below:

<TABLE>
<CAPTION>
                                                                   Twelve Months
                                                                       Ended
                                                                     March 31,
                                                                       2001
                                                                   -------------
   <S>                                                             <C>
     EBITDA.......................................................    $55,779
     Temporary plant shutdown(1)..................................      2,400
     Reduction in QPF maintenance and supply costs(2).............      1,952
     Reduction in raw material costs(3)...........................        790
                                                                      -------
     Adjusted EBITDA..............................................    $60,921
                                                                      =======
</TABLE>
    --------
    (1) In the fourth quarter of fiscal 2000, we shut down our OPP films
        manufacturing sites as a result of excess capacity. If the
        acquisition of the assets of QPF had occurred at the beginning of
        the period, this capacity would have been required to meet the sales
        demand and therefore, the temporary plant shutdown would not have
        occurred.
    (2) Because we will be producing QPF volume on our assets, we will avoid
        incurring most of the maintenance and supply costs incurred by QPF
        in producing those volumes. We will incur limited incremental
        maintenance and supply costs as we produce QPF's volume on our
        assets.
    (3) We purchase over 240 million pounds of polypropylene resin annually
        compared with QPF's purchase of approximately 40 million pounds. As
        a result of the high volume of our purchases, we purchase
        polypropylene resin at a lower cost than QPF. Therefore,
        polypropylene resins purchased by us to manufacture the QPF volume
        are at our lower cost.

(f) The ratio of adjusted EBITDA to interest expense, net would have been 2.2x
    had interest earned on any unused net proceeds of the offering been taken
    into account to reduce interest expense.
(g) Net debt is defined as long-term debt less cash and cash equivalents.
(h) Working capital is defined as current assets less current liabilities
    excluding short-term debt with third parties.

                                       21
<PAGE>

                             Summary Financial Data
                             (dollars in thousands)

      The following table sets forth our historical financial information. This
summary financial data is intended only as a convenient reference. The
statement of operations and balance sheet data as of and for each of the fiscal
years in the three year period ended September 30, 2000 have been derived from
our audited financial statements, which have been audited by Deloitte & Touche
LLP. The statement of operations data and the balance sheet data as of and for
the six month periods ended March 31, 2000 and 2001 have been derived from our
unaudited financial statements, which financial information in our opinion
reflects all adjustments consisting only of normal recurring adjustments that
we consider necessary for a fair presentation of results for such periods. The
results for the six months ended March 31, 2001 are not necessarily indicative
of the results to be expected for the entire year. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our financial statements and related notes and
other financial information included elsewhere in this prospectus from which we
derived the summary operating and other data.

<TABLE>
<CAPTION>
                                                                 Six Months
                          Fiscal Year Ended September 30,      Ended March 31,
                          ----------------------------------  ------------------
                             1998        1999        2000       2000      2001
                          ----------  ----------  ----------  --------  --------
<S>                       <C>         <C>         <C>         <C>       <C>
Statement of Operations
 Data(a):
Net sales...............  $  245,334  $  237,042  $  268,375  $128,896  $135,713
Cost of sales...........     195,174     188,601     215,256    97,233   109,238
                          ----------  ----------  ----------  --------  --------
Gross profit............      50,160      48,441      53,119    31,663    26,475
Operating expenses:
Selling, general and
 administrative
 expenses...............      23,754      26,550      27,152    13,463    14,217
Restructuring and
 impairment charges(b)..      21,506         --          --        --        --
Research and
 development............       7,326       7,123       6,759     3,394     3,261
Share incentive
 plan(c)................         --          --          --        --        861
Start up costs(d).......       1,539         --          --        --        --
Operating profit
 (loss).................      (3,965)     14,768      19,208    14,806     8,136
Interest expense, net...      15,868      18,909      21,096    10,180    11,357
                          ----------  ----------  ----------  --------  --------
Income (loss) before
 income taxes and
 extraordinary
 items(e)...............     (20,083)     (7,782)     (1,888)    4,626    (3,221)
                          ----------  ----------  ----------  --------  --------
Net income (loss) ......  $  (12,902) $   (4,669) $   (1,209) $  2,961  $ (2,062)
                          ==========  ==========  ==========  ========  ========
Operating and Other
 Financial Data:
Gross margin............        20.4%       20.4%       19.8%     24.6%     19.5%
EBITDA(f)...............  $   39,253  $   37,157  $   39,286  $ 24,942  $ 19,903
Net cash provided by
 (used in) operations...     (10,364)     10,554      (6,920)  (12,408)      916
Depreciation and
 amortization...........      17,773      19,484      21,025    10,609    11,678
Capital expenditures....      45,496      36,097      22,096     9,031    10,340
Balance Sheet Data (end
 of period):
Working capital(g)......  $   33,471  $   27,918  $   43,419  $ 55,770  $ 44,638
Total assets............     370,726     375,050     389,250   391,541   388,517
Total long-term debt....     185,500     182,500     209,500   201,500   217,500
Stockholders' equity....     100,437      99,041      99,913   104,454    97,876
</TABLE>
                                                   (footnotes on following page)

                                       22
<PAGE>

--------
(a)  Selected financial data from recent quarterly results (unaudited):


<TABLE>
<CAPTION>
                                               Gross  Gross  Operating Operating
     Quarter Ended                            Profit  Margin  Profit    Margin
     -------------                            ------- ------ --------- ---------
     <S>                                      <C>     <C>    <C>       <C>
     September 30, 2000(*)................... $ 9,554  14.5%  $1,308      2.0%
     December 31, 2000(**)...................  11,378  18.1    2,543      4.1
     March 31, 2001..........................  15,097  20.7    6,454      8.8
</TABLE>
    --------

     (*)  Excludes $2,400 of costs associated with a temporary
          shutdown of manufacturing plants in September 2000.
    (**)  Excludes $861 of non-cash charges related to the share
          incentive plan for non-executive employees.
(b) In fiscal 1998, we recorded a restructuring and impairment charge of
    $21,506. We began implementing a shutdown of certain older and less
    efficient assets in our Covington, Virginia facility and made certain other
    organizational changes, including a nearly 15 percent reduction in total
    headcount. In connection with the shutdown, we recorded a charge of $18,580
    or $11,148 after taxes. We also wrote down the value of certain other
    assets in our Covington, Virginia facility, whose carrying values had been
    impaired by an aggregate of $2,926.
(c) In the first quarter of fiscal 2001, we recorded a non-cash charge of $861
    for shares issued to non-executive employees as part of an incentive and
    retention program. Under this program, we issued approximately 600,000
    shares of stock to our top 125 non-executive managers in exchange for
    1,200,000 of their vested and unvested stock options. These new shares were
    granted in lieu of annual incentive bonuses for these managers for fiscal
    2000 and 2001.
(d) In fiscal 1998, we elected early adoption of the Accounting Standards
    Executive Committee Statement of Position 98-5, "Reporting on the Costs of
    Start-up Activities." The effect of this change in accounting was the
    recognition of $1,539 of expenses related to net start-up costs incurred
    during fiscal 1998.
(e) In fiscal 1999, we terminated acquisition discussions with two of the
    largest European-based worldwide OPP films producers. We were unable to
    reach a mutually agreeable price at which we would acquire either of these
    businesses, given the deterioration in the European OPP films market caused
    by the major industry-wide overcapacity in that region. Costs associated
    with both of these acquisition projects and related due diligence efforts
    were $3,641, and were recorded as non-operating expenses. In fiscal 1998,
    we recorded a charge of $250 related to the write-off of certain assets
    associated with a divested business. Related to the change in accounting
    described in footnote (d), we recorded a one-time charge of $852, net of
    related income tax benefits of $568, resulting from costs incurred in prior
    periods.
(f) EBITDA is calculated as net income before net interest expense, income tax
    expense and depreciation and amortization expense. EBITDA includes the net
    expense associated with sale/leaseback transactions, comprised of rent
    expense, less deferred gain recognized over the term of the lease. We
    believe that EBITDA provides useful information regarding our ability to
    service debt but should not be considered in isolation or as a substitute
    for the combined statement of operations or cash flow data prepared in
    accordance with the generally accepted accounting principles and included
    elsewhere in this offering memorandum or as a measure of our operating
    performance, profitability or liquidity. While EBITDA is frequently used as
    a measure of operations and the ability to meet debt service requirements,
    it is not necessarily comparable to other similarly titled captions of
    other companies due to differences and methods of calculation.
(g) Working capital is defined as current assets less current liabilities
    excluding short-term debt with third parties.

                                       23
<PAGE>

                                  RISK FACTORS

      You should carefully consider the following risk factors and other
information in this offering memorandum before deciding to invest in the notes.

Risks Associated with the Exchange Notes

We have substantial debt outstanding that could negatively impact our business
and prevent us from fulfilling our obligations under the exchange notes.

      We have a high level of debt compared to our assets and stockholders'
equity and, as a result, significant debt service obligations. On a pro forma
basis at March 31, 2001, after giving effect to the original offering and our
use of the proceeds, we would have had $284.1 million (taking into account the
$4.1 million discount on the issuance of the outstanding notes) of consolidated
outstanding debt all of which would have been senior debt (including the
notes). Our total consolidated debt as a percentage of capitalization would
have been 69.4 percent. We and our subsidiaries may be able to incur
substantial additional indebtedness in the future, including secured
indebtedness which would be effectively senior to the exchange notes and the
guarantees of our domestic subsidiaries. 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 to you 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;

    .  limiting our ability to repurchase the exchange notes in the event of
       a change of control; and

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

      Our ability to service our debt, including the exchange notes, 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 below. Many of these factors are beyond our
control. If we cannot generate sufficient cash flow from operations to make
scheduled payments on our debt, including the exchange notes, 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 cannot assure you that our business will generate
sufficient cash flow from operations, that we will be able to obtain additional
funds or sell assets sufficient to satisfy our debt service requirements on
terms satisfactory to us or at all, or that we will 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,
including the exchange notes, 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
future 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.

      The operating and financial restrictions and covenants in our debt
agreements, including the indenture governing the exchange 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

                                       24
<PAGE>

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 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 exchange 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 exchange notes.

The exchange notes are unsecured.

      The exchange notes will not be secured by any of our assets. Our
obligations under our bank credit facility are secured by substantially all of
our assets. As of July 10, 2001, we had $12.4 million of indebtedness
outstanding under our bank credit facility, approximately $6.2 million of which
were standby letters of credit securing the industrial revenue bonds and the
remaining amount which represented letters of credit not yet drawn upon.
Subject to borrowing base requirements, we have $67.6 million available for
future borrowings under our bank credit facility, after taking into account
outstanding letters of credit. If we became insolvent or were liquidated, or if
payment under our bank credit facility were accelerated, the lenders under our
bank credit facility would be entitled to exercise the remedies available to a
secured lender under applicable law. Therefore, our bank lenders will have a
claim on such assets before the holders of the exchange notes. If any secured
debt is accelerated, our assets may not be sufficient to repay in full this
indebtedness and our other indebtedness, including the exchange notes, in which
event the interests of the secured debt lenders may conflict with the interests
of holders of the exchange notes. For a description of our bank credit facility
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Not all of our subsidiaries will be guarantors. Your right to receive payments
on the exchange notes could be adversely affected if any of our non-guarantor
subsidiaries declare bankruptcy, liquidate, or reorganize.

      Currently, only one of our subsidiaries will not guarantee the exchange
notes. The assets of that subsidiary were less than two percent of our
consolidated assets at March 31, 2001. In the future, we may have subsidiaries
who are not guarantors and their results of operations and assets may be
significant. In the event of a bankruptcy, liquidation or reorganization of any
non-guarantor subsidiary, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us.

We may not be able to repurchase the exchange notes upon a change of control.

      Upon the occurrence of specific kinds of change in control events, as
defined in the indenture, we will be required to offer to repurchase all of the
outstanding exchange notes at 101% of the principal amount thereof, plus
accrued interest to the date of repurchase. This provision will not necessarily
provide protection to holders of the exchange notes in a highly leveraged
transaction or various other transactions involving us or our subsidiaries that
would not constitute a "change of control" under the indenture. In addition,
our ability to repurchase the exchange notes may be limited by our then
existing financial resources, including a similar obligation to repay amounts
outstanding under the bank credit facility. It is possible that in the event of
a change of control, we will not have, or will not have access to, sufficient
funds, or will not be contractually permitted under the terms of our
outstanding indebtedness, to purchase all of the exchange notes tendered by
holders upon a change of control. See "Description of the Exchange Notes--
Change of Control."


                                       25
<PAGE>

Federal and state fraudulent transfer laws permit a court to void the exchange
notes and the guarantees, and if that occurs, you may not receive any payment
on the exchange notes.

      Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of
a guarantee could be subordinated to all other debt of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:

    .  received less than reasonably equivalent value or fair consideration
       for the incurrence of such guarantee; and

    .  was insolvent or rendered insolvent by reason of such incurrence; or

    .  was engaged in a business transaction for which the guarantor's
       remaining assets constituted unreasonably small capital; or

    .  intended to incur, or believed that it would incur, debts beyond its
       ability to pay such debts as they mature.

      In addition, any payment by that guarantor pursuant to its guarantee
could be voided and required to be returned to the guarantor, or to a fund for
the benefit of the creditors of the guarantor.

      The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, a guarantor would be considered
insolvent if:

    .  the sum of its debts, including contingent liabilities, were greater
       than the fair saleable value of all of its assets, or

    .  if the present fair saleable value of its assets were less than the
       amount that would be required to pay its probable liability on its
       existing debts, including contingent liabilities, as they become
       absolute and mature, or

    .  it could not pay its debts as they become due.

      On the basis of historical financial information, recent operating
history and other factors, we believe that the guarantor, after giving effect
to its guarantee of the exchange notes, will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.

We cannot assure you that an active trading market will develop for the
exchange notes.

      There is currently no trading market for the exchange notes. Although
each initial purchaser of the outstanding notes has informed us that it
currently intends to make a market in the exchange notes, it has no obligation
to do so and may discontinue making a market at any time without notice. We
expect the exchange notes to be eligible for trading in the PORTAL market.
However, we do not intend to apply for listing of the exchange notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.

      The liquidity of any market for the notes will depend upon the number of
holders of the exchange notes, our performance, the market for similar
securities, the interest of securities dealers in making a market in the
exchange notes and other factors. A liquid trading market may not develop for
the exchange notes.

                                       26
<PAGE>

Your failure to exchange your notes in the exchange offer will restrict your
ability to resell them.

Untendered outstanding notes that you do not exchange for the registred
exchange notes pursuant to the exchange offer will remain restricted
securities, subject to the following restrictions on transfer:

 .  You may resell the notes only if that sale is registered pursuant to the
   Securities Act or if an exemption from registration is available;

 .the notes will bear a legend restricting transfer in the absence of
      registration or an exemption; and

 .  a holder of the notes who wants to sell or otherwise dispose of all or any
   part of its notes under an exemption from registration under the Securities
   Act, if requested by us, must deliver to us an opinion of independent
   counsel experienced in Securities Act matters, reasonably satisfactory in
   form and substance to us, that such exemption is available.

      Except under limited circumstances, we have no obligation to register any
notes not tendered in the exchange offer.

Risks Related to Our Business.

We operate in highly competitive markets and we cannot assure you that our
customers will 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, we cannot assure you that our current customers will continue to
purchase our products, that we will be successful in avoiding product
obsolescence, or that we will be able to compete effectively with these
companies.

Industry overcapacity has harmed, and could continue to harm, our business.

      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 mid-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 and our business could be adversely affected. 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.


                                       27
<PAGE>

Price increases and shortages in the supply of polypropylene raw materials
could negatively impact our business.

      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, but in recent years
the price has increased significantly due to the increased price of crude oil.
For example, polypropylene raw material costs in fiscal 2000 were up $0.103 per
pound, or 37.2 percent over fiscal 1999. In recent years, we have not been able
to pass through a significant portion of the 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 $0.01 decrease in the spread between our selling
price per pound and resin costs per pound in fiscal 2000 would have reduced our
EBITDA by $2.7 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 conditions, 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 pending at any given time relating to product
enhancements and new product developments. We cannot assure you that we will
obtain patents on the basis of our applications, that any patents that we hold
will provide us with adequate protection for the covered products, technology,
or target markets or that any patents or other rights that we hold will be
sufficient protection for our intellectual property in foreign countries.
Additionally, we cannot be sure that our confidentiality agreements will
adequately protect our trade secrets, know-how or other proprietary
information. Further, we cannot assure you that our activities will not
infringe on the patents, trademarks or proprietary rights of others or that we
will 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 technological 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 cannot
assure you that we will be able to accomplish this or that technological
developments by our competitors will not place some of our products at a
competitive disadvantage in the future.

The loss of a key customer could have a significant negative impact on our
business.

      Approximately 62 percent of our sales in fiscal 2000 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 cannot assure you that we will be able to maintain these
relationships or that we will continue to supply our customers at current

                                       28
<PAGE>

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.

Our operating results may fluctuate due to seasonal factors.

      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 are generally higher in the
spring and summer. Our results have typically followed a similar seasonal
pattern, with stronger operating performance in the third and fourth fiscal
quarters. In addition, because 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, even a relatively small revenue shortfall may cause a
period's results to fall below expectations. Such a revenue shortfall 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.

Our business is subject to substantial health and environmental remediation and
compliance costs.

      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.

We may not be able to successfully integrate current and future acquisitions.

      We continually explore opportunities to acquire related businesses, some
of which could be material to us. As of the date of this prospectus, we have no
agreements to acquire any businesses or assets, other than our agreement in
connection with our recently completed acquisition of assets from QPF. 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 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 business
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 adversely
affect our operations and financial condition.

      We employ approximately 1,100 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 adversely affect our results of

                                       29
<PAGE>

operations and financial condition. 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 adversely affect our results of operations and
financial condition.

Our operations outside of the United States are subject to additional currency
exchange, political, investment and other risks that may adversely affect our
business.

      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 also adversely affect our business.

                                       30
<PAGE>

                                USE OF PROCEEDS

      There will be no cash proceeds payable to us from the issuance of
exchange notes pursuant to the exchange offer. The net proceeds to us, after
deducting fees and expenses, from the sale of the outstanding notes were
approximately $261.1 million. Of those proceeds, $155.2 million was used to
fund the redemption of and interest on our 11 1/2% senior notes due 2002, $9.0
million was used to fund a 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 our current revolving line of credit, and $22.8 million is
being used for general corporate purposes.

      As of July 10, 2001, we had $12.4 million of indebtedness outstanding
under our bank credit facility representing letters of credit, approximately
$6.2 million of which were standby letters of credit securing the industrial
revenue bonds and the remaining amount which represented letters of credit not
yet drawn upon. Pursuant to the terms of this facility, upon the closing of the
offering of the outstanding notes and the application of the net proceeds, the
commitments under our bank credit facility were reduced from $96.0 million to
$80.0 million. As a result, subject to borrowing base requirements, we have
$67.6 million of availability under our bank credit facility, after taking into
account outstanding letters of credit. The amounts repaid under our bank credit
facility may be immediately re-borrowed up to the amount of our new commitment,
subject to borrowing base requirements. Our bank credit facility has a maturity
of January 29, 2003. We currently intend to refinance our bank credit facility
prior to its maturity. As of July 10, 2001, our bank credit facility bore
interest at a rate between 7.5 percent and 9 percent per year. The amounts
under our 11 1/2% senior notes and our bank credit facility were borrowed
primarily to fund capital expenditures, acquisitions and working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." We also have approximately $6.7
million of indebtedness outstanding under the inventory note we issued in
connection with the acquisition of assets of QPF. The note is secured by
inventory we acquired in the QPF transaction.

      We have invested the net proceeds to be used for general corporate
purposes in short-term, interest bearing securities until the funds are needed.

                               THE EXCHANGE OFFER

General

      In connection with the sale of the outstanding notes, the purchasers
thereof became entitled to the benefits of certain registration rights.
Pursuant to the registration rights agreement executed as part of the offering,
we agreed to (i) file within 30 days, and cause to become effective within 120
days of the date of the original issue of the outstanding notes, the
registration statement of which this prospectus is a part with respect to the
exchange of the outstanding notes for the exchange notes to be issued in the
exchange offer and (ii) cause the exchange offer to be consummated within 150
days of the original issue of the outstanding notes. The exchange notes have
terms identical in all material respects to the terms of the outstanding notes.
However, in the event that any changes in law or applicable interpretation of
the staff of the SEC do not permit us to effect the exchange offer, or if for
any other reason the exchange offer is not consummated within 150 days
following the date of the original issue of the outstanding notes, or if any
holder of the outstanding notes other than the initial purchasers in the
original offering is not eligible to participate in the exchange offer, or upon
their request of any initial purchaser under certain circumstances, we have
agreed to use our best efforts to cause to become effective by the 150th day
after the original issue of the outstanding notes, a shelf registration
statement with respect to the resale of the outstanding notes and to keep the
shelf registration statement effective until two years after the effective date
thereof (or until one year after such effective date if such shelf registration
statement is filed at the request of the initial purchasers under certain
circumstances). We also had agreed that in the event that either (i) the
registration statement is not filed with the SEC on or prior to the 30th
calendar day following the date of the original issue of the outstanding notes
or (ii) the registration statement is not declared effective on or prior to the
120th calendar day following the date of the original issue of the outstanding
notes or (iii) the exchange offer is not consummated or a shelf registration
statement is not declared

                                       31
<PAGE>

effective on or prior to the 150th calendar day following the original issue of
the outstanding notes, the interest rate borne by the old notes shall be
increased by 0.5% per annum after such 30-day period in the case of clause (i)
above, after such 120-day period in the case of clause (ii) above or after such
150-day period in the case of clause (iii) above. The aggregate amount of such
increase from the original interest rate pursuant to those provisions will in
no event exceed 0.5% per annum. Upon (x) the filing of the registration
statement after the 30-day period in clause (i) above, (y) the effectiveness of
the registration statement after the 120-day period in clause (ii) above or (z)
the consummation of the exchange offer or the effectiveness of a shelf
registration statement, as the case may be, after the 150-day period outlined
in clause (iii) above, the interest rate borne by the outstanding notes from
the date of such filing or effectiveness or the day before the date of
consummation, as the case may be, will be reduced to the original interest rate
if we are otherwise in compliance with such requirements.

      In the event the exchange offer is consummated, we will not be required
to file a shelf registration statement relating to any outstanding notes other
than those held by persons not eligible to participate in the exchange offer,
and the interest rate on such outstanding notes will remain at its initial
level of 10 3/4%. The exchange offer shall be deemed to have been consummated
upon the earlier to occur of (i) our having issued exchange notes for all
outstanding notes (other than outstanding notes held by persons not eligible to
participate in the exchange offer) pursuant to the exchange offer and (ii) our
having exchanged, pursuant to the exchange offer, exchange notes for all
outstanding notes that have been tendered and not withdrawn on the expiration
date. Upon consummation of the exchange offer, holders of outstanding notes
seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. See "Risk Factors--Your failure to exchange your notes in the exchange
offer will restrict your ability to resell them."

      Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept all outstanding
notes validly tendered prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer. We will issue $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding
notes accepted in the exchange offer. Holders may tender some or all of their
outstanding notes pursuant to the exchange offer in denominations of $1,000 and
integral multiples thereof.

      Based on no-action letters issued by the staff of the SEC to third
parties, we believe that the exchange notes issued pursuant to the exchange
offer in exchange for outstanding notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than (i) a broker-dealer who
purchased such outstanding notes directly from us to resell or (ii) a person
that is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that the holder is
acquiring the exchange notes in its ordinary course of business, is not one of
our affiliates and is not participating, and has no arrangements or
understanding with any person to participate, in the distribution of the
exchange notes, as such terms are interpreted by the SEC. Holders of
outstanding notes wishing to accept the exchange offer must represent to us
that such conditions have been met. If our belief is inaccurate, holders who
transfer exchange notes in violation of the prospectus delivery provisions of
the Securities Act and without an exemption from registration may bear
liability under the Securities Act. We do not assume or indemnify holders
against such liability.

      Each broker-dealer that receives exchange notes in exchange for
outstanding notes held for its own account, as a result of market-making or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, such broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by such broker-dealer in connection
with resales of exchange notes received in exchange for outstanding notes. We
have agreed that, for a period of 180 days after the expiration date, we will
make this prospectus and any amendment or supplement to this prospectus
available to any such broker-dealer for use in connection with any such resale.
See "Plan of Distribution."

      As of the date of this prospectus, $275 million aggregate principal
amount of the outstanding notes is outstanding. In connection with the issuance
of the outstanding notes, we arranged for the outstanding notes

                                       32
<PAGE>

initially purchased by Qualified Institutional Buyers to be issued and
transferable in book-entry form through the facilities of DTC, acting as
depositary. The exchange notes will also be issuable and transferable in book-
entry form through DTC.

      This prospectus, together with the accompanying letter of transmittal, is
being sent to all registered holders of the outstanding notes as of the close
of business on     , 2001, which is the record date for purposes of the
exchange offer. We fixed the record date accordingly solely for reasons of
administration.

      We shall be deemed to have accepted validly tendered outstanding notes
when, as and if we have given oral or written notice thereof to the exchange
agent. See "--Exchange Agent." The exchange agent will act as agent for the
tendering holders of outstanding notes for the purpose of receiving exchange
notes from us and delivering exchange notes to such holders.

      If any tendered outstanding notes are not accepted for any exchange
because of an invalid tender or the occurrence of certain other events set
forth herein, certificates for any such unaccepted outstanding notes will be
returned, without expenses, to the tendering holder thereof as promptly as
practicable after the expiration date.

      Holders of outstanding notes who tender in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes in connection with the exchange
offer. See "--Fees and Expenses."

      The holders of outstanding notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware or the Indenture.

Expiration Dates, Extensions, and Amendments

      The term "expiration date" shall mean       , 2001 unless we, in our sole
discretion, extend the exchange offer, in which case the term "expiration date"
shall mean the latest date to which the exchange offer is extended.

      In order to extend the expiration date, we will notify the exchange agent
of any extension by oral or written notice and will mail to the record holders
of outstanding notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date. Such announcement may state that we are extending the exchange offer for
a specified period of time.

      We reserve the right (i) to delay acceptance of any old notes, to extend
the exchange offer or to terminate the exchange offer and to refuse to accept
outstanding notes not previously accepted, if any of the conditions set forth
herein under "--Termination" shall have occurred and shall not have been waived
by us (if permitted to be waived by us), by giving oral or written notice of
such delay, extension or termination to the exchange agent, and (ii) to amend
the terms of the exchange offer in any manner deemed by us to be advantageous
to the holders of the outstanding notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice to the exchange agent. If the exchange offer is
amended in a manner determined by us to constitute a material change, we will
promptly disclose such amendment in a manner reasonably calculated to inform
the record holders of the outstanding notes of such amendment and, if
necessary, the expiration date will be extended.

      Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.

Interest on the Exchange Notes

      The exchange notes will bear interest from June 19, 2001 payable
semiannually on January 1 and July 1 of each year commencing on January 1,
2002, at the rate of 10 3/4% per annum. Holders of outstanding

                                       33
<PAGE>

notes whose outstanding notes are accepted for exchange will be deemed to have
waived the right to receive any payment in respect of interest on the
outstanding notes accrued from June 19, 2001 until the date of the issuance of
the exchange notes. Consequently, holders who exchange their outstanding notes
for exchange notes will receive the same interest payment on January 1, 2002
(the first interest payment date with respect to the outstanding notes and the
exchange notes) that they would have received had they not accepted the
exchange offer.

Procedure for Tendering

      To tender in the exchange offer, a holder must complete, sign and date
the letter of transmittal, or a facsimile thereof, have the signature thereon
guaranteed if required by the letter of transmittal and mail or otherwise
deliver such letter of transmittal or such facsimile, together with the
outstanding notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date.

      Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the outstanding notes
by causing DTC to transfer such outstanding notes into the exchange agent's
account in accordance with DTC's procedure for such transfer. Although delivery
of outstanding notes may be effected through book-entry transfer into the
exchange agent's account at DTC, the letter of transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received or confirmed by
the exchange agent at its addresses set forth herein under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.

      The tender by a holder of outstanding notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.

      Delivery of all documents must be made to the exchange agent at its
address set forth herein. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies, or nominees effect such
tender for such holders.

      The method of delivery of outstanding notes and the letters of
transmittal and all other required documents to the exchange agent is at the
election and risk of the holders. Instead of delivery by mail, it is
recommended that holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No letter
of transmittal or outstanding notes should be sent to us.

      Only a holder of outstanding notes may tender such outstanding notes in
the exchange offer. The term "holder" with respect to the exchange offer means
any person in whose name outstanding notes are registered on the books of the
company or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose outstanding notes are held of
record by DTC who desires to deliver such outstanding notes by book-entry
transfer at DTC.

      Any beneficial holder whose outstanding notes are registered in the name
of his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the letter of transmittal and delivering his
outstanding notes, either make appropriate arrangements to register ownership
of the outstanding notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time.

      Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of

                                       34
<PAGE>

Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution") unless the old notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special
Insurance Instructions" or "Special Delivery Instructions" on the letter of
transmittal or (ii) for the account of an Eligible Institution.

      If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, such outstanding notes must
be endorsed or accompanied by appropriate bond powers which authorize such
person to tender the outstanding notes on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the outstanding notes.

      If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the letter of transmittal.

      All the questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of the tendered old notes will be
determined by us in our sole discretion, which determinations will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not validly tendered or any outstanding notes our acceptance of which would, in
the opinion of counsel for us, be unlawful. We also reserve the absolute right
to waive any irregularities or conditions of tender as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer (including the instructions in the letter of transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of outstanding notes must be cured
within such time as we shall determine. Neither we, the exchange agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of outstanding notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until such
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the exchange agent to the tendering holder of such outstanding notes unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.

      In addition, we reserve the right in our sole discretion to (a) purchase
or make offers for any outstanding notes that remain outstanding subsequent to
the expiration date, or, as set forth under "--Termination," to terminate the
exchange offer and (b) to the extent permitted by applicable law, purchase
outstanding notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the exchange offer and will be subject to our ability to obtain a waiver of
certain covenants in our bank credit facility.

      By tendering, each holder of outstanding notes will represent to us that
among other things, the exchange notes acquired pursuant to the exchange offer
are being acquired in the ordinary course of business of the person receiving
such new notes, whether or not such person is the holder, that neither the
holder nor any other person intends to distribute or has an arrangement or
understanding with any person to participate in the distribution of the new
notes and that neither the holder nor any such other person in an "affiliate"
of our company within the meaning of Rule 405 under the Securities Act.

Guaranteed Delivery Procedure

      Holders who wish to tender their outstanding notes and (i) whose
outstanding notes are not immediately available, or (ii) who cannot deliver
their outstanding notes, the letter of transmittal, or any other required
documents to the exchange agent prior to the expiration date, or if such holder
cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:

          (a) The tender is made through an Eligible Institution;

          (b) prior to the expiration date, the exchange agent receives from
    such eligible institution a properly completed and duly executed Notice
    of Guaranteed Delivery (by facsimile transmission, mail

                                       35
<PAGE>

    or hand delivery) setting forth the name and address of the holder of
    the outstanding notes, the certificate number or numbers of such old
    notes and the principal amount of old notes tendered, stating that the
    tender is being made thereby, and guaranteeing that, within five
    business days after the expiration date, the letter of transmittal (or
    facsimile thereof), together with the certificate(s) representing the
    outstanding notes to be tendered in proper form for transfer and any
    other documents required by the letter of transmittal, will be deposited
    by the Eligible Institution with the exchange agent; and

          (c) Such properly completed and executed letter of transmittal (or
    facsimile thereof), together with the certificate(s) representing all
    tendered outstanding notes in proper form for transfer (or confirmation
    of a book-entry transfer into the exchange agent's account at DTC of
    outstanding notes delivered electronically, and all other documents
    required by the letter of transmittal are received by the exchange agent
    within five business days after the expiration date.

Withdrawal of Tenders

      Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.

      To withdraw a tender of outstanding notes in the exchange offer, a
written or facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date and prior to acceptance for exchange thereof
by the company. Any such notice of withdrawal must (i) specify the name of the
person having deposited the outstanding notes to be withdrawn (the
"Depositor"), (ii) identify the outstanding notes to be withdrawn (including
the certificate number or numbers and principal amount of such outstanding
notes), (iii) be signed by the Depositor in the same manner as the original
signature on the required signature guarantees or be accompanied by documents
of transfers sufficient to permit the Trustee with respect to the outstanding
notes to register the transfer of such outstanding notes into the name of the
Depositor withdrawing the tender and (iv) specify the name in which any such
outstanding notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) for such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any outstanding notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the exchange offer and no exchange notes will by issued with respect thereto
unless the outstanding notes so withdrawn are validly tendered. Any outstanding
notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn outstanding notes may be tendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.

Termination

      Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or issue exchange notes for, any outstanding
notes not previously accepted for exchange, and may terminate or amend the
exchange offer as provided herein before the acceptance of such outstanding
notes if: (i) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the exchange offer,
which, in our judgment, might materially impair our ability to proceed with the
exchange offer or (ii) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule or regulation is
interpreted by the staff of the SEC or court of competent jurisdiction in a
manner, which, in our judgment, might materially impair our ability to proceed
with the exchange offer.

      If we determine that we may terminate the exchange offer, as set forth
above, we may (i) refuse to accept any outstanding notes and return any
outstanding notes that have been tendered to the holders thereof, (ii) extend
the exchange offer and retain all outstanding notes that have been tendered
prior to the expiration of

                                       36
<PAGE>

the exchange offer, subject to the rights of such holders of tendered
outstanding notes to withdraw their tendered outstanding notes, or (iii) waive
such termination event with respect to the exchange offer and accept all
properly tendered outstanding notes that have not been withdrawn. If such
waiver constitutes a material change in the exchange offer, we will disclose
such change by means of a supplement to this prospectus that will be
distributed to each registered holder of outstanding notes and we will extend
the exchange offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to the registered
holders of the outstanding notes, if the exchange offer would otherwise expire
during such period.

Exchange Agent

      Wells Fargo Bank Minnesota, National Association, the Trustee under the
indenture governing the notes (the "Indenture"), has been appointed as exchange
agent for the exchange offer. Questions and requests for assistance and
requests for additional copies of this prospectus or of the Letter of
Transmittal should be directed to the exchange agent addressed as follows:

      By Mail or Hand Delivery:Wells Fargo Bank Minnesota, National Association
                           Corporate Trust Services
                           213 Court Street, Suite 902
                           Middletown, Connecticut 06457

      Facsimile Transmission:(860) 704-6219

      Confirm by Telephone:(860) 704-6216

Fees and Expenses

      The expense of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail. Additional solicitations may be made by officers
and regular employees of ours and our affiliates in person, by facsimile or
telephone.

      We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the
exchange agent reasonable and customary fees for its services and will
reimburse the exchange agent's reasonable out-of-pocket expenses in connection
therewith. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this prospectus, letters of transmittal and related
documents to the beneficial owners of the outstanding notes and in handling or
forwarding tenders for exchange.

      The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting
and legal fees, will be paid by us.

      We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. If, however, certificates
representing exchange notes or outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any other person other than the registered
holder of the outstanding notes tendered, or if tendered outstanding notes are
registered in the name of any person other than the person signing the letter
of transmittal, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes pursuant to the exchange offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.

                                       37
<PAGE>

                                CAPITALIZATION

      The following table sets forth our actual capitalization and our
capitalization as adjusted to reflect:

    .  additional borrowings of $6.0 million under our bank credit facility
       subsequent to March 31, 2001 to pay that portion of the purchase
       price of QPF required at signing, and

    .  the sale of the outstanding notes in our recently completed debt
       offering and the application of the net proceeds to us.

See "Use of Proceeds." Our as adjusted capitalization reflects the issuance of
an inventory note to QPF, in the amount of approximately $6.7 million for the
QPF inventory we acquired. It is anticipated that this note, which we issued
on June 30, 2001, will be repaid as we liquidate the inventory. The table
should be read in conjunction with the "Unaudited Pro Forma Combined Financial
Statements" and our financial statements and related notes included elsewhere
in this prospectus.

<TABLE>
<CAPTION>
                                                             March 31, 2001
                                                          ---------------------
                                                           Actual   As adjusted
                                                          --------  -----------
                                                              (dollars in
                                                               thousands)
<S>                                                       <C>       <C>
Cash..................................................... $  2,139   $ 30,939
Long-term debt, including current maturities:
  Inventory note.........................................      --       6,744
  Bank credit facility(a) ...............................   61,000        --
  Industrial revenue bonds...............................    6,500      6,500
  11 1/2% senior notes due 2002..........................  150,000        --
  10 3/4% senior notes due 2011..........................      --     270,859
                                                          --------   --------
  Total long-term debt...................................  217,500    284,103
Stockholders' equity:
  Common stock, $.01 par value: authorized, 30,000
   shares;
   issued 12,780 shares at March 31, 2001................      128        128
  Additional paid-in capital.............................  101,468    101,468
  Retained earnings......................................    1,998      1,482
  Cumulative translation adjustment......................   (3,469)    (3,469)
                                                          --------   --------
                                                           100,125     96,645
  Treasury stock, at cost................................   (2,249)    (2,249)
                                                          --------   --------
  Total stockholders' equity.............................   97,876     94,396
                                                          --------   --------
  Total capitalization................................... $317,515   $409,438
                                                          ========   ========
</TABLE>
--------
  (a) On a pro forma basis at March 31, 2001, after giving effect to our
      recently completed offering of the outstanding notes and our use of
      proceeds and the required reduction of the commitments under our bank
      credit facility, we would have had $67.6 million of availability under
      our bank credit facility, subject to borrowing base requirements, after
      taking into account outstanding letters of credit. As of July 10, 2001,
      we had $12.4 million outstanding under our bank credit facility
      representing letters of credit, approximately $6.2 million of which
      were standby letters of credit securing the industrial revenue bonds
      and the remaining amount which represented letters of credit not yet
      drawn upon. We also have approximately $6.7 million of indebtedness
      outstanding under the inventory note we issued in connection with the
      acquisition of the assets of QPF. The note is secured by inventory we
      acquired in the QPF transaction.

                                      38
<PAGE>

                         SELECTED FINANCIAL INFORMATION
                 (dollars in thousands, except per share data)

      The following table sets forth our historical financial information. The
statement of operations data for each of the fiscal years in the five-year
period ended September 30, 2000 and the balance sheet data as of September 30,
1996, 1997, 1998, 1999 and 2000 have been derived from our audited financial
statements. The statement of operations data and balance sheet data for the
six-month periods ended March 31, 2000 and 2001 have been derived from our
unaudited financial statements, which financial information in our opinion
reflects all adjustments consisting only of normal recurring adjustments that
we consider necessary for a fair presentation of results for such periods. The
results for the six-month period ended March 31, 2001 are not necessarily
indicative of the results to be expected for the entire year. The table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our financial statements and related
notes and other financial information included elsewhere in this prospectus.
The acquisition of the assets of QPF will have a material impact on our
financial position and our results of operations.

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                    Year Ended September 30,                  March 31,
                          ----------------------------------------------  -----------------
                            1996     1997     1998      1999      2000      2000     2001
                          -------- -------- --------  --------  --------  -------- --------
<S>                       <C>      <C>      <C>       <C>       <C>       <C>      <C>
Statement of Operations
 Data(a):
Sales...................  $234,490 $262,271 $245,334  $237,042  $268,375  $128,896 $135,713
Cost of sales...........   181,899  205,037  195,174   188,601   215,256    97,233  109,238
                          -------- -------- --------  --------  --------  -------- --------
Gross profit............    52,591   57,234   50,160    48,441    53,119    31,663   26,475
Operating expenses:
 Selling, general and
  administrative........    20,144   23,819   23,754    26,550    27,152    13,463   14,217
 Restructuring and
  impairment
  charges(b)............       --     4,500   21,506       --        --        --       --
 Research and
  development...........     7,414    8,221    7,326     7,123     6,759     3,394    3,261
 Share incentive
  plan(c)...............       --       --       --        --        --        --       861
 Start-up costs(d)......       --       --     1,539       --        --        --       --
                          -------- -------- --------  --------  --------  -------- --------
Operating profit
 (loss).................    25,033   20,694   (3,965)   14,768    19,208    14,806    8,136
Non-operating expenses:
 Interest expense, net..    13,927   16,868   15,868    18,909    21,096    10,180   11,357
 Acquisitions costs and
  other(e)..............       --     1,500      250     3,641       --        --       --
                          -------- -------- --------  --------  --------  -------- --------
Income (loss) before
 income taxes and change
 in accounting..........    11,106    2,326  (20,083)   (7,782)   (1,888)    4,626   (3,221)
Income tax expense
 (benefit)..............     4,442      930   (8,033)   (3,113)     (679)    1,665   (1,159)
                          -------- -------- --------  --------  --------  -------- --------
Income (loss) before
 change in accounting...     6,664    1,396  (12,050)   (4,669)   (1,209)    2,961   (2,062)
Change in
 accounting(d)..........       --       --      (852)      --        --        --       --
                          -------- -------- --------  --------  --------  -------- --------
Net income (loss).......  $  6,664 $  1,396 $(12,902) $ (4,669) $ (1,209) $  2,961 $ (2,062)
                          ======== ======== ========  ========  ========  ======== ========
Earnings (loss) per
 common share:
Basic:
 Before change in
  accounting............  $    .66 $    .14 $  (1.11) $   (.41) $   (.10) $    .26 $   (.17)
 Change in accounting...       --       --      (.07)      --        --        --       --
                          -------- -------- --------  --------  --------  -------- --------
 Net income (loss)......  $    .66 $    .14 $  (1.18) $   (.41) $   (.10) $    .26 $   (.17)
                          ======== ======== ========  ========  ========  ======== ========
Diluted:
 Before change in
  accounting............  $    .63 $    .13  $ (1.11) $   (.41) $   (.10) $    .25 $   (.17)
 Change in accounting...       --       --      (.07)      --        --        --       --
                          -------- -------- --------  --------  --------  -------- --------
 Net income (loss)......  $    .63 $    .13 $  (1.18) $   (.41) $   (.10) $    .25 $   (.17)
                          ======== ======== ========  ========  ========  ======== ========
Balance Sheet Data:
Working capital(f)......  $ 35,911 $ 33,600 $ 33,471  $ 27,918  $ 43,419  $ 55,770 $ 44,638
Total assets............   331,704  376,493  370,726   375,050   389,250   391,541  388,517
Current portion of long-
 term debt..............       --     4,000      --        --        --        --    61,000
Long-term debt, less
 current portion........   165,500  196,500  185,500   182,500   209,500   201,500  156,500
Stockholders' equity....   108,335  112,183  100,437    99,041    99,913   104,454   97,876
Other Financial Data:
Depreciation and
 amortization expense...  $ 13,991 $ 17,248 $ 17,773  $ 19,484  $ 21,025  $ 10,609 $ 11,678
Capital expenditures....    51,573   54,963   45,496    36,097    22,096     9,031   10,340
Ratio of earnings to
 fixed charges(g).......      1.3x     1.2x      .9x       .6x       .9x      1.3x      .8x
</TABLE>

                                                   (footnotes on following page)

                                       39
<PAGE>

--------
(a)  Selected financial data from recent quarterly results (unaudited):

<TABLE>
<CAPTION>
                                                                                  Earnings
                                                                                    (Loss)
                                                                                  Per Share-
                                Net    Gross  Gross  Operating Operating   Net     Basic &
     Quarter Ended             Sales  Profit  Margin  Profit    Margin   Income    Diluted
     -------------            ------- ------- ------ --------- --------- -------  ----------
     <S>                      <C>     <C>     <C>    <C>       <C>       <C>      <C>
     September 30, 2000(*)... $65,779 $ 9,554  14.5%  $1,308      2.0%   $(4,191)   $(.35)
     December 31, 2000(**)...  62,724  11,378  18.1    2,543      4.1     (2,695)    (.23)
     March 31, 2001..........  72,989  15,097  20.7    6,454      8.8        633      .05
</TABLE>
    --------
     (*)  Excludes $2,400 of costs associated with a temporary shutdown of
          manufacturing plants in September 2000.
    (**)  Excludes $861 of non-cash charges related to the share incentive
          plan for non-executive employees.

(b) In fiscal 1998, we recorded a restructuring and impairment charge of
    $21,506. We began implementing a shutdown of some older and less efficient
    assets in our Covington, Virginia facility and made certain other
    organizational changes, including a nearly 15 percent reduction in total
    headcount. In connection with the shutdown, we recorded a charge of $18,580
    or $11,148 after taxes. We also wrote down the value of certain other
    assets in our Covington, Virginia facility, whose carrying values had been
    impaired by an aggregate of $2,926. In fiscal 1997, we recorded charges of
    $4,500 primarily related to personnel reductions and the discontinuation of
    certain product lines. This restructuring program included the separation
    of approximately 50 hourly employees comprised of production line
    operators, maintenance employees and other plant personnel at one facility,
    and approximately 20 hourly personnel related to the closure of certain
    manufacturing assets of another facility, as well as costs related to other
    salaried personnel changes.
(c) In the first quarter of fiscal 2001, we recorded a non-cash charge of $861
    for shares issued to non-executive employees as part of an incentive and
    retention program. Under this program, we issued approximately 600,000
    shares of stock to our top 125 non-executive managers in exchange for
    1,200,000 of their vested and unvested stock options. These new shares were
    granted in lieu of annual incentive bonuses for these managers for fiscal
    2000 and 2001.
(d) In fiscal 1998, we elected early adoption of the Accounting Standards
    Executive Committee Statement of Position 98-5, "Reporting on the Costs of
    Start-up Activities." The effect of this change in accounting was the
    recognition of $1,539 of expenses related to net start-up costs incurred
    during fiscal 1998, and a one-time charge of $852, net of related income
    tax benefits of $568, resulting from costs incurred in prior periods.
(e) In fiscal 1999, we terminated acquisition discussions with two of the
    largest European-based worldwide OPP films producers. We were unable to
    reach a mutually agreeable price at which we would acquire either of these
    businesses, given the deterioration in the European OPP films market caused
    by the major industry-wide overcapacity in that region. Costs associated
    with both of these acquisition projects and related due diligence efforts
    were $3,641, and were recorded as non-operating expenses. In fiscal 1998,
    we recorded a charge of $250 related to the write-off of various assets
    associated with a divested business. In fiscal 1997, we recorded a one-time
    charge of $1,500, representing costs incurred in connection with
    acquisition due diligence and negotiations which were terminated during the
    year.
(f) Working capital is defined as current assets less current liabilities
    excluding short-term debt with third parties.
(g) For purposes of computing this ratio, earnings consist of earnings before
    extraordinary items, income taxes and fixed charges. Fixed charges consist
    of interest expense, capitalized interest and deferred debt issuance costs.
    Earnings were insufficient to cover fixed charges by approximately $2,328,
    $9,617, $2,912, and $3,620 for the fiscal years ended September 30, 1998,
    1999, and 2000, and the six months ended March 31, 2001.


                                       40
<PAGE>

               UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

      The following unaudited combined balance sheet information as of
March 31, 2001 gives effect to the acquisition of the assets of QPF and the
offering of the outstanding notes and the application of the net proceeds as if
they occurred on March 31, 2001. The unaudited pro forma combined statement of
operations for the fiscal year ended September 30, 2000 and the unaudited pro
forma combined statement of operations for the six months ended March 31, 2000
and 2001 and the twelve months ended March 31, 2001 gives effect to the
acquisition of the assets of QPF and the offering of the outstanding notes and
the application of the net proceeds as if such transactions had occurred at the
beginning of the applicable period. Our fiscal year ends on September 30 of
each year and QPF's fiscal year ends on December 31 of each year. AET's
unaudited twelve months ended March 31, 2001 statement of operations was
derived from AET's financial statements for the six months ended March 31, 2000
and 2001 and for the fiscal year ended September 30, 2000. QPF's unaudited
twelve months ended March 31, 2001 statement of operations was derived from
QPF's financial statements for the three months ended March 31, 2000 and 2001
and for the fiscal year ended December 31, 2000.

      The pro forma adjustments are based upon available information and
various assumptions that we believe are reasonable. The unaudited pro forma
statements of operations do not purport to represent what our results of
operations would actually have been had the acquisition of the assets of QPF or
the offering of the outstanding notes in fact occurred as of such dates or to
project our results of operations for any future period. The unaudited pro
forma statements of operations should be read in connection with our historical
combined financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.

      On June 19, 2001, we purchased certain assets of QPF. The acquired assets
principally represented equipment, intellectual property and intangible assets.
We also purchased QPF inventory produced through June 30, 2001, the day on
which the QPF facility was shut down. We did not purchase the QPF facility and
the cost to close the facility will be borne by Hood, QPF's parent company.

      For purposes of the pro forma combined statement of operations, we have
assumed that the sales of QPF will be retained by us. We have excluded both the
severance and shut-down costs, which are the responsibility of Hood, and
minimal costs we might incur to integrate the business. Additionally, we have
not included the sale of inventory, which will be acquired as part of the
purchased assets.

      The net purchase price for the QPF assets, not including inventory, was
$15.0 million, comprised of $2.0 million that we paid with the signing of the
purchase agreement, $4.0 million that we placed in escrow and released at the
closing, and $9.0 million that we paid in cash at the closing. Additionally, we
issued an inventory note to QPF in the amount of approximately $6.7 million for
the QPF inventory we acquired. It is anticipated that this note will be repaid
over a period of approximately nine months as we liquidate the inventory at
prices we expect to approximate its fair value on the date of acquisition.

      The acquisition of the assets of QPF will be accounted for as a purchase.
Under purchase accounting, the total purchase cost and fair value of
liabilities assumed will be allocated to our assets based up on their
respective fair values as of the closing date based on valuations and other
studies that have not yet been finalized. A preliminary allocation of the
purchase cost has been made to major categories of assets and liabilities based
on our estimates. The actual allocation of purchase cost and the resulting
effect on income from operations may differ significantly from the pro forma
amounts included herein.

                                       41
<PAGE>

                   UNAUDITED PRO FORMA COMBINED BALANCE SHEET
                                 March 31, 2001
                             (dollars in thousands)

<TABLE>
<CAPTION>
                              AET      QPF (a)
                           Historical Historical Adjustments (b)(c) Pro Forma
                           ---------- ---------- ------------------ ----------
<S>                        <C>        <C>        <C>                <C>
ASSETS
Current Assets:
 Cash.....................  $  2,139   $      2       $28,798        $ 30,939
 Accounts receivable
  (net)...................    45,788      5,993        (5,993)         45,788
 Inventory................    41,383      8,479        (3,479)         46,383
 Prepaid expenses.........     3,573        219          (219)          3,573
 Deferred taxes...........     5,889        --            --            5,889
                            --------   --------       -------        --------
   Total current assets...    98,772     14,693        19,105         132,572
Property, plant &
 equipment................   278,207     26,690       (21,690)        283,207
Intangibles and deferred
 charges..................     1,935        --         21,843          23,778
Long-term note receivable
 and other assets.........     9,603        --            --            9,603
                            --------   --------       -------        --------
   Total assets...........  $388,517   $ 41,383       $19,258        $449,160
                            ========   ========       =======        ========

LIABILITIES AND
 STOCKHOLDERS' EQUITY
Liabilities:
Current Liabilities:
 Accrued interest.........  $ 10,080   $    --        $(4,871)       $  5,209
 Accounts payable.........    18,206      2,896          (548)         20,554
 Accrued expenses.........    25,848      2,565        (2,522)         25,891
 Seller notes.............       --         --          6,744           6,744
 Current portion of long-
  term debt...............    61,000      1,275       (62,275)            --
                            --------   --------       -------        --------
   Total current
    liabilities...........   115,134      6,736       (63,474)         58,398
Long-term debt............   156,500     18,650       102,209         277,359
Deferred taxes............     1,764        --            --            1,764
Long-term liabilities and
 other credits............    17,243        --            --           17,243
Stockholders' Equity:
 Common stock--voting.....       128        --            --              128
 Common stock--non-
  voting..................       --         --            --              --
 Additional paid-in-
  capital.................   101,468     32,747       (32,747)        101,468
 Retained earnings........     1,998    (16,750)       13,270           1,482
 Unrealized gain/loss.....       --         --            --              --
 Cumulative translation
  adjustments.............    (3,469)       --            --           (3,469)
                            --------   --------       -------        --------
                             100,125     15,997       (19,477)         96,645
Treasury stock............    (2,249)       --            --           (2,249)
                            --------   --------       -------        --------
 Total stockholder's
  equity .................    97,876     15,997       (19,477)         94,396
                            --------   --------       -------        --------
   Total liabilities and
    equity................  $388,517   $ 41,383       $19,258        $449,160
                            ========   ========       =======        ========
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma combined
                             financial statements.


                                       42
<PAGE>

             UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                    Twelve Months Ended March 31, 2001
                         ---------------------------------------------------------
                            AET         QPF                  Pro Forma      Pro
                         Historical Historical  Combined  Adjustments (d)  Forma
                         ---------- ----------- --------  --------------- --------
<S>                      <C>        <C>         <C>       <C>             <C>
Net sales...............  $275,192    $42,284   $317,476     $    --      $317,476
Cost of sales...........   227,261     39,583    266,844      (18,231)     248,613
                          --------    -------   --------     --------     --------
Gross profit............    47,931      2,701     50,632       18,231       68,863
Operating expenses:
  Selling, general and
   administrative.......    27,906      4,226     32,132       (3,776)      28,356
  Research and
   development..........     6,626      1,655      8,281       (1,655)       6,626
  Share incentive
   plan(e)..............       861        --         861          --           861
                          --------    -------   --------     --------     --------
    Operating expenses..    35,393      5,881     41,274       (5,431)      35,843
                          --------    -------   --------     --------     --------
Income (loss) from
 operations.............    12,538     (3,180)     9,358       23,662       33,020
Other expenses
 (income)...............       --          (9)        (9)           9          --
Interest expense, net...    22,273      3,855     26,128        3,669       29,797
                          --------    -------   --------     --------     --------
Income (loss) before
 income taxes...........    (9,735)    (7,026)   (16,761)      19,984        3,223
  Income taxes..........    (3,505)       --      (3,505)       4,665        1,160
                          --------    -------   --------     --------     --------
Net income (loss).......  $ (6,230)   $(7,026)  $(13,256)    $ 15,319     $  2,063
                          ========    =======   ========     ========     ========
<CAPTION>
                                     Six Months Ended March 31, 2001
                         ---------------------------------------------------------
                            AET         QPF                  Pro Forma      Pro
                         Historical Historical  Combined  Adjustments (d)  Forma
                         ---------- ----------- --------  --------------- --------
<S>                      <C>        <C>         <C>       <C>             <C>
Net sales...............  $135,713    $20,852   $156,565     $    --      $156,565
Cost of sales...........   109,238     19,337    128,575       (8,466)     120,109
                          --------    -------   --------     --------     --------
Gross profit............    26,475      1,515     27,990        8,466       36,456
Operating expenses:
  Selling, general and
   administrative.......    14,217      2,267     16,484       (2,042)      14,442
  Research and
   development..........     3,261        931      4,192         (931)       3,261
  Share incentive
   plan(e)..............       861        --         861          --           861
                          --------    -------   --------     --------     --------
    Operating expenses..    18,339      3,198     21,537       (2,973)      18,564
                          --------    -------   --------     --------     --------
Income (loss) from
 operations.............     8,136     (1,683)     6,453       11,439       17,892
Other expenses
 (income)...............       --           6          6           (6)         --
Interest expense, net...    11,357      1,757     13,114        2,547       15,661
                          --------    -------   --------     --------     --------
Income (loss) before
 income taxes...........    (3,221)    (3,446)    (6,667)       8,898        2,231
  Income taxes..........    (1,159)       --      (1,159)       1,962          803
                          --------    -------   --------     --------     --------
Net income (loss).......  $ (2,062)   $(3,446)  $ (5,508)    $  6,936     $  1,428
                          ========    =======   ========     ========     ========
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma combined
                             financial statements.

                                       43
<PAGE>

       UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (continued)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                        Six Months Ended March 31, 2000
                         --------------------------------------------------------------
                              AET          QPF                   Pro Forma
                          Historical   Historical   Combined  Adjustments (d) Pro Forma
                         ------------- ------------ --------  --------------- ---------
<S>                      <C>           <C>          <C>       <C>             <C>
Net sales...............   $128,896      $18,843    $147,739     $    --      $ 147,739
Cost of sales...........     97,233       17,522     114,755       (8,770)      105,985
                           --------      -------    --------     --------     ---------
Gross profit............     31,663        1,321      32,984        8,770        41,754
Operating expenses:
  Selling, general and
   administrative.......     13,463        1,912      15,375       (1,687)       13,688
  Research and
   development..........      3,394          903       4,297         (903)        3,394
                           --------      -------    --------     --------     ---------
    Operating expenses..     16,857        2,815      19,672       (2,590)       17,082
                           --------      -------    --------     --------     ---------
Income (loss) from
 operations.............     14,806       (1,494)     13,312       11,360        24,672
Other expenses
 (income)...............        --            46          46          (46)          --
Interest expense, net...     10,180        1,665      11,845        3,132        14,977
                           --------      -------    --------     --------     ---------
Income (loss) before
 income taxes...........      4,626       (3,205)      1,421        8,274         9,695
  Income taxes..........      1,665          --        1,665        1,825         3,490
                           --------      -------    --------     --------     ---------
Net income (loss).......   $  2,961      $(3,205)   $   (244)    $  6,449     $   6,205
                           ========      =======    ========     ========     =========
<CAPTION>
                                         Year Ended September 30, 2000
                         --------------------------------------------------------------
                              AET          QPF
                         September 30, December 31,              Pro Forma
                             2000          2000     Combined  Adjustments (d) Pro Forma
                         ------------- ------------ --------  --------------- ---------
<S>                      <C>           <C>          <C>       <C>             <C>
Net sales...............   $268,375      $42,089    $310,464     $    --      $ 310,464
Cost of sales...........    215,256       38,651     253,907      (17,660)      236,247
                           --------      -------    --------     --------     ---------
Gross profit............     53,119        3,438      56,557       17,660        74,217
Operating expenses:
  Selling, general and
   administrative.......     27,152        4,231      31,383       (3,781)       27,602
  Research and
   development..........      6,759        1,682       8,441       (1,682)        6,759
                           --------      -------    --------     --------     ---------
    Operating expenses..     33,911        5,913      39,824       (5,463)       34,361
                           --------      -------    --------     --------     ---------
Income (loss) from
 operations.............     19,208       (2,475)     16,733       23,123        39,856
Other expenses
 (income)...............        --            39          39          (39)          --
Interest expense, net...     21,096        4,057      25,153        4,254        29,407
                           --------      -------    --------     --------     ---------
Income (loss) before
 income taxes...........     (1,888)      (6,571)     (8,459)      18,908        10,449
  Income taxes..........       (679)         --         (679)       4,441         3,762
                           --------      -------    --------     --------     ---------
Net income (loss).......   $ (1,209)     $(6,571)   $ (7,780)    $ 14,467     $   6,687
                           ========      =======    ========     ========     =========
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma combined
                             financial statements.

                                       44
<PAGE>

           NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
                             (dollars in thousands)

(a) Reflects the unaudited, historical balance sheet of the entire QPF business
    as of March 31, 2001.
(b) Includes the purchase accounting adjustments to reflect only the assets we
    acquired from QPF at estimated fair values. A preliminary allocation of the
    purchase costs are as follows:

<TABLE>
<CAPTION>
      Assets:
      <S>                                                                <C>
        Inventory....................................................... $ 5,000
        Equipment.......................................................   5,000
        Intangibles.....................................................  13,744
                                                                         -------
                                                                         $23,744
                                                                         =======

<CAPTION>
      Liabilities:
      <S>                                                                <C>
        Accrued expenses................................................ $ 2,000
        QPF inventory note..............................................   6,744
        Long-term debt..................................................  15,000
                                                                         -------
                                                                         $23,744
                                                                         =======
</TABLE>

(c) Includes adjustments required to reflect the issuance of the outstanding
    notes and the application of the net proceeds therefrom, as well as the
    following:

<TABLE>
   <S>                                                                 <C>
   Deferred financing costs........................................... $ 9,750
   Reclassification of bank credit facility from short-term to long-
    term.............................................................. $61,000
   Payment of accrued interest on 11 1/2% senior notes and the bank
    credit facility................................................... $ 4,871
   Write off deferred financing costs on 11 1/2% senior notes and the
    bank credit facility.............................................. $ 3,089
   Write-off of certain QPF acquisition costs......................... $ 2,348
</TABLE>

  Indebtedness under our bank credit facility was reclassified from short-
  term to long-term upon completion of the offering of the outstanding notes
  and the refinancing of our 11 1/2% senior notes and the required reduction
  of the commitments under the facility. See "Use of Proceeds".

(d) Summary of pro forma adjustments as a result of QPF acquisition:
<TABLE>
<CAPTION>
                                                                  Twelve Months
                                 Year Ended   Six Months Ended        Ended
                                September 30,     March 31,         March 31,
                                    2000        2000      2001        2001
                                ------------- --------  --------  -------------
<S>                             <C>           <C>       <C>       <C>
  Elimination of duplicative
   QPF manufacturing labor
   costs(1)....................   $ (6,521)   $ (3,233) $ (3,654)   $ (6,808)
  Elimination of duplicative
   QPF production costs(2).....     (5,996)     (2,989)   (2,231)     (6,266)
  Reduction in depreciation and
   amortization(3).............     (1,843)       (898)     (931)     (1,857)
  Reduction in raw material
   costs from new resin price
   agreements(4)...............     (3,300)     (1,650)   (1,650)     (3,300)
                                  --------    --------  --------    --------
  Total adjustments to cost of
   sales.......................   $(17,660)    $(8,770)  $(8,466)   $(18,231)
                                  ========    ========  ========    ========
  Elimination of duplicative
   QPF selling, general and
   administrative costs(5).....   $ (3,781)   $ (1,687) $ (2,042)   $ (3,776)
                                  ========    ========  ========    ========
  Elimination of duplicative
   QPF research and development
   costs(5)....................   $ (1,682)   $   (903) $   (931)   $ (1,655)
                                  ========    ========  ========    ========
</TABLE>
--------
  (1) In conjunction with our acquisition of assets from QPF, Hood Companies,
      Inc., parent of QPF, discontinued all manufacturing operations at QPF's
      Streamwood, Illinois facility and severed the workforce. Prior to
      delivery of the assets to us, QPF eliminated approximately 110
      duplicative

                                       45
<PAGE>

     manufacturing positions. We have excess manufacturing capacity within
     our system and therefore, we will manufacture OPP films to supply QPF's
     customers utilizing our existing assets with minimal incremental labor
     costs to produce QPF's volume on our assets. The benefits from producing
     QPF's volume on our assets will be recognized over time as we sell the
     inventory purchased from QPF and replace this with products manufactured
     by us. Because the former employees have already been terminated and
     because we had excess capacity prior to the transaction, such labor
     costs have been eliminated from this pro forma presentation.
  (2) Because we did not acquire the QPF facility, we will avoid incurring
      most of QPF's non-labor production costs, including power, insurance,
      property taxes and other support costs. Because of the nature of our
      business, which requires us to continually operate our equipment, we
      believe that we will not incur incremental non-labor production costs.
      Accordingly, these costs incurred by QPF have been substantially
      eliminated from this pro forma presentation. We will incur minimal
      incremental non-labor production costs to produce QPF's volume on our
      assets.
  (3) The application of purchase accounting is expected to result in a
      decrease in depreciation and amortization because not all of the QPF
      assets were purchased and the acquired assets were purchased at a
      discount to historical book value. We valued the purchased property,
      plant and equipment at fair value and we expect to depreciate it over
      their estimated useful lives, ranging from five to 15 years. Intangible
      assets realized as a result of this transaction are expected to be
      amortized over their estimated useful lives. We are currently in the
      process of obtaining an independent valuation of such intangible
      assets.
  (4) With the acquisition of QPF, we will increase our annual polypropylene
      resin purchases by 40 million pounds to over 270 million pounds. As a
      result of this increased volume, we have obtained agreements for more
      favorable resin pricing from several of our resin suppliers related to
      our ongoing raw material purchases. This adjustment reflects the newly
      contracted pricing.
  (5) QPF maintained a full sales, product development and administrative
      infrastructure. We did not maintain either the administrative structure
      of QPF or the products under development by QPF. QPF eliminated more
      than 55 duplicative selling, general and administrative personnel.
      General administrative functions such as finance, information systems
      and planning are being performed within our existing infrastructure.

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

                                       46
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The following discussion and analysis of our 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 prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our 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 "Risk
Factors," "Business" and elsewhere in this prospectus. We disclaim any
obligation to update information contained in any forward-looking statement.
All dollar amounts, except in the Introduction, are in thousands.

Introduction

      We derive our 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. Applications for our OPP film products range from high-margin,
specialized label and high barrier films to basic heat sealable lower barrier
films.

      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. We believe that 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. We believe 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, cans and glass bottles to plastic
     beverage containers, and for packaging materials, 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 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. This
was compounded last year by the rapid, unforeseen escalation in resin costs,
which increased 70 percent in 18 months, peaking in the last quarter of fiscal
2000, due primarily to 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 or 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 customers resin cost increases
similar to those experienced in 2000 and the industry achieved one of its most
profitable years.


                                       47
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
                                             Years Ended         Six Months
                                            September 30,      Ended March 31,
                                          -------------------  -----------------
                                          1998   1999   2000   2000   2001
                                          -----  -----  -----  -----  -----
<S>                                       <C>    <C>    <C>    <C>    <C>    <C>
Sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................  79.6   79.6   80.2   75.4   80.5
Gross profit.............................  20.4   20.4   19.8   24.6   19.5
Selling, general and administrative......   9.7   11.2   10.1   10.4   10.5
Research and development.................   3.0    3.0    2.5    2.6    2.4
Operating profit (loss)..................  (1.6)   6.2    7.2   11.5    6.0
Interest expense, net....................   6.5    8.0    7.9    7.9    8.4
Net income (loss)........................  (5.3)  (2.0)  (0.5)   2.3   (1.5)
</TABLE>

Six Months Ended March 31, 2001 Compared with Six Months Ended March 31, 2000

      Sales in the first six months of fiscal 2001 increased to $135,713
compared with $128,896 in the same period of fiscal 2000, an increase of 5.3
percent. This increase was driven by continued growth in sales volume of OPP
films and slightly higher selling prices as we passed on to our customers a
portion of the increase in raw material costs which spiked late in fiscal year
2000. With OPP films industry demand growth continuing at its historical
average of six percent annually, capacity utilization in the market continued
to strengthen, allowing us to increase our volumes. As the growth rate in
demand outpaces the limited announced capacity additions, we believe industry
capacity utilization levels will further improve. Sales outside the United
States, primarily in Canada, were 17.9 and 18.3 percent of sales for the six
months ended March 31, 2001 and 2000, respectively, and generated an operating
loss of 2.6 percent and profit of 6.9 percent of total operating profit in
those same periods. Sales outside the United States generated a loss in the six
months ended March 31, 2001 due to an increase in lower margin sales in order
to reduce inventories and maximize cash generation. Based on the tightening of
capacity in the North American OPP films industry and the acquisition of the
QPF assets, we do not expect this level of lower margin sales to recur for the
remainder of the year.

      For the six months ended March 31, 2001, gross profit was $26,475, or
19.5 percent of sales, compared with $31,663, or 24.6 percent of sales, in the
same period of fiscal 2000. The decline in gross profit is due to the spike in
raw material costs experienced late in fiscal 2000 resulting in higher-cost
material purchases and inventory values for products sold in fiscal 2001. Most
of these cost increases were not passed on to customers in the form of price
increases due to the excess capacity that exists in the OPP films industry.

      Raw material costs have been declining during this period due largely to
the introduction of new polypropylene resin capacity and are expected to
decline further by the end of the fiscal year. In addition, with the
acquisition of QPF, we will increase our annual polypropylene resin purchases
by 40 million pounds to over 270 million pounds. As a result of this increased
volume, we have obtained agreements for more favorable resin pricing from
several of our resin suppliers related to our ongoing raw material purchases.
These raw material cost declines, in conjunction with the tightening capacity
utilization in the OPP films industry, have begun to result in profitability
improvements as follows:

<TABLE>
<CAPTION>
                                               Gross  Gross  Operating Operating
     Quarter Ended                            Profit  Margin  Profit    Margin
     -------------                            ------- ------ --------- ---------
     <S>                                      <C>     <C>    <C>       <C>
     September 30, 2000(*)................... $ 9,554  14.5%  $1,308      2.0%
     December 31, 2000(**)...................  11,378  18.1    2,543      4.1
     March 31, 2001..........................  15,097  20.7    6,454      8.8
</TABLE>
    --------
     (*)  Excludes $2,400 of costs associated with a temporary shutdown of
          manufacturing plants in September 2000.
    (**)  Excludes $861 of non-cash charges related to the share incentive
          plan for non-executive employees.

                                       48
<PAGE>

      For the six months ended March 31, 2001, operating expenses increased by
$1,482 to $18,339 as compared with $16,857 for the six months ended March 31,
2000, due primarily to the non-cash charge recorded in the first quarter of
fiscal year 2001 related to the share incentive plan for non-executive
employees.

      Net interest expense of $11,357 for the first six months of fiscal year
2001 was $1,177 higher than in the first six months of fiscal year 2000 due to
a higher average debt balance and higher interest rates on our bank credit
facility in fiscal year 2001.

      Income tax as a percent of income before income taxes was 36 percent for
the six months ended March 31, 2001 and March 31, 2000.

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.

      Excluding temporary plant shutdown 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, our 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 our
customers in the form of price increases, due to the excess capacity that still
existed in the OPP films industry. We held firm on a recent price increase,
losing some sales volume. Therefore, we shut down all OPP films operations 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. The
continued development and commercialization of high-end films is core to our
strategy, and we intend to continue investing approximately 2.5 to 3.0 percent
of sales in research and development.

      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 we held operating expenses 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.

      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 our 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 reflects the benefit of
tax planning and is expected to remain at this level for at least the next two
years.


                                       49
<PAGE>

Fiscal 1999 Compared with Fiscal 1998

      Sales for fiscal 1999 of $237,042 were $8,292, or 3.4 percent lower than
fiscal 1998 sales of $245,334, due to the divestiture of certain non-core
businesses in the third quarter of 1998. Adjusted for these divestitures, sales
increased in fiscal 1999 by $7,924, or 3.5 percent, as compared with fiscal
1998, as a result of OPP films unit volume growth of 15 percent, offset in part
by significantly lower average selling prices compared with fiscal 1998 due to
industry overcapacity. Demand for OPP films continued to grow, but industry
overcapacity continued to exist in the marketplace. Sales outside the United
States, primarily in Canada, comprised 18.7 percent of total fiscal 1999 sales,
compared to 18.2 percent of total fiscal 1998 sales, and operating profit for
sales outside the United States was 19.4 percent of total operating profit
compared to 14.5 percent in fiscal 1998.

      Gross profit for fiscal 1999 was $51,346, or 21.7 percent of sales,
exclusive of $2,905 in plant shutdown costs. Gross profit increased $4,322, or
9.2 percent, from the fiscal 1998 level of $47,024, or 20.5 percent of sales,
adjusted for the aforementioned divestitures. Despite a dramatic decline in
selling prices due to industry overcapacity, gross margin increased due to
extensive productivity improvement programs and continuing improvement in sales
mix brought about by the effectiveness of the research and development and
sales efforts.

      Selling, general and administrative expenses increased to $26,550 for
fiscal 1999 from $23,754 in fiscal 1998, an increase of $2,796, reflecting our
investment in expanded sales reach and the infrastructure necessary to handle
over 60 percent more capacity.

      During the first fiscal quarter of 1999, we terminated acquisition
discussions with two of the largest European-based worldwide OPP films
producers. We were unable to reach a mutually agreeable price at which we would
acquire either of these businesses, given the deterioration in the European OPP
films market caused by the major industry-wide overcapacity in that region.
Costs associated with both of these acquisition projects and related due
diligence efforts were $3,462, or $2,077 after taxes, and were recorded as non-
operating expenses.

      In the fourth quarter of 1998, we announced a restructuring of our
Covington, Virginia manufacturing operation, including the shutdown of two
older, less efficient production lines and the elimination of approximately 200
full-time manufacturing and plant administrative positions, 160 of which were
hourly and the remainder of which were salaried. We recorded an $18,580 charge
in the fourth quarter of 1998 for this restructuring, comprised of
approximately $12,090 for costs associated with operating leases related to
idled equipment, $4,100 of severance-related costs and $2,390 in other charges,
primarily related to idling the equipment. Implementation of this plan targeted
eliminating a total of 200 positions and the shutdown of the production lines.
During fiscal 1999, we paid out $900 on leases related to idled equipment,
$4,098 in severance-related costs and $2,223 in other restructuring costs,
resulting in an accrued restructuring balance of $11,359 at September 30, 1999.
Of this balance, $11,190 represents lease costs, the majority of which are
classified as long-term liabilities. All aspects of the plan were completed
early in fiscal 2000 with the majority of the remaining reserve comprised of
future lease obligations.

      Net interest expense increased $3,041 to $18,909 in fiscal 1999, from
$15,868 in fiscal 1998, primarily as a result of interest capitalized in 1998
associated with a capacity expansion project which was completed in March 1998.

      Income tax as a percentage of before tax income or loss was approximately
40% for both fiscal 1999 and fiscal 1998.


                                       50
<PAGE>

Liquidity and Capital Resources

      Operating activities for the six months ended March 31, 2001 provided
$916 of cash, which was the result of net income before depreciation and
amortization and other non-cash expenditures of $5,736, offset by an increase
in working capital of $4,820. The net working capital increase was primarily
the result of decreases in accounts payable and accrued expenses of $627, a
decrease in inventory of $1,540, and an increase in prepaid expenses and other
current assets, and accounts receivable of $2,370 and $3,363, respectively.
Inventory decreased due to the sale of inventory built up in the first quarter,
accounting for the increase in accounts receivable. Accounts payable and
accrued expenses decreased primarily due to payment of semi-annual interest on
our 11 1/2% senior notes, as well as our annual contributions to employee
benefit plans.

      Operating activities in fiscal 2000 used $6,920 in cash, which was the
result of $11,843 of net income before depreciation and amortization and other
non-cash expenditures, and a $18,763 net increase in other working capital
items. The net increase in working capital resulted primarily from a $4,448
increase in inventory, a $6,746 increase in accounts receivable, a $3,224
increase in prepaid expenses and other assets, and decreases in accounts
payable and accrued expenses of $4,345. Interest paid during fiscal 2000
amounted to $21,888, including capitalized interest. Additions to property,
plant and equipment were $22,096 and were funded in part by borrowings under
our bank credit facility, with the balance funded by available cash flow.

      Operating activities in fiscal 1999 provided $10,554 in cash, which was
the result of $7,019 of net income before depreciation and amortization and
other non-cash expenditures, plus a $3,535 net increase in other working
capital items, after giving effect to divestitures. The net increase in working
capital resulted from a $1,005 decrease in inventory, a $393 decrease in
accounts receivable, a $1,900 increase in prepaid and other charges, and
increases in accounts payable and accrued expenses of $4,037. Interest paid
during fiscal 1999 amounted to $21,058, including capitalized interest.
Additions to property, plant and equipment were $22,781 and were funded in part
by borrowings pursuant to our bank credit facility, with the balance funded by
available cash flow.

      Operating activities in fiscal 1998 used $10,364 in cash, which was the
result of $5,040 of net income before depreciation and amortization and other
non-cash expenditures, less a $15,404 net decrease in other working capital
items, after giving effect to divestitures. The net decrease in working capital
resulted from a $7,850 increase in inventory, a $4,699 increase in accounts
receivable, a $58 increase in prepaid and other charges, and decreases in
accounts payable and accrued expenses of $2,797. Interest paid during fiscal
1998 amounted to $21,467, including capitalized interest. Additions to
property, plant and equipment were $45,496 and included expenditures related to
the two capacity expansions. These capital expenditures were funded in part by
borrowings pursuant to our bank credit agreement, with the balance funded by
available cash and cash flow.

      We maintain a bank credit facility with a group of lenders to provide
bank financing. Immediately prior to the offering of the outstanding notes,
this credit facility, as amended and restated, was a $96,000 revolving credit
facility with a final maturity on the earlier of (i) November 1, 2001, if
either our outstanding 11 1/2% senior notes were not refinanced prior to such
date or the commitments thereunder were greater than $80,000 on such date, or
(ii) January 29, 2003. In conjunction with the acquisition of assets from QPF,
we amended our bank credit facility to increase the total amount available for
borrowing from $90,000 to $96,000, and modified various covenant requirements.
Our bank credit facility is secured by all of our assets. It includes covenants
that limit borrowings based on certain asset levels, require us 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 bank
credit facilities of this type. The balance of the bank credit facility at
March 31, 2001 was $61,000, with another $12,435 in letters of credit
outstanding, leaving $16,565 available for borrowing. Subsequent to March 31,
2001, we borrowed an additional $6,000 under our bank credit facility to pay a
portion of the purchase price for QPF required to be paid at the signing of the
purchase agreement.


                                       51
<PAGE>

      We applied a portion of the net proceeds of the offering of outstanding
notes to repay borrowings under our bank credit facility. See "Use of
Proceeds." Pursuant to the terms of our facility, upon the closing of the
offering of the outstanding notes and the application of the net proceeds, the
commitments under our bank credit facility were reduced to $80,000 and various
covenants were modified. As a result, on a pro forma basis at March 31, 2001,
after giving effect to the offering of the outstanding notes and our use of
proceeds and our required commitment reduction, we would have had $67,565 of
availability under our bank credit facility. The amounts repaid under our bank
credit facility may be immediately re-borrowed up to the amount of our new
commitment, subject to borrowing base requirements. Our bank credit facility
has a maturity of January 29, 2003. We currently intend to refinance our bank
credit facility prior to its maturity.

      As of March 31, 2001, we had $150,000 aggregate principal amount of 11
1/2% senior notes due 2002. We redeemed all of the outstanding 11 1/2% senior
notes at par, plus accrued and unpaid interest, with a portion of the net
proceeds of the offering of the outstanding notes.

      We also have $6,500 of revenue bonds outstanding, which are due November
4, 2004, and of which $6,200 is secured by a letter of credit under our bank
credit facility.

      We believe that the cash flow from operations, the net proceeds of the
offering of the outstanding notes and the available capacity under our bank
credit facility will provide adequate funds for our working capital needs,
planned capital expenditures and debt service requirements for the next 18
months. We believe that we will be able to refinance our bank credit facility
prior to its maturity in 2003, although we cannot assure you that we will be
able to do so. Our ability to fund our operations, make planned capital
expenditures, make scheduled payments and refinance our indebtedness depends on
our future operating performance and cash flow, which, in turn, are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond our control.

New Accounting Pronouncements

      Information related to new accounting pronouncements is included in the
footnotes to the consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange Contracts

      We 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 reported as part of
capitalized assets. At March 31, 2001, we had no outstanding foreign exchange
contracts. We do not enter into foreign exchange contracts for trading or
speculative purposes.

Short-Term and Long-Term Debt

      We are exposed to interest rate risk primarily through our borrowing
activities. Our policy has been to utilize United States dollar denominated
borrowings to fund our 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
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and our future financing requirements. At
March 31, 2001, we had short-term debt outstanding of $61,000 and long-term
debt outstanding of $156,500. The short-term debt consisted of the amount
outstanding on the bank credit facility which has a variable interest rate,
based on either LIBOR or prime rates. If interest

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rates increased or decreased by ten percent from the interest rates in place at
March 31, 2001, interest expense incurred on the bank credit facility would
increase or decrease by approximately $489.

      We do not enter into financial instrument transactions for trading or
other speculative purposes or to manage interest rate exposure.

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 our
costs and have historically fluctuated. We cannot assure you, 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, we were 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 our 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.

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                                    INDUSTRY

      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 flexible packaging to replace many
traditional forms of rigid packaging 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 and they are 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. We believe that 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. We believe 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, cans and glass bottles to plastic
     beverage containers, and for packaging materials, 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 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. This
was compounded last year by the rapid, unforeseen escalation in resin costs,
which increased 70 percent in 18 months, peaking in the last quarter of fiscal
2000, due primarily to 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 customers resin cost increases
similar to those experienced in 2000, allowing the industry to achieve one of
its most profitable years.

      Due to continued growth in demand for OPP films, capacity utilization in
the North American OPP films industry has been recovering and is currently
approximately 90 percent. As a result of the shutdown of the QPF manufacturing
facility, we expect capacity utilization to reach approximately 94 percent by
the end of this year. As the expected growth in demand outpaces the announced
capacity additions, we believe industry capacity utilization levels will
further improve. Because a substantial capital investment is required to build
a

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new line and the industry has recently experienced low capacity utilization
levels, we believe the industry will be cautious about introducing new lines.
To our knowledge, only we 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, we believe supply
estimates are reasonably predictable over the near term.

      Additionally, 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. According
to Chemical Data Inc., polypropylene resin prices have declined from an average
of $0.42 per pound in our fourth fiscal quarter of 2000 to an average of
approximately $0.38 per pound in our second fiscal quarter of 2001 and are
predicted to decrease an additional $0.05 per pound by the end of fiscal 2001.

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<PAGE>

                                    BUSINESS

General

      We are 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. We have a leading position in substantially all of the
major high-end OPP films end-use product categories in North America. In
addition, we believe that we are 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. We estimate that we currently have 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. We are
also one of the largest producers of OPP films worldwide.

      We offer 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 our experienced technology group
and state-of-the-art production facilities, we work directly with our customers
to develop innovative products to meet their specialized requirements. We
believe that the combination of our leadership position, innovative
capabilities, strong sales force and highly efficient manufacturing positions
us to achieve future growth and profitability. For the twelve months ended
March 31, 2001, we generated pro forma net sales of $317.5 million and pro
forma adjusted EBITDA of $60.9 million.

Competitive Strengths

      We believe that we are well positioned to compete successfully in the OPP
films market and to increase sales and profitability due to our:

Substantial Industry Presence

      We are the largest manufacturer and seller of OPP films in North America.
Due to our differentiated product line, technological leadership and effective
sales force, we have a leading market position in substantially all of the
major high-end OPP films end-use product categories in North America.

      For example, we believe that we are the number one or two supplier of OPP
films used:

    .  for labels on bottles and cans, with more than a 50% share of this
       product category;

    .  for overwrap applications, with an approximately 45% share of this
       product category;

    .  for confectionery packaging, with an approximately 40% share of this
       product category; and

    .  for snack packaging, with more than a 35% share of this product
       category.

Technological Leadership and Superior Product Development Capabilities

      We have one of the largest technology groups in the industry with more
than 60 chemists, engineers and technicians. We have also invested over $20.0
million in product research and development over the past three years.
Utilizing extensive laboratory and film testing facilities, advanced pilot
production lines, and an array of end-use packaging and labeling equipment, our
technology group has introduced more than 40 new or enhanced products in the
past four fiscal years. We believe this strength in innovation will continue to
drive higher growth levels for our differentiated, higher-margin products, and
provide an advantage to our customers who work with us in the development of
new labeling, packaging and overwrap products and applications.

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Efficient, Modern Production Facilities

      We believe that our 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. We have invested over $200.0 million in the
last five years in state-of-the-art equipment, creating what we believe are
among the world's fastest and most efficient production facilities. Since
fiscal 1994, we have nearly doubled our capacity without increasing headcount,
thereby increasing annual production per employee from 136,000 pounds in fiscal
1994 to over 270,000 pounds today pro forma for the QPF acquisition. We believe
that our efficient and modern production facilities provide us a cost advantage
over our competitors that should be further enhanced as we increase the
utilization of our assets.

Breadth of Product Line and Diversity of Customer Base

      With more than 80 product groups sold to over 600 customers, we believe
that we have the broadest product lines and customer bases of any North
American OPP films producer. In addition, we have a leading market position in
substantially all of the major high-end OPP films product categories in North
America while still producing a broad range of lower cost films to meet the
diverse requirements of our customers. Our product scope and diversity is
important both in terms of participating in a wide range of growth
opportunities and in providing a broad array of packaging solutions for a large
and diverse customer base. This enables us to meet the specific needs of our
customers and minimize our dependence on any single product. With the
relatively high costs and disruption of changing suppliers, our customers
generally prefer to foster long-term relationships which allow them to achieve
volume purchasing benefits and improved product quality control. As a result,
the significant majority of our major customers five years ago remain as our
major customers today.

Experienced Management

      We believe that our senior and operational management team is among the
most experienced in the OPP films business. Our management team has been
successful in diversifying our product lines, increasing our sales and market
shares, strengthening customer and supplier relationships, improving
manufacturing efficiencies and productivity and developing new technologies to
enhance our competitive strengths. Our management team also has significant
experience integrating acquisitions, including the 1994 acquisition of the OPP
films business of Hercules Incorporated and the 1999 acquisition of assets of
the OPP films business of AEP Industries Inc. Since the Hercules acquisition,
we have nearly doubled sales and significantly reduced non-raw material unit
production costs. When we acquired the assets of AEP, we successfully retained
over 90 percent of the sales targeted for retention. These accomplishments are
also the direct result of the strength of our operations and sales management
team, who together average over 20 years of experience in OPP films and have
strong, long-term relationships with our customer base.

Business Strategy

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

Take Advantage of Tightening Capacity Utilization

      Over the past four 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. As a result of the shutdown of
the QPF manufacturing facility, we expect industry capacity utilization to
increase from its current level of approximately 90 percent to approximately 94
percent by the end of 2001. We believe that industry capacity utilization
levels will further improve as we expect the anticipated growth rate in demand
for OPP films to outpace the announced capacity additions. As a result, we
believe that this will significantly improve profitability levels in the
industry as prices of OPP films stabilize and increase. As the leader of the
North

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American OPP films industry, our strategy is to support high capacity
utilization by not adding any significant increments of new capacity. In
addition, by absorbing the QPF sales, we will improve our own capacity
utilization. Based on this strategy of supporting high industry capacity
utilization and maximizing use of our own capacity and our strong market
position, we stand to benefit significantly from a tightening of industry
capacity. During periods of tightened capacity, a small increase in the spread
between our selling price per pound and resin costs per pound can have a
significant impact on our profitability. For example, every $0.01 per pound
increase in this spread in fiscal 2000 would have increased our pro forma
EBITDA by $2.7 million. This spread has ranged over the last five years from a
high in fiscal 1995 of $0.95 per pound to a low in fiscal 2000 of $0.68 per
pound. This spread has been improving and was $0.75 per pound by our second
fiscal quarter of 2001.

Focus on Developing Innovative Products

      We intend to continue our extensive research and development efforts and
our 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, we are 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. We are also starting to produce films for lamination to
paperboard containers in order to provide enhanced graphic and holographic
capabilities. In addition, we have 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 we believe 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.

Increase Our High-End Product Mix

      We have historically focused on the identification and development of
innovative products that we believe have higher margins. As a result, the
majority of our sales have historically been in high-end, high margin markets
with only a minor portion of our sales volume in low margin, sealable film
products. With the rapid expansion of our capacity over the past four years our
sales of these low-margin film products have increased to nearly a quarter of
sales volume, as we focused on minimizing the price impact of our capacity
expansion efforts in the high end markets. Notwithstanding this, during this
same period, our high-end sales grew at a nearly seven percent compounded
annual growth rate. This growth rate, which exceeds the industry's historical
over six percent compounded annual growth rate, results from our focus on
continuing to expand these high-end applications. Our current strategy is to
continue to grow our sales in high-end products without impairing market
pricing, and thereby increase the proportion of our total sales represented by
these higher margin products. In connection with this, through the acquisition
of QPF, we have eliminated our need to attract additional volumes to fill our
current capacity. As a result, our efforts to enhance our product mix will be
accelerated.

Maximize Operating Efficiencies and Reduce Costs

      We intend to continue to seek opportunities to reduce costs and enhance
productivity. Since 1995, we have nearly doubled our capacity and now
approximately 140 million pounds, or 52 percent, of our 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, we have 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, we have achieved a 30 percent reduction in
non-raw

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material unit production costs since the beginning of fiscal 1998. With the
acquisition of QPF, we expect to fill our excess capacity and further reduce
our unit production costs, thereby allowing us to enhance our competitive cost
advantage and improve profitability levels.

      In addition, historically we purchase approximately 240 million pounds of
polypropylene resin each year, which we believe is more than any other North
American OPP films manufacturer and gives us a purchasing advantage over
smaller manufacturers such as QPF. As a result, we expect to be able to produce
the additional products to satisfy QPF's customers with lower resin costs than
were available to QPF. We also expect to benefit from further reductions in our
resin unit purchasing price, as a result of the additional resin purchasing
volume arising from the acquisition of QPF, and such a reduction has already
been negotiated with several of our suppliers.

Focus on Industry Leadership

      We have become the largest OPP films manufacturer and seller in North
America and have a leading position in substantially all major high-end OPP
films end-use product categories in North America. We have accomplished this by
assembling what we believe is the industry's most experienced and technical
sales force, by developing strong customer and end-user relationships and by
establishing a reputation for innovative new product development. Our 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 our customers. We also intend to continue
to strengthen relationships with our customers by making it easier for them to
do business with us, by, for example, providing supply chain integration tools
such as our new proprietary fully automated, internet accessible, order and
logistics tracking system. We believe that the combination of our leadership
position, innovative capabilities, strong sales force and highly efficient
manufacturing positions us to achieve future growth and profitability. As a
result of our focus on building our industry leadership position, we
continually explore opportunities to acquire related businesses and to divest
those that do not fit our overall strategy. Accordingly, we have begun an
investigation of the possible divestiture of our netting and nonwovens
business.

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

      On June 19, 2001, we 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. We also
purchased QPF inventory produced through June 30, 2001, the day on which the
OPF facility was shut down. We did not purchase the QPF facility and the cost
to close the facility will be borne by Hood.

      The net purchase price for the QPF assets, not including inventory, was
$15.0 million, comprised of $2.0 million that we paid with the signing of the
purchase agreement, $4.0 million that we placed in escrow and released at the
closing, and $9.0 million that we paid in cash at the closing. Additionally, we
issued an inventory note to QPF on June 30, 2001, in the amount of
approximately $6.7 million for the QPF inventory that we acquired. It is
anticipated that this note will be repaid as we liquidate the inventory.

      QPF was a niche manufacturer of OPP films with 40 million pounds of
volume produced in fiscal 2000. We believe we can retain QPF's business and run
this production on our own facilities. As a result of the QPF facility closure,
North American capacity of OPP films will drop by approximately 40 million
pounds. Our acquisition of QPF is expected to have the following impacts:

    .  It will increase the North American OPP films industry capacity
       utilization from approximately 90 percent to 94 percent by the end of
       2001.

    .  We expect to retain a substantial majority of QPF's existing customer
       base. Several key account managers of QPF have joined our sales
       force, and have facilitated a smooth and expeditious transition by
       continuing to call on their QPF accounts.

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    .  Except for several key QPF account managers, we did not retain any
       other QPF manufacturing, administrative or management personnel. By
       not continuing the QPF operations, we will not incur other QPF costs
       of production, such as power, maintenance, insurance, property taxes,
       capital expenditures and depreciation.

    .  It will improve our capacity utilization and cash flows by allowing
       our excess capacity to be used to satisfy sales to QPF's existing
       customer base, with additional costs being largely the direct raw
       material costs and minor incremental production costs.

    .  It will offset some of our future capital requirements with some of
       the acquired assets. The remainder of the acquired assets will be
       used for spare parts or scrapped. Dismantling of all QPF machinery
       and equipment began shortly after the closing.

      For more information on the projected effects of the QPF transaction, see
"Summary Pro Forma Combined Financial Data," and the notes thereto.

Products

      Our OPP films product line is classified into the following four
categories:

    .  Labels. Our 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, our 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 our unique tubular production
       assets, we manufacture 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. Our opaque products are used as the
       inside layer of these laminated labels, and provide a high-quality
       print surface and excellent machineability. Management estimates the
       label market for OPP films has grown at over six percent for the past
       five years as glass containers have been replaced with polyethylene
       terephthalate bottles and as printed cans such as coffee, aerosol and
       shaving creams have been replaced with OPP film labeled cans.

    .  Packaging. Our 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. Our 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(R) Foods
       products, individual size condiment pouches, and baked goods
       packaging. In applications where barrier is important, we offer
       metallized, polyvinylide chloride, 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. We produce 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 R.J. Reynolds(R) Tobacco Company and 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 we have 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. We have
       focused our industrial OPP films on applications that we believe are
       more profitable, such as insulation facing and cable wrap.

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      In addition to OPP films, we develop, manufacture and sell a range of
oriented apertured films, also known as nets, and nonwoven films for
specialized filtration and medical applications. Our apertured films and
nonwoven products are used in the industrial filtration market for air and
liquids. We manufacture the initial filtration membranes, support material and
filtration media for these filters. Our Delnet(R) product is used in health
care markets as a porous facing material for bandages. By permitting one-way
fluid flow and two-way airflow without adhering to the wound, Delnet(R)
material enhances the healing process. In the United States, most adhesive
bandages, including Johnson & Johnson BAND-AIDS(R), use Delnet(R) facing. We
have begun an initial investigation of the possible divestiture of our netting
and nonwovens business.

Marketing and Customers

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

      Our 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 fiscal 2000 and approximately 20 percent
of sales in fiscal 1999. We also sell OPP films directly to end-users. We
consider it an important part of our 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. Our sales and marketing efforts and
customer relationships are enhanced by the numerous customer-specific technical
approvals that we have 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 us and our customers and can lead to
additional sales and marketing opportunities.

Manufacturing and Technology

      OPP films are manufactured and processed through either the tenter or the
tubular processes. We are 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. We have 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.

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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. We believe that our tubular manufacturing capacity
enables us 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. We currently operate nine tubular lines.

Secondary Processes

      In addition to the tenter and tubular manufacturing processes, we also
perform operations to apply coatings and metal to our films. In the coating
process, we apply various materials 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,
we run the film through a vacuum and apply a thin layer of aluminum to the
surface of a film structure providing barrier and appearance properties.

      Additionally, we manufacture apertured films and nonwoven media.
Delnet(R) and other apertured film products are 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
are produced in a high pressure extrusion process, forming the filtration media
used in liquid and air filtration markets.

Research and Development

      We believe we have one of the largest and most experienced technology
groups in the industry with more than 60 chemists, engineers and technicians
and we have 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, our technology group has introduced more than
40 new or enhanced products in the past four fiscal years. We believe this
strength in innovation will continue to drive higher growth levels for our
differentiated, higher margin products, and provide an advantage to our
customers who work with us in the development of new labeling, packaging and
overwrap products and applications. During fiscal 1998, 1999 and 2000, we spent
approximately $7.3 million, $7.1 million and $6.8 million, respectively, on
research and development.

Polypropylene and Other Raw Materials

      Our principal products are manufactured 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.

      The majority of our resin supply requirements are met by four suppliers.
However, these materials are generally available from a large number of
suppliers in sufficient quantities to meet ongoing requirements. Our other raw
materials, which are used in the manufacturing of our netting and other
products, are also available from a large number of suppliers in sufficient
quantities to meet current requirements. Historically, we have not experienced
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.


                                       62
<PAGE>

      Historically, the price of polypropylene has fluctuated, and in recent
years the price has increased significantly due to the increased price of crude
oil. Polypropylene resin costs in fiscal 2000 were up $0.103 per pound, or 37.2
percent, over fiscal 1999. As a result of low capacity utilization levels, we
have 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. According to Chemical Data Inc.,
polypropylene resin prices have declined from an average of $0.42 per pound in
our fourth fiscal quarter of 2000 to an average of approximately $0.38 per
pound in our second fiscal quarter of 2001 and are predicted to decrease an
additional $0.05 per pound by the end of fiscal 2001.

Competition

      We compete 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 of our
competitors are subsidiaries of larger corporations that have significantly
greater financial resources than us. There are approximately eight primary
manufacturers in North America producing OPP films for resale. Out of these
eight manufacturers, only ourselves and ExxonMobil Corporation have a greater
than 20 percent market share. We believe 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 our
customers. We sell products in countries outside North America and may face
international competition. Most of our customers and end users have a short
lead time for ordering our products, so our foreign competitors are at a
disadvantage with our North American customers because of their longer shipping
times and higher shipping costs.

      We believe that we have 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 would
be high, we cannot assure you that the markets into which we sell our products
will not attract additional competitors that could have significantly greater
financial, technological, manufacturing and marketing resources than us.

Patents and Trademarks

      We currently hold approximately 85 active domestic and international
patents and applications. We also have 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 our business.

Government Regulation

      Due to the nature of our business, our operations are subject to a
variety of federal, state and local laws, regulations and licensing
requirements. We believe that our operations are in substantial compliance with
those laws, regulations and requirements. Compliance with federal, state and
local requirements relating to the

                                       63
<PAGE>

protection of the environment has not had and is not expected to have a
material effect on our capital expenditures, financial condition, results of
operations or competitive position.

Employees

      We employ approximately 1,100 full-time employees. Approximately 125
production and maintenance employees at our 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. We consider all employee relations to be satisfactory.

Facilities

      The following table provides information with respect to our facilities:

<TABLE>
<CAPTION>
                                                                      Owned/
                            Location                      Square Feet Leased
                            --------                      ----------- ------
 <C>                        <S>                           <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>

      All of our owned real property secures our obligations under our bank
credit facility. We believe that our facilities are suitable for their
currently intended purposes and adequate for our level of operations.

Environmental, Health and Safety Matters

      We are 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. We believe that our operations
have been and are in substantial compliance with environmental, health and
safety requirements, and that we have no liabilities arising under such
requirements, except as would not be expected to have a material adverse effect
on our operations, financial condition or competitive position.

      In the last four years, we have received no requests for information and
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. We believe that any future involvement in matters arising
under various environmental laws will not have a material adverse effect on our
operations, liquidity or financial condition.

Legal Proceedings

      We are periodically subject to legal proceedings and claims which have
arisen in the ordinary course of our business and have not been fully
adjudicated. We are not a party to litigation or other legal proceedings which
we believe, either singly or in the aggregate, could reasonably be expected to
have a material adverse effect on our business, financial condition and results
of operations.

                                       64
<PAGE>

                                   MANAGEMENT

      Our directors and executive officers are as follows:

<TABLE>
<CAPTION>
                                                                   Director or
                                                                    Executive
          Name           Age Position                             Officer Since
          ----           --- --------                             -------------
 <C>                     <C> <S>                                  <C>
 Amin J. Khoury.........  62 Chairman of the Board(1)             October 1986
 Thomas E. Williams.....  54 President, Chief Executive Officer   December 1992
                             and Director(2)
 Nader A. Golestaneh+*..  40 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
 David N. Terhune.......  55 Executive Vice President and Chief   February 1994
                             Operating Officer(3)
 Mark S. Abrahams.......  50 Vice President and General           December 1993
                             Manager, Specialty Nets &
                             Nonwovens Division(4)
 Anthony J. Allott......  36 Senior Vice President and Chief      July 1994
                             Financial Officer(5)
</TABLE>
--------
 * Member Audit Committee
 + Member Stock Option and Compensation Committee
(1) We have entered into a four-year employment agreement dated as of April 1,
    1999 with Mr. Khoury pursuant to which he currently serves as our Chairman
    of the Board of Directors.
(2) We have entered into a four-year employment agreement dated as of April 1,
    1999 with Mr. Williams pursuant to which he currently serves as our Chief
    Executive Officer and President.
(3) We have entered into a four-year employment agreement with Mr. Terhune
    dated April 1, 1999 pursuant to which he currently serves as our Executive
    Vice President and Chief Operating Officer.
(4) We have entered into a three-year employment agreement dated as of April 1,
    1999 with Mr. Abrahams pursuant to which he currently serves as our Vice
    President and General Manager of our Specialty Nets & Nonwovens Division.
(5) We have entered into a three-year employment agreement dated April 1, 1999
    with Mr. Allott pursuant to which he currently serves as our Senior Vice
    President and Chief Financial Officer.

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

      Amin J. Khoury--Mr. Khoury is the founder of AET and has served as our
Chairman of the Board of Directors since October 1986. From October 1986 to
August 1993, he served as our Chief Executive Officer. Mr. Khoury served as our
President from August 1988 through November 1992. He is also the founder and
the Chairman of the Board of Directors of BE Aerospace, Inc., a manufacturer of
aircraft cabin interior products. Mr. Khoury is a director of Brooks
Automation, Inc., a leader in semiconductor tool and factory automation
solutions for the global semiconductor industry and a director of Synthes-
Stratec, Inc., the world's leading orthopedic trauma company.

      Thomas E. Williams--Mr. Williams has served as our President and one of
our directors since 1992. He has served as our Chief Executive Officer since
August 1993. Mr. Williams served as our Chief Operating Officer from 1992 to
1996. From 1988 until 1992, Mr. Williams served as President and Chief
Executive Officer of Home Innovations, Inc., a home furnishings company. From
1980 until 1988, he held a number of executive positions with PepsiCo, Inc.


                                       65
<PAGE>

      Nader A. Golestaneh--Mr. Golestaneh has served as one of our directors
since 1986. Since 1990, he has served as President of Centremark Properties,
Inc., a real estate management and development company. Mr. Golestaneh has
worked as an attorney in private practice in Boston, Massachusetts since 1986.

      Richard G. Hamermesh--Mr. Hamermesh has served as one of our directors
since 1986. Since 2000, he has served as a senior lecturer at the Harvard
Business School. In 1987 he co-founded and then served until 2000 as a Managing
Partner for the Center for Executive Development, an independent executive
education and training firm. Mr. Hamermesh also serves as a director of BE
Aerospace, Inc., a manufacturer of aircraft cabin interior products.

      Mark M. Harmeling--Mr. Harmeling has served as one of our directors since
1986. Since 2001, he has been a partner of TA Realty Associates, a real estate
advisory firm. Since 1991, he has served as the President of Bay State Realty
Advisors, a real estate consulting firm. Between 1997 and 1999 Mr. Harmeling
worked as an executive of The A.G. Spanos Corporation, a leading developer of
multifamily residential complexes. From 1985 to 1991, he served as President of
Intercontinental Real Estate Corporation, a real estate holding and development
corporation, and as a director of Universal Holding Corporation, an insurance
holding company.

      Joseph J. O'Donnell--Mr. O'Donnell has served as one of our directors
since 1986. He also serves as the Chairman of the Board and Chief Executive
Officer of Boston Concessions Group, Inc., a company that manages food service
operations in ski areas, amusement parks, restaurants and theaters.

      David N. Terhune--Mr. Terhune has served as our Executive Vice President
and Chief Operating Officer since July 1996. From February 1994 to June 1996,
he served as our Senior Vice President and Chief Financial Officer. Mr. Terhune
has served as a Chief Operating Officer for seven years and a Chief Financial
Officer for fourteen years for five primarily public companies in the
technology, banking, real estate, food service and manufacturing industries.

      Mark S. Abrahams--Mr. Abrahams has served as our Vice President and
General Manager of Specialty Nets and Nonwovens since December 1993. From
November 1990 to July 1993, he served as the President of the Cybex Division of
Lumex Corporation, a manufacturer and distributor of physical therapy and
fitness equipment. From November 1988 to October 1990, he served as Chief
Operating Officer of Cambridge Medical Instruments, a manufacturer of
diagnostic medical equipment.

      Anthony J. Allott--Mr. Allott has served as our Senior Vice President and
Chief Financial Officer since July 1996. From July 1994 to January 2001, he
served as our Treasurer. From May 1995 to June 1996, Mr. Allott served as a
Vice President of AET. From December 1992 to July 1994, he served as Corporate
Controller with Ground Round Restaurants, Inc., an operator and franchiser of
full-service family restaurants. From 1986 to 1992, Mr. Allott worked at
Deloitte & Touche LLP, an independent auditing firm, most recently as audit
manager.


                                       66
<PAGE>

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Applied Extrusion Technologies, Inc. is the owner of all of the
outstanding common stock of Applied Extrusion Technologies (Canada), Inc.

      The following table and notes thereto set forth information with respect
to the beneficial ownership of our common stock as of July 2, 2001 by (i) each
person who is known to us to beneficially own more than 5% of the outstanding
shares of our common stock, (ii) each of the chief executive officer and our
four other most highly compensated executive officers who were serving at the
end of fiscal 2000 and each of our directors, and (iii) all of our executive
officers and directors as a group. Except as otherwise indicated, each of the
stockholders named below has sole voting and investment power with respect to
the shares of our common stock beneficially owned:

<TABLE>
<CAPTION>
                                                         Common Stock
                                                      Beneficially Owned
                                                     -------------------------
                                                                   Percent of
                                                     Number of     Outstanding
Names                                                 Shares        Shares(1)
-----                                                ---------     -----------
<S>                                                  <C>           <C>
Dimensional Fund Advisors Inc. .....................   930,800         7.39%
 1299 Ocean Avenue, 11th Floor
 Santa Monica, CA 90401

Goldsmith & Harris, Inc. ...........................   911,400         7.23%
 80 Pine Street
 New York, NY 10005

T Rowe Price Assoc. ................................   750,000(2)      5.95%
 100 E. Pratt Street
 Baltimore, MD 21202

Royce & Assoc Inc. .................................   737,700         5.86%
 1414 Avenue of the Americas
 New York, NY 10019

Thomas E. Williams*+................................   598,253(3)      4.57%
Amin J. Khoury*+....................................   519,000(4)      3.99%
David N. Terhune*...................................   378,005(5)      2.93%
Anthony J. Allott*..................................   106,491(6)        **
Mark S. Abrahams*...................................    85,306(7)        **
Joseph J. O'Donnell+................................    37,500(8)        **
Mark M. Harmeling+..................................    37,500(9)        **
Richard G. Hamermesh+...............................    52,125(10)       **
Nader A. Golestaneh+................................    37,750(11)       **
All directors and executive officers as a group (10
 persons)........................................... 1,847,930(12)    13.11%
</TABLE>
--------
 *  Executive officer
 +  Director
 ** Less than 1 percent
 (1) For purposes of determining beneficial ownership, owners of options
     exercisable within sixty days are considered the beneficial owners of the
     shares of common stock for which such options are exercisable, and the
     reporting herein is based on the assumption (as provided in the applicable
     rules of the Securities and Exchange Commission) that only the person or
     persons whose ownership is being reported has exercised such options for
     common stock. As of July 2, 2001, there were 12,597,552 shares of common
     stock issued and outstanding.
 (2) Includes holdings attributable to T. Rowe Price Small Cap Value Fund, Inc.
 (3) Includes (i) 487,500 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days, (ii)
     11,300 shares held by the AET Executive Deferred

                                       67
<PAGE>

    Compensation Plan Trust, (iii) 18,261 shares held by the 1996 AET Employee
    Stock Purchase Plan, and (iv) 5,092 shares held by the AET Savings and
    Profit Sharing Plan, in each case for the benefit of Mr. Williams.
 (4) Includes 412,500 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days.
 (5) Includes (i) 300,000 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days, (ii)
     8,298 shares held by the AET Executive Deferred Compensation Plan Trust,
     (iii) 11,842 shares held by the 1996 AET Employee Stock Purchase Plan,
     and (iv) 4,865 shares held by the AET Savings and Profit Sharing Plan, in
     each case for the benefit of Mr. Terhune.
 (6) Includes (i) 80,625 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days, (ii)
     600 shares held by the AET Executive Deferred Compensation Plan Trust,
     (iii) 15,094 shares held by the 1996 AET Employee Stock Purchase Plan,
     and (iv) 5,171 shares held by the AET Savings and Profit Sharing Plan, in
     each case for the benefit of Mr. Allott.
 (7) Includes (i) 74,375 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days, (ii)
     2,681 shares held by the AET Executive Deferred Compensation Plan Trust,
     and (iii) 3,250 shares held in the AET Savings and Profit Sharing Plan,
     in each case for the benefit of Mr. Abrahams.
 (8) Includes 37,500 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days.
     Excludes 61,500 shares held in trust for the benefit of Mr. O'Donnell's
     wife.
 (9) Includes 37,500 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days.
     Excludes 87,057 shares held in trusts for the benefit of Mr. Harmeling's
     children, of which Mr. Harmeling disclaims all beneficial interest.
(10) Includes 30,000 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days.
(11) Includes 33,750 shares of common stock issuable in connection with
     outstanding stock options exercisable within the next sixty days.
(12) Includes and excludes the shares described in notes (3) through (12).

                                      68
<PAGE>

                       DESCRIPTION OF THE EXCHANGE NOTES

      The outstanding notes were, and the exchange notes will be, issued under
an indenture dated as of June 19, 2001 (the "Indenture") between the Company,
as issuer, the Guarantor and Wells Fargo Bank Minnesota, National Association,
as trustee (the "Trustee"), a copy of which will be made available upon
request. Upon the issuance of the exchange notes or the effectiveness of the
Shelf Registration Statement, the Indenture will be subject to and governed by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").

      The following summary highlights certain material terms of the Indenture.
Because this is a summary, it does not contain all of the information that is
included in the Indenture. You should read the entire Indenture, including the
definitions of certain terms used below, because it, and not this summary,
defines your rights as holders of the Notes. You can find definitions of
certain terms used in this description under the subheading "--Certain
Definitions." In this description, the word "AET" or the "Company" refers only
to Applied Extrusion Technologies, Inc. and not to any of its subsidiaries. We
refer to the exchange notes offered hereby throughout this description as the
"Exchange Notes," the outstanding notes as the "Outstanding Notes," and the
Exchange Notes and the Outstanding Notes together as the "Notes." Section
references are to sections of the Indenture.

General

      The Exchange Notes will be unsecured senior obligations of the Company
limited to $275,000,000 aggregate principal amount. The Indenture provides for
the issuance by the Company of Notes with a maximum aggregate principal amount
of $275.0 million. The Exchange Notes will be issued solely in exchange for an
equal principal amount of Outstanding Notes pursuant to the Exchange Offer. The
form and terms of the Exchange Notes will be identical in all material respects
to the form and terms of the Outstanding Notes except that: (i) the Exchange
Notes will have been registered under the Securities Act and (ii) the
registration rights and contingent interest reset provisions applicable to the
Outstanding Notes are not applicable to the Exchange Notes. The Notes will be
issued only in registered form without coupons, in denominations of $1,000 and
integral multiples thereof. (Section 302) Principal of, premium, if any, and
interest on the Notes will be payable, and the Notes will be transferable
(subject to compliance with transfer restrictions imposed by applicable
securities laws for so long as the Notes are not registered for resale under
the Securities Act), at the corporate trust office or agency of the Trustee in
The City of New York maintained for such purposes at 1501 Broadway, New York,
New York 10036-5502. (Sections 301 and 305) In addition, interest may be paid,
at the option of the Company, by check mailed to the Person entitled thereto as
shown on the security register. (Section 309) No service charge will be made
for any transfer, exchange or redemption of Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith. (Section 305)

Maturity, Interest and Principal Payments

      The Notes will mature on July 1, 2011. Except as otherwise described
below, each Note will bear interest at the applicable rate set forth on the
cover page hereof from June 19, 2001 or from the most recent interest payment
date to which interest has been paid, payable in cash semiannually in arrears
on January 1 and July 1 of each year, commencing, January 1, 2002, to the
Person in whose name the Note (or any predecessor Note) is registered in the
Note Register at the close of business on the December 15 or June 15 next
preceding such interest payment date.

      As discussed under "The Exchange Offer," pursuant to the Registration
Rights Agreement, the Company has agreed for the benefit of the holders of the
Oustanding Notes, at the Company's cost, either (i) to effect a registered
Exchange Offer under the Securities Act to exchange the Outstanding Notes for
Exchange Notes, which will have terms identical in all material respects to the
Outstanding Notes (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) or (ii) in the event that any changes in law
or applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or if for any other reason the Exchange
Offer is not consummated within 150 days following the date of the original
issue of the Outstanding Notes,

                                       69
<PAGE>

or if any holder of the Outstanding Notes (other than any of the initial
purchasers) is not eligible to participate in the Exchange Offer, or upon the
request of any initial purchaser in certain circumstances, to register the
Outstanding Notes for resale under the Securities Act through a shelf
registration statement (the "Shelf Registration Statement"). In the event that
either (a) the registration statement with respect to the Exchange Offer (the
"Exchange Offer Registration Statement") is not filed with the Commission on or
prior to the 30th calendar day following the date of original issue of the
Outstanding Notes, (b) the Exchange Offer Registration Statement has not been
declared effective on or prior to the 120th calendar day following the date of
original issue of the Outstanding Notes or (c) the Exchange Offer is not
consummated or a Shelf Registration Statement is not declared effective on or
prior to the 150th calendar day following the date of original issue of the
Outstanding Notes, the interest rate borne by the Outstanding Notes shall be
increased by one-half of one percent per annum following such 30-day period in
the case of (a) above, following such 120-day period in the case of clause (b)
above or following such 150-day period in the case of clause (c) above. The
aggregate amount of such increase from the original interest rate pursuant to
these provisions will in no event exceed one-half of one percent per annum.
Upon (x) the filing of the Exchange Offer Registration Statement after the 30-
day period described in clause (a) above, (y) the effectiveness of the Exchange
Offer Registration Statement after the 120-day period described in clause (b)
above or (z) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 150-day period
described in clause (c) above, the interest rate borne by the Outstanding Notes
from the date of such filing, effectiveness or consummation, as the case may
be, will be reduced to the original interest rate. See "The Exchange Offer."

      Outstanding Notes that remain outstanding after the consummation of the
Exchange Offer and Exchange Notes issued in connection with the Exchange Offer
will be treated as a single class of securities under the Indenture.

Redemption

      Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 1, 2006, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning on July 1 of the years indicated
below:

<TABLE>
<CAPTION>
                                                                      Redemption
      Year                                                              Price
      ----                                                            ----------
      <S>                                                             <C>
      2006...........................................................  105.375%
      2007...........................................................  103.583%
      2008...........................................................  101.792%
      2009 and thereafter............................................    100.0%
</TABLE>

      In addition, up to 35% of the initial aggregate principal amount of the
Notes may be redeemed, from time to time, on or prior to July 1, 2004 at the
option of the Company, within 60 days of one or more Qualified Equity Offerings
with the net proceeds of such offerings at a redemption price equal to 110.75%
of the principal amount, together with accrued and unpaid interest, if any, to
the date of redemption (subject to the right of holders of record on relevant
record dates to receive interest due on relevant interest payment dates);
provided that after giving effect to such redemption at least 65% of the
aggregate principal amount of the Notes originally issued remains outstanding.

      As described below, (a) upon the occurrence of a Change of Control, the
Company is obligated to make an offer to purchase all outstanding Notes at a
redemption price of 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase and (b) upon certain sales or
other dispositions of assets, the Company may be obligated to make offers to
purchase Notes with a portion of the Net Cash Proceeds of such sales or other
dispositions at a redemption price of 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase. See "Certain
Covenants--Change of Control" and "--Limitation on Disposition of Proceeds of
Asset Sales." (Sections 1015 and 1101)

                                       70
<PAGE>

      Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes for redemption will be made by
the Trustee on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided, however, that no Note of a principal
amount of $1,000 or less shall be redeemed in part. Notice of redemption shall
be mailed by first-class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption and accepted for payment. (Sections 1104, 1105, 1107 and 1108)

Sinking Fund

      The Notes will not be entitled to the benefit of any sinking fund.

Note Guarantees

      AET shall cause each of its domestic Restricted Subsidiaries, including
any Person that becomes a domestic Restricted Subsidiary after the date of the
Indenture, to become a Guarantor under the Indenture. As of the date of the
Indenture, the Company's only domestic Restricted Subsidiary was Applied
Extrusion Technologies (Canada), Inc., which became a Guarantor. Applied
Extrusion Technologies Limited, the Company's only non-domestic Restricted
Subsidiary, did not guarantee the Notes. In addition, generally, if any
Restricted Subsidiary becomes a guarantor or obligor in respect of any other
Indebtedness of the Company or any other Restricted Subsidiary, the Company
will cause such Restricted Subsidiary to Guarantee the Company's obligations
under the Notes. See "--Certain Covenants--Limitation on Guarantees of
Indebtedness by Restricted Subsidiaries."

      The Guarantors jointly and severally guarantee AET's obligations under
the Notes on an unsecured senior basis. Each guarantee will be equal in right
of payment to all existing and future unsecured unsubordinated Indebtedness of
each Guarantor and senior in right of payment to all Subordinated Indebtedness
of each Guarantor. The obligations of each Guarantor under its guarantee will
be limited to the greatest amount that would not render its obligations under
the guarantee subject to avoidance as a fraudulent conveyance or fraudulent
transfer under applicable law.

      Each Guarantor that makes a payment or distribution of more than its
proportionate share under a guarantee shall be entitled to a contribution from
each other such Guarantor which has not paid its proportionate share of such
payment or distribution.

      Under certain circumstances, AET will be able to designate current or
future subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
will not be subject to the restrictive covenants set forth in the Indenture and
will not guarantee the Notes. As of the date of the Indenture, all of the
Company's Subsidiaries will be Restricted Subsidiaries.

      The Indenture provides that so long as no Default exists or would exist,
the guarantee issued by any Guarantor and any Liens securing such guarantee
shall be automatically and unconditionally released and discharged upon:

          (a) any sale, exchange or transfer to any Person that is not an
    Affiliate of AET of all of AET's Capital Stock in such Guarantor, which
    transaction is otherwise in compliance with the Indenture; or

          (b) the designation of such Restricted Subsidiary as an
    Unrestricted Subsidiary in accordance with the terms of the Indenture.

Ranking

      The Notes will be unsecured senior obligations of the Company and will be
equal in right of payment to all existing and future unsecured unsubordinated
Indebtedness and senior in right of payment to all

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Subordinated Indebtedness of the Company. The Notes, however, will be
effectively subordinated to secured senior Indebtedness of the Company with
respect to the assets securing such Indebtedness, including Indebtedness under
the Bank Credit Agreement. Additionally, the Notes will be effectively
subordinated to all existing and future liabilities, including trade payables,
of the Company's Subsidiaries that are not Guarantors. As of March 31, 2001,
after giving effect to the offering of the Outstanding Notes and the
application of the net proceeds therefrom, Indebtedness of the Company would
have been approximately $284.1 million (taking into account the $4.1 million
discount on the issuance of the Outstanding Notes), of which $12.9 million
would have been secured senior Indebtedness ($6.2 million of which would have
been Indebtedness under the Bank Credit Agreement and $6.7 million of which
would have been Indebtedness under the inventory note we issued in connection
with the acquisition of the assets of QPF). The Company would have had no
Subordinated Indebtedness as of such date. As of March 31, 2001, after giving
effect to the offering of the Outstanding Notes and the application of the net
proceeds therefrom, Indebtedness of the Guarantors would have been
approximately $277.4 million (all of which would have been guarantees under the
Bank Credit Agreement and the Notes). In addition, on a pro forma basis as of
such date, subsidiaries of the Company that are not Guarantors would have had
additional liabilities of less than $1.0 million. Subject to certain
limitations, the Company and its Restricted Subsidiaries may incur additional
Indebtedness in the future.

Certain Covenants

      The Indenture contains, among others, the covenants described below.

      Limitation on Indebtedness. (a) The Indenture provides that the Company
will not create, incur, issue, assume, guarantee or in any manner become
directly or indirectly liable for the payment of (collectively "incur") any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Indebtedness, unless:

          (x) the Company's Consolidated Fixed Charge Coverage Ratio for the
    four full fiscal quarters immediately preceding the incurrence of such
    Indebtedness, taken as one period (and after giving pro forma effect to:

                  (i) the incurrence of such Indebtedness and (if applicable)
            the application of the net proceeds therefrom, including to
            refinance other Indebtedness, as if such Indebtedness was incurred
            and the application of such proceeds occurred at the beginning of
            such four-quarter period;

                  (ii) the incurrence, repayment or retirement of any other
            Indebtedness by the Company or its Restricted Subsidiaries since
            the first day of such four quarter period as if such Indebtedness
            was incurred, repaid or retired at the beginning of such four-
            quarter period; and

                  (iii) notwithstanding clause (d) of the definition of
            Consolidated Adjusted Net Income, the acquisition (whether by
            purchase, merger or otherwise) or disposition (whether by sale,
            merger or otherwise) of any company, entity, business or division,
            or assets constituting any of the foregoing, acquired or disposed
            of by the Company or its Restricted Subsidiaries, as the case may
            be, since the first day of such four-quarter period, as if such
            acquisition or disposition occurred at the beginning of such four-
            quarter period),

    would have been at least equal to (A) 2.0 to 1.0 for the period from the
    date of the Indenture through September 30, 2002 and (B) 2.25 to 1.0 for
    all periods thereafter, and

          (y) if such Indebtedness is Subordinated Indebtedness, such
    Indebtedness shall have an Average Life longer than the Average Life of
    the Notes and a final Stated Maturity of principal later than the final
    Stated Maturity of principal of the Notes.

      (b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness, unless:

          (x) the Company's Consolidated Fixed Charge Coverage Ratio for the
    four full fiscal quarters immediately preceding the incurrence of such
    Indebtedness, taken as one period (and after giving pro

                                       72
<PAGE>

    forma effect to the matters referred to in clauses (i), (ii) and (iii)
    in the parenthetical in paragraph (a) (x) of the "Limitation on
    Indebtedness" covenant), would have been at least equal to 3.0 to 1.0,
    provided that a non-domestic Restricted Subsidiary may incur any
    Indebtedness (including any Acquired Indebtedness) so long as at the
    time of such incurrence the Consolidated Fixed Charge Coverage Ratio for
    the four fiscal quarters immediately preceding the incurrence of such
    Indebtedness, taken as one period (and after giving pro forma effect to
    the matters referred to in clauses (i), (ii) and (iii) in the
    parenthetical in paragraph (a) (x) of the "Limitation on Indebtedness"
    covenant), would have complied with the ratio test in clause (x) of
    paragraph (a) of the "Limitation on Indebtedness" covenant, and

          (y) any Restricted Subsidiary that incurs any Indebtedness
    pursuant to clause (x) of this paragraph (b) shall Guarantee the Notes.

      (c) The Company shall not incur any Indebtedness that is expressly
subordinated to any other Indebtedness of the Company unless such Indebtedness,
by its terms or the terms of any agreement or instrument pursuant to which such
Indebtedness is issued or outstanding, is also expressly made subordinate to
the Notes at least to the extent it is subordinated to such other Indebtedness,
except that the Notes shall not be required to become designated senior
indebtedness or its equivalent due solely to the incurrence of such other
Indebtedness in accordance with this sentence. (Section 1010)

      Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take the following actions:

          (i) declare or pay any dividend on, or make any distribution to
    holders of, any shares of the Company's Capital Stock (other than
    dividends or distributions payable in shares of its Capital Stock or in
    options, warrants or other rights to purchase such Capital Stock, but
    excluding dividends or distributions payable in Redeemable Capital Stock
    or in options, warrants or other rights to purchase Redeemable Capital
    Stock),

          (ii) purchase, redeem or otherwise acquire or retire for value any
    Capital Stock of the Company or any options, warrants or other rights to
    acquire such Capital Stock,

          (iii) make any principal payment on or repurchase, redeem, defease
    or otherwise acquire or retire for value, prior to a scheduled principal
    payment, scheduled sinking fund payment or maturity, any Subordinated
    Indebtedness, or

          (iv) make any Investment (other than any Permitted Investment) in
    any Person

(such payments or other actions described in (but not excluded from) clauses
(i) through (iv) are collectively referred to as "Restricted Payments"), unless
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution):

          (1) no Default or Event of Default shall have occurred and be
    continuing,

          (2) the Company could incur $1.00 of additional Indebtedness
    (other than Permitted Indebtedness) pursuant to the "Limitation on
    Indebtedness" covenant, and

          (3) the aggregate amount of all Restricted Payments declared or
    made after the date of the Indenture shall not exceed the sum of:

                  (A) 50% of the aggregate cumulative Consolidated Adjusted
            Net Income of the Company accrued on a cumulative basis during the
            period beginning on the first day of the Company's first fiscal
            quarter after the date of the Indenture and ending on the last day
            of the Company's last fiscal quarter ending prior to the date of
            such proposed Restricted Payment (or, if such aggregate cumulative
            Consolidated Adjusted Net Income shall be a loss, minus 100% of
            such loss), plus

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<PAGE>

                  (B) the aggregate net cash proceeds received after the date
            of the Indenture by the Company from the issuance or sale (other
            than to any Restricted Subsidiary) of shares of Capital Stock of
            the Company (other than Redeemable Capital Stock) or warrants,
            options or rights to purchase such shares of Capital Stock of the
            Company, plus

                  (C) the aggregate net cash proceeds received after the date
            of the Indenture by the Company from the issuance or sale (other
            than to any Restricted Subsidiary) of debt securities that have
            been converted into or exchanged for Capital Stock of the Company
            (other than Redeemable Capital Stock) to the extent such debt
            securities were originally sold for cash, together with the
            aggregate cash received by the Company at the time of such
            conversion or exchange, plus

                  (D) to the extent not otherwise included in the Company's
            Consolidated Adjusted Net Income, the net reduction in Investments
            (other than reductions in Permitted Investments) constituting a
            Restricted Payment resulting from the payments of interest on
            Indebtedness, dividends, repayments of loans or advances, or other
            transfers of assets, in each case to the Company or a Restricted
            Subsidiary or from the sale of such Investment after the date of
            the Indenture or from the redesignation of an Unrestricted
            Subsidiary as a Restricted Subsidiary (valued in each case as
            provided in the definition of Investment), not to exceed the total
            amount of Investments (other than Permitted Investments) after the
            date of the Indenture in such Unrestricted Subsidiary or such
            Investment by the Company and its Restricted Subsidiaries, plus

                  (E) $5,000,000.

      (b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (with respect to clauses
(ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default shall
have occurred and be continuing:

          (i) the payment of any dividend within 60 days after the date of
    declaration thereof, if at such declaration date such declaration
    complied with the provisions of paragraph (a) above;

          (ii) the purchase, redemption or other acquisition or retirement
    for value of any shares of Capital Stock of the Company, in exchange
    for, or out of the net cash proceeds of, a substantially concurrent
    issuance and sale (other than to a Restricted Subsidiary) of shares of
    Capital Stock (other than Redeemable Capital Stock) of the Company;

          (iii) the purchase, redemption, defeasance or other acquisition or
    retirement for value of any Subordinated Indebtedness (other than
    Redeemable Capital Stock) in exchange for or out of the net cash
    proceeds of a substantially concurrent issuance and sale (other than to
    a Restricted Subsidiary) of shares of Capital Stock (other than
    Redeemable Capital Stock) of the Company;

          (iv) the repurchase of any Subordinated Indebtedness of the
    Company at a purchase price not greater than 101% of the principal
    amount of such Subordinated Indebtedness in the event of a Change of
    Control pursuant to a provision similar to the "Change of Control"
    covenant; provided that prior to such repurchase the Company has made
    the Change of Control Offer as provided in such covenant with respect to
    the Notes and has repurchased all Notes validly tendered for payment in
    connection with such Change of Control Offer;

          (v) the purchase, redemption or other acquisition or retirement
    for value of Subordinated Indebtedness (other than Redeemable Capital
    Stock) in exchange for, or out of the net cash proceeds of a
    substantially concurrent incurrence (other than to a Restricted
    Subsidiary) of, Subordinated Indebtedness of the Company so long as:

                  (A) the principal amount of such new Indebtedness does not
            exceed the principal amount (or, if such Subordinated Indebtedness
            being refinanced provides for an amount less than the principal
            amount thereof to be due and payable upon a declaration of
            acceleration

                                       74
<PAGE>

            thereof, such lesser amount as of the date of determination) of
            the Subordinated Indebtedness being so purchased, redeemed,
            acquired or retired, plus the amount of any premium required to be
            paid in connection with such refinancing pursuant to the terms of
            the Subordinated Indebtedness refinanced or the amount of any
            premium reasonably determined by the Company as necessary to
            accomplish such refinancing, plus the amount of expenses of the
            Company incurred in connection with such refinancing,

                  (B) such new Subordinated Indebtedness is subordinated to
            the Notes to the same extent as such Subordinated Indebtedness so
            purchased, redeemed, acquired or retired and

                  (C) such new Subordinated Indebtedness has an Average Life
            longer than the Average Life of the Notes and a final Stated
            Maturity of principal later than the final Stated Maturity of
            principal of the Notes;

          (vi) the purchase, redemption or other acquisition or retirement
    for value of shares of Common Stock of the Company issued pursuant to
    options granted by the Company in order to pay withholding taxes due as
    a result of income recognized upon the exercise of such options;
    provided that:

                  (1) the Company is required, by the terms of such options,
            to effect such purchase, redemption or other acquisition or
            retirement for value of such shares and

                  (2) the aggregate consideration paid by the Company for such
            shares so purchased, redeemed or otherwise acquired or retired for
            value does not exceed $2,000,000 during any fiscal year of the
            Company; and

          (vii) repurchases of Capital Stock of the Company deemed to occur
    upon the cashless exercise of stock options and warrants of the Company.

The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a) (provided that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant
to such clause (i)) and the actions described in clauses (v) and (vii) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).

      (c) In computing Consolidated Adjusted Net Income of the Company under
paragraph (a) above:

          (1) the Company shall use audited financial statements for the
    portions of the relevant period for which audited financial statements
    are available on the date of determination and unaudited financial
    statements and other current financial data based on the books and
    records of the Company for the remaining portion of such period and

          (2) the Company shall be permitted to rely in good faith on the
    financial statements and other financial data derived from the books and
    records of the Company that are available on the date of determination.
    If the Company makes a Restricted Payment which, at the time of the
    making of such Restricted Payment would in the good faith determination
    of the Company be permitted under the requirements of the Indenture,
    such Restricted Payment shall be deemed to have been made in compliance
    with the Indenture notwithstanding any subsequent adjustments made in
    good faith to the Company's financial statements affecting Consolidated
    Adjusted Net Income of the Company for any period. (Section 1011)


                                      75
<PAGE>

      Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture provides that the Company:

          (i) will not permit any Restricted Subsidiary to issue any Capital
    Stock (other than to the Company or a Restricted Subsidiary) and

          (ii) will not permit any Person (other than the Company or a
    Restricted Subsidiary) to own any Capital Stock of any Restricted
    Subsidiary; provided, however, that this covenant shall not prohibit:

                  (1) the issuance and sale of all, but not less than all, of
            the issued and outstanding Capital Stock of any Restricted
            Subsidiary owned by the Company or any of its Restricted
            Subsidiaries in compliance with the other provisions of the
            Indenture, or

                  (2) the ownership by directors of director's qualifying
            shares or the ownership by foreign nationals of Capital Stock of
            any Restricted Subsidiary, to the extent mandated by applicable
            law. (Section 1012)

      Limitation on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction with, or for the benefit of,
any Affiliate of the Company or any beneficial owner of 5% or more of any class
of the Company's Capital Stock at any time outstanding ("Interested Persons"),
unless:

          (i) such transaction is among the Company and Restricted
    Subsidiaries or

          (ii) (A) such transaction is on terms that are no less favorable
    to the Company, or such Restricted Subsidiary, as the case may be, than
    those that could have been obtained in an arm's length transaction with
    third parties who are not Interested Persons and

          (B) (1) with respect to any transaction or series of related
    transactions involving the aggregate value in excess of $500,000, the
    Company delivers an Officer's Certificate to the Trustee certifying that
    such transaction or series of related transactions complies with clause
    (A) above and (2) with respect to any transaction or series of
    transactions involving aggregate value in excess of $2,500,000, either
    (i) such transaction or series of related transactions has been approved
    by a majority of the Disinterested Directors of the board of directors
    of the Company, or in the event there is only one Disinterested
    Director, by such Disinterested Director, or (ii) the Company delivers
    to the Trustee a written opinion of an investment banking firm of
    national standing or other recognized independent expert with experience
    appraising the terms and conditions of the type of transaction or series
    of related transactions for which an opinion is required stating that
    the transaction or series of related transactions is fair to the Company
    or Restricted Subsidiary from a financial point of view;

provided, however, that this covenant will not restrict the Company from paying
reasonable compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted Subsidiary.
(Section 1013)

      Limitation on Liens. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume or suffer to exist any Lien of any kind, except for
Permitted Liens, on or with respect to any of its property or assets, whether
owned at the date of the Indenture or thereafter acquired, or any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the case
of any other Lien, the Notes are equally and ratably secured. (Section 1014)

      Change of Control. Upon the occurrence of a Change of Control, the
Company shall be obligated to make an offer to purchase all of the then
outstanding Notes (a "Change of Control Offer"), and shall purchase, on a
business day (the "Change of Control Purchase Date") not more than 70 nor less
than 60 days following

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<PAGE>

the Change of Control, all of the then outstanding Notes validly tendered
pursuant to such Change in Control Offer, at a purchase price (the "Change of
Control Purchase Price") equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the Change of Control Purchase Date.
The Change of Control Offer is required to remain open for at least 20 Business
Days and until the close of business on the Change of Control Purchase Date.

      In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that Noteholders must follow to accept the Change of Control Offer.

      If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Noteholders
seeking to accept the Change of Control Offer. The Bank Credit Agreement
prohibits the purchase of the Notes by the Company prior to full repayment of
Indebtedness under the Bank Credit Agreement and the termination of the
commitments thereunder and, upon a Change of Control, all amounts outstanding
under the Bank Credit Agreement may become due and payable. There can be no
assurance that in the event of a Change of Control the Company will be able to
obtain the necessary consents from the lenders under the Bank Credit Agreement
to consummate a Change of Control Offer. The failure of the Company to make or
consummate the Change of Control Offer or pay the Change of Control Purchase
Price when due would result in an Event of Default and would give the Trustee
and the holders of the Notes the rights described under "--Events of Default."

      One of the events which constitutes a Change of Control under the
Indenture is the disposition of "all or substantially all" of the Company's
assets. This term has not been interpreted under New York law (which is the
governing law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event holders of the Notes elect to require the Company to
purchase the Notes and the Company elects to contest such election, there can
be no assurance as to how a court interpreting New York law would interpret the
phrase.

      The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.

      The definition of "Change of Control" in the Indenture is limited in
scope. The provisions of the Indenture may not afford holders of Notes the
right to require the Company to purchase such Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined
as a Change of Control and is otherwise in compliance with the covenants
contained in the Indenture. See "--Certain Definitions" for the definition of
"Change of Control."

      The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above. (Section 1015)

      Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless:

          (i) such Asset Sale is for not less than the fair market value of
    the assets sold (as determined by the Board of Directors of the Company,
    whose determination shall be conclusive and evidenced by a Board
    Resolution) and


                                       77
<PAGE>

          (ii) the consideration received by the Company or the relevant
    Restricted Subsidiary in respect of such Asset Sale consists of at least
    75% cash or Cash Equivalents; provided that the Company and its
    Restricted Subsidiaries may engage in Asset Sales for consideration not
    in the form of Cash Equivalents in amounts in excess of that permitted
    in this clause (ii), so long as (x) such excess consideration is in the
    form of Fully Traded Common Stock, (y) the aggregate fair market value
    of such Fully Traded Common Stock received by the Company and its
    Restricted Subsidiaries (measured as of the date of receipt) from all
    Asset Sales in reliance on this proviso since the date of the Indenture
    that has not been converted into cash or Cash Equivalents does not
    exceed $10,000,000 and (z) any Fully Traded Common Stock that is
    converted into cash or Cash Equivalents shall be applied as provided in
    paragraphs (b) and (c) of this "Limitation on Disposition of Proceeds of
    Asset Sales."

      (b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after such
Asset Sale, to (i) repay or prepay any then outstanding Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary (other than Subordinated
Indebtedness) or (ii) invest (or enter into a legally binding agreement to
invest) in properties and assets to replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
a Permitted Business. If any such legally binding agreement to invest such Net
Cash Proceeds is terminated, then the Company may, within 90 days of such
termination or within 12 months of such Asset Sale, whichever is later, invest
such Net Cash Proceeds as provided in clause (i) or (ii) (without regard to the
parenthetical contained in such clause (ii)) above. The amount of such Net Cash
Proceeds not so used as provided in any clauses (i) and (ii) above constitutes
"Excess Proceeds."

      (c) When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company shall, within 15 business days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes and from the holders of Pari Passu
Indebtedness, if any, to the extent required by the terms thereof, on a pro
rata basis, in accordance with the procedures set forth below, the maximum
principal amount (expressed as a multiple of $1,000) of Notes and Pari Passu
Indebtedness, if any, that may be purchased with the Excess Proceeds. The offer
price as to each Note and Pari Passu Indebtedness, if any, shall be payable in
cash in an amount equal to 100% of the principal amount of such Note and Pari
Passu Indebtedness, if any, plus accrued and unpaid interest, if any, to the
date such Excess Proceeds Offer is consummated. To the extent that the
aggregate principal amount of Notes and Pari Passu Indebtedness, if any,
tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds,
the Company may use such deficiency for general corporate purposes. If the
aggregate principal amount of Notes and Pari Passu Indebtedness, if any,
validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Notes and Pari Passu Indebtedness, if any, to be purchased will be
selected on a pro rata basis on the basis of the aggregate principal amount of
the tendered Notes and Pari Passu Indebtedness, if any. Upon completion of such
offer to purchase, the amount of Excess Proceeds shall be reset to zero.
(Section 1016)

      Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries. (a) The Indenture provides that the Company will not permit any
Restricted Subsidiary to guarantee the payment of any Indebtedness of the
Company or any Indebtedness of any other Restricted Subsidiary unless:

          (i) (A) such Restricted Subsidiary simultaneously executes and
    delivers a supplemental indenture to the Indenture providing for an
    unsubordinated Guarantee of payment of the Notes by such Restricted
    Subsidiary and (B) with respect to any guarantee of Subordinated
    Indebtedness by a Restricted Subsidiary, any such guarantee shall be
    subordinated to such Restricted Subsidiary's Guarantee with respect to
    the Notes at least to the same extent as such Subordinated Indebtedness
    is subordinated to the Notes;

          (ii) such Restricted Subsidiary waives and will not in any manner
    whatsoever claim or take the benefit or advantage of, any rights of
    reimbursement, indemnity or subrogation or any other rights against the
    Company or any other Restricted Subsidiary as a result of any payment by
    such Restricted Subsidiary under its Guarantee;

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<PAGE>

          (iii) such Restricted Subsidiary shall appoint CT Corporation in
    the City of New York as its agent for the service of process; and

          (iv) such Restricted Subsidiary shall deliver to the Trustee an
    Opinion of Counsel to the effect that (A) such appointment of CT
    Corporation is valid, (B) such Guarantee of the Notes has been duly
    executed and authorized and (C) such Guarantee of the Notes constitutes
    a valid, binding and enforceable obligation of such Restricted
    Subsidiary, except insofar as enforcement thereof may be limited by
    bankruptcy, insolvency or similar laws (including, without limitation,
    all laws relating to fraudulent transfers) and except insofar as
    enforcement thereof is subject to general principles of equity;

provided that this paragraph (a) shall not be applicable to any guarantee of
any Restricted Subsidiary that (x) existed at the time such Person became a
Restricted Subsidiary of the Company and (y) was not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary of
the Company; and provided further that the provisions of this paragraph (a)
shall not apply to the guarantee by any non-domestic Restricted Subsidiary of
the payment of any Indebtedness of any other non-domestic Restricted Subsidiary
that was permitted to be incurred by the Indenture.

      (b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Guarantee by a Restricted Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
the Indenture), (ii) the merger of such Restricted Subsidiary into the Company
or a Restricted Subsidiary (provided the surviving Restricted Subsidiary
assumes the Guarantee) or the liquidation and dissolution of such Restricted
Subsidiary (in each case to the extent not prohibited by the Indenture) or
(iii) the release or discharge of the guarantee which resulted in the creation
of such Guarantee, except a discharge or release by or as a result of payment
under such guarantee. (Section 1017)

      Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends,
in cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make loans or advances to the Company or any other
Restricted Subsidiary, (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary or (e) guarantee any Indebtedness of
the Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary, (iii) any agreement or other instrument
of a Person acquired by the Company or any Restricted Subsidiary in existence
at the time of such acquisition (but not created in contemplation thereof),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property or
assets of the Person, so acquired (vi) encumbrances or restrictions under the
Bank Credit Agreement as such agreement existed on the Closing Date, or (v) any
agreement providing for the incurrence of Indebtedness of Restricted
Subsidiaries pursuant to either clause (x) of paragraph (b) of the "Limitation
on Indebtedness" covenant or clause (vii) of the definition of Permitted
Subsidiary Indebtedness; provided that any Restricted Subsidiary that becomes
subject to any such encumbrances or restrictions pursuant to this clause (iv)
shall Guarantee the Notes. (Section 1018)

      Restriction on Transfer of Assets to Subsidiaries. The Indenture provides
that the Company will not sell, convey, transfer or otherwise dispose of its
assets or property to any of its Subsidiaries that are not Guarantors, except
for sales, conveyances, transfers or other dispositions (a) of assets or
property having an aggregate fair market value no greater than $5,000,000 made
after the date of the Indenture and in the ordinary course of business; or (b)
of assets or property having a fair market value not in excess of the amount of
Investments (other than Permitted Investments) then permitted to be made
pursuant to the "Limitation on Restricted Payments" covenant. The amount of any
sale, conveyance, transfer or other disposition permitted

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pursuant to clause (b) of this covenant will be treated as the payment of a
Restricted Payment in calculating the amount of Restricted Payments made by the
Company. (Section 1019)

      Reports. The Indenture requires that the Company must file on a timely
basis with the Commission, to the extent such filings are accepted by the
Commission and whether or not the Company has a class of securities registered
under the Exchange Act, the annual reports, quarterly reports and other
documents that the Company would be required to file if it were subject to
Section 13 or 15 of the Exchange Act. The Company is also required (a) to file
with the Trustee, and provide to each holder of Notes, without cost to such
holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
(Section 1009)

Merger, Consolidation and Sale of Assets, etc.

      The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets as an entirety
to, any Person or Persons, and the Company will not permit any Restricted
Subsidiary to enter into any such transaction or series of transactions if such
transaction or series of transactions, in the aggregate, would result in a
sale, assignment, transfer, lease or other disposition of all or substantially
all of the properties and assets of the Company and its Restricted Subsidiaries
on a consolidated basis to any other Person or Persons, unless at the time and
after giving effect thereto (i) either (A) if the transaction or transactions
is a merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (B) the Person formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or to which the
properties and assets of the Company or such Restricted Subsidiary, as the case
may be, substantially as an entirety, are sold, assigned, transferred, leased
or otherwise disposed of (any such surviving Person or transferee Person being
the "Surviving Entity") shall be a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture, and, in each
case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing and the Company or the Surviving
Entity, as the case may be, after giving effect to such transaction or series
of transactions on a pro forma basis, could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant; and (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Consolidated
Net Worth of the Company or the Surviving Entity, as the case may be, is at
least equal to the Consolidated Net Worth of the Company immediately before
such transaction or series of transactions. (Section 801)

      In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with.

      Upon any consolidation or merger or any sale, assignment, transfer, lease
or other disposition of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not

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the continuing corporation, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named as the Company therein, and thereafter the Company, except in the case of
a lease, will be discharged from all obligations and covenants under the
Indenture and the Notes.

Events of Default

      The following are "Events of Default" under the Indenture:

          (i) default in the payment of the principal of or premium, if any,
    when due and payable, on any of the Notes; or

          (ii) default in the payment of an installment of interest on any
    of the Notes, when due and payable, for 30 days; or

          (iii) default in the performance or breach of the provisions of
    the "Merger, Consolidation and Sale of Assets" section of the Indenture,
    the failure to make or consummate a Change in Control Offer in
    accordance with the provisions of the "Change in Control" covenant or
    the failure to make or consummate an Excess Proceeds Offer in accordance
    with the provisions of the "Limitation on Disposition of Proceeds of
    Asset Sales" covenant; or

          (iv) the Company or any Guarantor shall fail to perform or observe
    any other term, covenant or agreement contained in the Notes, any
    Guarantee or the Indenture (other than a default specified in (i), (ii)
    or (iii) above) for a period of 30 days after written notice of such
    failure requiring the Company to remedy the same shall have been given
    (x) to the Company by the Trustee or (y) to the Company and the Trustee
    by the holders of 25% in aggregate principal amount of the Notes then
    outstanding; or

          (v) default or defaults under one or more mortgages, bonds,
    debentures or other evidences of Indebtedness under which the Company or
    any Significant Subsidiary then has outstanding Indebtedness in excess
    of $5,000,000, individually or in the aggregate, and either (a) such
    Indebtedness is already due and payable in full or (b) such default or
    defaults have resulted in the acceleration of the maturity of such
    Indebtedness; or

          (vi) one or more final judgments, orders or decrees of any court
    or regulatory or administrative agency of competent jurisdiction for the
    payment of money in excess of $5,000,000, either individually or in the
    aggregate, shall be entered against the Company or any of its
    Significant Subsidiaries or any of their respective properties and shall
    not be discharged or fully bonded and there shall have been a period of
    60 days after the date on which any period for appeal has expired and
    during which a stay of enforcement of such judgment, order or decree
    shall not be in effect; or

          (vii) (A) any holder of at least $5,000,000 in aggregate principal
    amount of secured Indebtedness of the Company or of any Significant
    Subsidiary as to which a default has occurred and is continuing shall
    commence judicial proceedings (which proceedings shall remain unstayed
    for 5 Business Days) to foreclose upon assets of the Company or any
    Significant Subsidiary having an aggregate Fair Market Value,
    individually or in the aggregate, in excess of $5,000,000 or shall have
    exercised any right under applicable law or applicable security
    documents to take ownership of any such assets in lieu of foreclosure or
    (B) any action described in the foregoing clause (A) shall result in any
    court of competent jurisdiction issuing any order for the seizure of
    such assets; or

          (viii) any Guarantee ceases to be in full force and effect or is
    declared null and void or any Guarantor denies that it has any further
    liability under any Guarantee, or gives notice to such effect (other
    than by reason of the termination of the Indenture or the release of any
    such Guarantee in accordance with the Indenture) and such condition
    shall have continued for a period of 30 days after written notice of
    such failure requiring the Guarantor and the Company to remedy the same
    shall have

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    been given (x) to the Company by the Trustee or (y) to the Company and
    the Trustee by the holders of 25% in aggregate principal amount of the
    Notes then outstanding; or

          (ix) the occurrence of certain events of bankruptcy, insolvency or
    reorganization with respect to the Company or any Significant
    Subsidiary.

      If an Event of Default (other than as specified in clause (ix) above)
shall occur and be continuing, the Trustee, by notice to the Company, or the
holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Company, may declare the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes due and payable immediately, upon which declaration all amounts payable
in respect of the Notes shall be immediately due and payable. If an Event of
Default specified in clause (ix) above occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
(Section 502)

      After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may
rescind such declaration if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Notes, (iii) the principal of and premium, if any, on any Notes which
have become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, and (iv) to the extent that payment of
such interest is lawful, interest upon overdue interest and overdue principal
at the rate borne by the Notes which has become due otherwise than by such
declaration of acceleration; (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the nonpayment of principal of, premium, if any, and
interest on the Notes that has become due solely by such declaration of
acceleration, have been cured or waived. (Section 502)

      The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding. (Section 513)

      No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note. (Section 507 and 508)

      During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights
or powers under the Indenture at the request or direction of any of the
Noteholders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the

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Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
(Sections 512 and 602)

      If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of
the Default or Event of Default within 5 days after the occurrence thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its Trust Officers in
good faith determines that withholding the notice is in the interest of the
Noteholders. (Section 601)

      The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten days
of any Default.

Defeasance or Covenant Defeasance of Indenture

      The Company may, at its option and at any time, terminate the obligations
of the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and any Guarantor with respect to certain
covenants that are set forth in the Indenture, some of which are described
under "Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes ("covenant defeasance").

      In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred (in the case of defeasance,
such opinion must refer to and be based upon a published ruling of the Internal
Revenue Service or a change in applicable federal income tax laws since the
Closing Date); (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (iv) such defeasance or covenant
defeasance shall not cause the Trustee to have a conflicting interest with
respect to any securities of the Company or any Guarantor; (v) such defeasance
or covenant defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vi) the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and (vii) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel satisfactory to the Trustee, which, taken together, state that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with. (Section 1204)

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Satisfaction and Discharge

     The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when:

         (x) either (a) all the Notes theretofore authenticated and delivered
    (except lost, stolen or destroyed Notes which have been replaced or paid
    and Notes for whose payment money has theretofore been deposited in trust
    or segregated and held in trust by the Company and thereafter repaid to
    the Company or discharged from such trust) have been delivered to the
    Trustee for cancellation or (b) all Notes not theretofore delivered to
    the Trustee for cancellation have (x) become due and payable, (y) will
    become due and payable at their Stated Maturity within one year, or (z)
    are to be called for redemption within one year under arrangements
    satisfactory to the Trustee for the giving of notice, and the Company or
    any Guarantor has irrevocably deposited or caused to be deposited with
    the Trustee funds in an amount sufficient to pay and discharge the entire
    Indebtedness on the Notes not theretofore delivered to the Trustee for
    cancellation, for principal of, premium, if any, and interest on the
    Notes to the date of deposit together with irrevocable instructions from
    the Company directing the Trustee to apply such funds to the payment
    thereof at maturity or redemption, as the case may be;

         (xi) the Company has paid all other sums payable under the Indenture
    by the Company; and

         (xii) the Company has delivered to the Trustee an Officers'
    Certificate and an Opinion of Counsel satisfactory to the Trustee, which,
    taken together, state that all conditions precedent under the Indenture
    relating to the satisfaction and discharge of the Indenture have been
    complied with. (Section 401)

Amendments and Waivers

     From time to time, the Company and the Trustee may, without the consent
of the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act of 1939, or making any change that
does not adversely affect the rights of any Noteholder, provided, however,
that the Company has delivered to the Trustee an Opinion of Counsel stating
that such change does not adversely affect the rights of any Noteholder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided
however, that no such modification or amendment may, without the consent of
the holder of each outstanding Note affected thereby, (i) reduce the principal
amount of, extend the fixed maturity of or alter the redemption provisions of,
the Notes, (ii) change the currency in which any Notes or any premium or the
interest thereon is payable, (iii) reduce the percentage in principal amount
of outstanding Notes that must consent to an amendment, supplement or waiver
or consent to take any action under the Indenture or the Notes, (iv) impair
the right to institute suit for the enforcement of any payment on or with
respect to the Notes, (v) waive a default in payment with respect to the
Notes, (vi) alter the Company's obligation to purchase the Notes in accordance
with the Indenture or waive any default in the performance thereof, (vii)
reduce or change the rate or time for payment of interest on the Notes, or
(viii) release any Guarantor from any of its obligations under its Guarantee
or the Indenture other than in accordance with the terms of the Indenture.
(Sections 901 and 902)

The Trustee

     The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default

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has occurred and is continuing, the Trustee will exercise such rights and
powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent Person would exercise under the
circumstances in the conduct of such Person's own affairs. (Section 602)

      The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined), it must eliminate such conflict
or resign.

Governing Law

      The Indenture and the Notes will be governed by the laws of the State of
New York, without regard to the principles of conflicts of law.

Certain Definitions

      "Acquired Indebtedness" means Indebtedness of a Person

          (a) assumed in connection with an Asset Acquisition from such
    Person or

          (b) existing at the time such Person becomes a subsidiary of any
    other Person (other than any Indebtedness incurred in connection with,
    or in contemplation of, such Asset Acquisition or such Person becoming
    such a subsidiary).

      "Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person.

      "Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any such Person shall be merged with or into
the Company or any Restricted Subsidiary or (b) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute all
or substantially all of the assets of such Person or any division or line of
business of such Person.

      "Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or a Restricted
Subsidiary, in one or a series of related transactions, of:

          (a) any Capital Stock of any Restricted Subsidiary held by the
    Company or any Restricted Subsidiary;

          (b) all or substantially all of the properties and assets of any
    division or line of business of the Company or any Restricted
    Subsidiary; or

          (c) any other properties or assets of the Company or any
    Restricted Subsidiary other than in the ordinary course of business.

      For the purposes of this definition, the term "Asset Sale" shall not
include any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets:

          (i) that is governed by the provisions of the Indenture governing
    "Merger, Consolidation and Sale of Assets,"

          (ii) to an Unrestricted Subsidiary, if permitted under the
    "Limitation on Restricted Payments" covenant or

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          (iii) having a fair market value of less than $500,000 in any
    transaction or series of related transactions.

      "Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing

          (a) the sum of the products of (i) the number of years from such
    date to the date or dates of each successive scheduled principal payment
    (including, without limitation, any sinking fund requirements) of such
    Indebtedness multiplied by (ii) the amount of each such principal
    payment by

          (b) the sum of all such principal payments.

      "Bank Credit Agreement" means 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 as of June 15,
2001, among the Company and the Banks as in effect on June 19, 2001, and as
such Agreement may be amended, restated, renewed, extended, supplemented,
replaced, substituted, refinanced or otherwise modified from time to time.

      "Banks" means the banks and other financial institutions from time to
time that are lenders under the Bank Credit Agreement.

      "Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.

      "Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof
at such date, determined in accordance with GAAP.

      "Cash Equivalents" means:

          (i) any evidence of Indebtedness with a maturity of 180 days or
    less issued or directly and fully guaranteed or insured by the United
    States of America or any agency or instrumentality thereof (provided
    that the full faith and credit of the United States of America is
    pledged in support thereof);

          (ii) certificates of deposit or acceptances with a maturity of 180
    days or less of any financial institution that is a member of the
    Federal Reserve System having combined capital and surplus and undivided
    profits of not less than $500,000,000; and

          (iii) commercial paper with a maturity of 180 days or less issued
    by a corporation that is not an Affiliate of the Company and is
    organized under the laws of any state of the United States or the
    District of Columbia and rated at least A-1 by S&P or at least P-1 by
    Moody's.

      "Change of Control" means the occurrence of any of the following events:

          (a) any "person" or "group" (as such terms are used in Sections
    13(d) and 14(d) of the Exchange Act) is or becomes the ultimate
    "beneficial owner" (as defined in Rules 13d-3 and 13d-5

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<PAGE>

    under the Exchange Act, except that a Person shall be deemed to have
    "beneficial ownership" of all securities that such Person has the right
    to acquire, whether such right is exercisable immediately or only after
    the passage of time), directly or indirectly, of more than 40% of the
    total Voting Stock of the Company;

          (b) the Company consolidates with, or merges with or into, another
    Person or sells, assigns, conveys, transfers, leases or otherwise
    disposes of all or substantially all of its assets to any Person, or any
    Person consolidates with, or merges with or into, the Company, in any
    such event pursuant to a transaction in which the outstanding Voting
    Stock of the Company is converted into or exchanged for cash, securities
    or other property, other than any such transaction

                  (i) where the outstanding Voting Stock of the Company is
            converted into or exchanged for

                        (1) Voting Stock (other than Redeemable Capital Stock)
                  of the surviving or transferee corporation or a corporation
                  in control of such surviving or transferee corporation or

                        (2) cash, securities and other property in an amount
                  that could be paid by the Company as a Restricted Payment
                  under the Indenture and

                  (ii) immediately after such transaction no "person" or
            "group" (as such terms are used in Sections 13(d) and, 14(d) of
            the Exchange Act) is the ultimate "beneficial owner" (as defined
            in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
            Person shall be deemed to have "beneficial ownership" of all
            securities that such Person has the right to acquire, whether such
            right is exercisable immediately or only after the passage of
            time), directly or indirectly, of more than 40% of the total
            Voting Stock of the surviving or transferee corporation or of a
            corporation in control of such surviving or transferee
            corporation; or

          (c) during any consecutive two-year period, individuals who at the
    beginning of such period constituted the Board of Directors of the
    Company (together with any new directors whose election by such Board of
    Directors or whose nomination for election by the stockholders of the
    Company was approved by a vote of 66 2/3% of the directors then still in
    office who were either directors at the beginning of such period or
    whose election or nomination for election was previously so approved)
    cease for any reason to constitute a majority of the Board of Directors
    of the Company then in office.

      "Closing Date" means June 19, 2001.

      "Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or if at any time after
the execution of the Indenture such Commission is not existing and performing
the duties now assigned to it under the Securities Act, Exchange Act and Trust
Indenture Act then the body performing such duties at such time.

      "Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however,
designated and whether voting or nonvoting) of, such Person's common stock,
whether outstanding at the Closing Date, and includes, without limitation, all
series and classes of such common stock.

      "Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted
by excluding

          (a) net after-tax extraordinary gains or losses (less all fees and
    expenses relating thereto),


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          (b) net after-tax gains or losses (less all fees and expenses
    relating thereto) attributable to asset dispositions,

          (c) the net income (or net loss) of any Person (other than the
    Company or a Restricted Subsidiary), including Unrestricted
    Subsidiaries, in which the Company or any of its Restricted Subsidiaries
    has an ownership interest, except to the extent of the amount of
    dividends or other distributions actually paid to the Company or its
    Restricted Subsidiaries in cash by such other Person during such period,

          (d) net income (or net loss) of any Person combined with the
    Company or any of its Restricted Subsidiaries on a "pooling of
    interests" basis attributable to any period prior to the date of
    combination, and

          (e) the net income of any Restricted Subsidiary to the extent that
    the declaration or payment of dividends or similar distributions by that
    Restricted Subsidiary is not at the date of determination permitted,
    directly or indirectly, by operation of the terms of its charter or any
    agreement, instrument, judgment, decree, order, statute, rule or
    governmental regulation applicable to that Restricted Subsidiary or its
    stockholders.

      "Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of:

          (a) the sum of Consolidated Adjusted Net Income, Consolidated
    Interest Expense, Consolidated Income Tax Expense and Consolidated Non-
    cash Charges, in each case, for such period, of the Company and its
    Restricted Subsidiaries on a consolidated basis, all determined in
    accordance with GAAP, to

          (b) the sum of such Consolidated Interest Expense for such period;
    provided that (i) in making such computation, the Consolidated Interest
    Expense attributable to interest on any Indebtedness computed on a pro
    forma basis and bearing a floating interest rate shall be computed as if
    the rate in effect on the date of computation had been the applicable
    rate for the entire period, (ii) in making such computation, the
    Consolidated Interest Expense attributable to interest on any
    Indebtedness under a revolving credit facility computed on a pro forma
    basis shall be computed based upon the average daily balance of such
    Indebtedness during the applicable period, and (iii) notwithstanding
    clauses (i) and (ii) above, interest on Indebtedness determined on a
    fluctuating basis, to the extent such interest is covered by agreements
    relating to Interest Rate Protection Obligations, shall be deemed to
    have accrued at the rate per annum resulting after giving effect to the
    operation of such agreements.

      "Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.

      "Consolidated Interest Expense" means, for any period, without
duplication, the sum of:

          (i) the interest expense of the Company and its Restricted
    Subsidiaries for such period as determined on a consolidated basis in
    accordance with GAAP, including, without limitation,

                  (a) any amortization of debt discount,

                  (b) the net cost under Interest Rate Protection Obligations
            (including any amortization of discounts),

                  (c) the interest portion of any deferred payment obligation,

                  (d) all commissions, discounts and other fees and charges
            owed with respect to letters of credit and bankers' acceptance
            financing and

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<PAGE>

                  (e) all accrued interest,

          (ii) the interest expense on Indebtedness of any Person (other
    than the Company or any Restricted Subsidiary) guaranteed by the Company
    or any Restricted Subsidiary,

          (iii) the interest component of Capitalized Lease Obligations
    paid, accrued and/or scheduled to be paid or accrued by the Company and
    its Restricted Subsidiaries during such period as determined on a
    consolidated basis in accordance with GAAP and

          (iv) the aggregate dividends paid or accrued, without duplication,
    (other than dividends paid in Common Stock of the Company) on Preferred
    Stock of the Company, to the extent such Preferred Stock is owned by
    Persons other than the Company's Restricted Subsidiaries.

      "Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.

      "Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and its
Restricted Subsidiaries reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).

      "Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.

      "Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.

      "domestic Restricted Subsidiary" means any Restricted Subsidiary that was
formed under the laws of the United States or any state thereof or dependency
thereof or the District of Columbia.

      "Event of Default" has the meaning set forth under "Events of Default"
herein.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated by the
Commission thereunder.

      "Exchange Notes" means the Notes issued pursuant to the Exchange Offer.

      "Exchange Offer" means the exchange offer that may be effected pursuant
to the Registration Rights Agreement.

      "Fully Traded Common Stock" means Common Stock issued by any corporation
if:

          (A) such Common Stock is listed on either The New York Stock
    Exchange, The American Stock Exchange or The London Stock Exchange or is
    included for trading privileges in the National Market System of the
    National Association of Securities Dealers Automated Quotation System;
    provided that such Common Stock is freely tradeable under the Securities
    Act (or, in the case of The London Stock Exchange, any applicable law,
    rule or regulation) upon issuance; and

          (B) such Common Stock does not constitute more than 15% of the
    issued and outstanding Common Stock of such corporation held by Persons
    other than 10% holders of such Common Stock and Affiliates and insiders
    of such corporation.

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<PAGE>

      "GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States of America, which are applicable as of the Closing Date.

      "guarantee" means, as applied to any obligation:

          (i) a guarantee (other than by endorsement of negotiable
    instruments for collection in the ordinary course of business), direct
    or indirect, in any manner, of any part or all of such obligation and

          (ii) an agreement, direct or indirect, contingent or otherwise,
    the practical effect of which is to assure in any way the payment or
    performance (or payment of damages in the event of non-performance) of
    all or any part of such obligation, including, without limiting the
    foregoing, the payment of amounts drawn down by letters of credit.

      "Guarantee" means any guarantee of the Notes by any Restricted Subsidiary
in accordance with the provisions of the Indenture. When used as a verb,
"Guarantee" shall have a corresponding meaning.

      "Guarantor" means each Restricted Subsidiary that executes the Indenture
and any other Restricted Subsidiary that incurs a Guarantee, provided that upon
the release and discharge of any Person from its Guarantor in accordance with
the Indenture, such person shall cease to be a Guarantor.

      "Indebtedness" means, with respect to any Person, without duplication:

          (a) all liabilities of such Person for borrowed money or for the
    deferred purchase price of property or services, excluding any trade
    payables and other accrued current liabilities incurred in the ordinary
    course of business, but including, without limitation, all obligations,
    contingent or otherwise, of such Person in connection with any letters
    of credit, bankers' acceptance or other similar credit transaction and
    in connection with any agreement to purchase, redeem, exchange, convert
    or otherwise acquire for value any Capital Stock of such Person, or any
    warrants, rights or options to acquire such Capital Stock, now or
    hereafter outstanding, if, and to the extent, any of the foregoing would
    appear as a liability upon a balance sheet of such Person prepared in
    accordance with GAAP,

          (b) all obligations of such Person evidenced by bonds, notes,
    debentures or other similar instruments, if, and to the extent, any of
    the foregoing would appear as a liability upon a balance sheet of such
    Person prepared in accordance with GAAP,

          (c) all indebtedness of such Person created or arising under any
    conditional sale or other title retention agreement with respect to
    property acquired by such Person (even if the rights and remedies of the
    seller or lender under such agreement in the event of default are
    limited to repossession or sale of such property), but excluding trade
    accounts payable arising in the ordinary course of business,

          (d) all Capitalized Lease Obligations of such Person,

          (e) all Indebtedness referred to in the preceding clauses of other
    Persons and all dividends of other Persons, the payment of which is
    secured by (or for which the holder of such Indebtedness has an existing
    right, contingent or otherwise, to be secured by) any Lien upon property
    (including, without limitation, accounts and contract rights) owned by
    such Person, even though such Person has not assumed or become liable
    for the payment of such Indebtedness (the amount of such obligation
    being deemed to be the lesser of the value of such property or asset or
    the amount of the obligation so secured),

          (f) all guarantees by such Person of Indebtedness referred to in
    this definition,


                                       90
<PAGE>

          (g) all Redeemable Capital Stock of such Person valued at the
    greater of its voluntary or involuntary maximum fixed repurchase price
    plus accrued dividends,

          (h) all obligations of such Person under or in respect of currency
    exchange contracts and Interest Rate Protection Obligations, and

          (i) any amendment, supplement, modification, deferral, renewal,
    extension or refunding of any liability of such Person of the types
    referred to in clauses (a) through (h) above.

For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.

      "Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.

      "Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. "Investments" shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.

      "Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.

      "Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.

      "Moody's" means Moody's Investors Service, Inc. and its successors.

      "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company), net
of:

          (i) brokerage commissions and other fees and expenses (including
    fees and expenses of legal counsel and investment banks) related to such
    Asset Sale,

          (ii) provisions for all taxes payable as a result of such Asset
    Sale,


                                       91
<PAGE>

          (iii) amounts required to be paid to any Person (other than the
    Company or any Restricted Subsidiary) owning a beneficial interest in
    the assets subject to the Asset Sale, and

          (iv) amounts to be provided by the Company or any Restricted
    Subsidiary, as the case may be, as a reserve established in accordance
    with GAAP consistently applied against any liabilities associated with
    such Asset Sale and retained by the Company or any Restricted
    Subsidiary, as the case may be, after such Asset Sale, including,
    without limitation, pension and other post-employment benefit
    liabilities, liabilities related to environmental matters and
    liabilities under any indemnification obligations associated with such
    Asset Sale, all as reflected in an Officers' Certificate delivered to
    the Trustee.

      "Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and of
transfer of the Notes.

      "Pari Passu Indebtedness" means Indebtedness of the Company which is,
pari passu with the Notes and, with respect to any Guarantee, Indebtedness
which is pari passu with such Guarantee.

      "Permitted Business" means any business conducted by the Company or its
Restricted Subsidiaries, as the case may be, on the Closing Date and any other
businesses reasonably related or ancillary thereto.

      "Permitted Indebtedness" means any of the following:

          (i) Indebtedness of the Company under the Bank Credit Agreement in
    an aggregate principal amount not to exceed $95 million at any one time
    outstanding;

          (ii) Indebtedness of the Company under the Notes;

          (iii) Indebtedness of the Company outstanding on the date of the
    Indenture (other than under the Bank Credit Agreement) as evidenced on a
    certificate provided by the Company on the Closing Date;

          (iv) obligations of the Company pursuant to Interest Rate
    Protection Obligations, which obligations do not exceed the aggregate
    principal amount of the Indebtedness covered by such Interest Rate
    Protection Obligations and obligations under currency exchange contracts
    entered into in the ordinary course of business;

          (v) Indebtedness of the Company to any Restricted Subsidiaries;
    provided that any disposition, pledge or transfer of any such
    Indebtedness to a Person (other than a disposition, pledge or transfer
    to a Restricted Subsidiary) shall be deemed to be an incurrence of such
    Indebtedness by the Company or other obligor not permitted by this
    clause (v);

          (vi) Indebtedness of the Company consisting of guarantees,
    indemnities or obligations in respect of purchase price adjustments in
    connection with the acquisition or disposition of assets, including,
    without limitation, shares of Capital Stock of Restricted Subsidiaries;

          (vii) letters of credit in the amount not to exceed $6,500,000 at
    any one time outstanding, all or a portion of which may be incurred
    under the Bank Credit Agreement, in addition to the amount permitted to
    be incurred under the Bank Credit Agreement pursuant to clauses (i) and
    (x) of this definition;

          (viii) any renewals, extensions, substitutions, refinancings or
    replacements (each, for purposes of this clause, a "refinancing") by the
    Company of any Indebtedness of the Company other than Indebtedness
    incurred pursuant to clauses (i), (iv), (v), (vi), (vii) and (ix) or (x)
    of this definition, including any successive refinancings by the
    Company, so long as (A) any such new Indebtedness shall be in a
    principal amount that does not exceed the principal amount (or, if such
    Indebtedness

                                       92
<PAGE>

    being refinanced provides for an amount less than the principal amount
    thereof to be due and payable upon a declaration of acceleration
    thereof, such lesser amount as of the date of determination) so
    refinanced plus the amount of any premium required to be paid in
    connection with such refinancing pursuant to the terms of the
    Indebtedness refinanced or the amount of any premium reasonably
    determined by the Company as necessary to accomplish such refinancing,
    plus the amount of expenses of the Company incurred in connection with
    such refinancing, (B) in the case of any refinancing of Subordinated
    Indebtedness, such new Indebtedness is made subordinate to the Notes at
    least to the same extent as the Indebtedness being refinanced and (C)
    such new Indebtedness has an Average Life longer than the Average Life
    of the Notes and a final Stated Maturity later than the final Stated
    Maturity of the Notes;

          (ix) Indebtedness of the Company or any Guarantor represented by
    Capitalized Lease Obligations or Purchase Money Obligations or other
    Indebtedness incurred or assumed in connection with the acquisition or
    development of real or personal, movable or immovable, property in each
    case incurred for the purpose of financing or refinancing all or any
    part of the purchase price or cost of construction or improvement of
    property used in the business of the Company or such Guarantor, as the
    case may be, in an aggregate principal amount pursuant to this clause
    (ix) not to exceed $10,000,000 outstanding at any time; provided that
    the principal amount of any Indebtedness permitted under this clause
    (ix) did not in each case at the time of incurrence exceed the Fair
    Market Value, as determined by the Company in good faith, of the
    acquired or constructed asset or improvement so financed; and

          (x) Indebtedness in an aggregate principal amount not in excess of
    $30,000,000 at any one time outstanding, less the amount of Permitted
    Subsidiary Indebtedness then outstanding pursuant to clause (vii) of the
    definition thereof. All or a portion of the Permitted Indebtedness
    referred to in this clause (x) may be incurred under the Bank Credit
    Agreement, in addition to the amounts permitted to be incurred under the
    Bank Credit Agreement pursuant to clauses (i) and (vii) of this
    definition.

      "Permitted Investments" means any of the following:

          (i) Investments in Cash Equivalents;

          (ii) Investments in the Company or any Restricted Subsidiary;

          (iii) Investments in an amount not to exceed $10,000,000 at any
    one time outstanding;

          (iv) Investments by the Company or any Restricted Subsidiary in
    another Person, if as a result of such Investment:

                  (A)  such other Person becomes a Restricted Subsidiary or

                  (B) such other Person is merged or consolidated with or
            into, or transfers or conveys all or substantially all of its
            assets to, the Company or a Restricted Subsidiary; or

          (v) Investments in joint ventures engaged in a Permitted Business
    not in excess of $10,000,000 at any one time outstanding.

      "Permitted Liens" means the following types of Liens:

          (a)  Liens existing as of the Closing Date;

          (b) Liens securing the Notes;

          (c) Liens in favor of the Company;

          (d) Liens securing Indebtedness of the Company under the Bank
    Credit Agreement;


                                       93
<PAGE>

         (e) Liens for taxes, assessments and governmental charges or claims
    either (i) not delinquent or (ii) contested in good faith by appropriate
    proceedings and as to which the Company or its Restricted Subsidiaries
    shall have set aside on its books such reserves as may be required
    pursuant to GAAP;

         (f) statutory Liens of landlords and Liens of carriers,
    warehousemen, mechanics, suppliers, materialmen, repairmen and other
    Liens imposed by law incurred in the ordinary course of business for sums
    not delinquent or being contested in good faith, if such reserve or other
    appropriate provision, if any, as shall be required by GAAP shall have
    been made in respect thereof;

         (g) Liens incurred or deposits made in the ordinary course of
    business in connection with workers' compensation, unemployment insurance
    and other types of social security, or to secure the performance of
    tenders, statutory obligations, surety and appeal bonds, bids, leases,
    government contracts, performance and return-of-money bonds and other
    similar obligations (exclusive of obligations for the payment of borrowed
    money);

         (h) judgment Liens not giving rise to an Event of Default so long as
    any appropriate legal proceedings which may have been duly initiated for
    the review of such judgment shall not have been finally terminated or the
    period within which such proceeding may be initiated shall not have
    expired;

         (i) easements, rights-of-way, restrictions and other similar charges
    or encumbrances not interfering in any material respect with the ordinary
    conduct of the business of the Company or any of its Restricted
    Subsidiaries;

         (j) any interest or title of a lessor under any Capitalized Lease
    Obligation or operating lease;

         (k) purchase money Liens; provided, however, that (i) the related
    purchase money Indebtedness shall not be secured by any property or
    assets of the Company or any Restricted Subsidiary other than the
    property and assets so acquired and (ii) the Lien securing such
    Indebtedness shall be created (A) in the case of any Asset Acquisition,
    within 180 days of the closing of such Asset Acquisition and (B) in all
    other cases, in the ordinary course of business within 90 days of such
    acquisition;

         (l) Liens in favor of customs and revenue authorities arising as a
    matter of law to secure payment of custom duties in connection with the
    importation of goods;

         (m) Liens upon specific items of inventory or other goods and
    proceeds of any Person securing such Person's obligations in respect of
    bankers' acceptances issued or created for the account of such Person to
    facilitate the purchase, shipment or storage of such inventory or other
    goods;

         (n) Liens securing reimbursement obligations with respect to
    commercial letters of credit which encumber documents and other property
    relating to such letters of credit and products and proceeds thereof;

         (o) Liens encumbering property or assets under construction arising
    from progress or partial payments by a customer of the Company or its
    Restricted Subsidiaries relating to such property or assets;

         (p) Liens encumbering deposits made to secure obligations arising
    from statutory, regulatory, contractual or warranty requirements of the
    Company or any of its Restricted Subsidiaries, including rights of offset
    and set-off;

         (q) Liens securing Interest Rate Protection Obligations which
    Interest Rate Protection Obligations relate to Indebtedness that is
    secured by Liens otherwise permitted under this Indenture; and

         (r) Liens securing an aggregate of $30,000,000 of Indebtedness
    permitted to be incurred under the Indenture by the Company and any
    Restricted Subsidiary.


                                      94
<PAGE>

      "Permitted Subsidiary Indebtedness" means any of the following:

          (i) Indebtedness of any Restricted Subsidiary outstanding on the
    date of the Indenture;

          (ii) obligations of any Restricted Subsidiary pursuant to Interest
    Rate Protection Obligations, which obligations do not exceed the
    aggregate principal amount of the Indebtedness covered by such Interest
    Rate Protection Obligations;

          (iii) Indebtedness of any Restricted Subsidiary to any Restricted
    Subsidiary or to the Company, provided that any disposition, pledge or
    transfer of any Indebtedness to a Person (other than a disposition,
    pledge or transfer to a Restricted Subsidiary or to the Company) shall
    be deemed to be an incurrence of such Indebtedness by the obligor not
    permitted by this clause (iii);

          (iv) Indebtedness of any Restricted Subsidiary consisting of
    guaranties, indemnities or obligations in respect of purchase price
    adjustments in connection with the acquisition or disposition of assets,
    including, without limitation, shares of Capital Stock of Restricted
    Subsidiaries;

          (v) any renewals, extensions, substitutions, refinancings or
    replacements (each, for purposes of this clause, a "refinancing") by any
    Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary
    other than Indebtedness incurred pursuant to clauses (ii), (iii), (iv)
    and (vii) of this definition, including any successive refinancings by
    such Restricted Subsidiary, so long as (x) any such new Indebtedness
    shall be in a principal amount that does not exceed the principal amount
    (or, if such Indebtedness being refinanced provides for an amount less
    than the principal amount thereof to be due and payable upon a
    declaration of acceleration thereof, such lesser amount as of the date
    of determination) so refinanced plus the amount of any premium required
    to be paid in connection with such refinancing pursuant to the terms of
    the Indebtedness refinanced or the amount of any premium reasonably
    determined by such Restricted Subsidiary as necessary to accomplish such
    refinancing, plus the amount of expenses of such Restricted Subsidiary
    incurred in connection with such refinancing and (y) such new
    Indebtedness has an Average Life longer than the Average Life of the
    Notes and a final Stated Maturity later than the final Stated Maturity
    of the Notes;

          (vi) Indebtedness (as defined in clauses (e) and (f) of the
    definition of Indebtedness) to the Noteholders incurred pursuant to
    provisions of the Indenture;

          (vii) Indebtedness in an amount not to exceed $30,000,000 at any
    one time outstanding, less the amount of Permitted Indebtedness then
    outstanding pursuant to clause (x) of the definition thereof; and

          (viii) Indebtedness of any Restricted Subsidiary relating to
    guarantees by such Restricted Subsidiary of Indebtedness pursuant to the
    Bank Credit Agreement.

      "Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof, or other similar entity.

      "Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding, or issued
after the Closing Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.

      "Public Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of the Company pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-8 or otherwise relating to
equity securities issuable under any employee benefit plan of the Company).


                                      95
<PAGE>

     "Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or its Restricted Subsidiaries,
as the case may be, and any additions and accessions thereto, which are
purchased by the Company or a Restricted Subsidiary at any time after the
Notes are issued; provided that (i) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase Money Security Agreement") shall
be entered into within 90 days after the purchase or substantial completion of
the construction of such assets and shall at all times be confined solely to
the assets so purchased or acquired, any additions and accessions thereto and
any proceeds therefrom, (ii) at no time shall the aggregate principal amount
of the outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto and except in
respect of fees and other obligations in respect of such Indebtedness and
(iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any additions and
accessions) shall not at the time such Purchase Money Security Agreement is
entered into exceed 100% of the purchase price to the Company of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.

     "Qualified Capital Stock" of any person means any and all Capital Stock
of such person other than Redeemable Capital Stock.

     "Qualified Equity Offering" means:

         (a) any Public Offering; and

         (b) any offering of Qualified Capital Stock of the Company to non-
    Affiliates with gross proceeds to the Company in excess of $10,000,000.

     "Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final Stated Maturity of the Notes or is redeemable at the option
of the holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity.

     "Registration Rights Agreement" means the agreement between the Company
and the Initial Purchasers, dated the Closing Date, as described in the
"Exchange Offer; Registration Rights" section of this Offering Memorandum.

     "Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.

     "Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated by the Commission
thereunder.

     "S&P" means Standard and Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., and its successors.

     "Significant Subsidiary" of the Company means any Restricted Subsidiary
of the Company that is a "significant subsidiary" as defined in Rule 1.02(v)
of Regulation S-X under the Securities Act, and in any event shall include any
Guarantor.

     "Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and, when used with respect to any other Indebtedness, means
the date specified in

                                      96
<PAGE>

the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness, or any installment of interest thereon, is due
and payable.

      "Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor, as the case may be, which is expressly subordinated in right of
payment to the Notes.

      "Subsidiary" means, with respect to any Person:

          (i) a corporation a majority of whose Voting Stock is at the time,
    directly or indirectly, owned by such Person, by one or more
    Subsidiaries of such Person or by such Person and one or more
    Subsidiaries thereof; or

          (ii) any other Person (other than a corporation), including,
    without limitation, a joint venture, in which such Person, one or more
    Subsidiaries thereof or such Person and one or more Subsidiaries
    thereof, directly or indirectly, at the date of determination thereof,
    has at least majority ownership interest entitled to vote in the
    election of directors, managers or trustees thereof (or other Person
    performing similar functions).

Unless specifically provided to the contrary herein, Unrestricted Subsidiaries
shall not be included in the definition of Subsidiaries for any purpose of the
Indenture (other than for the purposes of the definition of "Unrestricted
Subsidiary" herein).

      "Unrestricted Subsidiary" means:

          (1) any Subsidiary of the Company which at the time of
    determination shall be designated an Unrestricted Subsidiary (as
    designated by the Board of Directors of the Company, as provided below);
    and

          (2) any Subsidiary of an Unrestricted Subsidiary.

      The Board of Directors of the Company may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as:

                  (a) neither the Company nor any Restricted Subsidiary is
            directly or indirectly liable for any Indebtedness of such
            Subsidiary;

                  (b) no default with respect to any Indebtedness of such
            Subsidiary would permit (upon notice, lapse of time or otherwise)
            any holder of any other Indebtedness of the Company or any
            Restricted Subsidiary to declare a default on such other
            Indebtedness or cause the payment thereof to be accelerated or
            payable prior to its stated maturity;

                  (c) neither the Company nor any Restricted Subsidiary has
            made an Investment in such Subsidiary unless such Investment was
            permitted under the "Limitation on Restricted Payments" covenant;

                  (d) neither the Company nor any Restricted Subsidiary has a
            contract, agreement, arrangement, understanding or obligation of
            any kind, whether written or oral, with such Subsidiary other than
            those that might be obtained at the time from persons who are not
            Affiliates of the Company; and

                  (e) neither the Company nor any Restricted Subsidiary has
            any obligation:

                        (i) to subscribe for additional shares of Capital
                  Stock or other equity interest in such Subsidiary, or


                                       97
<PAGE>

                        (ii) to maintain or preserve such Subsidiary's
                  financial condition or to cause such Subsidiary to achieve
                  certain levels of operating results.

      Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing a board resolution with the Trustee giving
effect to such designation. The Board of Directors of the Company may designate
any Unrestricted Subsidiary as a Restricted Subsidiary if immediately after
giving effect to such designation, there would be no Default or Event of
Default under the Indenture and the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant.

      "Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).


                    UNITED STATES FEDERAL TAX CONSIDERATIONS

      The following is a general summary of United States federal income tax
consequences associated with the acquisition, ownership, and disposition of the
exchange notes by holders who acquire the exchange notes at their original
issue price within the meaning of section 1273 of the Internal Revenue Code of
1986, as amended, which we also refer to as the Code. The following summary
does not discuss all of the aspects of United States federal income taxation
that may be relevant to a prospective purchaser of the exchange notes in light
of his, her or its particular circumstances. In particular, some types of
holders may be subject to special rules not discussed below. For example,
special rules will apply if you are:

    .  a bank, thrift, insurance company, regulated investment company, or
       other financial institution or financial service company,

    .  a broker or dealer in securities or foreign currency,

    .  a person that has a functional currency other than the U.S. dollar,

    .  a partnership or other flow-through entity,

    .  a subchapter S corporation,

    .  a person subject to alternative minimum tax,

    .  a person who owns the exchange notes as part of a straddle, hedging
       transaction, conversion transaction, constructive sale transaction or
       other risk-reduction transaction,

    .  a tax-exempt entity,

    .  a person who has ceased to be a United States citizen or to be taxed
       as a resident alien, or

    .  a person who acquires the exchange notes in connection with your
       employment or other performance of services.

      This discussion also does not address the tax consequences to nonresident
alien individuals or foreign entities that are subject to United States federal
income tax on a net basis on income with respect to an exchange note because
such income is effectively connected with the conduct of a United States trade
or business. Such holders generally are taxed in a similar manner to United
States Holders (as defined below); however, certain special rules (including
the "branch profits tax" under Section 884 of the Code) may apply. In addition,
this discussion is limited to holders who hold the exchange notes as capital
assets within the meaning of Section 1221 of the Code and does not describe any
estate, gift, generation-skipping, transfer, state, local or foreign tax
consequences.

                                       98
<PAGE>

      This discussion is based upon currently existing provisions of the Code,
Treasury Regulations promulgated thereunder, Internal Revenue Service rulings
and pronouncements and judicial decisions, all in effect as of the date hereof,
and all of which are subject to change or different interpretations. Any such
changes may be applied retroactively in a manner that could adversely affect a
holder of the exchange notes. There can be no assurance that the Internal
Revenue Service will not take positions concerning the tax consequences of the
purchase, ownership or disposition of the exchange notes which are different
from those discussed here.

      PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE
UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.

United States Federal Income Tax Consequences to United States Holders

      If you are a "United States Holder," as defined below, this section
applies to you. Otherwise, the next section, "--United States Federal Income,
Estate Tax and Withholding Consequences to Non-United States Holders," applies
to you.

      Description of United States Holder. You are a "United States Holder" if
you are beneficial owner of the exchange notes and for federal income tax
purposes are:

    .  a citizen or resident of the United States, including an alien
       individual who is a lawful permanent resident of the United States or
       who meets the substantial presence residency test under the federal
       income tax laws,

    .  a corporation, partnership or other entity treated as a corporation
       or partnership for federal income tax purposes that is created or
       organized in or under the laws of the United States, any of the fifty
       states or the District of Columbia, unless otherwise provided by
       Treasury Regulations,

    .  an estate, the income of which is subject to federal income taxation
       regardless of its source, or

    .  a trust, if a court within the United States is able to exercise
       primary supervision over the administration of the trust and one or
       more United States persons have the authority to control all
       substantial decisions of the trust,

and if your status as a U.S. Holder is not overridden under the provisions of
an applicable tax treaty. Conversely, you are a "Non-U.S. Holder" if you are a
beneficial owner of the exchange notes and are not a U.S. Holder.

      If a partnership holds the exchange notes, the tax treatment of a partner
will generally depend upon the status of the partner and upon the activities of
the partnership. If you are a partner in that partnership, you should consult
your tax advisor.

      Taxation of Interest. In general, you will be required to include in
gross income the interest on the exchange notes at the time it accrues or is
received, in accordance with the your method of accounting for United States
federal income tax purposes.

      In certain circumstances, we may be obligated to pay you amounts in
excess of qualified stated interest or principal on the exchange notes. In
addition, upon a change in control of our company, you may have the exchange
notes redeemed by us at a price that will include an additional amount in
excess of the principal of the exchange notes. We intend to take the position
that the likelihood of a redemption or repurchase of the exchange notes is
remote and likewise do not intend to treat the possibility of any premium
payable on a

                                       99
<PAGE>

redemption or repurchase as affecting the yield to maturity of any exchange
notes. Our determination that these contingencies are remote is binding on you
unless you disclose your contrary position in the manner required by applicable
Treasury Regulations. Our determination is not, however, binding on the
Internal Revenue Service. In the event a contingency occurs, it would affect
the amount and timing of the income that you must recognize.

      Sale or Other Taxable Disposition of the Exchange Notes. The sale,
exchange, redemption, retirement or other taxable disposition of an exchange
note generally will result in the recognition of taxable gain or loss to you in
an amount equal to the difference between (i) the amount of cash and the fair
market value of any property received (except to the extent that these amounts
represent accrued but unpaid interest not previously included in income) and
(ii) your adjusted tax basis in the exchange note.

      Your tax basis in an exchange note generally will be equal to the price
you paid for the exchange note less any principal payments that you received.

      Any gain or loss recognized on the sale or other taxable disposition of
an exchange note generally will be capital gain or loss and will be long-term
capital gain or loss if, at the time of the sale or other taxable disposition,
you have held the exchange note for more than one year; otherwise, it will be
short-term capital gain or loss. You should consult your tax adviser regarding
the treatment of capital gains and losses. Payments attributable to accrued
interest not previously included in income will be treated as ordinary interest
income.

      Receipt of Exchange Notes. Your exchange of an outstanding note for an
exchange note pursuant to the Exchange Offer will not be a taxable exchange for
federal income tax purposes. Accordingly, for such purposes, you will not
recognize any taxable gain or loss as a result of such exchange and you will
have the same tax basis and holding period in the exchange note as you had in
the outstanding note immediately before the exchange.

      Backup Withholding. You may be subject to a backup withholding tax at a
rate currently of 31% with respect to interest and proceeds received in certain
circumstances upon the disposition of an exchange note. Generally, backup
withholding will apply if:

    .  you fail to furnish a taxpayer identification number, or TIN, in the
       prescribed manner,

    .  the Internal Revenue Service notifies us that the TIN furnished by
       you is incorrect,

    .  you fail to report properly the receipt of reportable interest or
       dividend payments and the Internal Revenue Service has notified us
       that withholding is required, or

    .  you fail to certify under penalties of perjury that you are not
       subject to backup withholding.

      Any amounts withheld from a payment to you under the backup withholding
rules will be allowed as a refund or credit against your federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service. Some United States Holders, including, among others,
corporations and some tax-exempt organizations, are generally not subject to
backup withholding.

United States Federal Income, Estate and Withholding Tax Consequences to Non-
United States Holders

      The following discussion is a general summary of certain United States
federal income, estate and withholding tax considerations of the acquisition,
ownership and disposition of the exchange notes by Non-U.S. Holders. Again, you
are a non-U.S. Holder if you are a beneficial owner of the exchange notes and
are not a U.S. Holder.

      Taxation of Interest. Generally, if you are a Non-U.S. Holder, interest
income that is not effectively connected with a United States trade or business
will not be subject to United States withholding tax under the "portfolio
interest exemption" provided that:

                                      100
<PAGE>

    .  you do not actually or constructively own 10% or more of the total
       combined voting power of all of our classes of stock entitled to
       vote,

    .  you are not a controlled foreign corporation related to us actually
       or constructively through stock ownership,

    .  you are not a bank that acquired the exchange notes in consideration
       for an extension of credit made pursuant to a loan agreement entered
       into in the ordinary course of business, and

    .  either (a) you provide a Form W-8BEN (or a suitable substitution
       form) signed under penalties of perjury that includes your name and
       address and certifies as to your non-United States status, or (b) a
       securities clearing organization, bank or other financial institution
       that holds customers' securities in the ordinary course of its trade
       or business, provides a statement to us or our agent under penalties
       of perjury, in which it certifies that a Form W-8BEN or W-8IMY (or a
       suitable substitute) has been received by it from you or a qualifying
       intermediary and furnishes us or our agent with a copy of such form.

      If the portfolio interest exemption does not apply to you, you may be
subject to 30% withholding tax on interest payments made on the exchange notes,
unless you properly claim the benefit of a reduced rate under an applicable
income tax treaty. The required information for claiming treaty benefits is
generally submitted, under current regulations, on Form W-8 BEN or a substitute
form.

      If you fail to properly submit the required forms to certify your
eligibility for the portfolio interest exemption or the benefit of a treaty
exemption or reduced rate, you generally will be subject to a 30% withholding
tax on interest payments made on the exchange notes. We may be required to
report annually to the Internal Revenue Service and to each Non-U.S. Holder the
amount of interest paid to, and the tax withheld, if any, with respect to each
Non-U.S. Holder.

      Sale or Other Disposition of the Notes. You generally will not be subject
to United States federal income tax on gain recognized on a sale, exchange,
redemption, retirement, or other disposition of an exchange note (provided
that, in the case of proceeds representing accrued interest, the portfolio
interest exemption applies) unless:

    .  you are an individual and are present in the United States for a
       period or periods aggregating 183 days or more during the taxable
       year of the disposition and certain other conditions are met; or

    .  you are an individual who is a former citizen or resident of the
       United States, your loss of citizenship or residency occurred within
       the last ten years (and, if you are a former resident, on or after
       February 6, 1995), and it had as one of its principal purposes the
       avoidance of United States tax.

      Even if you are an individual described in one of the two bullet-point
paragraphs above, you should not recognize gain subject to United States
federal income tax as a result of exchanging notes for exchange notes under
this offer. See the more complete discussion above under "United States Federal
Income Tax Consequences to United States Holders--Receipt of Exchange Notes."

      United States Federal Estate Taxes. If interest on the exchange notes
would qualify for the portfolio interest exemption rules described above at the
time of your death, the exchange notes will not be included in your gross
income for United States federal estate tax purposes.

      Back-up Withholding and Information Reporting. Generally, information
reporting and backup withholding do not apply to payments that are subject to
the 30% withholding tax on interest paid to a non-U.S. holder, or to interest
that is exempt from that tax by application of a tax treaty or special
exception. Also, generally, if payments are made to a non-U.S. holder by a
broker upon a sale of the exchange notes, the payments will not be subject to
information reporting or backup withholding. In order to avoid a backup

                                      101
<PAGE>

withholding tax at a rate currently of 31%, a non-U.S. holder may be required
to certify the holder's foreign status. Backup withholding tax also may apply
if (i) the IRS notifies you that you have not properly reported payments of
interest, or (ii) under certain circumstances, you fail to certify that you
have not been notified by the IRS that you are subject to backup withholding
for failure to report interest payments. Some holders, including among others,
corporations, are not subject generally to the backup withholding and reporting
requirements.

      Non-U.S. holders of exchange notes should consult their tax advisers
regarding the application of information and backup withholding to their
particular situations, the availability of an exemption therefrom and the
procedure for obtaining such an exemption, if available. Backup withholding is
not an additional tax. Any amounts withheld from a payment to a holder under
the backup withholding rules will be allowed as a credit against such holder's
United States federal income tax liability, and may entitle the holder to a
refund, provided that the required information is furnished to the IRS.

Book-Entry Delivery and Form

      The certificates representing the exchange notes will be issued in fully
registered form, without coupons. Except as described in the next paragraph,
the exchange notes will be deposited with, or on behalf of, DTC, and registered
in the name of Cede & Co., as DTC's nominee, in the form of a global note
certificate (the "Global Certificate") or will remain in the custody of the
Trustee pursuant to a FAST Balance Certificate Agreement between DTC and the
Trustee.

                              PLAN OF DISTRIBUTION

      Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resales. In addition, we agreed, with exceptions,
that we would not for a period of 180 days from June 19, 2001, the date of the
offering memorandum distributed in connection with the sale of the outstanding
notes, directly or indirectly offer, sell, grant any options to purchase or
otherwise dispose of any debt securities other than in connection with this
exchange offer.

      We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly, to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.


                                      102
<PAGE>

      The initial purchasers of the outstanding notes have advised us that
following completion of the exchange offer they intend to make a market in the
notes to be issued in the exchange offer; however, the initial purchasers are
under no obligation to do so and any market activities with respect to the
exchange notes may be discontinued at any time.

                                 LEGAL MATTERS

      Certain legal matters with respect to the issuance of the notes offered
hereby will be passed upon for us by Ropes & Gray, Boston, Massachusetts.

                                    EXPERTS

      The financial statements and the related financial statement schedule of
Applied Extrusion Technologies, Inc. as of September 30, 2000 and 1999, and for
each of the three years in the period ended September 30, 2000, included and
incorporated by reference in this prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

      The financial statements of QPF, L.L.C. as of December 31, 2000 and 1999,
and for each of the years in the three-year period ended December 31, 2000,
have been included herein and in the registration statement in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG LLP covering the December 31, 2000, financial
statements contains an explanatory paragraph that states that certain matters
raise substantial doubt about QPF, L.L.C.'s ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                      WHERE YOU CAN FIND MORE INFORMATION

      We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result, we file
periodic reports, proxy statements and other information with the SEC. You may
read and copy reports, proxy statements and other information we file at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Suite 1400, Northwestern Atrium Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference facilities.
Copies of documents we file can also be obtained at prescribed rates by writing
to the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. You may also access this information electronically through the SEC's
Web page on the Internet at http://www.sec.gov. This Web site contains reports,
proxy statements and other information regarding registrants such as ourselves
that have filed electronically with the SEC. Our common stock is listed on the
Nasdaq National Market. As a result, you can also read and copy information we
file at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.

      This prospectus constitutes a part of a registration statement filed by
us with the SEC under the Securities Act. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all of the information
contained in the registration statement and the exhibits and schedules thereto.
Therefore, we make in this propectus reference to the registration statement
and to the exhibits and schedules thereto. For further information about us and
about the securities we hereby offer, you should consult the registration
statement and

                                      103
<PAGE>

the exhibits and schedules thereto. You should be aware that statements
contained in this prospectus concerning the provisions of any documents filed
as an exhibit to the registration statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.

     The indenture governing the notes provides that we will furnish to the
holders of the notes copies of the periodic reports required to be filed with
the SEC under the Exchange Act. Even if we are not subject to the periodic
reporting and informational requirements of the Exchange Act, we will make
such filings to the extent that such filings are accepted by the SEC. We will
make these filings regardless of whether we have a class of securities
registered under the Exchange Act. Furthermore, we will provide the Trustee
for the notes and the holders of the notes within 15 days after such filings
with annual reports containing the information required to be contained in
Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in
Form 8-K promulgated by the Exchange Act. If the filing of such information is
not accepted by the SEC or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.

               INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

     The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means:

    .  incorporated documents are considered part of the prospectus;

    .  we can disclose important information to you by referring to those
       documents; and

    .  information that we file later with the SEC will automatically update
       and supersede this information.

     We incorporate by reference our annual report on Form 10-K, for the
fiscal year ended September 30, 2000, which we filed with the SEC under the
Exchange Act. We also incorporate by reference our definitive Proxy Statement
dated December 15, 2000, our quarterly reports on Form 10-Q dated February 8,
2001, as amended on February 15, 2001, and May 2, 2001, and our current
reports on Form 8-K dated May 9, 2001 and July 3, 2001.

     You may request a copy of these filings, at no cost, by writing or
telephoning our General Counsel at the following address:

     Applied Extrusion Technologies, Inc.
     3 Centennial Drive
     Peabody, Massachusetts 01960
     Attention: General Counsel
     (978) 538-1500

     We also incorporate by reference each of the following documents that we
will file with the Commission after the date of the initial registration
statement and prior to the effectiveness of the registration statement and any
filings thereafter and prior to the termination of the exchange offer:

    .  reports filed under Sections 13(a) and (c) of the Exchange Act;

    .  definitive proxy or information statements filed under Section 14 of
       the Exchange Act in connection with any subsequent stockholders'
       meeting; and

    .  any reports filed under Section 15(d) of the Exchange Act.

     Such documents will become a part of this prospectus from the date such
documents are filed.

     Any statement contained in this prospectus or in a document incorporated
by reference is modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall be deemed,
as so modified or superseded, to constitute a part of this prospectus.

                                      104
<PAGE>

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF APPLIED EXTRUSION TECHNOLOGIES,
                               INC. AND SCHEDULE

<TABLE>
<S>                                                                         <C>
Three Months Ended March 31, 2001 (Unaudited):
Condensed Consolidated Balance Sheets, March 31, 2001 (unaudited) and
 September 30, 2000.......................................................   F-2
Condensed Consolidated Statements of Operations for the Three Months Ended
 March 31, 2001
 and 2000 (unaudited).....................................................   F-3
Condensed Consolidated Statements of Comprehensive Operations for the
 Three Months Ended
 March 31, 2001 and 2000 (unaudited)......................................   F-3
Condensed Consolidated Statements of Operations for the Six Months Ended
 March 31, 2001
 and 2000 (unaudited).....................................................   F-4
Condensed Consolidated Statements of Comprehensive Operations for the Six
 Months Ended March 31, 2001 and 2000 (unaudited).........................   F-4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
 March 31, 2001
 and 2000 (unaudited).....................................................   F-5
Notes to Condensed Consolidated Financial Statements......................   F-6
Fiscal Years Ended September 30, 2000 and 1999:

Independent Auditors' Report..............................................   F-7

Consolidated Balance Sheets, September 30, 2000 and 1999..................   F-8

Consolidated Statements of Operations for the Years Ended September 30,
 2000, 1999 and 1998......................................................   F-9

Consolidated Statements of Stockholders' Equity for the Years Ended
 September 30, 2000, 1999
 and 1998.................................................................  F-10

Consolidated Statements of Cash Flows for the Years Ended September 30,
 2000, 1999 and 1998......................................................  F-11

Notes to Consolidated Financial Statements................................  F-12

Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts for the Years Ended
 September 30, 2000, 1999
 and 1998.................................................................  F-24

           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF QPF, L.L.C.

Three Months Ended March 31, 2001 (Unaudited):
Balance Sheet, March 31, 2001 (unaudited).................................  F-25
Statements of Operations (unaudited) for the Three Months Ended March 31,
 2001 and 2000............................................................  F-26
Statements of Cash Flows (unaudited) for the Three Months Ended March 31,
 2001 and 2000............................................................  F-27
Fiscal Years Ended December 31, 2000, 1999 and 1998:

Independent Auditors' Report..............................................  F-28

Balance Sheets, December 31, 2000 and 1999................................  F-29

Statements of Operations for the Years Ended December 31, 2000, 1999 and
 1998.....................................................................  F-30

Consolidated Statements of Members' Equity (Deficit) for the Years Ended
 December 31, 2000, 1999 and 1998.........................................  F-31

Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and
 1998.....................................................................  F-32

Notes to Consolidated Financial Statements................................  F-33
</TABLE>



                                      F-1
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                        March 31,
                                                          2001     September 30,
                                                       (unaudited)     2000
                                                       ----------- -------------
<S>                                                    <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents..........................   $  2,139     $  3,265
  Accounts receivable, net of allowance for doubtful
   accounts of $2,012 at March 31, 2001 and $1,856 at
   September 30, 2000, respectively..................     45,788       43,131
  Inventory .........................................     41,383       43,059
  Prepaid expenses...................................      3,573        3,124
  Deferred taxes.....................................      5,889        5,889
                                                        --------     --------
    Total current assets ............................   $ 98,772       98,468
Property, plant and equipment, net ..................    278,207      280,300
Intangibles and deferred finance charges, net .......      1,935        2,372
Long-term note receivable and other assets ..........      9,603        8,110
                                                        --------     --------
                                                        $388,517     $389,250
                                                        ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ..................................   $ 18,206     $ 17,862
  Accrued expenses and other current liabilities ....     25,848       27,216
  Accrued interest...................................     10,080        9,971
  Current portion of long-term debt..................     61,000          --
                                                        --------     --------
    Total current liabilities .......................    115,134       55,049
Long-term debt ......................................    156,500      209,500
Deferred taxes.......................................      1,764        2,922
Long-term liabilities and other credits..............     17,243       21,866
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; 30,000 shares
 authorized; 12,780 and 12,019 shares issued at March
 31, 2001 and September 30, 2000, respectively.......        128          120
Additional paid-in capital ..........................    101,468      100,266
Retained earnings ...................................      1,998        4,060
Accumulated comprehensive loss.......................     (3,469)      (2,277)
                                                        --------     --------
                                                         100,125      102,169
Treasury stock, at cost, and other, 252 and 248
 shares at March 31, 2001 and September 30, 2000,
 respectively........................................     (2,249)      (2,256)
                                                        --------     --------
    Total stockholders' equity ......................     97,876       99,913
                                                        --------     --------
                                                       $388,517      $389,250
                                                        ========     ========
</TABLE>


           See notes to condensed consolidated financial statements.

                                      F-2
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

             Three Months Ended March 31, 2001 and 2000 (Unaudited)
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                2001     2000
                                                               -------  -------
<S>                                                            <C>      <C>
Sales ........................................................ $72,989  $68,745
Cost of sales ................................................  57,892   51,958
                                                               -------  -------
Gross profit .................................................  15,097   16,787
Operating expenses:
  Selling, general and administrative ........................   7,012    6,994
  Research and development ...................................   1,631    1,793
                                                               -------  -------
    Total operating expenses .................................   8,643    8,787
                                                               -------  -------
Operating profit..............................................   6,454    8,000
Non-operating expenses:
  Interest expense, net ......................................   5,465    5,183
                                                               -------  -------
Income before income taxes....................................     989    2,817
Income tax expense ...........................................     356    1,014
                                                               -------  -------
Net income.................................................... $   633  $ 1,803
                                                               =======  =======
Basic and diluted earnings per common share................... $  0.05  $  0.15
                                                               =======  =======
Weighted average shares outstanding:
  Basic.......................................................  12,591   11,774
  Diluted ....................................................  12,679   12,195

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS

                   Three Months Ended March 31, 2001 and 2000
                           (Unaudited) (In thousands)

<CAPTION>
<S>                                                            <C>      <C>
Net income ................................................... $   633  $ 1,803
Exchange rate changes ........................................  (1,200)      18
                                                               -------  -------
Comprehensive income (loss)................................... $  (567) $ 1,821
                                                               =======  =======
</TABLE>


           See notes to condensed consolidated financial statements.

                                      F-3
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

              Six Months Ended March 31, 2001 and 2000 (Unaudited)
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               2001      2000
                                                             --------  --------
<S>                                                          <C>       <C>
Sales....................................................... $135,713  $128,896
Cost of sales...............................................  109,238    97,233
                                                             --------  --------
Gross profit................................................   26,475    31,663
Operating expenses:
  Selling, general and administrative.......................   14,217    13,463
  Research and development..................................    3,261     3,394
  Share incentive plan......................................      861       --
                                                             --------  --------
    Total operating expenses................................   18,339    16,857
                                                             --------  --------
Operating profit............................................    8,136    14,806
Non-operating expenses:
  Interest expense, net.....................................   11,357    10,180
                                                             --------  --------
Income (loss) before income taxes...........................   (3,221)    4,626
Income tax expense (benefit)................................   (1,159)    1,665
                                                             --------  --------
Net income (loss)........................................... $ (2,062) $  2,961
                                                             ========  ========
Earnings (loss) per common share:
  Basic..................................................... $  (0.17) $   0.26
  Diluted...................................................    (0.17)     0.25
Weighted average shares outstanding:
  Basic.....................................................   12,241    11,594
  Diluted ..................................................   12,276    11,858

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS

                    Six Months Ended March 31, 2001 and 2000
                           (Unaudited) (In thousands)

Net income (loss)........................................... $ (2,062) $  2,961
Exchange rate changes.......................................   (1,192)      153
                                                             --------  --------
Comprehensive income (loss)................................. $ (3,254) $  3,114
                                                             ========  ========
</TABLE>


           See notes to condensed consolidated financial statements.

                                      F-4
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                    Six Months Ended March 31, 2001 and 2000
                           (Unaudited) (In thousands)

<TABLE>
<CAPTION>
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
OPERATING ACTIVITIES:
 Net income (loss)......................................... $ (2,062) $  2,961
 Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
  Provision for doubtful accounts..........................      203       186
  Depreciation and amortization............................   11,678    10,609
  Deferred taxes and other credits.........................   (4,944)   (2,214)
  Stock issued for share incentive plan....................      861       --
  Changes in assets and liabilities which used cash:
    Prepaid expenses and other current assets..............   (2,370)     (319)
    Accounts payable and accrued expenses..................     (627)   (5,724)
    Accounts receivable and inventory......................   (1,823)  (17,907)
                                                            --------  --------
      Net cash provided by (used in) operating activities..      916   (12,408)

INVESTING ACTIVITIES:
 Additions to property, plant and equipment................  (10,340)   (9,031)

FINANCING ACTIVITIES:
 Borrowings under line of credit agreement, net............    8,000    19,000
 Proceeds from issuance of stock, net......................      356     2,337
                                                            --------  --------
      Net cash provided by financing activities............    8,356    21,337
 Effect of exchange rate changes on cash...................      (58)      153
                                                            --------  --------
 Increase (decrease) in cash and cash equivalents, net.....   (1,126)       51
 Cash and cash equivalents, beginning......................    3,265     5,323
                                                            --------  --------
 Cash and cash equivalents, ending......................... $  2,139  $  5,374
                                                            ========  ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Interest, including capitalized interest of $1,189 and
   $1,190, respectively.................................... $ 12,607  $ 10,170
  Income taxes.............................................       95       --
</TABLE>


           See notes to condensed consolidated financial statements.

                                      F-5
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   Three Months Ended March 31, 2001 and 2000
                (In thousands, except share and per share data)

1. BASIS OF PRESENTATION

      The information set forth in these statements is unaudited and may be
subject to normal year-end adjustments. The information reflects all
adjustments that, in the opinion of management, are necessary to present a fair
statement of the results of operations of Applied Extrusion Technologies, Inc.
(the "Company" or "AET") for the periods indicated. Results of operations for
the interim period ended March 31, 2001 are not necessarily indicative of the
results of operations for the full fiscal year.

      Certain information in footnote disclosures normally included in
financial statements has been condensed or omitted in accordance with the rules
and regulations of the Securities and Exchange Commission. These statements
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended September 30, 2000, filed with the Securities and Exchange
Commission.

2. INVENTORIES

      Inventories are valued at the lower of cost or market, with cost
determined using an average-cost method. Inventories consisted of the following
on March 31, 2001 and September 30, 2000:

<TABLE>
<CAPTION>
                                                                March  September
                                                                2001     2000
                                                               ------- ---------
     <S>                                                       <C>     <C>
     Raw materials............................................ $ 8,454  $ 9,336
     Finished goods...........................................  32,929   33,723
                                                               -------  -------
     Total.................................................... $41,383  $43,059
                                                               =======  =======
</TABLE>

3. SHARE INCENTIVE PLAN

      In the first quarter of fiscal 2001, the Company recorded a 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 were granted in lieu of annual incentive bonuses for these managers for
fiscal 2000 and 2001.

                                      F-6
<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, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
September 30, 2000. Our audits also included the financial statement schedule
listed under Item 21(b). 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000, 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.

      As discussed in Note 11 to the consolidated financial statements, the
Company changed its method of accounting for certain start-up costs in 1998 to
adopt the American Institute of Certified Public Accountants Statement of
Position No. 98-5, "Reporting on the Costs of Start-up Activities."

                                          /s/ Deloitte and Touche LLP
                                          _________________________
                                          Deloitte & Touche LLP

Boston, Massachusetts
November 13, 2000

                                      F-7
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS

                          September 30, 2000 and 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                                              2000      1999
                                                            --------  --------
<S>                                                         <C>       <C>
ASSETS
Current assets:
  Cash and cash equivalents................................ $  3,265  $  5,323
  Accounts receivable, net of allowance for doubtful
   accounts of $1,856 and $1,554 at September 30, 2000 and
   1999, respectively......................................   43,131    36,857
  Inventory................................................   43,059    38,611
  Prepaid expenses.........................................    3,124       962
  Deferred taxes...........................................    5,889     5,560
                                                            --------  --------
    Total current assets...................................   98,468    87,313
Property, plant and equipment, net.........................  280,300   278,118
Intangibles and deferred finance charges, net..............    2,372     3,035
Long-term note receivable and other assets.................    8,110     6,584
                                                            --------  --------
                                                            $389,250  $375,050
                                                            ========  ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
  Accounts payable......................................... $ 17,862  $ 18,144
  Accrued interest.........................................    9,971     9,113
  Accrued expenses.........................................   27,216    32,138
                                                            --------  --------
    Total current liabilities..............................   55,049    59,395
Long-term debt.............................................  209,500   182,500
Deferred taxes.............................................    2,922     1,914
Long-term liabilities and other credits....................   21,866    32,200

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value; 1,000 shares authorized,
 of which 300 are designated Junior Preferred Stock; no
 shares issued or outstanding..............................
Common stock, $.01 par value; 30,000 shares authorized,
 12,019 and 11,575 shares issued at September 30, 2000 and
 1999, respectively........................................      120       116
Additional paid-in capital.................................  100,266    97,701
Retained earnings..........................................    4,060     5,269
Accumulated other comprehensive loss.......................   (2,277)   (1,528)
                                                            --------  --------
                                                             102,169   101,558
Treasury stock, at cost, and other--248 and 247 shares at
 September 30, 2000 and 1999, respectively.................   (2,256)   (2,517)
                                                            --------  --------
    Total stockholders' equity.............................   99,913    99,041
                                                            --------  --------
                                                            $389,250  $375,050
                                                            ========  ========
</TABLE>


                See notes to consolidated financial statements.

                                      F-8
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 Years Ended September 30, 2000, 1999 and 1998
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                   2000      1999      1998
                                                 --------  --------  --------
<S>                                              <C>       <C>       <C>
Sales........................................... $268,375  $237,042  $245,334
Cost of sales...................................  215,256   188,601   195,174
                                                 --------  --------  --------
Gross profit....................................   53,119    48,441    50,160
Operating expenses:
  Selling, general and administrative...........   27,152    26,550    23,754
  Research and development......................    6,759     7,123     7,326
  Restructuring and impairment charges..........      --        --     21,506
  Start-up costs................................      --        --      1,539
                                                 --------  --------  --------
    Total operating expenses....................   33,911    33,673    54,125
                                                 --------  --------  --------
Operating profit (loss).........................   19,208    14,768    (3,965)
Non-operating expenses:
  Interest expense, net.........................   21,096    18,909    15,868
  Acquisition costs and other...................      --      3,641       250
                                                 --------  --------  --------
    Total non-operating expenses................   21,096    22,550    16,118
                                                 --------  --------  --------
Loss before income taxes and change in
 accounting.....................................   (1,888)   (7,782)  (20,083)
Income tax benefit..............................     (679)   (3,113)   (8,033)
                                                 --------  --------  --------
Loss before change in accounting................   (1,209)   (4,669)  (12,050)
Change in accounting, net of related tax
 benefits of $568...............................      --        --       (852)
                                                 --------  --------  --------
Net loss........................................ $ (1,209) $ (4,669) $(12,902)
                                                 ========  ========  ========
Loss per common share:
Basic:
  Before change in accounting................... $  (0.10) $  (0.41) $  (1.11)
  Change in accounting..........................      --        --      (0.07)
                                                 --------  --------  --------
Net loss........................................ $  (0.10) $  (0.41) $  (1.18)
                                                 ========  ========  ========
Diluted:
  Before change in accounting................... $  (0.10) $  (0.41) $  (1.11)
  Change in accounting..........................      --        --      (0.07)
                                                 --------  --------  --------
Net loss........................................ $  (0.10) $  (0.41) $  (1.18)
                                                 ========  ========  ========
Average common and potential common shares
 outstanding:
  Basic and Diluted.............................   11,700    11,282    10,893
</TABLE>


                See notes to consolidated financial statements.

                                      F-9
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 Years Ended September 30, 2000, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                             Voting                           Accumulated
                          Common Stock  Additional               Other
                          -------------  Paid-in   Retained  Comprehensive Comprehensive Treasury
                          Shares Amount  Capital   Earnings  Income (Loss)     Loss       Stock
                          ------ ------ ---------- --------  ------------- ------------- --------
<S>                       <C>    <C>    <C>        <C>       <C>           <C>           <C>
Balance, October 1,
 1997...................  10,807  $108   $ 92,401  $ 22,840     $  (154)                 $(3,012)
 Net loss...............                            (12,902)                 $(12,092)
 Profit sharing
  contribution..........     240     2      1,494
 Stock issued for 401(k)
  match.................     124     2        772
 Stock issued for
  employee purchases....      95     1        545
 Treasury shares and
  other.................                                                                     (74)
 Exercise of stock
  options...............      91     1        575
 Exchange rate changes..                                         (2,242)       (2,242)
 Tax benefits of early
  disposition of stock
  options...............                       80
                          ------  ----   --------  --------     -------      --------    -------
 Comprehensive loss.....                                                     $(14,334)
                                                                             ========
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)
                          ======  ====   ========  ========     =======                  =======
</TABLE>


                See notes to consolidated financial statements.

                                      F-10
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Years Ended September 30, 2000, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                                     2000      1999      1998
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
OPERATING ACTIVITIES:
Net loss.........................................  $ (1,209) $ (4,669) $(12,902)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Depreciation and amortization expense..........    21,025    19,484    17,773
  Restructuring charges..........................       --        --     18,580
  Asset impairments..............................       --        --      2,926
  Stock issued for retirement plans..............     1,861     1,513     2,270
  Provision for doubtful accounts................       472     1,217       832
  Deferred income taxes and other credits........   (10,306)  (10,526)  (25,291)
  Change in accounting...........................       --        --        852
  Changes in assets and liabilities which
   provided (used) cash:
    Prepaid expenses and other current assets....    (3,224)   (1,900)      (58)
    Accounts payable and accrued expenses........    (4,345)    4,037    (2,797)
    Accounts receivable and inventory............   (11,194)    1,398   (12,549)
                                                   --------  --------  --------
      Net cash (used in) provided by operating
       activities................................    (6,920)   10,554   (10,364)

INVESTING ACTIVITIES:
  Additions to property, plant and equipment,
   net...........................................   (22,096)  (22,781)  (45,496)
  Proceeds from sale of assets...................       --        --     26,500
  Proceeds from sale-leaseback transactions......       --     29,940    44,625
  Acquisition of AEP assets......................       --    (13,316)      --
                                                   --------  --------  --------
      Net cash (used in) provided by investing
       activities................................   (22,096)   (6,157)   25,629

FINANCING ACTIVITIES:
  Borrowings (repayments) under Credit Facility,
   net...........................................    27,000    (3,000)  (15,000)
  Proceeds from issuance of stock, net...........       707       779     1,202
                                                   --------  --------  --------
      Net cash provided by (used in) financing
       activities................................    27,707    (2,221)  (13,798)
Effect of exchange rate changes on cash..........      (749)      868    (2,242)
                                                   --------  --------  --------
(Decrease) Increase in cash and cash equivalents,
 net.............................................    (2,058)    3,044      (775)
Cash and cash equivalents, beginning.............     5,323     2,279     3,054
                                                   --------  --------  --------
Cash and cash equivalents, ending................  $  3,265  $  5,323  $  2,279
                                                   ========  ========  ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
  Cash paid during the year for:
    Interest, including capitalized interest of
     $2,442, $3,050 and $6,098, respectively.....  $ 21,888  $ 21,058  $ 21,467
    Income taxes.................................       210       --      3,000
</TABLE>

                See notes to consolidated financial statements.

                                      F-11
<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 Years Ended September 30, 2000, 1999 and 1998
              (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 and oriented, apertured films ("nets") for
health care, filtration and other markets.

     Principles of consolidation. The accompanying consolidated financial
statements include the accounts of Applied Extrusion Technologies, Inc. and
its wholly-owned 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, 2000 and 1999, 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. Assets held are
recorded at the lesser of carrying value or fair value less estimated costs to
dispose of the respective assets. 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 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. Deferred finance charges are
recognized using the straight-line method over the term of the related debt,
and are 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 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.

                                     F-12
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

      Foreign operations. Assets and liabilities are translated into U.S.
dollars at the exchange rate on the balance sheet date. The results of
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 stockholders' equity. The Company periodically enters into foreign
currency exchange contracts to hedge firm purchase commitments denominated in
foreign currencies. Gains or losses are deferred until the period in which the
related transactions occur, and then are recorded as part of capitalized
assets.

      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. See Note 10.

      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. As of September 30,
2000, 1999 and 1998, the cumulative translation adjustment was ($2,277),
($1,528) and ($2,396), respectively, and comprehensive loss was ($1,958),
($3,801) and ($14,334), respectively.

      Certain new accounting pronouncements were recently issued which will be
effective in fiscal years beginning after September 30, 2000. The Financial
Accounting Standards Board (FASB) has issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires that an entity recognize all derivative
instruments as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The provisions of this statement are effective
for the fiscal year beginning October 1, 2000. The Company does not expect
adoption of this statement to have a material impact on the Company's financial
statements.

      In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which sets forth the SEC's view on appropriate revenue
recognition practices. The Company believes that its current revenue
recognition practices are in accordance with accounting principles generally
accepted in the United States of America and does not expect any impact when
the bulletin becomes effective.

2. INVENTORY

      Inventory consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                                  2000    1999
                                                                 ------- -------
     <S>                                                         <C>     <C>
     Raw materials.............................................. $ 9,336 $ 7,191
     Finished goods.............................................  33,723  31,420
                                                                 ------- -------
                                                                 $43,059 $38,611
                                                                 ======= =======
</TABLE>


                                      F-13
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. PROPERTY, PLANT, EQUIPMENT AND LEASE COMMITMENTS

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

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
     <S>                                                      <C>      <C>
     Land.................................................... $  1,778 $  1,783
     Buildings and improvements..............................   45,649   45,437
     Machinery and equipment.................................  277,983  253,688
                                                              -------- --------
                                                               325,410  300,908
     Less accumulated depreciation...........................   82,751   64,158
                                                              -------- --------
                                                               242,659  236,750
     Machinery and equipment in progress.....................   37,641   41,368
                                                              -------- --------
                                                              $280,300 $278,118
                                                              ======== ========
</TABLE>

      Approximately $36,718 of fixed assets are located outside of the United
States. Depreciation expense for the years ended September 30, 2000, 1999 and
1998 was $18,593, $18,465, and $16,718, respectively.

      In April 1999, the Company acquired certain assets of AEP Industries
Inc.'s OPP films business. The net purchase price of $13,316 was funded with a
portion of the proceeds of a sale-leaseback transaction involving other assets
of the Company.

      The Company sold its plastic profiles, strong-nets and utility products
manufacturing assets during the third quarter of 1998. These businesses,
located in Salem, Massachusetts, generated annual sales in fiscal 1997 and 1998
of approximately $24,000. The gross proceeds from the transaction of $26,500,
which approximated book value for the businesses after considering costs of the
transaction, were utilized to reduce outstanding borrowings on the Company's
Credit Facility.

      The Company completed a sale-leaseback transaction in January 1998
whereby it sold certain items of equipment and other tangible personal property
for gross proceeds of $45,000, and leased the property back from the purchaser
pursuant to an operating lease agreement dated as of December 29, 1997 (the
"Lease Agreement"). The net book value of the leased equipment immediately
prior to its sale was approximately $18,000. The gain on the sale of the
equipment to the lessor was deferred and will be recognized over the term of
the related leases as a reduction of operating lease expense. In connection
with the restructuring described in Note 14, $8,494 of the deferred gain was
offset against the loss recorded related to lease obligations on idled
equipment. The Company received net proceeds of $44,625, which was utilized to
pay down outstanding borrowings under its Credit Facility.

      The Company completed a sale-leaseback transaction in April 1999, whereby
it sold certain equipment for gross proceeds of $29,940, and leased the
equipment back from the purchaser pursuant to a Letter Agreement dated April
28, 1999, amending the Lease Agreement. The net book value of the equipment
immediately prior to its sale was $18,798. The gain on the sale of the
equipment to the lessor was deferred and is being recognized over the term of
the related leases as a reduction of operating lease expense. The Company
utilized a portion of the net proceeds to fund the purchase of AEP Industries
Inc.'s OPP films business for $13,316; the remainder of the proceeds were
utilized to reduce borrowings under the Company's Credit Facility.

      At September 30, 2000 and September 30, 1999, there was $9,424 and
$22,770, respectively, of deferred gain related to sale-leaseback transactions
which is recorded in deferred taxes and other credits.

                                      F-14
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      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, 2000, 1999
and 1998 was approximately $10,487, $10,043 and $5,343, respectively.

      The minimum annual rental commitments under noncancellable operating
leases are as follows for each of the five years subsequent to September 30,
2000:

<TABLE>
     <S>                                                                 <C>
     2001............................................................... $14,419
     2002...............................................................  14,099
     2003...............................................................  13,565
     2004...............................................................  10,488
     2005...............................................................   1,687
                                                                         -------
                                                                         $54,258
                                                                         =======
</TABLE>

4. INTANGIBLES AND DEFERRED FINANCE CHARGES

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

<TABLE>
<CAPTION>
                                                                   2000   1999
                                                                  ------ ------
     <S>                                                          <C>    <C>
     Deferred financing charges.................................. $1,809 $2,307
     Intellectual property.......................................  1,611  1,611
                                                                  ------ ------
                                                                   3,420  3,918
     Less accumulated amortization...............................  1,048    883
                                                                  ------ ------
                                                                  $2,372 $3,035
                                                                  ====== ======
</TABLE>

5. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                 2000     1999
                                                               -------- --------
     <S>                                                       <C>      <C>
     Industrial Revenue Bond payable November 4, 2004 at
      5.25% effective rate at September 30, 2000.............  $  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  150,000
     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. Outstanding
      LIBOR based tranches and effective interest rates at
      September 30, 2000 were: $18,000 at 9.57%, $15,000 at
      9.60% and $5,000 at 9.69%. Prime-based borrowings were
      $15,000 at an effective interest rate of 10.5%.........    53,000   26,000
                                                               -------- --------
                                                                209,500  182,500
       Less current portion..................................       --       --
                                                               -------- --------
         Total long-term debt................................  $209,500 $182,500
                                                               ======== ========
</TABLE>

                                      F-15
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      In 1994 the Company entered into a credit agreement with a group of
lenders to provide the Company with senior bank financing. In January 1998, the
Company amended and restated this credit agreement and combined the revolving
facility and revolving term facility thereunder into a $70,000 revolving credit
facility (the "Credit Facility") with a final maturity of the earlier of (i)
November 1, 2001, if the Company's Senior Notes are not refinanced prior to
such date, or (ii) January 29, 2003. The Credit Facility was further amended in
March 1999 and April 2000, at which time the revolving credit facility was
increased to $80,000. In September 2000 the Credit Facility was further amended
to increase the Credit Facility to $90,000 and to modify certain covenant
requirements. The Credit Facility is secured by all the assets of the Company.
It includes covenants which limit borrowings based on certain asset levels,
require the Company 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 documents relating to transactions of
this type. The aggregate amount of long-term debt, excluding amounts
outstanding under the Credit Facility, maturing in years subsequent to
September 30, 2000 is as follows:

<TABLE>
     <S>                                                                <C>
     2001.............................................................. $    --
     2002..............................................................  150,000
     2003..............................................................      --
     2004..............................................................      --
     2005..............................................................    6,500
                                                                        --------
                                                                        $156,500
                                                                        ========
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

      Accrued expenses consisted of the following at September 30:

<TABLE>
<CAPTION>
                                                                 2000    1999
                                                                ------- -------
     <S>                                                        <C>     <C>
     Accrued restructuring..................................... $ 2,172 $ 2,834
     Payroll & benefits........................................   5,524   8,528
     Market development........................................   4,252   4,180
     Taxes and other...........................................  15,268  16,596
                                                                ------- -------
                                                                $27,216 $32,138
                                                                ======= =======
</TABLE>

      Included in accounts payable are outstanding checks of $4,435 and $5,914
at September 30, 2000 and 1999, respectively. In addition, approximately $7,615
and $9,410 of accrued restructuring costs are included in deferred taxes and
other credits at September 30, 2000 and 1999, respectively, which represents
the portion of the 1998 restructuring charge, consisting primarily of lease
costs which will be paid out in future years.


                                      F-16
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                        2000    1999     1998
                                                        -----  -------  -------
     <S>                                                <C>    <C>      <C>
     Current:
       U.S. Federal.................................... $ --   $   --   $ 2,623
       State...........................................   --       --       --
                                                        -----  -------  -------
                                                          --       --     2,623
     Deferred:
       U.S. Federal....................................  (642)  (2,724)  (9,323)
       State...........................................   (37)    (389)  (1,333)
                                                        -----  -------  -------
         Total......................................... $(679) $(3,113) $(8,033)
                                                        =====  =======  =======
</TABLE>

      Approximately $568 of deferred tax benefit was recognized in fiscal 1998
in connection with the change in accounting described in Note 11.

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

<TABLE>
<CAPTION>
                                                               2000      1999
                                                             --------  --------
     <S>                                                     <C>       <C>
     Current Deferred Tax:
       Accounts receivable.................................. $    421  $    232
       Inventory............................................    3,274     2,806
       Other assets.........................................       (6)       (6)
       Other liabilities....................................    2,325     2,654
       Valuation allowance..................................     (125)     (126)
                                                             --------  --------
         Net Current Deferred Tax Asset.....................    5,889     5,560
                                                             --------  --------
     Non Current Deferred Tax:
       Property, plant and equipment........................  (42,470)  (40,798)
       Other assets.........................................    5,904    13,296
       Other liabilities....................................      145       (69)
       Tax credits and loss carryforwards...................   33,808    25,966
       Valuation allowance..................................     (309)     (309)
                                                             --------  --------
         Net Non-Current Deferred Tax Liability.............   (2,922)   (1,914)
                                                             --------  --------
     Total Net Deferred Tax Asset........................... $  2,967  $  3,646
                                                             ========  ========
</TABLE>

      A valuation allowance has been established for certain state deferred tax
assets resulting from temporary differences for which the potential to realize
the tax benefit was not considered likely.

      At September 30, 2000, the Company has, for income tax reporting
purposes, federal net operating loss carryforwards of $79,609 (expiration
commencing in 2005 through 2019) and state net operating loss carryforwards of
$76,314 (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).

                                      F-17
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      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, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                              2000   1999  1998
                                                              ----   ----  ----
     <S>                                                      <C>    <C>   <C>
     Statutory tax rate...................................... 35.0%  35.0% 35.0%
     State income taxes, net of federal tax benefits.........  3.4%   3.8%  4.9%
     Other, net.............................................. (2.4)%  1.2%   .1%
                                                              ----   ----  ----
                                                              36.0%  40.0% 40.0%
                                                              ====   ====  ====
</TABLE>

8. 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.

      The Company has implemented an employee stock purchase plan, under which
employees can defer a portion of their compensation and purchase AET shares at
a discount. The purchase price for shares purchased under the Plan is 85
percent of the lower of fair market value of the stock on the first or last day
of the purchasing period. Purchases through payroll deductions are made on a
semiannual basis. Approximately 92,844 shares were purchased under this Plan in
fiscal 2000, and at September 30, 2000, 153,999 shares were available under the
Plan for future purchases.

      A total of 65,666 shares are held into treasury under a deferred
compensation plan, in addition to participant-directed investments in mutual
funds of $4,618 and $3,377 at September 30, 2000 and September 30, 1999,
respectively, which are carried in other assets. The corresponding obligation
under the deferred compensation plan of $4,827 and $3,847 at September 30, 2000
and September 30, 1999, respectively, is recorded in long-term liabilities and
other credits.

      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, 2000, there were
11,836,036 Junior Preferred Stock Purchase Rights outstanding.

9. 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

                                      F-18
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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,
2000, an aggregate of approximately 4,136,000 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 2000, 1999 and 1998, the Company's fiscal 2000, 1999 and 1998 net loss and
loss per share on a pro forma basis would have been as follows:

<TABLE>
<CAPTION>
                                                      2000     1999      1998
                                                     -------  -------  --------
     <S>                                             <C>      <C>      <C>
     Net Loss:
       As reported.................................. $(1,209) $(4,669) $(12,902)
       Pro forma....................................  (2,937)  (5,889)  (13,743)
     Basic Loss per Share:
       As reported..................................    (.10)    (.41)    (1.18)
       Pro forma....................................    (.25)    (.52)    (1.26)
     Diluted Loss per Share:
       As reported..................................    (.10)    (.41)    (1.18)
       Pro forma....................................    (.25)    (.52)    (1.26)
</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 2000, 1999 and 1998: expected volatility
ranging from 59 to 56 percent, risk-free interest rates of approximately 6
percent and expected lives of 7 to 10 years. The weighted-average grant date
fair value of options granted during the year was $5.89, $3.99 and $5.60 for
2000, 1999 and 1998 respectively.

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

<TABLE>
<CAPTION>
                                                           Weighted-
                              Shares Under                  Average
                                 Option    Option Prices Exercise Price Exercisable
                              ------------ ------------- -------------- -----------
     <S>                      <C>          <C>           <C>            <C>
     As of September 30,
      1997...................  2,334,250   $1.000-14.875     $7.61       1,247,625
                                                                         =========
       Granted...............    520,250     6.750-9.000      7.27
       Exercised.............    (91,750)    1.000-8.375      6.28
       Canceled..............    (65,125)   1.000-14.875      9.00
                               ---------
     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
                               =========                                 =========
</TABLE>


                                      F-19
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The following table summarizes information regarding stock options
outstanding at September 30, 2000:

<TABLE>
<CAPTION>
                                Options Outstanding               Options Exercisable
                      ---------------------------------------- --------------------------
                                    Weighted-
                                     Average
                      Outstanding   Remaining     Weighted-    Exercisable   Weighted-
        Range of         as of     Contractual     Average        as of       Average
     Exercise Price    09/30/00   Life in Years Exercise Price  09/30/00   Exercise Price
     --------------   ----------- ------------- -------------- ----------- --------------
     <S>              <C>         <C>           <C>            <C>         <C>
     $ 1.00-
      5.00               188,000       3.5         $ 4.7846       180,000     $ 4.7944
       5.01-
      7.50             1,663,625       5.1           6.4201     1,119,375       6.5362
       7.51-
      10.00            1,653,875       6.1           8.3066     1,044,000       8.4373
      10.01-
      12.50               60,375       6.4          11.5362        45,625      11.5315
      12.51-
      15.00               53,750       5.2          13.8372        53,750      13.8372
                       ---------                                ---------
                       3,619,625       5.5         $ 7.3926     2,442,750     $ 7.4743
                       =========                                =========
</TABLE>

10. EARNINGS PER SHARE

      A reconciliation of shares used in the computation of basic and diluted
loss per share is as follows for the years ended September 30:

<TABLE>
<CAPTION>
                                                   2000       1999       1998
                                                ---------- ---------- ----------
     <S>                                        <C>        <C>        <C>
     Shares for basic computation.............. 11,700,000 11,282,000 10,893,000
     Potential shares from options.............        --         --         --
                                                ---------- ---------- ----------
     Shares for diluted computation............ 11,700,000 11,282,000 10,893,000
                                                ========== ========== ==========
</TABLE>

      In 2000, 1999 and 1998, 129,000, 150,000 and 145,000 potential shares
from options were excluded from the reconciliation above, as the effect of
including these shares in the calculation would be anti-dilutive.

11. CHANGE IN ACCOUNTING

      During the third quarter of 1998, the Company elected early adoption of
the American Institute of Certified Public Accountants' Statement of Position
98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). Effective
with the adoption of SOP 98-5, the Company changed its method of accounting for
start-up costs on major projects to expense these costs as incurred. Prior to
this accounting change, the Company capitalized these costs, primarily those
related to the start-up of its eight and ten-meter OPP films lines, and
amortized them over a five-year period. Amortization of these costs was
approximately $929 in the year ended September 30, 1997. The effect of this
change in accounting was the recognition of $1,539 of costs related to net
start-up costs incurred during fiscal 1998 and a one-time charge of $852, net
of related income tax benefits of $568, resulting from costs incurred in prior
periods.

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.

                                      F-20
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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, 2000, 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. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

      The Company announced a major restructuring of its Covington, Virginia
manufacturing facility in the fourth quarter of 1998. The restructuring, which
was approved in 1998 and primarily implemented in fiscal 1999, included the
shutdown of two older, less efficient production lines, relocation of certain
operations to other locations and the elimination of approximately 200 full-
time manufacturing and plant administrative positions, 160 of which were hourly
and the remainder of which were salaried. The Company recorded a charge of
$18,580 in the fourth quarter of 1998 comprised of approximately $12,090 for
ongoing operating leases related to idled leased equipment, $4,100 in severance
and outplacement costs, and $2,390 in other charges. At September 30, 2000,
approximately $8,793 of these restructuring costs had been paid.

      Implementation of this plan is completed, with a total of 181 positions
eliminated and the shutdown of the production lines now complete. Since
September 1998, the Company has paid out $1,800 on leases related to idled
equipment, $4,516 in severance or outplacement costs and $2,477 in other
restructuring costs, resulting in an accrued restructuring balance of $9,787 at
September 30, 2000 which represents lease costs, the majority of which are
classified as a long-term liability.

      In the fourth quarter of fiscal 1998, the Company wrote down the value of
certain assets in its Covington, Virginia facility, whose carrying values had
been impaired by an aggregate of $2,926. Of the amounts recorded for
impairment, $1,526 relates to specialized equipment which is no longer used in
the production process, and $1,400 represents an adjustment to the carrying
value of the Covington facility to estimated fair value, resulting from an
impairment caused by the shutdown of the affected production lines.

15. 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 $1,861, $1,058 and $2,270
in 2000, 1999 and 1998, respectively.

      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

                                      F-21
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

termination of their employment. In April 1999 the Company implemented a
Supplemental Executive Retirement Plan under which certain executive employees
receive benefits upon retirement. Additionally, the Company implemented a plan
for certain other management employees whereby an annual contribution of 7.5
percent of the employee's prior year compensation is made to the plan. During
fiscal 2000, approximately $500 was contributed to this plan.

16. 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 2000, 20 percent of
sales in 1999 and 18 percent of sales in 1998, with no other customer
accounting for more than 10 percent of sales in 2000, 1999 or 1998.

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

<TABLE>
<CAPTION>
                                                      2000     1999     1998
                                                    -------- -------- --------
     <S>                                            <C>      <C>      <C>
     Sales:
       United States .............................. $219,295 $192,627 $200,684
       Foreign ....................................   49,080   44,415   44,650
                                                    -------- -------- --------
                                                    $268,375 $237,042 $245,334
                                                    ======== ======== ========
     Operating profit (exclusive of restructuring
      and impairment charges and write off of
      start-up costs):
       United States .............................. $ 18,324 $ 11,902 $ 16,313
       Foreign ....................................      884    2,866    2,767
                                                    -------- -------- --------
                                                    $ 19,208 $ 14,768 $ 19,080
                                                    ======== ======== ========
</TABLE>

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

                                      F-22
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


17. SELECTED QUARTERLY DATA (UNAUDITED)

      Summarized quarterly financial data for fiscal 2000, 1999 and 1998 were
as follows:

<TABLE>
<CAPTION>
                                                Earnings (Loss) Earnings (Loss)
                       Net    Gross  Net Income Per Share Basic    Per Share
                      Sales  Profit    (Loss)         (a)         Diluted (a)
                     ------- ------- ---------- --------------- ---------------
<S>                  <C>     <C>     <C>        <C>             <C>
September 30, 1998
  1st quarter....... $56,416 $11,847  $   (753)     $ (.07)         $ (.07)
  2nd quarter.......  62,439  11,414      (602)       (.05)           (.05)
  3rd quarter.......  66,535  13,943     2,710         .24             .24
  4th quarter(b)....  59,954  12,956   (14,257)      (1.29)          (1.29)
September 30, 1999
  1st quarter....... $55,445 $ 7,941  $ (4,735)     $ (.43)         $ (.43)
  2nd quarter.......  58,979  11,652      (863)       (.08)           (.08)
  3rd quarter.......  62,269  13,757       194         .02             .02
  4th quarter.......  60,349  15,091       735         .06             .06
September 30, 2000
  1st quarter....... $60,151 $14,876  $  1,158      $  .10          $  .10
  2nd quarter.......  68,745  16,787     1,803         .15             .15
  3rd quarter.......  73,700  14,302        21         .00             .00
  4th quarter.......  65,779   7,154    (4,191)       (.35)           (.35)
</TABLE>
--------
(a) Earnings (Loss) Per Share is presented before change in accounting.
(b) The Company implemented a restructuring plan in the fourth quarter of 1998
    and recorded a charge of $18,580 before taxes. The Company also wrote down
    the value of certain assets in its Covington, Virginia facility, whose
    carrying values had been impaired by an aggregate of $2,926. The
    restructuring and impairment charges are discussed more fully in Note 14.

                                      F-23
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                 Years Ended September 30, 2000, 1999 and 1998
                                 (In thousands)

<TABLE>
<CAPTION>
                                          Additions
                              Balance at   charged
                              beginning    to costs               Balance at
         Description          of period  and expenses Deductions end of period
         -----------          ---------- ------------ ---------- -------------
<S>                           <C>        <C>          <C>        <C>
Allowance for doubtful
 accounts:
  2000.......................   $1,554      $  472       $170       $1,856
  1999.......................    1,056       1,217        719        1,554
  1998.......................      745         832        521        1,056
</TABLE>

                                      F-24
<PAGE>

QPF, L.L.C. Interim Financial Statements

      The unaudited interim financial information as of March 31, 2001 and for
the three-month periods ended March 31, 2001 and 2000 was prepared by QPF in a
manner consistent with the audited financial statements and pursuant to the
rules and requirements of the Securities and Exchange Commission. The unaudited
information, in management's opinion, reflects all adjustments that are of a
normal recurring nature and that are necessary to present fairly the results
for the periods presented. The results of operations for the three-month period
ended March 31, 2001 are not necessarily indicative of the results to be
expected for the entire year.

                                  QPF, L.L.C.
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                                 BALANCE SHEET
                                  (unaudited)

                                 March 31, 2001

                                     ASSETS

<TABLE>
<S>                                                               <C>
Current assets:
  Cash and cash equivalents...................................... $      2,000
  Trade accounts receivable, less allowance for claims and doubt-
   ful accounts of $452,082......................................    5,992,963
  Inventories....................................................    8,479,519
  Prepaid expenses and other receivables.........................      218,951
                                                                  ------------
    Total current assets.........................................   14,693,433
                                                                  ------------
Property, plant & equipment......................................   40,319,602
Less accumulated depreciation and amortization...................  (13,630,157)
                                                                  ------------
Net property, plant and equipment................................   26,689,445
                                                                  ------------
                                                                  $ 41,382,878
                                                                  ============
                        LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
  Current portion of long-term debt.............................. $  1,275,000
  Accounts payable...............................................    2,896,187
  Accrued salaries and employee benefits.........................      779,285
  Accrued rebates................................................      820,641
  Accrued taxes..................................................      344,778
  Other accrued expenses.........................................      620,243
                                                                  ------------
    Total current liabilities....................................    6,736,134
                                                                  ------------
Line of credit agreement.........................................   12,190,214
Long-term debt, excluding current portion........................    6,460,000
                                                                  ------------
    Total liabilities............................................   25,386,348
Members' equity:
  Members' units, no par value. Authorized and outstanding 100
   units.........................................................          --
  Additional paid-in-capital.....................................   32,747,037
  Accumulated deficit............................................  (16,750,507)
                                                                  ------------
    Total members' equity........................................   15,996,530
                                                                  ------------
  Total liabilities and members' equity.......................... $ 41,382,878
                                                                  ============
</TABLE>

                                      F-25
<PAGE>

                                  QPF, L.L.C.
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                            STATEMENTS OF OPERATIONS
                                  (unaudited)

                   Three months ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                         2001         2000
                                                      -----------  -----------
<S>                                                   <C>          <C>
Sales................................................ $10,168,119  $ 9,922,011
Cost of sales........................................   9,447,007    8,686,764
                                                      -----------  -----------
Gross profit.........................................     721,112    1,235,247
Selling, general and administrative expenses.........   1,025,755      980,346
Research and development expenses....................     517,145      544,409
Operating income (loss)..............................    (821,788)    (289,508)
Interest expense.....................................     656,799      862,372
Other expenses.......................................       4,309        6,946
                                                      -----------  -----------
Loss before extraordinary item.......................  (1,482,896)  (1,158,826)
Extraordinary loss on early retirement of debt.......         --       (39,575)
                                                      -----------  -----------
Net loss............................................. $(1,482,896) $(1,198,401)
                                                      ===========  ===========
</TABLE>

                                      F-26
<PAGE>

                                  QPF, L.L.C.
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                            STATEMENTS OF CASH FLOWS
                                  (unaudited)

                   Three Months ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                         2001         2000
                                                     ------------  -----------
<S>                                                  <C>           <C>
Cash flows from operating activities:
  Net loss.......................................... $ (1,482,896) $(1,198,401)
  Adjustments to reconcile net loss to net cash used
   by operating activities:
    Depreciation and amortization...................      878,830      875,003
    Extraordinary item..............................          --        39,575
    Changes in operating assets and liabilities:
     Trade accounts receivable......................     (655,359)    (118,768)
     Inventories....................................      909,554     (317,820)
     Prepaid expenses and other receivables.........      109,554       30,395
     Accounts payable...............................     (282,331)    (965,693)
     Accrued expenses...............................     (646,592)     125,975
                                                     ------------  -----------
      Net cash used by operating activities.........   (1,169,240)  (1,529,734)
                                                     ------------  -----------
Cash flows from investing activities:
    Additions to property, plant and equipment......      (84,264)    (674,897)
                                                     ------------  -----------
      Net cash used by investing activities.........      (84,264)    (674,897)
                                                     ------------  -----------
Cash flows from financing activities:
    Net borrowings on line of credit agreement......    1,508,504    2,180,607
    Repayments of long-term debt....................     (255,000)         --
    Repayment of previous distributions to members..          --        10,000
                                                     ------------  -----------
      Net cash provided by financing activities.....    1,253,504    2,190,607
                                                     ------------  -----------
      Net decrease in cash and cash equivalents.....          --       (14,024)
Cash and cash equivalents at beginning of quarter...        2,000       14,774
                                                     ------------  -----------
Cash and cash equivalents at end of quarter......... $      2,000  $       750
                                                     ============  ===========
Supplemental disclosure of cash flow information:
  Conversion of debt to equity...................... $ 27,747,086          --
                                                     ============  ===========
</TABLE>

                                      F-27
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors QPF, LLC:

      We have audited the accompanying balance sheets of QPF, LLC (the Company)
as of December 31, 2000 and 1999, and the related statements of operations,
members' equity (deficit) and cash flows for each of the years in the three-
year period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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, the financial statements referred to above present
fairly, in all material respects, the financial position of QPF, LLC as of
December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000,
in conformity with accounting principles generally accepted in the United
States of America.

      The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As reflected in the accompanying
financial statements, the Company has incurred substantial operating losses
and, at December 31, 2000, has an accumulated deficit of approximately
$15,300,000. Further, as discussed in note 8 to the financial statements, in
May 2001, the Company entered into an agreement to sell a significant portion
of its assets to an unrelated third party. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 8. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                          /s/ KPMG LLP
                                          _________________________
                                          KPMG LLP

May 11, 2001
Jackson, Mississippi

                                      F-28
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                                 Balance Sheets

                           December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                          2000         1999
                                                      ------------  -----------
<S>                                                   <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................  $      2,000       14,774
  Trade accounts receivable, less allowance for
   claims and doubtful
   accounts of $531,356 in 2000 and $190,956 in
   1999.............................................     5,337,604    4,979,788
  Inventories (note 2)..............................     9,389,073    8,648,854
  Prepaid expenses and other receivables............       328,505       71,439
                                                      ------------  -----------
       Total current assets.........................    15,057,182   13,714,855
                                                      ------------  -----------
Property, plant and equipment (notes 3 and 4).......    40,235,338   38,975,719
Less accumulated depreciation and amortization......   (12,751,327)  (9,221,167)
                                                      ------------  -----------
       Net property, plant and equipment............    27,484,011   29,754,552
                                                      ------------  -----------
                                                      $ 42,541,193   43,469,407
                                                      ============  ===========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
  Current portion of long-term debt (note 4)........  $  1,190,000      510,000
  Accounts payable..................................     3,178,518    1,722,593
  Accrued salaries and employee benefits............       971,132      928,716
  Accrued rebates...................................       770,120      701,673
  Accrued taxes.....................................       460,779      583,481
  Other accrued expenses............................     1,009,508    1,362,363
                                                      ------------  -----------
       Total current liabilities....................     7,580,057    5,808,826
                                                      ------------  -----------
Line of credit agreement (note 4)...................    38,428,746   33,377,112
Long-term debt, excluding current portion (note 4)..     6,800,000    7,990,000
                                                      ------------  -----------
       Total liabilities............................    52,808,803   47,175,938
                                                      ------------  -----------
Members' deficit:
  Members' units, no par value. Authorized and out-
   standing 100 units...............................           --           --
  Additional paid-in capital........................     5,000,000    5,000,000
  Accumulated deficit...............................   (15,267,610)  (8,706,531)
                                                      ------------  -----------
       Total members' deficit.......................   (10,267,610)  (3,706,531)
                                                      ------------  -----------
Commitments and contingencies (notes 5, 6 and 8)....  $ 42,541,193   43,469,407
                                                      ============  ===========
</TABLE>


                See accompanying notes to financial statements.


                                      F-29
<PAGE>

                                    QPF, LLC
             (a wholly owned subidiary of The Hood Companies, Inc.)

                            Statements of Operations
                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                             2000         1999        1998
                                         ------------  ----------  ----------
<S>                                      <C>           <C>         <C>
Gross sales (note 7).................... $ 45,071,273  37,710,921  41,155,485
  Less: sales discounts and allowances..    2,981,861   3,379,237   2,083,111
                                         ------------  ----------  ----------
    Net sales...........................   42,089,412  34,331,684  39,072,374
Cost of sales...........................   38,651,409  31,832,868  33,392,861
                                         ------------  ----------  ----------
    Gross profit........................    3,438,003   2,498,816   5,679,513
Selling, general and administrative ex-
 penses.................................    4,230,538   3,586,621   5,857,312
Research and development expenses.......    1,681,791   1,426,983   1,535,186
                                         ------------  ----------  ----------
    Operating loss......................   (2,474,326) (2,514,788) (1,712,985)
                                         ------------  ----------  ----------
Interest expense, net (note 4)..........   (4,057,178) (3,016,900) (2,534,235)
Miscellaneous, net......................          --        7,912    (184,487)
                                         ------------  ----------  ----------
    Loss before extraordinary item......   (6,531,504) (5,523,776) (4,431,707)
                                         ------------  ----------  ----------
Extraordinary item-loss on early extin-
 guishment of debt (note 4).............      (39,575)        --          --
                                         ------------  ----------  ----------
    Net loss............................ $ (6,571,079) (5,523,776) (4,431,707)
                                         ============  ==========  ==========
</TABLE>


                See accompanying notes to financial statements.


                                      F-30
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                    STATEMENTS OF MEMBERS' EQUITY (DEFICIT)

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                      Total
                                           Additional Accumulated   members'
                                            paid-in    earnings      equity
                                            capital    (deficit)    (deficit)
                                           ---------- -----------  -----------
<S>                                        <C>        <C>          <C>
Balance at December 31, 1997.............  $5,000,000   1,549,502    6,549,502
 Distributions to members................         --     (313,500)    (313,500)
 Net loss................................         --   (4,431,707)  (4,431,707)
                                           ---------- -----------  -----------
Balance at December 31, 1998.............   5,000,000  (3,195,705)   1,804,295
 Repayment of previous distributions to
  members................................         --       12,950       12,950
 Net loss................................         --   (5,523,776)  (5,523,776)
                                           ---------- -----------  -----------
Balance at December 31, 1999.............   5,000,000  (8,706,531)  (3,706,531)
 Repayment of previous distributions to
  members................................         --       10,000       10,000
 Net loss................................         --   (6,571,079)  (6,571,079)
                                           ---------- -----------  -----------
Balance at December 31, 2000.............  $5,000,000 (15,267,610) (10,267,610)
                                           ========== ===========  ===========
</TABLE>





                See accompanying notes to financial statements.

                                      F-31
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                            Statements of Cash Flows

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                               2000         1999        1998
                                            -----------  ----------  ----------
<S>                                         <C>          <C>         <C>
Cash flows from operating activities:
  Net loss................................  $(6,571,079) (5,523,776) (4,431,707)
  Adjustments to reconcile net loss to net
   cash used by operating activities:
    Depreciation and amortization.........    3,973,337   3,854,731   3,196,397
    Extraordinary item....................       39,575         --          --
    Changes in operating assets and
     liabilities:
      Trade accounts receivable...........     (357,816) (2,002,173)  3,306,116
      Inventories.........................     (740,219)  1,059,274     (35,017)
      Prepaid expenses and other
       receivables........................     (257,066)     (4,157)    (24,554)
      Accounts payable....................    1,455,925   1,049,936    (481,840)
      Accrued expenses....................     (364,694)     37,282  (2,288,489)
                                            -----------  ----------  ----------
       Net cash used by operating
     activities...........................   (2,822,037) (1,528,883)   (759,094)
                                            -----------  ----------  ----------
Cash flows from investing activities:
  Additions to property, plant and equip-
   ment...................................   (1,742,371) (1,411,562) (2,714,134)
                                            -----------  ----------  ----------
       Net cash used by investing
     activities...........................   (1,742,371) (1,411,562) (2,714,134)
                                            -----------  ----------  ----------
Cash flows from financing activities:
  Net borrowings on line of credit agree-
   ment...................................    5,051,634   4,441,519   3,785,728
  Proceeds from long-term debt............    8,500,000         --          --
  Repayments of long-term debt............   (9,010,000) (1,500,000)        --
  Distributions to (repayments from) mem-
   bers...................................       10,000      12,950    (313,500)
                                            -----------  ----------  ----------
       Net cash provided by financing
     activities...........................    4,551,634   2,954,469   3,472,228
                                            -----------  ----------  ----------
       Net increase (decrease) in cash and
     cash equivalents.....................      (12,774)     14,024      (1,000)
Cash and cash equivalents at beginning of
 year.....................................       14,774         750       1,750
                                            -----------  ----------  ----------
Cash and cash equivalents at end of year..  $     2,000      14,774         750
                                            ===========  ==========  ==========
Supplemental disclosure of cash flow in-
 formation:
  Cash paid during the year for interest..  $ 3,847,000   3,004,000   2,646,000
                                            ===========  ==========  ==========
</TABLE>

                See accompanying notes to financial statements.

                                      F-32
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                         Notes to Financial Statements

                        December 31, 2000, 1999 and 1998

(1) Organization and Summary of Significant Accounting Policies

      (a)Organization

      QPF, LLC (the Company) was organized in January 1997 and manufactures
biaxially oriented polypropylene films in a variety of grades and sizes for use
in the packaging and converting industries. The Company operates one
manufacturing location in Streamwood, Illinois. Effective January 1, 2000, the
Company became a wholly owned subsidiary of The Hood Companies, Inc. (Hood).

      Effective January 1, 2000, Hood was reorganized whereby the existing
members of the Company exchanged all of their outstanding units for common
stock in Hood. For financial statement reporting purposes, the reorganization
is treated as a combination of entities under common control since one
shareholder had a majority ownership of the entities that were combined. The
effect of this reorganization did not have a material impact on the Company's
2000 financial statements.

      (b)Inventories

      Inventories are stated at the lower of cost (first-in, first-out) or
market. Market is based on replacement cost for raw materials and supplies and
on estimated net realizable value for work in process and finished goods.

      (c)Property, Plant and Equipment

      Property, plant and equipment are stated at cost. Depreciation of plant
and equipment is calculated using the straight-line method over the estimated
useful lives of the assets. Buildings and improvements are depreciated over 30
years and machinery and equipment is primarily depreciated over 10 years. Spare
parts are capitalized when purchased and depreciated when placed in service.

      (d)Income Taxes

      The Company is a limited liability company and therefore, its earnings or
losses are taxed directly to its members. Accordingly, the accompanying
financial statements contain no provision for income taxes.

      (e)Cash Equivalents

      The Company considers temporary investments with a maturity of three
months or less when purchased to be cash equivalents.

      (f)Receivables

      The Company believes that trade receivables are well diversified, thereby
reducing potential credit risk, and that adequate allowances are maintained for
any uncollectible trade receivables.

      Sales to one customer approximated $4,970,000 in 2000 and accounts
receivable from that customer approximated $1,140,000 at December 31, 2000. At
December 31, 1999, accounts receivable from one customer approximated $637,000.
No other single customer accounted for more than 10% of accounts receivable as
of December 31, 2000 and 1999 or 10% of net sales for the years ended December
31, 2000, 1999 and 1998.


                                      F-33
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      (g)Accounts Payable

      Included in accounts payable at December 31, 2000 and 1999, are $543,858
and $82,280, respectively, of outstanding checks that had not cleared the bank.

      (h)Use of Estimates

      Management of the Company has made estimates and assumptions relating to
the reporting of assets and liabilities and the disclosures of contingent
assets and liabilities to prepare these financial statements in conformity with
accounting principles generally accepted in the United States of America.
Actual results could differ from those estimates.

      Estimates that are particularly susceptible to significant change in the
near term relate primarily to the allowance for doubtful accounts and the
reserve for obsolete inventories.

      (i)Research and Development

      Research and development expenditures are charged to expense as incurred.

      (j)Revenue Recognition

      Revenue is recognized when goods are shipped and title and risk of
ownership have passed. The Company allows goods to be returned if they do not
meet the customer's specifications. A reserve is recorded for such returns
based on historical Company experience.

      (k)Long-Lived Assets

      Long-lived assets and certain identifiable intangibles to be held and
used by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value less
cost to sell. At December 31, 2000, the Company's management had not made a
decision to sell any of its assets, therefore, no assets were classified as
held for sale.

      (l)Fair Value of Financial Instruments

      For financial instruments such as cash and cash equivalents, accounts
receivable and accounts payable, the Company's carrying amount approximates
fair value because of the short term maturity of these instruments. The fair
value of the Company's long-term debt is determined using a discounted cash
flow analysis based on the Company's current incremental borrowing rate for
similar types of borrowing arrangements. At December 31, 2000 and 1999, the
carrying amounts of long-term debt approximate their fair values.

                                      F-34
<PAGE>

                                   QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


(2) Inventories

      A summary of inventories at December 31, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                      2000         1999
                                   -----------  ----------
     <S>                           <C>          <C>
       Raw materials and supplies  $ 2,269,718   1,553,843
       Work in process               2,339,844   1,561,282
       Finished goods                5,254,469   6,317,819
                                   -----------  ----------
                                     9,864,031   9,432,944
                                   -----------  ----------
       Less obsolescence reserve      (474,958)   (784,090)
                                   -----------  ----------
                                   $ 9,389,073   8,648,854
                                   ===========  ==========

(3) Property, Plant and Equipment

      A summary of property, plant and equipment at December 31, 2000 and 1999
follows:

<CAPTION>
                                      2000         1999
                                   -----------  ----------
     <S>                           <C>          <C>
       Land and improvements       $   797,812     797,812
       Buildings and improvements    1,840,288   1,840,288
       Machinery and equipment      33,534,370  33,176,445
       Spare parts                   2,809,337   2,830,247
       Construction in progress      1,253,531     330,927
                                   -----------  ----------
                                   $40,235,338  38,975,719
                                   ===========  ==========
</TABLE>

      At December 31, 2000, there were no material commitments related to
construction in progress.

(4) Long-term Debt

      In March 2000, Hood refinanced its existing credit agreement and entered
into a new senior credit agreement with a group of commercial banks. The
proceeds from the new credit agreement were used to repay the previous
unsecured term notes payable to commercial banks and the previous unsecured
line of credit. The Company is a participant in the new senior credit
agreement along with the other subsidiaries of Hood. Each of Hood's
subsidiaries is jointly and severally liable for outstanding borrowings
related to the senior credit agreement and other debt. At December 31, 2000,
Hood's borrowings approximated $310,000,000. As a result of the refinancing,
the Company incurred a loss on the extinguishment of debt of $39,575. The new
senior credit agreement provides for a secured line of credit and term notes.
Hood allocates borrowings related to the senior credit agreement to its
subsidiaries. The line of credit expires in March 2005. Amounts available
under the line of credit are secured by accounts receivable and inventories.
Principal payments on the term debt allocated to the Company are due in
variable quarterly installments with a final maturity of March 2005. The term
debt is collateralized by accounts receivable, inventories, property, plant
and equipment and other assets. Hood charges the Company interest on
intercompany borrowings based on a variable rate (at December 31, 2000, the
rate ranged from a Eurodollar rate plus 2.50% to 2.75%; at December 31, 1999,
the rate ranged from a Eurodollar rate plus 1.375% to 1.50%).

                                     F-35
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

      Based on the Company's allocated portion of the senior credit agreement,
a summary of future maturities of long-term debt follows:

<TABLE>
<CAPTION>
     Year ending December 31,
     ------------------------
     <S>                                                             <C>
       2001......................................................... $ 1,190,000
       2002.........................................................   1,530,000
       2003.........................................................   1,870,000
       2004.........................................................   2,210,000
       2005.........................................................  39,618,746
                                                                     -----------
                                                                     $46,418,746
                                                                     ===========

(5) Operating Leases

      The Company leases transportation equipment and other types of equipment
under operating lease arrangements. Rent expense approximated $110,000,
$295,000 and $231,000 in 2000, 1999 and 1998, respectively.

      Management expects that, in the normal course of business, leases which
expire will be renewed or replaced by other similar leases.

      At December 31, 2000, minimum rental commitments under non-cancelable
operating leases with terms in excess of one year were as follows:

<CAPTION>
     Year ending December 31,
     ------------------------
     <S>                                                             <C>
       2001......................................................... $   108,002
       2002.........................................................      66,098
       2003.........................................................      48,172
       2004.........................................................      11,667
       2005.........................................................       1,335
                                                                     -----------
                                                                     $   235,274
                                                                     ===========
</TABLE>

(6) Employee Benefit Plan

      The Company has a defined contribution plan covering substantially all of
its employees. During 2000, 1999 and 1998, the Company incurred expenses
related to matching requirements of approximately $192,000, $177,000 and
$221,000, respectively, related to this employee benefit plan.

(7) Related Party Transactions

      During 2000, 1999 and 1998, the Company had sales of approximately
$1,600,000, $744,000 and $352,000 respectively, to other subsidiaries of Hood.

(8) Subsequent Events

      In January 2001, Hood converted approximately $27,700,000 of the
Company's intercompany borrowings to equity.

                                      F-36
<PAGE>

                                    QPF, LLC
            (a wholly owned subsidiary of The Hood Companies, Inc.)

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


      In May 2001, the Company entered into an agreement with Applied Extrusion
Technologies, Inc. to sell a significant portion of its assets, including
machinery and equipment, inventories and certain other intangible assets. The
sales price for the machinery, equipment and other intangible assets is
$15,000,000 in cash. The sales price for the inventories is based on a formula,
as defined in the sales agreement, for inventories existing on the closing date
(which is scheduled for June 2001). The payment for the inventories will be in
the form of a short-term note receivable. Upon closing the sale, the Company's
management intends to sell its manufacturing facility and cease operations. The
Company is anticipating a loss on the sale of its assets of approximately
$2,000,000 to $3,000,000, but this estimate is subject to change based on the
ultimate amount the Company receives from the sale of its assets. Any loss from
the sale of assets will be recorded in the Company's 2001 financial statements.
As a result of the sale, the Company does not plan to continue its operations.

                                      F-37
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

(i) Applied Extrusion Technologies, Inc.

Limitation on Liability of Directors

      Pursuant to authority conferred by Section 102 of the Delaware General
Corporation Law (the "DGCL"), Paragraph 7 of our certificate of incorporation
(the "Certificate") eliminates the personal liability of our directors to us or
our stockholders for monetary damages for breach of fiduciary duty, including,
without limitation, directors serving on committees of our board of directors
(the "Board"). Directors remain liable for (1) any breach of the duty of
loyalty to us or our stockholders, (2) any act or omission not in good faith or
which involves intentional misconduct or a knowing violation of law, (3) any
violation of Section 174 of the DGCL which proscribes the payment of dividends
and stock purchases or redemptions under certain circumstances, and (4) any
transaction from which directors derive an improper personal benefit.

Indemnification and Insurance

      In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Paragraph 8 of the Certificate grants our directors and officers
a right to indemnification from us for all expenses, liabilities and losses
relating to civil, criminal, administrative or investigative proceedings to
which they are a party (1) by reason of the fact that they are or were our
directors or officers or (2) by reason of the fact that, while they are or were
our directors or officers, they are or were serving at our request as directors
or officers of another corporation, partnership, joint venture, trust or
enterprise.

      Paragraph 8 of the Certificate further provides for the mandatory
advancement of expenses incurred by officers and directors in defending such
proceedings in advance of their final disposition. We may not indemnify or make
advance payments to any person in connection with proceedings initiated by or
on behalf of such person.

      In addition, Paragraph 8 of the Certificate provides that directors and
officers therein described shall be indemnified to the fullest extent permitted
by Section 145 of DGCL, or any successor provisions or amendments thereunder.

      Paragraph 8 of the Certificate further provides that the right to
indemnification is not exclusive of any other right that any indemnitee may
have or thereafter acquire under any by-law, agreement, vote of directors or
stockholders or otherwise, and shall inure to the benefit of the heirs and
legal representatives of such person.

      The Purchase Agreement filed as Exhibit 1.1 hereto provides for the
indemnification of us, our controlling persons, our directors and certain of
our officers by the initial purchasers against certain liabilities, including
liabilities under the Securities Act.

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, we have been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

      We maintain insurance coverage of our officers and directors as well as
insurance coverage to reimburse us for potential costs of our corporate
indemnification of directors and officers.

(ii) Applied Extrusion Technologies (Canada), Inc.

Limitation on Liability of Directors

      Pursuant to authority conferred by Section 102 of the Delaware General
Corporation Law (the "DGCL"), Paragraph 9 of our certificate of incorporation
(the "Certificate") eliminates the personal liability of

                                      II-1
<PAGE>

the directors to Applied Extrusion Technologies (Canada), Inc. ("Canada") or
its stockholders for monetary damages for breach of fiduciary duty, including,
without limitation, directors serving on committees of our board of directors
(the "Board"). Directors remain liable for (1) any breach of the duty of
loyalty to Canada or its stockholders, (2) any act or omission not in good
faith or which involves intentional misconduct or a knowing violation of law,
(3) any violation of Section 174 of the DGCL which proscribes the payment of
dividends and stock purchases or redemptions under certain circumstances, and
(4) any transaction from which directors derive an improper personal benefit.

Indemnification and Insurance

      In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Paragraph 10 of the Certificate grants Canada's directors and
officers a right to indemnification from Canada for all expenses, liabilities
and losses relating to civil, criminal, administrative or investigative
proceedings to which they are a party (1) by reason of the fact that they are
or were our directors or officers or (2) by reason of the fact that, while they
are or were our directors or officers, they are or were serving at our request
as directors or officers of another corporation, partnership, joint venture,
trust or enterprise.

      Paragraph 10 of the Certificate further provides for the mandatory
advancement of expenses incurred by officers and directors in defending such
proceedings in advance of their final disposition. Canada may not indemnify or
make advance payments to any person in connection with proceedings initiated by
or on behalf of such person.

      In addition, Paragraph 10 of the Certificate provides that directors and
officers therein described shall be indemnified to the fullest extent permitted
by Section 145 of DGCL, or any successor provisions or amendments thereunder.

      Paragraph 10 of the Certificate further provides that the right to
indemnification is not exclusive of any other right that any indemnitee may
have or thereafter acquire under any by-law, agreement, vote of directors or
stockholders or otherwise, and shall inure to the benefit of the heirs and
legal representatives of such person.

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, Canada has been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.

      Canada maintains insurance coverage of its officers and directors as well
as insurance coverage to reimburse itself for potential costs of its corporate
indemnification of directors and officers.

                                      II-2
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

      (a) Exhibits

      The following exhibits are either filed with this registration statement
or incorporated by reference:

<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
 1.1     Purchase Agreement, dated June 12, 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 Banc Alex. Brown Inc.
 3.1     Certificate of Incorporation of Applied Extrusion Technologies
         (Canada), Inc.
 3.2     By-laws of Applied Extrusion Technologies (Canada), Inc.
 4.1     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.
 4.2     Form of Exchange Note due 2011 (filed herewith as exhibit to Exhibit
         4.1).
 4.3     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 Banc Alex. Brown Inc.
 5.1     Opinion and Consent of Ropes & Gray regarding validity of the exchange
         notes.
 23.1    Consent of Deloitte & Touche LLP, independent auditors of the
         Registrant.
 23.2    Consent of KPMG LLP, independent auditors of QPF, L.L.C.
 24.1    Power of Attorney (included in signature pages to Registration
         Statement).
 25.1    Statement of Eligibility of the Trustee, on Form T-1.
</TABLE>

      (b) Financial Statement Schedule

      Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the accompanying notes.

ITEM 22. UNDERTAKINGS.

      Each of the undersigned registrants hereby undertakes that, for the
purposes of determining any liability under the Securities Act, each filing of
Applied Extrusion Technologies, Inc.'s annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

      Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by our director, officer or controlling person in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

                                     II-3
<PAGE>

      Each of the undersigned registrants hereby undertakes that:

      (1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b) (1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.

      (2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

      Each of the undersigned registrants further undertakes:

      (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;

          (i) To include any prospectus required by Section 10(a)(3) of the
          Securities Act;

    (ii) To reflect in the prospectus any facts or events arising after the
    effective date of the registration statement (or the most recent post-
    effective amendment thereof) which, individually or in the aggregate,
    represent a fundamental change in the information set forth in the
    registration statement. Notwithstanding the foregoing, any increase or
    decrease in volume of securities offered (if the total dollar value of
    securities offered would not exceed that which was registered) and any
    deviation from the low or high end of the estimated maximum offering
    range may be reflected in the form of prospectus filed with the SEC
    pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
    price represent no more than a 20 percent change in the maximum
    aggregate offering price set forth in the "Calculation of Registration
    Fee" table in the effective registration statement;

    (iii) To include any material information with respect to the plan of
    distribution not previously disclosed in the registration statement or
    any material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act that are incorporated by reference in the registration statement.

      (2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that shall be deemed to be the initial bona fide
offering thereof.

      (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.

                                      II-4
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form S-4 and have duly caused this registration
statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in The City of Peabody, Commonwealth of Massachusetts, on July  ,
2001.

                                          Applied Extrusion Technologies, Inc.

                                                   /s/ Amin J. Khoury
                                          By: _________________________________
                                              Amin J. Khoury, Chairman of the
                                                           Board

                               POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Amin J. Khoury and Thomas E. Williams,
and each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign this registration statement and any and all
amendments thereto, including post-effective amendments, and to file the same,
with all exhibits thereto, any related registration filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
the said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on July  , 2001.

<TABLE>
<CAPTION>
                 Signature                                    Title
                 ---------                                    -----

   <S>                                              <C>
           /s/ Amin J. Khoury                       Chairman of the Board
   ______________________________________
               Amin J. Khoury

         /s/ Thomas E. Williams                     President and Chief
   ______________________________________            Executive Officer and
             Thomas E. Williams                      Director, (Principal
                                                     Executive Officer)

         /s/ Anthony J. Allott                      Senior Vice President and
   ______________________________________            Chief Financial Officer
             Anthony J. Allott                       (Principal Financial and
                                                     Accounting Officer)

         /s/ Mark M. Harmeling                      Director
   ______________________________________
             Mark M. Harmeling



        /s/ Nadar A. Golestaneh                     Director
   ______________________________________
            Nadar A. Golestaneh

        /s/ Joseph J. O'Donnell                     Director
   ______________________________________
            Joseph J. O'Donnell

        /s/ Richard G. Hamermesh                    Director
   ______________________________________
            Richard G. Hamermesh
</TABLE>

                                      II-5
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form S-4 and have duly caused this registration
statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in The City of Peabody, Commonwealth of Massachusetts, on July  ,
2001.

                                          Applied Extrusion Technologies
                                          (Canada), Inc.

                                                 /s/ Thomas E. Williams
                                          By: _________________________________
                                               Thomas E. Williams, President

                               POWER OF ATTORNEY

      KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Thomas E. Williams and David N. Terhune,
and each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign this registration statement and any and all
amendments thereto, including post-effective amendments, and to file the same,
with all exhibits thereto, any related registration filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
the said attorneys-in-fact and agents or any of them or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on July  , 2001.

<TABLE>
<CAPTION>
                 Signature                                    Title
                 ---------                                    -----

   <S>                                              <C>
         /s/ Thomas E. Williams                     President and Chief
   ______________________________________            Executive Officer and
             Thomas E. Williams                      Director, (Principal
                                                     Executive Officer)

          /s/ David N. Terhune                      Executive Vice President,
   ______________________________________            Chief Operating Officer
              David N. Terhune                       and Director

         /s/ Anthony J. Allott                      Chief Financial Officer,
   ______________________________________            Treasurer and Secretary
             Anthony J. Allott                       (Principal Financial and
                                                     Accounting Officer)
</TABLE>


                                      II-6
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
 1.1*    Purchase Agreement, dated June 12, 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 Banc Alex. Brown Inc.
 3.1*    Certificate of Incorporation of Applied Extrusion Technologies
         (Canada), Inc.
 3.2*    By-laws of Applied Extrusion Technologies (Canada), Inc.
 4.1*    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.
 4.2     Form of Exchange Note due 2011(a)
 4.3*    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 Banc Alex. Brown Inc.
 4.4**   Form of Letter of Transmittal of Applied Extrusion Technologies, Inc.
 4.5**   Form of Notice of Guaranteed Delivery for Tender for Exchange of 10
         3/4% Senior Notes due 2011 for 10 3/4% Series B Senior Notes due 2011
         of Applied Extrusion Technologies, Inc.
 5.1*    Opinion and Consent of Ropes & Gray regarding validity of the exchange
         notes.
 23.1*   Consent of Deloitte & Touche LLP, independent auditors of the
         Registrant.
 23.2*   Consent of KPMG LLP, independent auditors of QPF, L.L.C.
 24.1    Power of Attorney (included in signature pages to Registration
         Statement).
 25.1*   Statement of Eligibility of the Trustee, on Form T-1.
</TABLE>
--------
*  Filed herewith.
** To be filed by amendment.
(a) Filed herewith as exhibit to Exhibit 4.1.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1.1
<SEQUENCE>2
<FILENAME>dex11.txt
<DESCRIPTION>EXHIBIT 1.1 - PURCHASE AGREEMENT
<TEXT>

<PAGE>
                                                                     Exhibit 1.1
                                                                  EXECUTION COPY
                                                                  --------------



                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                           (a Delaware corporation)

                                 $275,000,000

                         10 3/4% Senior Notes due 2011





                               PURCHASE AGREEMENT
                               ------------------









                  Dated:  June 12, 2001

<PAGE>


                     APPLIED EXTRUSION TECHNOLOGIES, INC.
                           (a Delaware corporation)

                                 $275,000,000

                         10 3/4% Senior Notes due 2011


                              PURCHASE AGREEMENT
                              ------------------

                                                                   June 12, 2001

Merrill Lynch & Co.
   Merrill Lynch, Pierce, Fenner & Smith Incorporated
Chase Securities Inc.
Credit Suisse First Boston Corporation
Deutsche Banc Alex. Brown Inc.
c/o Merrill Lynch & Co.
   Merrill Lynch, Pierce, Fenner & Smith Incorporated
   Merrill Lynch World Headquarters
   North Tower
   World Financial Center
   New York, New York  10281-1201

Ladies and Gentlemen:

               Applied Extrusion Technologies, Inc., a Delaware corporation
(the "Company"), confirms its agreement with Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Chase Securities Inc., Credit Suisse First
Boston Corporation and Deutsche Banc Alex. Brown Inc. (each an "Initial
Purchaser" and together the "Initial Purchasers" which term shall also include
any initial purchaser substituted as hereinafter provided in Section I), for
whom Merrill Lynch, Chase Securities Inc., Credit Suisse First Boston
Corporation and Deutsche Banc Alex. Brown Inc. are acting as representatives (in
such capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Initial Purchasers, acting severally and not
jointly, of the respective principal amounts set forth in Schedule I of
$275,000,000 aggregate principal amount of the Company's 10 3/4% Senior Notes
due 2011 (the "Securities"). The Securities are to be issued pursuant to an
indenture to be dated as of June 19, 2001 (the "Indenture") among the Company,
Applied Extrusion Technologies (Canada), Inc., as guarantor (the "Guarantor"),
and Wells Fargo Bank Minnesota, National Association, as trustee (the
"Trustee"). The Securities and the Indenture are more fully described in the
Offering Memorandum (as hereinafter defined). Capitalized terms used herein and
not otherwise defined herein have the respective meanings specified in the
Offering Memorandum.

               The Company understands that the Initial Purchasers propose to
make an offering of the Securities on the terms and in the manner set forth
herein and agrees that the Initial Purchasers may resell, subject to the
conditions set forth herein, all or a portion of the Securities to purchasers
("Subsequent Purchasers") at any time after this Agreement has been executed and
delivered. The Securities are to be offered and sold through the Initial
Purchasers without being registered under the
<PAGE>

Securities Act of 1933, as amended (the "1933 Act"), in reliance upon exemptions
therefrom. Pursuant to the terms of the Securities and the Indenture, investors
that acquire Securities may only resell or otherwise transfer such Securities if
such Securities are hereafter registered under the 1933 Act or if an exemption
from the registration requirements of the 1933 Act is available (including the
exemption afforded by Rule 144A ("Rule 144A") of the rules and regulations
promulgated under the 1933 Act by the Securities and Exchange Commission (the
"Commission)).

               The Company has prepared and delivered to each Initial Purchaser
a preliminary offering memorandum, dated June 2, 2001 (the "Preliminary Offering
Memorandum"), and has prepared and will deliver to each Initial Purchaser, on
the date hereof or the next succeeding day, copies of a final offering
memorandum, dated June 12, 2001 (the "Final Offering Memorandum"), each for use
by such Initial Purchaser in connection with its solicitation of purchases of,
or offering of, the Securities. "Offering Memorandum" means, with respect to any
date or time referred to in this Agreement, the most recent offering memorandum
(whether the Preliminary Offering Memorandum or the Final Offering Memorandum,
or any amendment or supplement to either such document), including exhibits
thereto and any documents incorporated therein by reference, which has been
prepared and delivered by the Company to the Initial Purchasers in connection
with their solicitation of purchases of, or offering of, the Securities. The
Company hereby confirms that it has authorized the use of the Preliminary
Offering Memorandum and the Offering Memorandum in connection with the offering
and resale of the Securities.

               The holders of Securities will be entitled to the benefits of a
Registration Rights Agreement, in substantially the form attached hereto as
Exhibit A with such changes as shall be agreed to by the parties hereto (the
"Registration Rights Agreement"), pursuant to which the Company will file a
registration statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") registering the Securities or the
Exchange Securities referred to in the Registration Rights Agreement under the
1933 Act.

               The Notes will be guaranteed by each of the Company's domestic
restricted subsidiaries, including any person that becomes a domestic restricted
subsidiary after the date of the Indenture (the "Guarantee"). As of the Closing
Time (as defined in Section 2(b) herein), the Guarantor is the only domestic
restricted subsidiary.

               The Company intends to use approximately $150.0 million of the
net proceeds from the offering to redeem the Company's outstanding 11 1/2%
Senior Notes due 2002 and satisfy and discharge the related indenture (the "Note
Redemption") and approximately $73.0 million of the net proceeds to pay down
indebtedness under its bank credit agreement dated April 7, 1994 and amended and
restated as of March 15, 1999, 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 and
restated as of April 15, 2001 ( the "Bank Credit Agreement") and to be further
amended by waiver and amendment No. 1 to be dated as of June 15, 2001 (the "Bank
Credit Agreement Amendment") and to reduce working capital commitments under the
Bank Credit Agreement to not more than $80.0 million, as required by the Bank
Credit Agreement to avoid acceleration of the maturity date.

                                       2
<PAGE>

          The Company, also intends to use approximately $9.0 million of the net
proceeds to acquire certain assets of QPF, L.L.C. pursuant to an Asset Purchase
Agreement dated, May 3, 2001, (the "Asset Purchase Agreement") and to be amended
by the Closing Date (the "Asset Purchase Agreement Amendment") among the
Company, QPF, L.L.C. and Hood Companies, Inc. (the "Acquisition").

     Section 1.  Representations and Warranties of the Company. (a)
                 ---------------------------------------------
Representations and Warranties. The Company represents and warrants to and
agrees with the Initial Purchasers as of the date hereof and as of the Closing
Time as follows:

          (i)    Offering Memorandum. The Offering Memorandum does not, and at
                 -------------------
     the Closing Time will not, include an untrue statement of a material fact
     or omit to state a material fact necessary in order to make the statements
     therein, in the light of the circumstances under which they were made, not
     misleading; provided that this representation and warranty does not apply
     to statements or omissions made in reliance upon and in conformity with
     information furnished in writing to the Company by an Initial Purchaser
     through Merrill Lynch expressly for use in the Offering Memorandum.

          (ii)   Absence of Outstanding Debt Securities. Except for the
                 --------------------------------------
     Company's 11 1/2% Senior Notes due 2002, there are no debt securities of
     the Company registered under the Securities Exchange Act of 1934, as
     amended (the "1934 Act"), or listed on a national securities exchange or
     quoted in a U.S. automated inter-dealer quotation system. The Company has
     been advised that the Securities have been designated PORTAL securities in
     accordance with the rules and regulations of the National Association of
     Securities Dealers, Inc. ("NASD").

          (iii)  Similar Offerings. None of the Company or any affiliate of the
                 -----------------
     Company (as defined in Rule 501(b) under the 1933 Act) has directly or
     through any agent, sold, offered for sale, solicited offers to buy or
     otherwise negotiated in respect of, any security (as defined in the 1933
     Act) by or for the Company that are of the same or similar class as the
     Securities which is or would be integrated with the sale of Securities
     (other than with respect to the Exchange Securities) in a manner that would
     require the registration of the Securities under the 1933 Act.

          (iv)   No General Solicitations. None of the Company, its affiliates
                 ------------------------
     or any person acting on their behalf (other than the Initial Purchasers, as
     to whom the Company makes no representations) has engaged or will engage,
     in connection with the offering of the Securities, in any form of general
     solicitation or general advertising within the meaning of Rule 502(c) of
     the 1933 Act.

          (v)    Independent Accountants. Deloitte & Touche, which is reporting
                 -----------------------
     upon the audited financial statements and related schedules included in the
     Offering Memorandum, is an independent public accountant with respect to
     the Company in accordance with the provisions of the 1933 Act and the rules
     and regulations of the Commission thereunder.

          (vi)   Independent Accountants. KPMG LLP, which is reporting upon the
                 -----------------------
     audited financial statements of QPF, L.L.C. in the Offering Memorandum, is
     an independent public

                                       3
<PAGE>

     accountant with respect to QPF, L.L.C. in accordance with the provisions of
     the 1933 Act and the rules and regulations of the Commission thereunder.

          (vii)  Financial Statements. The financial statements included in the
                 --------------------
     Offering Memorandum (excluding the pro forma financial data) present fairly
     (a) the financial position of the Company and its subsidiaries on a
     consolidated basis as of the dates indicated and (b) the results of
     operations and cash flows of the Company and its subsidiaries on a
     consolidated basis and for the periods specified, subject, in the case of
     unaudited financial statements of the Company, to normal year-end
     adjustments which shall not be materially adverse to the condition
     (financial or otherwise), earnings, business affairs or business prospects
     of the Company and its subsidiaries, considered as one enterprise. Such
     financial statements have been prepared in conformity with generally
     accepted accounting principles applied on a consistent basis throughout the
     periods involved. The financial statement schedules, if any, included in
     the Offering Memorandum present fairly the information required to be
     stated therein. The selected financial data included in the Offering
     Memorandum present fairly the information shown, have been compiled from
     data contained in the respective audited financial statements of the
     Company or, in the case of the six-month periods ended March 31, 2000 and
     March 31, 2001, the unaudited financial statements of the Company. The
     selected financial data included in the Offering Memorandum present fairly
     the information shown, have been compiled from data contained in the
     respective audited financial statements of QPF, L.L.C. or, in the case of
     the six-month periods ended March 31, 2000 and March 31, 2001, the
     unaudited financial statements of QPF, L.L.C. The pro forma financial
     statements and other pro forma financial information included in the
     Offering Memorandum present fairly the information shown therein, have been
     prepared in accordance with the relevant accounting requirements of Rule
     11-02 of Regulation S-X and, in the opinion of the Company, the assumptions
     used in the preparation thereof are reasonable and the adjustments used
     therein are appropriate to give effect to the transactions or circumstances
     referred to therein.

          (viii) No Material Adverse Change in Business.  Since the respective
                 --------------------------------------
     dates as of which information is given in the Offering Memorandum, except
     as otherwise stated therein or contemplated thereby, there has not been (A)
     any material adverse change in the condition, financial or otherwise, or in
     the earnings, business affairs or business prospects of the Company and its
     subsidiaries, considered as one enterprise, whether or not arising in the
     ordinary course of business (a "Material Adverse Effect"), (B) any
     transaction entered into by the Company, other than in the ordinary course
     of business, that is material to the Company and its subsidiaries,
     considered as one enterprise, or (C) any dividend or distribution of any
     kind declared, paid or made by the Company on its capital stock.

          (ix)   Good Standing of the Company. The Company is a corporation
                 ----------------------------
     duly organized, validly existing and in good standing under the laws of the
     State of Delaware with corporate power and authority under such laws to
     own, lease and operate its properties and conduct its business as described
     in the Offering Memorandum; and the Company is duly qualified to transact
     business as a foreign corporation and is in good standing in each other
     jurisdiction in which it owns or leases property of a nature, or transacts
     business of a type, that would make such qualification necessary, except to
     the extent that the failure to so qualify or be in good standing would not
     have a Material Adverse Effect.

                                       4
<PAGE>

          (x)    Good Standing of the Company's Subsidiaries.  The Company's
                 -------------------------------------------
     only subsidiaries are: Applied Extrusion Technologies (Canada), Inc. and
     Applied Extrusion Technologies Limited (UK) (each individually, a
     "Subsidiary" and collectively, the "Subsidiaries"). Each Subsidiary is a
     corporation duly organized, validly existing and in good standing under the
     laws of the jurisdiction of its organization with corporate power and
     authority under such laws to own, lease and operate its properties and
     conduct its business; and each Subsidiary is duly qualified to transact
     business as a foreign corporation and is in good standing in each other
     jurisdiction in which it owns or leases property of a nature, or transacts
     business of a type, that would make such qualification necessary, except to
     the extent that the failure to so qualify or be in good standing would not
     have a Material Adverse Effect. All of the outstanding shares of capital
     stock of each Subsidiary have been duly authorized and validly issued and
     are fully paid and non-assessable and are owned by the Company (except for
     directors' qualifying shares), free and clear of any pledge, lien, security
     interest, charge, claim, equity or encumbrance of any kind except, as of
     the date hereof, as provided in the Company's existing Bank Credit
     Agreement.

          (xi)   Capitalization. The Company had at the date indicated in the
                 --------------
     Offering Memorandum a duly authorized, issued and outstanding
     capitalization as set forth in the Offering Memorandum under the caption
     "Capitalization--Actual." All of the outstanding shares of capital stock of
     the Company have been duly authorized and validly issued and are fully paid
     and non-assessable; none of the outstanding shares of capital stock of the
     Company was issued in violation of the preemptive rights of any stockholder
     of the Company. There are no outstanding options to purchase, or any rights
     or warrants to subscribe for, or any securities or obligations convertible
     into, or any contracts or commitments to issue or sell, any shares of
     Common Stock of the Company, any shares of capital stock of any Subsidiary,
     or any such warrants, convertible securities or obligations, except as set
     forth in the Offering Memorandum and except for options granted under the
     Company's stock option plans.

          (xii)  Authorization of Agreement. This Agreement has been duly
                 --------------------------
     authorized, executed and delivered by the Company.

          (xiii) Authorization of the Registration Rights Agreement. The
                 --------------------------------------------------
     Registration Rights Agreement has been duly authorized by the Company, will
     be substantially in the form attached hereto as Exhibit A and, when duly
     executed and delivered by the Company and Merrill Lynch, will constitute a
     valid and binding agreement of the Company, enforceable against the Company
     in accordance with its terms except as (x) the enforceability thereof may
     be limited by bankruptcy, insolvency (including, without limitation, all
     laws relating to fraudulent transfers), reorganization, moratorium or
     similar laws affecting creditors' rights generally, (y) the availability of
     equitable remedies may be limited by equitable principles of general
     applicability and (z) any rights to indemnity and contribution may be
     limited by federal and state securities laws and public policy
     considerations; and the Registration Rights Agreement conforms to the
     description thereof in the Offering Memorandum in all material respects.

          (xiv)  Authorization of the Indenture. The Indenture has been duly
                 ------------------------------
     authorized by the Company and the Guarantor, will be substantially in the
     form heretofore delivered to you and, when duly executed and delivered by
     the Company, the Guarantor and the Trustee, will

                                       5
<PAGE>

     constitute a valid and binding obligation of the Company and the Guarantor,
     enforceable against the Company and the Guarantor in accordance with its
     terms, except as enforcement thereof may be limited by bankruptcy,
     insolvency (including, without limitation, all laws relating to fraudulent
     transfers), reorganization, moratorium or similar laws affecting
     enforcement of creditors' rights generally and except as enforcement
     thereof is subject to general principles of equity (regardless of whether
     enforcement is considered in a proceeding in equity or at law); and the
     Indenture conforms to the description thereof in the Offering Memorandum in
     all material respects.

          (xv)   Authorization of the Securities.  The Securities have been
                 -------------------------------
     duly authorized by the Company. When executed, authenticated, issued and
     delivered in the manner provided for in the Indenture and sold and paid for
     as provided in this Agreement, the Securities will constitute valid and
     binding obligations of the Company entitled to the benefits of the
     Indenture and enforceable against the Company in accordance with their
     terms, except as enforcement thereof may be limited by bankruptcy,
     insolvency (including, without limitation, all laws relating to fraudulent
     transfers), reorganization, moratorium or similar laws affecting
     enforcement of creditors' rights generally and except as enforcement
     thereof is subject to general principles of equity (regardless of whether
     enforcement is considered in a proceeding in equity or at law); and the
     Securities conform to the description thereof in the Offering Memorandum in
     all material respects.

          (xvi)  Authorization of the Asset Purchase Agreement (Amendment). The
                 ---------------------------------------------------------
     Asset Purchase Agreement has been duly authorized, executed and delivered
     by the Company and constitutes a valid and binding obligation of the
     Company, enforceable against the Company in accordance with its terms,
     except as enforcement thereof may be limited by bankruptcy, insolvency
     (including, without limitation, all laws relating to fraudulent transfers),
     reorganization, moratorium or other similar laws affecting enforcement of
     creditors' rights generally or by general principles of equity (regardless
     of whether enforcement is considered in a proceeding in equity or at law);
     the Asset Purchase Agreement Amendment has been duly authorized, and when
     duly executed and delivered by the Company, will constitute a valid and
     binding obligation of the Company, enforceable against the Company in
     accordance with its terms, except as enforcement thereof may be limited by
     bankruptcy, insolvency (including, without limitation, all laws relating to
     fraudulent transfers), reorganization, moratorium or other similar laws
     affecting enforcement of creditors' rights generally or by general
     principles of equity (regardless of whether enforcement is considered in a
     proceeding in equity or at law); and the Asset Purchase Agreement and the
     Asset Purchase Agreement Amendment conform to the description thereof in
     the Offering Memorandum in all material respects.

          (xvii)  Authorization of the Bank Credit Agreement (Amendment). The
                  ------------------------------------------------------
     Bank Credit Agreement has been duly authorized, executed and delivered by
     the Company and constitutes a valid and binding obligation of the Company,
     enforceable against the Company in accordance with its terms, except as
     enforcement thereof may be limited by bankruptcy, insolvency (including,
     without limitation, all laws relating to fraudulent transfers),
     reorganization, moratorium or other similar laws affecting enforcement of
     creditors' rights generally or by general principles of equity (regardless
     of whether enforcement is considered in a proceeding in equity or at law);
     the Bank Credit Agreement Amendment has been duly authorized, and when

                                       6
<PAGE>

     duly executed by the Company, will constitute a valid and binding
     obligation of the Company, enforceable against the Company in accordance
     with its terms, except as enforcement thereof may be limited by bankruptcy,
     insolvency (including, without limitation, all laws relating to fraudulent
     transfers), reorganization, moratorium or other similar laws affecting
     enforcement of creditors' rights generally or by general principles of
     equity (regardless of whether enforcement is considered in a proceeding in
     equity or at law) and the Bank Credit Agreement and the Bank Credit
     Agreement Amendment conform to the description thereof in the Offering
     Memorandum in all material respects.

          (xviii)  Absence of Defaults and Conflicts. Neither the Company nor
                   ---------------------------------
     any of its Subsidiaries is in violation of its charter or by-laws or in
     default in the performance or observance of any obligation, agreement,
     covenant or condition contained in any contract, indenture, mortgage, deed
     of trust, loan or credit agreement, note, lease or other agreement or
     instrument to which the Company or any of its subsidiaries is a party or by
     which or any of them may be bound, or to which any of the property or
     assets of the Company or any of its subsidiaries is subject (collectively,
     "Agreements and Instruments") except for such defaults that would not
     result in a Material Adverse Effect; and the execution, delivery and
     performance of this Agreement, the Registration Rights Agreement, the
     Indenture, the Asset Purchase Agreement, the Bank Credit Agreement, the
     Guarantee and the Securities and any other agreement or instrument entered
     into or issued or to be entered into or issued by the Company and/or the
     Guarantor in connection with the transactions contemplated hereby or
     thereby or in the Offering Memorandum and consummation of the transactions
     contemplated herein and in the Offering Memorandum (including the
     Acquisition and the issuance and sale of the Securities and the use of the
     proceeds from the sale of the Securities as described in the Offering
     Memorandum under the caption "Use of Proceeds", including the closing of
     the Acquisition and the financing thereof and the amendment of the Bank
     Credit Agreement) and compliance by the Company with its obligations
     hereunder have been duly authorized by all necessary corporate action and
     do not and will not, whether with or without the giving of notice or
     passage of time or both, conflict with or constitute a breach of, or
     default or a Repayment Event (as defined below) under, or result in the
     creation or imposition of any lien, charge or encumbrance upon any property
     or assets of the Company or any of its Subsidiaries (other than pursuant to
     the Asset Purchase Agreement and the Bank Credit Agreement) pursuant to,
     the Agreements and Instruments except for such conflicts, breaches or
     defaults or liens, charges or encumbrances that, singly or in the
     aggregate, would not result in a Material Adverse Effect, nor will such
     action result in any violation of the provisions of the charter or by-laws
     of the Company or any of its Subsidiaries or any applicable law, statute,
     rule, regulation, judgment, order, writ or decree of any government,
     government instrumentality or court, domestic or foreign, having
     jurisdiction over the Company or any of its Subsidiaries or any of their
     assets, properties or operations. As used herein, a "Repayment Event" means
     any event or condition which gives the holder of any note, debenture or
     other evidence of indebtedness (or any person acting on such holder's
     behalf) the right to require the repurchase, redemption or repayment of all
     or a portion of such indebtedness by the Company or any of its
     Subsidiaries.

          (xix)    Absence of Further Requirements.  No authorization, approval,
                   -------------------------------
      consent or license of any government, governmental instrumentality or
      court, domestic or foreign (other than under the 1933 Act and the rules
      and regulations thereunder with respect to the

                                       7
<PAGE>

     Registration Rights Agreement and the transactions contemplated thereunder
     and the securities or blue sky laws of the various states) is required for
     the valid authorization, issuance, sale and delivery of the Securities, for
     the execution, delivery or performance by the Company of this Agreement,
     the Registration Rights Agreement, the Indenture, the Guarantee, the Asset
     Purchase Agreement and the Bank Credit Agreement or for the consummation by
     the Company of the transactions contemplated in this Agreement and in the
     Offering Memorandum (including, without limitation, the Note Redemption),
     except such of the foregoing as will be obtained prior to the Closing Time.

          (xx)    Absence of Proceedings. Except as disclosed in the Offering
                  ----------------------
     Memorandum, there is no action, suit or proceeding before or by any
     government, governmental instrumentality or court, domestic or foreign, now
     pending or, to the knowledge of the Company, threatened against or
     affecting the Company or any Subsidiary or any of their respective
     officers, in their capacity as such, that could result in a Material
     Adverse Effect, or that could materially and adversely affect the
     properties or assets of the Company and its Subsidiaries, considered as one
     enterprise, or that could adversely affect the consummation of the
     transactions contemplated in this Agreement or in the Offering Memorandum
     (including, without limitation, the Note Redemption); the aggregate of all
     pending legal or governmental proceedings that are not described in the
     Offering Memorandum to which the Company or any Subsidiary is a party or
     which affect any of their respective properties, including ordinary routine
     litigation incidental to the business of the Company or any Subsidiary,
     would not have a Material Adverse Effect.

          (xxi)   Contracts; Documents. There are no contracts or documents of a
                  --------------------
     character that would be required to be described in the Offering
     Memorandum, if it were a prospectus filed as part of a registration
     statement on Form S-1 under the 1933 Act, that are not described as would
     be so required (other than contracts or documents described in the
     Company's most recent proxy statement filed with the Commission).

          (xxii)  Title to Property.  The Company and its Subsidiaries each has
                  -----------------
     good and marketable title to all properties and assets described in the
     Offering Memorandum as owned by it, free and clear of all liens, charges,
     encumbrances or restrictions, except such as (A) are described in the
     Offering Memorandum or (B) are neither material in amount nor materially
     significant in relation to the business of the Company and its
     Subsidiaries, considered as one enterprise; all of the leases and subleases
     material to the business of the Company and its subsidiaries, considered as
     one enterprise, and under which the Company or each Subsidiary holds
     properties described in the Offering Memorandum, are in full force and
     effect, and neither the Company nor any Subsidiary has received any notice
     of any material claim of any sort that has been asserted by anyone adverse
     to the rights of the Company or any Subsidiary under any of the leases or
     subleases mentioned above, or affecting or questioning the rights of such
     corporation to the continued possession of the leased or subleased premises
     under any such lease or sublease.

          (xxiii) Possession of Licenses and Permits. The Company and its
                  ----------------------------------
     Subsidiaries possess such permits, licenses, approvals, consents and other
     authorizations (collectively, "Governmental Licenses") issued by the
     appropriate federal, state, local or foreign regulatory

                                       8
<PAGE>

     agencies or bodies necessary to conduct the business now operated by them;
     the Company and its Subsidiaries are in compliance with the terms and
     conditions of all such Governmental Licenses, except where the failure so
     to comply would not, singly or in the aggregate, have a Material Adverse
     Effect; all of the Governmental Licenses are valid and in full force and
     effect, except where the invalidity of such Governmental Licenses or the
     failure of such Governmental Licenses to be in full force and effect would
     not have a Material Adverse Effect; and neither the Company nor any of its
     Subsidiaries has received any notice of proceedings relating to the
     revocation or modification of any such Governmental Licenses which, singly
     or in the aggregate, if the subject of an unfavorable decision, ruling or
     finding, would result in a Material Adverse Effect.

          (xxiv)   Possession of Intellectual Property. The Company and its
                   -----------------------------------
     Subsidiaries each owns or possesses adequate patents, patent licenses,
     trademarks, service marks and trade names that are used in and are material
     in order to carry on its business as presently conducted, and neither the
     Company nor any Subsidiary has received any notice of infringement of or
     conflict with asserted rights of others with respect to any patents, patent
     licenses, trademarks, service marks or trade names that in the aggregate,
     if the subject of an unfavorable decision, ruling or finding, could have a
     Material Adverse Effect.

          (xxv)    Absence of Labor Disputes. To the best knowledge of the
                   -------------------------
     Company, no labor problem exists with employees of the Company or any
     Subsidiary or is imminent that could have a Material Adverse Effect, and
     the Company has no knowledge of any existing or imminent labor disturbance
     by the employees of any of its or any Subsidiary's principal suppliers,
     contractors or customers that could be expected to have a Material Adverse
     Effect.

          (xxvi)   No Stabilization Efforts. Neither the Company nor any
                   ------------------------
     Subsidiary has taken or will take, directly or indirectly, any action
     designed to, or that might be reasonably expected to, cause or result in
     stabilization or manipulation of the price of the Securities.

          (xxvii)  No Registration Required. Subject to compliance by the
                   ------------------------
     Initial Purchasers with the representations and warranties set forth in
     Section 2 and the procedures set forth in Section 6 hereof, it is not
     necessary in connection with the offer, sale and delivery of the Securities
     to the Initial Purchasers under, or in connection with the initial resale
     of such Securities by the Initial Purchasers in the manner contemplated by
     the Offering Memorandum and in accordance with this Agreement, to register
     the Securities under the 1933 Act or to qualify any indenture in respect of
     the Securities under the Trust Indenture Act of 1939, as amended (the
     "Trust Indenture Act").

          (xxviii) Solvency. The Company is, and immediately after the Closing
                   --------
     Time (after giving effect to the Acquisition and the financing thereof as
     described in the Offering Memorandum) will be, Solvent. As used herein, the
     term "Solvent" means, with respect to the Company on a particular date,
     that on such date (A) the fair market value of the assets of the Company is
     greater than the total amount of liabilities (including contingent
     liabilities) of the Company, (B) the present fair salable value of the
     assets of the Company is greater than the amount that will be required to
     pay the probable liabilities of the Company on its debts as they become
     absolute and matured, (C) the Company is able to realize upon
     its assets and pay its

                                       9
<PAGE>

     debts and other liabilities, including contingent obligations, as they
     mature and (D) the Company does not have an unreasonably small capital.

          (xxix)   Rule 144A Eligibility. The Securities are eligible for resale
                   ---------------------
     pursuant to Rule 144A and will not be, at the Closing Time, of the same
     class as securities listed on a national securities exchange registered
     under Section 6 of the Securities Exchange Act, or quoted in a U.S.
     automated interdealer quotation system.

          (xxx)    The Asset Purchase Agreement. The representations and
                   ----------------------------
     warranties of the Company set forth in the Asset Purchase Agreement are
     true and correct in all material respects on the date hereof, except to the
     extent any such representation or warranty was expressly made as of any
     other date, in which case such representation and warranty was true and
     correct at such date. The Asset Purchase Agreement is in full force and
     effect, and the Company has performed all of its obligations thereunder
     required to be performed on or prior to the date hereof.

          (xxxi)   No Violation. No part of the proceeds of the sale of the
                   ------------
     Securities will be used for any purpose that violates the provisions of any
     of Regulation T, U or X of the Board of Governors of the Federal Reserve
     System or any other regulation of such Board of Governors.

          (xxxii)  Filing of Income Tax Returns. All United States federal
                   ----------------------------
     income tax returns of the Company required by law to be filed have been
     filed and all United States federal income taxes which are due and payable
     have been paid, except assessments against which appeals have been or will
     be timely taken and as to which adequate reserves have been provided. The
     United States federal income tax returns of the Company through the period
     ended September 30, 1999, have been settled and no assessment in connection
     therewith has been made against the Company. As of the Closing Time, the
     United States federal income tax returns of the Company through the period
     ended September 30, 2000, will have been settled and no assessment in
     connection therewith will have been made against the Company. Each of the
     Company and the Subsidiaries has filed all other tax returns that are
     required to have been filed by it pursuant to applicable foreign, state,
     local or other law except insofar as the failure to file such returns would
     not have a Material Adverse Effect, and has paid all taxes due and shown on
     such returns or pursuant to any assessment received by the Company and the
     Subsidiaries, except for such taxes, if any, as are being contested in good
     faith and as to which adequate reserves have been provided. The charges,
     accruals and reserves on the books of the Company in respect of any income
     and corporation tax liability for any years not finally determined are
     adequate to meet any assessments or re-assessments for additional income
     tax for any years not finally determined, except to the extent of any
     inadequacy that would not have a Material Adverse Effect.

          (xxxiii) Maintenance of Accounting Controls. The Company and its
                   ----------------------------------
     Subsidiaries each maintains a system of internal accounting controls
     sufficient to provide reasonable assurances that (A) transactions are
     executed in accordance with management's general or specific authorization;
     (B) transactions are recorded as necessary to permit preparation of
     financial statements in conformity with generally accepted accounting
     principles and to maintain accountability for assets; (C) access to assets
     is permitted only in accordance with

                                       10
<PAGE>

     management's general or specific authorization; and (D) the recorded
     accountability for assets is compared with the existing assets at
     reasonable intervals and appropriate action is taken with respect to any
     differences.

          (xxxiv)   Investment Company Act. The Company is not, and upon the
     issuance and sale of the Securities as herein contemplated and the
     application of the net proceeds therefrom as described in the Offering
     Memorandum will not be, an "investment company" or an "affiliated person"
     of, or "promoter" or "principal underwriter" for, an "investment company,"
     as such terms are defined in the Investment Company Act of 1940, as amended
     (the "1940 Act").

          (xxxv)    Insurance. The Company and its Subsidiaries carry or are
     entitled to the benefits of insurance, with financially sound and reputable
     insurers, in such amounts and covering such risks as is generally
     maintained by companies of established repute engaged in the same or
     similar business, and all such insurance is in full force and effect.

          (xxxvi)   Registration Rights. Except as disclosed in the Offering
     Memorandum, there are no persons with registration rights or other similar
     rights to have any securities registered pursuant to the Registration
     Statement or otherwise registered by the Company under the Securities Act.

          (xxxvii)  Environmental Laws. Except as disclosed in the Offering
     Memorandum and except as would not individually or in the aggregate have a
     Material Adverse Effect (A) the Company and the Subsidiaries are each in
     compliance with all applicable Environmental Laws, (B) the Company and the
     Subsidiaries have all permits, authorizations and approvals required under
     any applicable Environmental Laws and are each in compliance with their
     requirements, (C) there are no pending or threatened Environmental Claims
     against the Company or any of the Subsidiaries, and (D) there are no
     circumstances with respect to any property or operations of the Company or
     the Subsidiaries that could reasonably be anticipated to form the basis of
     an Environmental Claim against the Company or the Subsidiaries.

          For purposes of this Agreement, the following terms shall have the
     following meanings: "Environmental Law" means any United States (or other
     applicable jurisdiction's) federal, state, local or municipal statute, law,
     rule, regulation, ordinance, code, policy or rule of common law and any
     judicial or administrative interpretation thereof including any judicial or
     administrative order, consent decree or judgment, relating to the
     environment, health, safety or any chemical, material or substance,
     exposure to which is prohibited, limited or regulated by any governmental
     authority. "Environmental Claims" means any and all administrative,
     regulatory or judicial actions, suits, demands, demand letters, claims,
     liens, notices of noncompliance or violation, investigations or proceedings
     relating in any way to any Environmental Law.

          (xxxviii) Reporting Company.  The Company is subject to the reporting
                    -----------------
      requirements of Section 13 or Section 15(d) of the 1934 Act.

          (b)  Officer's Certificates. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Representatives or to
counsel for the Initial Purchasers shall be

                                       11
<PAGE>

deemed a representation and warranty by the Company to each Initial Purchaser as
to the matters covered thereby.

     Section 2.   Sale and Delivery to Initial Purchasers; Closing. (a)
                  ------------------------------------------------
Securities. On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Company agrees to
sell to each Initial Purchaser, severally and not jointly, and each Initial
Purchaser severally agrees to purchase from the Company, at the price set forth
in Schedule I, the aggregate principal amount of the Securities set forth
opposite the name of each Initial Purchaser, plus any additional principal
amount of Securities which such Initial Purchaser may become obligated to
purchase pursuant to the provisions of Section 11 hereof.

            (b)   Payment. Payment of the purchase price for, and delivery of,
the Securities shall be made at the offices of Ropes & Gray, 885 Third Avenue,
New York, New York 10022, or at such other place as shall be agreed upon by the
Company and you, at 10:00 A.M., New York time, on June 19, 2001, or at such
other time not more than ten full business days thereafter as you and the
Company shall determine (such date and time of payment and delivery being herein
called the "Closing Time"). The Securities shall be in such denominations and
registered in such names as you may request in writing at least two business
days before Closing Time. The Securities will be made available for examination
and packaging by you not later than 10:00 A.M. on the last business day prior to
Closing Time.

            Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. Each Initial Purchaser
has authorized the Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Securities which it
has agreed to purchase. Merrill Lynch, individually and not as representative of
the Initial Purchasers, may (but shall not be obligated to) make payment of the
purchase price for the Securities to be purchased by any Initial Purchaser whose
funds have not been received by the Closing Time, but such payment shall not
relieve such Initial Purchaser from its obligations hereunder.

            (c)   Denominations; Registration. Certificates for the Securities
shall be in such denominations ($100,000 or integral multiples of $1,000 in
excess thereof) and registered in such names as the Representatives may request
in writing at least one full business day before the Closing Time. The global
certificate representing the Securities shall be made available for examination
and packaging by the Initial Purchasers in the City of New York not later than
10:00 A.M. on the last business day prior to the Closing Time.

     Section 3.   Covenants of the Company.  The Company covenants with you as
                  ------------------------------------------------------------
follows:
--------

            (a)   Offering Memorandum. The Company will promptly deliver to each
Initial Purchaser, without charge, during the period from the date hereof to the
date of the completion of the distribution of the Securities, such number of
copies of the Offering Memorandum, as it may then be amended or supplemented, or
the Preliminary Offering Memorandum, as it may then be amended or supplemented,
as such Initial Purchaser may reasonably request.

                                       12
<PAGE>

            (b)   Notice and Effect of Material Events. The Company will
immediately notify each Initial Purchaser, and confirm such notice in writing,
of (x) any filing made by the Company of information relating to the offering of
the Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the condition, financial or otherwise, or the earnings, business
affairs or business prospects or the Company and its Subsidiaries considered as
one enterprise which (i) makes any statement in the Offering Memorandum false or
misleading or (ii) are not disclosed in the Offering Memorandum. In such event
or if during such time any event shall occur as a result of which it is
necessary, in the reasonable opinion of any of the Company, its counsel, the
Initial Purchasers or counsel for the Initial Purchasers, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum not include any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading in the light of the
circumstances then existing, the Company will forthwith amend or supplement the
Offering Memorandum by preparing and furnishing to each Initial Purchaser an
amendment or amendments of, or a supplement or supplements to, the Offering
Memorandum (in form and substance satisfactory in the reasonable opinion of
counsel for the Initial Purchasers) so that, as so amended or supplemented, the
Offering Memorandum will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances existing as of the date of such amended or
supplemented Offering Memorandum, not misleading.

            (c)   Amendment to Offering Memorandum and Supplements. The Company
will advise each Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchasers; such consent not to be
unreasonably withheld. Neither the consent of the Initial Purchasers, nor the
Initial Purchaser's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.

            (d)   Qualification of Securities for Offer and Sale. The Company
will use its best efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale under the applicable securities
laws of such states and other jurisdictions as the Initial Purchasers may
designate and to maintain such qualifications in effect so long as required for
the resale of the Securities for a period of not less than a year from the date
of the Offering Memorandum; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. The
Company will file such statements and reports as may be required by the laws of
each jurisdiction in which the Securities have been qualified as above provided.
The Company will also supply the Representatives with such information as is
necessary for the determination of the legality of the Securities for investment
under the laws of such jurisdictions as the Representatives may request.

            (e)   No Solicitation. Except following the effectiveness of the
Registration Statement, neither the Company nor any of its affiliates (as such
term is defined in Rule 501(b) of Regulation D) will solicit any offer to buy or
offer to sell the Securities by means of any form of

                                       13
<PAGE>

general solicitation or general advertising (within the meaning of Rule 502(C)
of Regulation D) or in any manner involving a public offering within the meaning
of Section 4(2) of the 1933 Act.

          (f)  No Registration Required. Neither the Company nor any of its
affiliates (as such term is defined in Rule 501(b) of the 1933 Act) will offer,
sell or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the 1933 Act) the offering of which security could be integrated
with the sale of the Securities in a manner that would require the registration
of any of the Securities under the 1933 Act.

          (g)  Investment Company Act. The Company will not be or become an
open-end investment company, unit investment trust or face-amount certificate
company that is or is required to be registered under the 1940 Act, and will not
be or become a closed-end investment company required to be registered, but not
registered, thereunder.

          (h)  No Resale. During the period from the Closing Time to the earlier
of (i) two years after the Closing Time or (ii) the date of effectiveness of the
Registration Statement, the Company will not, and will not permit any of its
affiliates (as such term is defined in Rule 144 under the 1933 Act) to, resell
any of the Securities that have been reacquired thereby, except for Securities
purchased by the Company or any of its affiliates and resold in a transaction
registered under the 1933 Act.

          (i)  Reporting Requirements. The Company will, so long as the
Securities are outstanding and are "restricted securities" within the meaning of
Rule 144(a)(3) under the 1933 Act, either (i) file reports and other information
with the Commission under Section 13 or Section 15(d) of the 1934 Act, or (ii)
in the event the Company is not subject to Section 13 or Section 15(d) of the
1934 Act, furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant to
Rule 144A(d)(4) under the 1933 Act to permit compliance with Rule 144A in
connection with resale of the Securities.

          (j)  DTC. The Company will cooperate with the Initial Purchasers and
use its best efforts to permit the Securities to be eligible for clearance and
settlement through The Depository Trust Company.

          (k)  Legends. Each Note will bear the following legend until such
legend shall no longer be necessary or advisable because such Note is no longer
subject to the restrictions on transfer described therein:

               THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
          NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
          REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
          OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
          SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE
          HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
          OR

                                       14
<PAGE>

            OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO
            YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST
            DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE
            OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY), ONLY
            (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH
            HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
            LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
            UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
            BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
            144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
            QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
            TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO THE
            EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF AVAILABLE) OR
            (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
            REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE
            TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
            PURSUANT TO CLAUSES (C), (D) OR (E) TO REQUIRE THE DELIVERY OF AN
            OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
            SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF THE FOREGOING
            CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
            APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
            DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.

            (l)   Use of Proceeds. The Company will apply the net proceeds that
it receives from the offer and sale of the Securities issued by it in the manner
set forth with respect to it in the Offering Memorandum under the heading "Use
of Proceeds."

            (m)   Communications. Prior to the Closing Time, the Company will
not issue any press release or other communications directly or indirectly or
hold any press conference with respect to the Company, the condition, financial
or otherwise, or the earnings, business affairs or business prospects of the
Company, without your prior written consent which consent will not be
unreasonably withheld, unless in the judgment of the Company and its counsel,
and after notification to the Representatives, such press release or
communication is required by law.

            (n)   Lock-up. For a period of 180 days from the date of the
Offering Memorandum, the Company will not, without your prior written consent,
directly or indirectly, offer, pledge, sell, grant any option, right or warrant
for the sale of or otherwise dispose of any debt securities of the Company (or
securities convertible or exchangeable into or exercisable for debt securities
of the Company), or file any registration statement with respect to the
foregoing, other than (i) the Securities or the Exchange Securities referred to
in the Registration Rights Agreement and (ii) the inventory note to be issued
pursuant to the Acquisition as described in the Offering Memorandum.

     Section 4.   Payment of Expenses. (a) Expense. The Company will pay all
                  -------------------
expenses incident to the performance of its obligations under this Agreement,
the Securities, the Registration

                                       15
<PAGE>

Rights Agreement and the Indenture including (i) the preparation, printing,
delivery to the Initial Purchasers and any filing of the Offering Memorandum
(including financial statements and any schedules or exhibits and any document
incorporated therein by reference) and of each amendment or supplement thereto,
(ii) the preparation, printing and delivery to the Initial Purchasers of this
Agreement, any Agreement among Initial Purchasers, the Indenture, the Guarantee,
the Registration Rights Agreement and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Initial Purchasers, including any transfer taxes, any
stamp or other duties payable upon the sale, issuance and delivery of the
Securities to the Initial Purchasers and any charges of DTC in connection
therewith, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(d) hereof, including filing
fees and the reasonable fees and disbursements of counsel for the Initial
Purchasers in connection therewith and in connection with the preparation of the
blue sky survey, and any supplement thereto, (vi) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, (vii) any fees payable in
connection with the rating of the Securities, and (viii) any fees and expenses
payable in connection with the initial and continued designation of the
Securities as PORTAL securities under the PORTAL Market Rules pursuant to NASD
Rule 5322.

            (b)   Termination of Agreement. If this Agreement is terminated by
the Representatives in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company and the Guarantor, jointly and severally, shall
reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.

     Section 5.   Conditions of Initial Purchasers' Obligations. The obligations
                  ---------------------------------------------
of each Initial Purchaser to purchase and pay for the Securities that it has
agreed to purchase hereunder are subject to the accuracy of the representations
and warranties of the Company contained herein or in certificates of any officer
of the Company, delivered pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder, and to the following further
conditions:

            (a)   Opinion of Counsel for the Company. At the Closing Time, the
Representatives shall have received the opinion, dated as for the Closing Time,
of Ropes & Gray, counsel for the Company, in form and substance satisfactory to
counsel for the Initial Purchasers, together with signed or reproduced copies of
such letter for each of the Initial Purchasers to the effect set forth in
Exhibit B hereto and to such further effect as counsel to the Initial Purchasers
may reasonably request. In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the federal law of the
United States, the law of the Commonwealth of Massachusetts and the General
Corporation Law of the State of Delaware, upon opinions of other counsel, who
shall be counsel satisfactory to counsel for the Initial Purchasers in which
case the opinion shall state that they believe you and they are entitled to so
rely. Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Company and the Subsidiaries and certificates of public
officials, provided that such certificates have been delivered to the
Representatives.

                                       16
<PAGE>

          (b)  Opinion of General Counsel for the Company. At the Closing Time,
the Representatives shall have received the opinion, dated as for the Closing
Time, of John Dudek, general counsel for the Company, in form and substance
satisfactory to counsel for the Initial Purchasers, together with signed or
reproduced copies of such letter for the Initial Purchasers to the effect set
forth in Exhibit C hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request.

          (c)  Opinion of Counsel for the Initial Purchasers. At the Closing
Time, the Representatives shall have received the favorable opinion, dated as of
the Closing Time, of Shearman & Sterling, counsel for the Initial Purchasers. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon the opinions of counsel satisfactory to
the Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.

          (d)  Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received certificates of the Company executed on its
behalf by the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company, dated as of the Closing
Time, to the effect that (i) there has been no such material adverse change,
(ii) no action, suit or proceeding at law or in equity shall be pending or, to
the knowledge of the Company, threatened against the Company or any Subsidiary
that would be required to be set forth in the Offering Memorandum other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Company, threatened against the Company before or by any government,
governmental instrumentality or court, domestic or foreign, that could be
expected to result in any Material Adverse Effect, (iii) no event of default
shall exist under any contract, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument to which the Company or any Subsidiary is a
party or to which the Company or any Subsidiary is subject, (iv) the
representations and warranties in Section 1 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Time,
(v) the Company has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Time and (vi)
the Offering Memorandum, as it may then be amended or supplemented, shall not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.

          (e)  Deloitte & Touche's Accountants' Comfort Letter. At the time of
the execution of this Agreement, the Representatives shall have received from
Deloitte & Touche LLP a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced copies
of such letter for each of the other Initial Purchasers containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to Initial Purchasers with respect to the financial statements and
certain financial information contained in the Offering Memorandum.

                                       17
<PAGE>

          (f)  KPMG LLP Accountants' Comfort Letter. At the time of the
execution of this Agreement, the Representatives shall have received from KPMG
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers containing statements and information of
the type ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to the QPF financial statements and certain financial
information contained in the Offering Memorandum.

          (g)  Bring-down Comfort Letter. At the Closing Time, the
Representatives shall have received from Deloitte & Touche LLP a letter, dated
as of the Closing Time, to the effect that they reaffirm the statements made in
the letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.

          (h)  Bring-down Comfort Letter. At the Closing Time, the
Representatives shall have received from KPMG LLP a letter, dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (f) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to the
Closing Time.

          (i)  Maintenance of Rating. Subsequent to the execution and delivery
of this Agreement and prior to the Closing Time, there shall not have been any
downgrading, nor any notice publicly given of any intended or potential
downgrading or of a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities,
including any of the Securities, by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule 436(g)(2)
under the 1933 Act.

          (j)  Asset Purchase Agreement. At the time of this Agreement, the
Asset Purchase Agreement shall be in full force and effect; at the Closing time,
the Asset Purchase Agreement Amendment shall have been fully executed and shall
be in full force and effect and substantially in the form attached hereto as
Exhibit D; simultaneously with the Closing Time, the closing contemplated by the
Asset Purchase Agreement and the Asset Purchase Agreement Amendment shall be
consummated in accordance with the terms thereof in all material respects
(except to the extent any conditions precedent have been waived with your prior
written consent, which consent shall not be unreasonably withheld); and the
Company shall have provided to the representative or counsel for the Initial
Purchasers copies of all closing documents delivered to the parties to the
transactions contemplated by the Asset Purchase Agreement.

          (k)  Registration Rights Agreement. At the Closing Time, the
Registration Rights Agreement shall have been fully executed and be in full
force and effect.

          (l)  Portal. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.

          (m)  Discharge of Indenture. At the Closing Time, the Representatives
or counsel to the Initial Purchasers shall have received satisfactory evidence
of satisfaction and discharge of the indenture relating to the 11 1/2% Senior
Notes due 2002.

                                       18
<PAGE>

            (n)   Bank Credit Agreement. At the Closing Time, the
Representatives or counsel to the Initial Purchasers shall have received
satisfactory evidence that the Company has paid down the Bank Credit Agreement
as described in the Offering Memorandum under "Use of Proceeds"; and the Bank
Credit Agreement Amendment shall have been fully executed and shall be in full
force and effect and substantially in the form attached hereto as Exhibit E.

            (o)   Additional Documents. At the Closing Time, counsel to the
Initial Purchasers shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
contemplated in this Agreement and the matters referred to in Section 5(d) and
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company, the performance of any
of the covenants of the Company, or the fulfillment of any of the conditions
herein contained; and all proceedings taken by the Company at or prior to the
Closing Time in connection with the authorization, issuance and sale of the
Securities as contemplated in this Agreement shall be satisfactory in form and
substance to the Initial Purchasers and to counsel for the Initial Purchasers.

            (p)   Termination of Agreement. If any of the conditions specified
in this Section 5 shall not have been fulfilled when and as required by this
Agreement, this Agreement may be terminated by you on notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 1, 7, 8 and 9
shall remain in effect.

     Section 6.   Subsequent Offers and Resales of the Securities. (a) Offer
                  -----------------------------------------------
and Sale Procedures. Each of the Initial Purchasers and the Company hereby
establish and agree to observe the following procedures in connection with the
offer and sale of the Securities:

            (i)   Offers and Sales Only to Qualified Institutional Buyers.
                  -------------------------------------------------------
     Offers and sales of the Securities shall only be made to persons whom the
     offeror or seller reasonably believes to be qualified institutional buyers,
     as defined in Rule 144A under the 1933 Act ("Qualified Institutional
     Buyers").

            (ii)  No General Solicitation. No general solicitation or general
                  -----------------------
     advertising (within the meaning of Rule 502(c) under the 1933 Act) will be
     used in the United States in connection with the offering or sale of the
     Securities.

            (iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
                  ---------------------------------
     Subsequent Purchaser of a Security acting as a fiduciary for one or more
     third parties, each third party shall, in the judgment of the applicable
     Initial Purchaser, be a Qualified Institutional Buyer.

            (iv)  Subsequent Purchaser Notification.  Each Initial Purchaser
                  ---------------------------------
     will take reasonable steps to inform, and cause each of its U.S. Affiliates
     to take reasonable steps to inform, persons acquiring Securities from such
     Initial Purchaser or Affiliate, as the case may be, in the United States
     that the Securities (A) have not been and will not be registered under the
     1933 Act, (B) are being sold to them without registration under the 1933
     Act in reliance on Rule 144A or in accordance with another exemption from
     registration under the 1933 Act, as the case may be, and (C) may not be
     offered, sold or otherwise transferred except (1) to the Company or (2)

                                       19
<PAGE>

     inside the United States in accordance with (x) Rule 144A to a person whom
     the seller reasonably believes is a Qualified Institutional Buyer that is
     purchasing such Securities for its own account or for the account of a
     Qualified Institutional Buyer to whom notice is given that the offer, sale
     or transfer is being made in reliance on Rule 144A or (y) pursuant to
     another available exemption from registration under the 1933 Act.

          (v)    Minimum Principal Amount.  No sale of the Securities to any
                 ------------------------
     one Subsequent Purchaser will be for less than U.S. $100,000 principal
     amount and no Security will be issued in a smaller principal amount. If the
     Subsequent Purchaser is a non-bank fiduciary acting on behalf of others,
     each person for whom it is acting must purchase at least U.S. $100,000
     principal amount of the Securities.

          (vi)   Restrictions on Transfer. The transfer restrictions and the
                 ------------------------
     other provisions set forth in the Offering Memorandum under the heading
     "Notice to Investors", including the legend required thereby, shall apply
     to the Securities except as otherwise agreed by the Company and the Initial
     Purchasers.

          (vii)  Delivery of Offering Memorandum. Each Initial Purchaser will
                 -------------------------------
     deliver to each purchaser of the Securities from such Initial Purchaser, in
     connection with its original distribution of the Securities, a copy of the
     Offering Memorandum, as amended and supplemented at the date of such
     delivery.

          (b)    Covenants of the Company. The Company and the Guarantor,
jointly and severally, covenant with each Initial Purchaser as follows:

          (i)    Integration.  The Company agrees that it will not and will
                 -----------
     cause its Affiliates not to, directly or indirectly, solicit any offer to
     buy, sell or make any offer or sale of, or otherwise negotiate in respect
     of, securities of the Company or the Guarantor of any class if, as a result
     of the doctrine of "integration" referred to in Rule 502 under the 1933
     Act, such offer or sale would render invalid (for the purpose of (i) the
     sale of the Securities by the Company to the Initial Purchasers, (ii) the
     resale of the Securities by the Initial Purchasers to Subsequent Purchasers
     or (iii) the resale of the Securities by such Subsequent Purchasers to
     others) the exemption from the registration requirements of the 1933 Act
     provided by Section 4(2) thereof or by Rule 144A thereunder or otherwise.

          (ii)   Rule 144A Information. The Company agrees that, in order to
                 ---------------------
     render the Securities eligible for resale pursuant to Rule 144A under the
     1933 Act, while any of the Securities remain outstanding, it will make
     available, upon request, to any holder of Securities or prospective
     purchasers of Securities the information specified in Rule 144A(d)(4),
     unless the Company furnishes information to the Commission pursuant to
     Section 13 or 15(d) of the 1934 Act.

          (iii)  Restriction on Repurchases. Until the expiration of two years
     after the original issuance of the Securities, the Company and the
     Guarantor will not, and each will cause their Affiliates not to, resell
     (except to the Company or an Affiliate) any Securities which are
     "restricted securities" (as such term is defined under Rule 144(a)(3) under
     the 1933 Act),

                                       20
<PAGE>

     whether as beneficial owner or otherwise (except as agent acting as a
     securities broker on behalf of and for the account of customers in the
     ordinary course of business in unsolicited broker's transactions).

            (c)    Qualified Institutional Buyer. Each Initial Purchaser
severally and not jointly represents and warrants to, and agrees with, the
Company that it is a "qualified institutional buyer" within the meaning of Rule
144A under the 1933 Act (a "Qualified Institutional Buyer") and an "accredited
investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited
Investor").

     Section 7.    Indemnification. (a) The Company agrees to indemnify and hold
                   ---------------
harmless each Initial Purchaser and each person, if any, who controls any
Initial Purchaser within the meaning of Section 15 of the 1933 Act as follows:

            (i)    against any and all loss, liability, claim, damage and
     expense whatsoever, as incurred, arising out of an untrue statement or
     alleged untrue statement of a material fact included in any preliminary
     offering memorandum or the Offering Memorandum (or any amendment or
     supplement thereto) or the omission or alleged omission therefrom of a
     material fact necessary in order to make the statements therein, in the
     light of the circumstances under which they were made, not misleading;

            (ii)   against any and all loss, liability, claim, damage and
     expense whatsoever, as incurred, to the extent of the aggregate amount paid
     in settlement of any litigation, or investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission; provided that (subject to Section
     7(d) below) any such settlement is effected with the written consent of the
     Company; and

            (iii)  against any and all expense whatsoever, as incurred
     (including fees and disbursements of counsel chosen by the Initial
     Purchasers), reasonably incurred in investigating, preparing or defending
     against any litigation, or investigation or proceeding by any governmental
     agency or body, commenced or threatened, or any claim whatsoever based upon
     any such untrue statement or omission, or any such alleged untrue statement
     or omission, to the extent that any such expense is not paid under
     subparagraph (i) or (ii) above;

     provided, however, that this indemnity agreement does not apply to any
     --------  -------
loss, liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers through Merrill Lynch expressly for use in any preliminary
offering memorandum or the Offering Memorandum (or any amendment or supplement
thereto).

            (b)    Indemnification of Company. Each Initial Purchaser severally
(but not jointly) agrees to indemnify and hold harmless the Company, its
directors, each of its officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity agreement
in Section 6(a), as incurred, but only with respect to untrue statements or
omissions made in any preliminary offering

                                       21
<PAGE>

memorandum or the Offering Memorandum (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished to the
Company by such Initial Purchaser through Merrill Lynch expressly for use in
such preliminary offering memorandum or the Offering Memorandum (or any
amendment or supplement thereto).

            (c)   Actions Against Parties; Notification. Each indemnified party
shall give prompt notice to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 7(a) above, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 7(b) above, counsel to the indemnified parties
shall be selected by the Company. An indemnifying party may participate at its
own expense in the defense of such action; provided, however, that counsel to
                                           --------  -------
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7 or Section 8 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

            (d)   Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

     Section 8.   Contribution. If the indemnification provided for in Section 7
                  ------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which

                                       22
<PAGE>

resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.

          The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total discount received by the Initial Purchasers, bear to
the aggregate initial offering price of the Securities.

          The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

          The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

          Notwithstanding the provisions of this Section, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities purchased and sold by it were distributed to
the purchasers thereof exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

          No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

          For purposes of this Section, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section are several in proportion to
the principal amount of Securities set forth opposite their respective names in
Schedule A hereto and not joint.

                                       23
<PAGE>

     Section 9.   Representations, Warranties and Agreements to Survive
                  -----------------------------------------------------
Delivery. The representations, warranties, indemnities, agreements and other
--------
statements of the Company or its officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, the Initial Purchasers or any
person who controls the Company or the Initial Purchasers within the meaning of
Section 15 of the 1933 Act and will survive delivery of and payment for the
Securities.

     Section 10.  Termination of Agreement. (a) Termination General. The
                  ------------------------
Representatives may terminate this Agreement, by notice to the Company, at any
time at or prior to the Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange or the
NASDAQ System, or if trading generally on the American Stock Exchange or the New
York Stock Exchange or in the NASDAQ System has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.

            (b)   Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party, except to the extent provided in Section 4 hereof. Notwithstanding any
such termination, the provisions of Sections 1, 6, 7 and 8 shall remain in
effect.

     Section 11.  Default. If one or more of the Initial Purchasers shall fail
                  -------
at the Closing Time to purchase the Securities that it or they are obligated to
purchase (the "Defaulted Securities"), the non-defaulting Initial Purchasers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Initial Purchasers to purchase all, but not less
than all, of the Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, the Initial Purchasers have not
completed such arrangements within such 24-hour period, then:

            (a)   if the aggregate principal amount of Defaulted Securities does
not exceed 10% of the aggregate principal amount of the Securities to be
purchased, the non-defaulting Initial Purchasers shall be obligated to purchase
the full amount thereof in the proportions that their respective purchase
obligations bear to the purchase obligations of all non-defaulting Initial
Purchasers, or

                                       24
<PAGE>

            (b)   if the aggregate principal amount of Defaulted Securities
exceeds 10% of the aggregate principal amount of the Securities to be purchased,
this Agreement shall terminate without liability on the part of any non-
defaulting Initial Purchaser.

            No action taken pursuant to this Section shall relieve any
defaulting Initial Purchasers from liability in respect of its default.

            In the event of any such default that does not result in a
termination of this Agreement, either the Initial Purchasers or the Company
shall have the right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the Offering Memorandum or
in any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 11.

     Section 12.  Notices. All notices and other communications under this
                  -------
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices to the Initial Purchasers shall be directed to Merrill Lynch, c/o
Merrill Lynch, Pierce, Fenner & Smith Incorporated, at Merrill Lynch World
Headquarters, North Tower, World Financial Center, New York, New York 10281,
attention of Michael Senft; notices to the Company shall be directed to it at
c/o Applied Extrusion Technologies, Inc., 96 Swampscott Road, Salem, MA 01970,
attention of Thomas E. Williams, President.

     Section 13.  Parties. This Agreement is made solely for the benefit of the
                  -------
Initial Purchasers, the Company and, to the extent expressed, any person who
controls the Company or the Initial Purchasers within the meaning of Section 15
of the 1933 Act, and the directors of the Company, its officers, and its
executors, administrators, successors and assigns and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from the Initial Purchaser of the Securities.

     Section 14.  Governing Law and Time. This Agreement shall be governed by
                  ----------------------
the laws of the State of New York. Specified times of the day refer to New York
City time.

     Section 15.  Counterparts. This Agreement may be executed in one or more
                  ------------
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.

                                       25
<PAGE>

          If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company and you in
accordance with its terms.

                                             Very truly yours,


                                             APPLIED EXTRUSION
                                                TECHNOLOGIES, INC.


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





Confirmed and accepted as of
the date first above written:


MERRILL LYNCH & CO.
 Merrill Lynch, Pierce, Fenner & Smith Incorporated
CHASE SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANC ALEX BROWN INC.

By: MERRILL LYNCH & CO.
          Merrill Lynch, Pierce, Fenner & Smith Incorporated

By /s/ Keith Alexander
   -----------------------------------
   Name: Keith Alexander
   Title: Managing Director

                                       26
<PAGE>

                                  SCHEDULE I


                                                                Principal Amount
                                                                 of Securities
Initial Purchasers                                              to be Purchased
------------------                                              ---------------

Merrill Lynch, Pierce, Fenner & Smith
            Incorporated                                          $ 90,750,000
Chase Securities Inc.                                               90,750,000
Credit Suisse First Boston Corporation                              46,750,000
Deutsche Banc Alex. Brown Inc.                                      46,750,000
                                                               -----------------
            Total                                                 $275,000,000

                                       27
<PAGE>
                                                                       EXHIBIT A

                         Registration Rights Agreement

                           Dated as of June 19, 2001


                                     among


                     Applied Extrusion Technologies, Inc.


                                      and


                             Merrill Lynch & Co.,

                     Merrill Lynch, Pierce, Fenner & Smith

                                 Incorporated

                             Chase Securities Inc.

                    Credit Suisse First Boston Corporation


                                      and


                        Deutsche Banc Alex. Brown Inc.


                                 Exhibit A-1
<PAGE>

                         REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into June , 2001, among APPLIED EXTRUSION TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, CHASE SECURITIES INC. ,CREDIT SUISSE FIRST BOSTON
CORPORATION and DEUTSCHE BANC ALEX. BROWN (the "Purchasers").

          This Agreement is made pursuant to the Purchase Agreement dated June
12, 2001 between the Company and the Purchasers (the "Purchase Agreement"),
which provides for the sale by the Company to the Purchasers of an aggregate of
$275,000,000 principal amount of the Company's 10 3/4% Senior Notes due 2011
(the "Securities"). In order to induce the Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide to the Purchasers and their direct
and indirect transferees the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the Purchase
Agreement.

          In consideration of the foregoing, the parties hereto agree as
follows:

     1.   Definitions. As used in this Agreement, the following capitalized
          -----------
defined terms shall have the following meanings:

          "1933 Act" shall mean the Securities Act of 1933, as amended from time
           --------
     to time.

          "1934 Act" shall mean the Securities Exchange Act of 1934, as amended
           --------
     from time to time.

          "Closing Date" shall mean the Closing Time as defined in the Purchase
           ------------
     Agreement.

          "Company" shall have the meaning set forth in the preamble and also
           -------
     includes the Company's successors.

          "Depositary" shall mean the Depositary Trust Company, or any other
           ----------
     depositary appointed by the Company; provided, however, that such
                                          --------  -------
     depositary must have an address in the Borough of Manhattan, in the City of
     New York.

          "Exchange Offer" shall mean the exchange offer by the Company of
           --------------
     Exchange Securities for Registrable Securities pursuant to Section 2(a)
     hereof.

          "Exchange Offer Registration" shall mean a registration under the 1933
           ---------------------------
     Act effected pursuant to Section 2(a) hereof.

          "Exchange Offer Registration Statement" shall mean an exchange offer
           -------------------------------------
     registration statement on Form S-4 (or, if applicable, on another
     appropriate form), and all amendments and

                                  Exhibit A-2
<PAGE>

     supplements to such registration statement, in each case including the
     Prospectus contained therein, all exhibits thereto and all material
     incorporated by reference therein.

          "Exchange Securities" shall mean 10 3/4% Series B Senior Notes due
           -------------------
     2011 issued by the Company under the Indenture containing terms identical
     to the Securities (except that (i) interest thereon shall accrue from the
     last date on which interest was paid on the Securities or, if no such
     interest has been paid, from the date of their original issue (ii) the
     transfer restrictions thereon shall be eliminated and (iii) certain
     provisions relating to an increase in the stated rate of interest thereon
     shall be eliminated), to be offered to Holders of Securities in exchange
     for Securities pursuant to the Exchange Offer.

          "Holders" shall mean the Purchasers, for so long as they own any
           -------
     Registrable Securities, and each of their successors, assigns and direct
     and indirect transferees who become registered owners of Registrable
     Securities under the Indenture.

          "Indenture" shall mean the Indenture relating to the Securities dated
           ---------
     as of June , 2001 between the Company and Wells Fargo Bank Minnesota,
     National Association, as trustee, as the same may be amended from time to
     time in accordance with the terms thereof.

          "Majority Holders" shall mean the Holders of a majority of the
           ----------------
     aggregate principal amount of outstanding Registrable Securities; provided
                                                                       --------
     that whenever the consent or approval of Holders of a specified percentage
     of Registrable Securities is required hereunder, Registrable Securities
     held by the Company shall be disregarded in determining whether such
     consent or approval was given by the Holders of such required percentage or
     amount.

          "Person" shall mean an individual, partnership, limited liability
           ------
     company, corporation, trust or unincorporated organization, or a government
     or agency or political subdivision thereof.

          "Prospectus" shall mean the prospectus included in a Registration
           ----------
     Statement, including any preliminary prospectus, and any such prospectus as
     amended or supplemented by any prospectus supplement, including a
     prospectus supplement with respect to the terms of the offering of any
     portion of the Registrable Securities covered by a Shelf Registration
     Statement, and by all other amendments and supplements to a prospectus,
     including post-effective amendments, and in each case including all
     material incorporated by reference therein.

          "Purchase Agreement" shall have the meaning set forth in the preamble.
           ------------------

          "Purchaser" shall have the meaning set forth in the preamble.
           ---------

          "Registrable Securities" shall mean the Securities; provided, however,
           ----------------------                             --------  -------
     that the Securities shall cease to be Registrable Securities when (i) a
     Registration Statement with respect to such Securities shall have been
     declared effective under the 1933 Act and such Securities shall have been
     disposed of pursuant to such Registration Statement, (ii) such Securities
     shall have been sold to the public pursuant to Rule 144(k) (or any similar
     provision then in force, but not Rule 144A) under the 1933 Act, (iii) such
     Securities shall have ceased to be outstanding or (iv) such Securities have
     been exchanged for Exchange Securities upon consummation of the Exchange
     Offer.

                                  Exhibit A-3
<PAGE>

          "Registration Expenses" shall mean any and all expenses incident to
           ---------------------
     performance of or compliance by the Company with this Agreement, including
     without limitation: (i) all SEC, stock exchange or National Association of
     Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
     fees and expenses incurred in connection with compliance with state
     securities or blue sky laws and compliance with the rules of the NASD
     (including reasonable fees and disbursements of counsel for any
     underwriters or Holders in connection with blue sky qualification of any of
     the Exchange Securities or Registrable Securities), (iii) all expenses of
     any Persons in preparing or assisting in preparing, word processing,
     printing and distributing any Registration Statement, any Prospectus, any
     amendments or supplements thereto, any underwriting agreements, securities
     sales agreements and other documents relating to the performance of and
     compliance with this Agreement, (iv) all rating agency fees, (v) all fees
     and expenses incurred in connection with the listing, if any, of any of the
     Registrable Securities on any securities exchange or exchanges, (vi) the
     fees and disbursements of counsel for the Company and of the independent
     public accountants of the Company, including the expenses of any special
     audits or "cold comfort" letters required by or incident to such
     performance and compliance, (vii) the fees and expenses of the Trustee, and
     any escrow agent or custodian, and (viii) any fees and disbursements of the
     underwriters customarily required to be paid by issuers or sellers of
     securities and the reasonable fees and expenses of any special experts
     retained by the Company in connection with any Registration Statement, but
     excluding fees of counsel to the underwriters or the Holders and
     underwriting discounts and commissions and transfer taxes, if any, relating
     to the sale or disposition of Registrable Securities by a Holder.

          "Registration Statement" shall mean any registration statement of the
           ----------------------
     Company which covers any of the Exchange Securities or Registrable
     Securities pursuant to the provisions of this Agreement, and all amendments
     and supplements to any such Registration Statement, including post-
     effective amendments, in each case including the Prospectus contained
     therein, all exhibits thereto and all material incorporated by reference
     therein.

          "SEC" shall mean the Securities and Exchange Commission.
           ---

          "Shelf Registration" shall mean a registration effected pursuant to
           ------------------
     Section 2(b) hereof.

          "Shelf Registration Statement" shall mean a "shelf" registration
           ----------------------------
     statement of the Company pursuant to the provisions of Section 2(b) of this
     Agreement which covers all of the Registrable Securities on an appropriate
     form under Rule 415 under the 1933 Act, or any similar rule that may be
     adopted by the SEC, and all amendments and supplements to such registration
     statement, including post-effective amendments, in each case including the
     Prospectus contained therein, all exhibits thereto and all material
     incorporated by reference therein.

          "Trustee" shall mean the trustee with respect to the Securities under
           -------
     the Indenture.

     2.   Registration Under the 1933 Act. (a) Exchange Offer Registration. To
          -------------------------------      ---------------------------
the extent not prohibited by any applicable law or applicable interpretation of
the Staff of the SEC, the Company shall use its best efforts (A) to file within
30 days after the Closing Date an Exchange Offer Registration Statement covering
the offer by the Company to the Holders to exchange all of the Registrable
Securities for Exchange Securities, (B) to cause such Exchange Offer
Registration

                                  Exhibit A-4
<PAGE>

Statement to be declared effective by the SEC within 120 days after the Closing
Date, (C) to cause such Registration Statement to remain effective until the
closing of the Exchange Offer and (D) to consummate the Exchange Offer within
150 days following the Closing Date. The Exchange Securities will be issued
under the Indenture. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder (other than Participating
Broker-Dealers (as defined in Section 3(f)) eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder is not
an affiliate of the Company within the meaning of Rule 405 under the 1933 Act,
acquires the Exchange Securities in the ordinary course of such Holder's
business and has no arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Securities) to trade such Exchange Securities from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.

          In connection with the Exchange Offer, the Company shall:

          (i)    mail to each Holder a copy of the Prospectus forming part of
     the Exchange Offer Registration Statement, together with an appropriate
     letter of transmittal and related documents;

          (ii)   keep the Exchange Offer open for not less than 30 days after
     the date notice thereof is mailed to the Holders (or longer if required by
     applicable law);

          (iii)  use the services of the Depositary for the Exchange Offer;

          (iv)   permit Holders to withdraw tendered Registrable Securities at
     any time prior to the close of business, New York City time, on the last
     business day on which the Exchange Offer shall remain open, by sending to
     the institution specified in the notice, a telegram, telex, facsimile
     transmission or letter setting forth the name of such Holder, the principal
     amount of Registrable Securities delivered for exchange, and a statement
     that such Holder is withdrawing his election to have such Securities
     exchanged; and

          (v)    otherwise comply in all respects with all applicable laws
     relating to the Exchange Offer.

          As soon as practicable after the close of the Exchange Offer, the
     Company shall:

          (i)    accept for exchange Registrable Securities duly tendered and
     not validly withdrawn pursuant to the Exchange Offer in accordance with the
     terms of the Exchange Offer Registration Statement and the letter of
     transmittal which is an exhibit thereto;

          (ii)   deliver, or cause to be delivered, to the Trustee for
     cancellation all Registrable Securities so accepted for exchange by the
     Company; and

          (iii)  cause the Trustee promptly to authenticate and deliver Exchange
     Securities to each Holder of Registrable Securities equal in principal
     amount to the Registrable Securities of such Holder so accepted for
     exchange.

                                  Exhibit A-5
<PAGE>

          Interest on each Exchange Security will accrue from the last date on
which interest was paid on the Registrable Securities surrendered in exchange
therefor or, if no interest has been paid on the Registrable Securities, from
the date of its original issue. The Exchange Offer shall not be subject to any
conditions, other than that the Exchange Offer, or the making of any exchange by
a Holder, does not violate applicable law or any applicable interpretation of
the Staff of the SEC. Each Holder of Registrable Securities (other than
Participating Broker-Dealers) who wishes to exchange such Registrable Securities
for Exchange Securities in the Exchange Offer will be required to represent that
(i) it is not an affiliate of the Company, (ii) any Exchange Securities to be
received by it were acquired in the ordinary course of business and (iii) at the
time of the commencement of the Exchange Offer it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Securities. The Company shall inform the Purchasers of the
names and addresses of the Holders to whom the Exchange Offer is made, and the
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.

          (b)  Shelf Registration. (i) If, because of any change in law or
               ------------------
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer is not consummated within 150
days after the Closing Date, or (iii) if any Holder (other than a Purchaser) is
not eligible to participate in the Exchange Offer or (iv) upon the request of
any Purchaser (with respect to any Registrable Securities which it acquired
directly from the Company) following the consummation of the Exchange Offer if
such Purchaser shall hold Registrable Securities which it acquired directly from
the Company and if such Purchaser is not permitted, in the opinion of counsel to
such Purchaser, pursuant to applicable law or applicable interpretation of the
Staff of the SEC to participate in the Exchange Offer, the Company shall, at its
cost,

               (A)  as promptly as practicable, file with the SEC a Shelf
          Registration Statement relating to the offer and sale of the
          Registrable Securities by the Holders from time to time in accordance
          with the methods of distribution elected by the Majority Holders of
          such Registrable Securities and set forth in such Shelf Registration
          Statement, and use its best efforts to cause such Shelf Registration
          Statement to be declared effective by the SEC by 150 days after the
          Closing Date. In the event that the Company is required to file a
          Shelf Registration Statement upon the request of any Holder (other
          than a Purchaser) not eligible to participate in the Exchange Offer
          pursuant to clause (iii) above or upon the request of any Purchaser
          pursuant to clause (iv) above, the Company shall file and have
          declared effective by the SEC both an Exchange Offer Registration
          Statement pursuant to Section 2(a) with respect to all Registrable
          Securities and a Shelf Registration Statement (which may be a combined
          Registration Statement with the Exchange Offer Registration Statement)
          with respect to offers and sales of Registrable Securities held by
          such Holder or such Purchaser after completion of the Exchange Offer.

               (B)  use its best efforts to keep the Shelf Registration
          Statement continuously effective in order to permit the Prospectus
          forming part thereof to be usable by Holders for a period of two years
          from the date the Shelf Registration Statement is declared effective
          by the SEC (or one year from the date the Shelf Registration Statement
          is declared effective if such Shelf Registration Statement is filed
          upon the request of any

                                  Exhibit A-6
<PAGE>

          Purchaser pursuant to clause (iv) above) or such shorter period which
          will terminate when all of the Registrable Securities covered by the
          Shelf Registration Statement have been sold pursuant to the Shelf
          Registration Statement.

               (C)  nothwithstanding any other provisions hereof, use its best
          efforts to ensure that (i) any Shelf Registration Statement and any
          amendment thereto and any Prospectus forming part thereof and any
          supplement thereto complies in all material respects with the 1933 Act
          and the rules and regulations thereunder, (ii) any Shelf Registration
          Statement and any amendment thereto does not, when it becomes
          effective, contain an untrue statement of a material fact or omit to
          state a material fact required to be stated therein or necessary to
          make the statements therein not misleading and (iii) any Prospectus
          forming part of any Shelf Registration Statement, and any supplement
          to such Prospectus (as amended or supplemented from time to time),
          does not include an untrue statement of a material fact or omit to
          state a material fact necessary in order to make the statements, in
          light of the circumstances under which they were made, not misleading.

          The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
thereafter practicable and to furnish to the Holders of Registrable Securities
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.

          (c)  Expenses. The Company shall pay all Registration Expenses in
               --------
connection with the registration pursuant to Section 2(a) or 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or
Purchasers for the reasonable fees and disbursements of one firm or counsel
designated in writing by the Majority Holders to act as counsel for the Holders
of the Registrable Securities in connection therewith, and, in the case of an
Exchange Offer Registration Statement, will reimburse the Purchasers, as
applicable, for the reasonable fees and disbursements of one counsel in
connection therewith. Each Holder shall pay all expenses of its counsel other
than as set forth in the preceding sentence, underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.

          (d)  Effective Registration Statement. (i) The Company will be deemed
               --------------------------------
not to have used its best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being declared
effective or in the Holders of Registrable Securities covered thereby not being
able to exchange or offer and sell such Registrable Securities during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(j) hereof, if applicable.

                                  Exhibit A-7
<PAGE>

          (ii) An Exchange Offer Registration Statement pursuant to Section 2(a)
     hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
     will not be deemed to have become effective unless it has been declared
     effective by the SEC; provided, however, that if, after it has been
                           --------  -------
     declared effective, the offering of Registrable Securities pursuant to a
     Registration Statement is interfered with by any stop order, injunction or
     other order or requirement of the SEC or any other governmental agency or
     court, such Registration Statement will be deemed not to have been
     effective during the period of such interference, until the offering of
     Registrable Securities pursuant to such Registration Statement may legally
     resume.

          (e)  Increase in Interest Rate. In the event that (i) the Exchange
               -------------------------
Offer Registration Statement is not filed with the Commission on or prior to the
30th calendar day after the Closing Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 120th calendar day after
the Closing Date or (iii) the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to the Registrable Securities is not
declared effective on or prior to the 150th calendar day after the Closing Date,
the interest rate borne by the Securities shall be increased by one-half of one
percent per annum following such 30-day period in the case of clause (i) above,
such 120-day period in the case of clause (ii) above, or such 150-day period in
the case of clause (iii) above; provided that the aggregate increase in such
                                --------
interest rate will in no event exceed one-half of one percent per annum. Upon
(x) the filing of the Exchange Offer Registration Statement after the 30-day
period described in clause (i) above, (y) the effectiveness of the Exchange
Offer Registration Statement after the 120-day period described in clause (ii)
above or (z) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 150-day period
described in clause (iii) above, the interest rate borne by the Securities from
the date of such filing, effectiveness or consummation, as the case may be, will
be reduced to the original interest rate.

          (f)  Specific Enforcement. Without limiting the remedies available to
               --------------------
the Purchasers and the Holders, the Company acknowledges that any failure by the
Company to comply with its obligations under Section 2(a) and Section 2(b)
hereof may result in material irreparable injury to the Purchasers or the
Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Purchasers or any Holder may obtain such relief as may
be required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.

     3.   Registration Procedures. In connection with the obligations of the
          -----------------------
Company with respect to the Registration Statements pursuant to Sections 2(a)
and 2(b) hereof, the Company shall:

          (a)  prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company, (ii) shall, in the case of
a Shelf Registration, be available for the sale of the Registrable Securities by
the selling Holders thereof and (iii) shall comply as to form in all material
respects with the requirements of the applicable form and include or incorporate
by reference all financial statements required by the SEC to be filed therewith,
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;

                                  Exhibit A-8
<PAGE>

          (b)  prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period;
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and
comply with the provisions of the 1933 Act with respect to the disposition of
all securities covered by each Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
selling Holders thereof;

          (c)  in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is being filed
and advising such Holders that the distribution of Registrable Securities will
be made in accordance with the method elected by the Majority Holders; and (ii)
furnish to each Holder of Registrable Securities, to counsel for the Purchasers,
to counsel for the Holders and to each underwriter of an underwritten offering
of Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits to be filed (including those incorporated by
reference) in order to facilitate the public sale or other disposition of the
Registrable Securities; and (iii) subject to the last paragraph of Section 3,
hereby consent to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in connection
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto provided that such use
complies with all applicable laws and regulations;

          (d)  use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with the Holders in
connection with any filings required to be made with the NASD, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; provided, however, that the
                                                  --------  -------
Company shall not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) take any action which would
subject it to general service of process or (iii) subject itself to taxation in
any jurisdiction if it is not then so subject;

          (e)  in the case of a Shelf Registration, notify each Holder of
Registrable Securities and one counsel for the Purchasers promptly and, if
requested by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any

                                  Exhibit A-9
<PAGE>

underwriting agreement, securities sales agreement or other similar agreement,
if any, relating to such offering cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (vi) of the happening of any event or the discovery of any facts during
the period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading and (vii) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;

          (f) (A) in the case of the Exchange Offer, (i) include in the Exchange
Offer Registration Statement a "Plan of Distribution" section covering the use
of the Prospectus included in the Exchange Offer Registration Statement by
broker-dealers who have exchanged their Registrable Securities for Exchange
Securities for the resale of such Exchange Securities, (ii) furnish to each
broker-dealer who desires to participate in the Exchange Offer, without charge,
as many copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or supplement
thereto, as such broker-dealer may reasonably request, (iii) include in the
Exchange Offer Registration Statement a statement that any broker-dealer who
holds Registrable Securities acquired for its own account as a result of market-
making activities or other trading activities (a "Participating Broker-Dealer"),
and who receives Exchange Securities for Registrable Securities pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Securities, (iv) subject to the last paragraph of Section 3, hereby
consent to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any broker-
dealer in connection with the sale or transfer of the Exchange Securities
covered by the Prospectus or any amendment or supplement thereto, and (v)
include in the transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the following
provision:

          "If the undersigned is not a broker-dealer, the undersigned represents
          that it is not engaged in, and does not intend to engage in, a
          distribution of Exchange Securities. If the undersigned is a broker-
          dealer that will receive Exchange Securities for its own account in
          exchange for Registrable Securities, it represents that the
          Registrable Securities to be exchanged for Exchange Securities were
          acquired by it as a result of market-making activities or other
          trading activities and acknowledges that it will deliver a prospectus
          meeting the requirements of the 1933 Act in connection with any resale
          of such Exchange Securities pursuant to the Exchange Offer; however,
          by so acknowledging and by delivering a prospectus, the undersigned
          will not be deemed to admit that it is an "underwriter" within the
          meaning of the 1933 Act"; and

          (y) a statement to the effect that by a broker-dealer making the
          acknowledgment described in subclause (x) and by delivering a
          Prospectus in connection with the exchange of registrable Securities,
          the

                                  Exhibit A-10
<PAGE>

          broker-dealer will not be deemed to admit that it is an underwriter
          within the meaning of the 1933 Act"; and

          (B)  to the extent any Participating Broker-Dealer participates in the
          Exchange Offer, the Company shall use its best efforts to cause to be
          delivered at the request of an entity representing the Participating
          Broker-Dealers (which entity shall be one of the Purchasers, unless
          they elect not to act as such representative) only one, if any, "cold
          comfort" letter with respect to the Prospectus in the form existing on
          the last date for which exchanges are accepted pursuant to the
          Exchange Offer and with respect to each subsequent amendment or
          supplement, if any, effected during the period specified in clause (C)
          below; and

          (C)  to the extent any Participating Broker-Dealer participates in the
          Exchange Offer, the Company shall use its best efforts to maintain the
          effectiveness of the Exchange Offer Registration Statement for a
          period of 180 days following the closing of the Exchange Offer; and

               (D)  the Company shall not be required to amend or supplement the
          Prospectus contained in the Exchange Offer Registration Statement as
          would otherwise be contemplated by Section 3(b), or take any other
          action as a result of this Section 3(f), for a period exceeding 180
          days after the last date for which exchanges are accepted pursuant to
          the Exchange Offer (as such period may be extended by the Company) and
          Participating Broker-Dealers shall not be authorized by the Company
          to, and shall not, deliver such Prospectus after such period in
          connection with resales contemplated by this Section 3(f) (D) in the
          case of an Exchange Offer, furnish one counsel for the Purchasers and
          (B) in the case of a Shelf Registration, furnish one counsel for the
          Holders of Registrable Securities copies of any request by the SEC or
          any state securities authority for amendments or supplements to a
          Registration Statement and Prospectus or for additional information;

          (g)  make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal of any
such order;

          (h)  in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);

          (i)  in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and cause such Registrable Securities to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least two business days prior to the closing of any sale
of Registrable Securities;

                                 Exhibit A-11
<PAGE>

          (j) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section 3(e)(vi)
hereof, use its best efforts to prepare a supplement or post-effective amendment
to a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain at the time of such delivery any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission.
At such time as such public disclosure is otherwise made or the Company
determines that such disclosure is not necessary, in each case to correct any
misstatement of a material fact or to include any omitted material fact, the
Company agrees promptly to notify each Holder of such determination and to
furnish each Holder such numbers of copies of the Prospectus, as amended or
supplemented, as such Holder may reasonably request;

          (k) obtain a CUSIP number for all Exchange Securities, or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;

          (l) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities, or Registrable Securities, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such changes,
and all other forms and documents required to be filed with the SEC to enable
the Indenture to be so qualified in a timely manner;

          (m) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions (including those reasonably requested by the Majority Holders) in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:

          (i) make such representations and warranties to the Holders of such
     Registrable Securities and the underwriters, if any, in form, substance and
     scope as are customarily made by issuers to underwriters in similar
     underwritten offerings as may be reasonably requested by them;

         (ii) obtain opinions of counsel to the Company and updates thereof
     (which counsel and opinions (in form, scope and substance) shall be
     reasonably satisfactory to the managing underwriters, if any, and the
     holders of a majority in principal amount of the Registrable Securities
     being sold) addressed to each selling Holder and the underwriters, if any,
     covering the matters customarily covered in opinions requested in sales of
     securities or underwritten offerings and such other matters as may be
     reasonably requested by such Holders and underwriters;

                                 Exhibit A-12
<PAGE>

          (iii)  obtain "cold comfort" letters and updates thereof from the
     Company's independent certified public accountants addressed to the
     underwriters, if any, and will use reasonable best efforts to have such
     letter addressed to the selling Holders of Registrable Securities, such
     letters to be in customary form and covering matters of the type
     customarily covered in "cold comfort" letters to underwriters in connection
     with similar underwritten offerings;

          (iv)   enter into a securities sales agreement with the Holders and an
     agent of the Holders providing for, among other things, the appointment of
     such agent for the selling Holders for the purpose of soliciting purchases
     of Registrable Securities, which agreement shall be in form, substance and
     scope customary for similar offerings;

          (v)    if an underwriting agreement is entered into, cause the same to
     set forth indemnification provisions and procedures substantially
     equivalent to the indemnification provisions and procedures set forth in
     Section 5 hereof with respect to the underwriters and all other parties to
     be indemnified pursuant to said Section; and

          (vi)   deliver such documents and certificates as may be reasonably
     requested and as are customarily delivered in similar offerings.

     The above shall be done at (i) the effectiveness of such Registration
     Statement (and, if appropriate, each post-effective amendment thereto) and
     (ii) each closing under any underwriting or similar agreement as and to the
     extent required thereunder. In the case of any underwritten offering, the
     Company shall provide written notice to the Holders of all Registrable
     Securities of such underwritten offering at least 30 days prior to the
     filing of a prospectus supplement for such underwritten offering. Such
     notice shall (x) offer each such Holder the right to participate in such
     underwritten offering, (y) specify a date, which shall be no earlier than
     10 days following the date of such notice, by which such Holder must inform
     the Company of its intent to participate in such underwritten offering and
     (z) include the instructions such Holder must follow in order to
     participate in such underwritten offering;

          (n) in the case of a Shelf Registration, make available for inspection
by representatives of the Holders of the Registrable Securities and any
underwriters participating in any disposition pursuant to a Shelf Registration
Statement and any one counsel or accountant retained by such Holders or
underwriters, all financial and other records, pertinent corporate documents and
properties of the Company reasonably requested by any such persons, and cause
the respective officers, directors, employees, and any other agents of the
Company to supply all information reasonably requested by any such
representative, underwriter, one special counsel or accountant in connection
with a Registration Statement;

          (o) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any amendment to
an Exchange Offer Registration Statement or amendment or supplement to a
Prospectus, provide copies of such document to the Purchasers, and make such
changes in any such document prior to the filing thereof as any of the
Purchasers or their counsel may reasonably request; (ii) in the case of a Shelf
Registration, a reasonable time prior to filing any Shelf Registration
Statement, any Prospectus forming a part thereof, any amendment to such Shelf
Registration Statement or amendment or supplement to such Prospectus,

                                 Exhibit A-13
<PAGE>

provide copies of such document to the Holders of Registrable Securities, to the
Purchasers, to one counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any, and
make such changes in any such document prior to the filing thereof as the
Holders of Registrable Securities, the Purchasers on behalf of such Holders,
their counsel and any underwriter may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such document
as shall be reasonably requested by the Holders of Registrable Securities, the
Purchasers on behalf of such Holders or any underwriter and shall not at any
time make any filing of any such document of which such Holders, the Purchasers
on behalf of such Holders, their counsel or any underwriter shall not have
previously been advised and furnished a copy or to which such Holders, the
Purchasers on behalf of such Holders, their counsel or any underwriter shall
reasonably object;

          (p) in the case of a Shelf Registration, use its best efforts to cause
all Registrable Securities to be listed on any securities exchange on which
similar debt securities issued by the Company are then listed if requested by
the Majority Holders or by the underwriter or underwriters of an underwritten
offering of Registrable Securities, if any;

          (q) in the case of a Shelf Registration, use its best efforts to cause
the Registrable Securities to be rated with the appropriate rating agencies, if
so requested by the Majority Holders or by the underwriter or underwriters of an
underwritten offering of Registrable Securities, if any, unless the Registrable
Securities are already so rated;

          (r) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering at least 12 months
which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158
thereunder; and

          (s) provide reasonable cooperation and assistance in any filings
required to be made with the NASD and in the performance of any due diligence
investigation by any underwriter and its counsel.

          In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to promptly furnish to the Company such
information regarding such Holder and the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time reasonably
request in writing.

          In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section 3(e)(ii)-
(vi) hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to a Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
3(k) hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company shall give any such notice to suspend the disposition of Registrable
Securities pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in

                                 Exhibit A-14
<PAGE>

Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension provided that the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Shelf Registration Statement and shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date when the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions.

          4. Underwritten Registrations. If any of the Registrable Securities
             --------------------------
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Securities included in such offering and shall be reasonably acceptable to the
Company.

             No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, lock-up letters and other
documents required under the terms of such underwriting arrangements.

          5. Indemnification and Contribution. (a) The Company shall indemnify
             --------------------------------
and hold harmless each Purchaser, each Holder, including Participating Broker-
Dealers, each underwriter who participates in an offering of Registrable
Securities, their respective affiliates, and the respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:

             (i)   against any and all losses, liabilities, claims, damages and
          expenses whatsoever, as incurred, arising out of any untrue statement
          or alleged untrue statement of a material fact contained in any
          Registration Statement (or any amendment thereto) pursuant to which
          Exchange Securities or Registrable Securities were registered under
          the 1933 Act, including all documents incorporated therein by
          reference, or the omission or alleged omission therefrom of a material
          fact required to be stated therein or necessary to make the statements
          therein not misleading or arising out of any untrue statement or
          alleged untrue statement of a material fact contained in any
          Prospectus (or any amendment or supplement thereto) or the omission or
          alleged omission therefrom of a material fact necessary in order to
          make the statements therein, in the light of the circumstances under
          which they were made, not misleading;

             (ii)  against any and all losses, liabilities, claims, damages and
          expenses whatsoever, as incurred, to the extent of the aggregate
          amount paid in settlement of any litigation, or investigation or
          proceeding by any governmental agency or body, commenced or
          threatened, or of any claim whatsoever based upon any such untrue
          statement or omission, or any such alleged untrue statement or
          omission, if such settlement is effected with the written consent of
          the Company; and

                                 Exhibit A-15
<PAGE>

             (iii)  against any and all expenses whatsoever, as incurred
          (including fees and disbursements of counsel chosen by any indemnified
          party), reasonably incurred in investigating, preparing or defending
          against any litigation, or investigation or proceeding by any court or
          governmental agency or body, commenced or threatened, or any claim
          whatsoever based upon any such untrue statement or omission, or any
          such alleged untrue statement or omission, to the extent that any such
          expense is not paid under subparagraph (i) or (ii) of this Section
          5(a);

provided, however, that this indemnity does not apply to any loss, liability,
--------  -------
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the Purchasers,
any Holder, including Participating Broker-Dealers or any underwriter expressly
for use in the Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto).

             (b)   In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Purchasers, each underwriter who participates in an offering of Registrable
Securities and the other selling Holders and each of their respective directors
and officers (including each officer of the Company who signed the Registration
Statement) and each Person, if any, who controls the Company, the Purchasers,
any underwriter or any other selling Holder within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, against any and all losses,
liabilities, claims, damages and expenses described in the indemnity contained
in Section 5(a) hereof, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Holder, as the case may be,
expressly for use in the Registration Statement (or any amendment thereto), or
the Prospectus (or any amendment or supplement thereto); provided, however, that
                                                         --------  -------
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.

             (c)   Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability which it may
have other than on account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of such action. In no event
shall the indemnifying party or parties be liable for the fees and expenses of
more than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.

             (d)   In order to provide for just and equitable contribution in
circumstances in which any of the indemnity provisions set forth in this Section
5 are for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company, the Purchasers
and the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, the Purchasers and the Holders, as incurred; provided,
                                                                      --------
however, that no person guilty of fraudulent misrepresentation (within the
-------
meaning of Section 11(f) of the 1933 Act) shall be entitled to

                                 Exhibit A-16
<PAGE>

contribution from any Person that was not guilty of such fraudulent
misrepresentation. As between the Company, the Purchasers and the Holders, such
parties shall contribute to such aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement in such
proportion as shall be appropriate to reflect (i) the relative benefits received
by the Company on the one hand, the Purchasers on another hand, and the Holders
on another hand, from the offering of the Exchange Securities or Registrable
Securities included in such offering, and (ii) the relative fault of the Company
on the one hand, the Purchasers on another hand, and the Holders on another
hand, with respect to the statements or omissions which resulted in such loss,
liability, claim, damage or expense, or action in respect thereof, as well as
any other relevant equitable considerations. The Company, the Purchasers and the
Holders of the Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section 5 were to be determined by
pro rata allocation or by any other method of allocation that does not take into
account the relevant equitable considerations. For purposes of this Section 5,
each affiliate of a Purchaser or Holder, and each director, officer, employee,
agent and Person, if any, who controls a Purchaser or Holder or such affiliate
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to any
Purchaser pursuant to the Purchase Agreement shall not be deemed to be a benefit
received by any Purchaser in connection with the offering of the Exchange
Securities or Registrable Securities included in such offering.

          6.  Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
              -------------
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder, that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable Securities (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and it will take such further action as
any Holder of Registrable Securities may reasonably request, and (iii) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (y) Rule 144A under the 1993 Act, as such Rule may be
amended from time to time, or (z) any similar rules or regulations hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.

                                 Exhibit A-17
<PAGE>

          (b) No Inconsistent Agreements. The Company has not entered into nor
              --------------------------
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.

          (c) Amendments and Waivers. The provisions of this Agreement,
              ----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Majority
Holders affected by such amendment, modification, supplement, waiver or
departure; provided, however, that no amendment, modification, supplement or
           --------  -------
waiver or consent to any departure from the provisions of Section 5 hereof shall
be effective as against any Holder of Registrable Securities unless consented to
in writing by such Holder.

          (d) Notices. All notices and other communications provided for or
              -------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 6(d), which address initially is, with respect to a Purchaser, the
address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(d).

          All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.

          Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.

          (e) Successors and Assigns. This Agreement shall inure to the benefit
              ----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
                                --------
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms hereof or of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.

          (f) Third Party Beneficiary. The Purchasers shall be third party
              -----------------------
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other

                                 Exhibit A-18
<PAGE>

hand, and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.

          (g) Counterparts. This Agreement may be executed in any number of
              ------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

          (h) Headings. The headings in this Agreement are for convenience of
              --------
reference only and shall not limit or otherwise affect the meaning hereof.

          (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
              -------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          (j) Severability. In the event that any one or more of the provisions
              ------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

                                 Exhibit A-19
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                      APPLIED EXTRUSION TECHNOLOGIES, INC.


                                      By: ____________________________
                                          Name:
                                          Title:

Confirmed and accepted as of
  the date first above
  written:

MERRILL LYNCH & CO.
 Merrill Lynch, Pierce, Fenner & Smith Incorporated
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANC ALEX. BROWN INC.

By:  MERRILL LYNCH & CO.
      Merrill Lynch, Pierce, Fenner & Smith Incorporated

By:  ____________________________
     Name:
     Title:

                                 Exhibit A-20
<PAGE>

                                                                       EXHIBIT B


                        FORM OF OPINION OF ROPES & GRAY
                          TO BE DELIVERED PURSUANT TO
                                 SECTION 5(a)

1.   The Company has been duly incorporated and is validly existing as a
     corporation in good standing under the laws of the State of Delaware.

2.   The Company has corporate power and authority to own, lease and operate its
     properties and to conduct its business as described in the Offering
     Memorandum and to enter into and perform its obligations under the Purchase
     Agreement.

3.   The authorized capital stock of the Company is as set forth in the Offering
     Memorandum under the caption "Stockholders equity:" in the table contained
     in the section of the Offering Memorandum captioned "Capitalization"; the
     shares of issued and outstanding capital stock of the Company have been
     duly authorized and validly issued and are fully paid and non-assessable.

4.   The Asset Purchase Agreement has been duly authorized, executed and
     delivered by the Company and constitutes the legal, valid and binding
     obligation of the Company, enforceable against the Company in accordance
     with its terms except as the enforcement thereof may be limited by (a)
     bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
     and other similar laws affecting the rights and remedies of creditors and
     secured parties generally and (b) general principles of equity, whether
     considered in a proceeding in equity or at law.

5.   The Purchase Agreement has been duly authorized, executed and delivered by
     the Company.

6.   The Bank Credit Agreement has been duly authorized, executed and delivered
     by the Company and constitutes a valid and binding obligation of the
     Company, except as the enforcement thereof may be limited by bankruptcy,
     insolvency (including, without limitation, all laws relating to fraudulent
     transfers), reorganization, moratorium or other similar laws relating to or
     affecting enforcement of creditors' rights generally, or by general
     principles of equity (regardless of whether enforcement is considered in a
     proceeding in equity or at law). [Assume MA law].

7.   The Registration Rights Agreement has been duly authorized, executed and
     delivered by the Company and, assuming due authorization, execution and
     delivery by the Initial Purchasers, constitutes a legal, valid and binding
     agreement of the Company, enforceable against the Company in accordance
     with its terms except as the enforcement thereof may be limited by (a)
     bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
     and other similar laws affecting the rights and remedies of creditors and
     secured parties generally and (b) general principles of equity, whether
     considered in a proceeding in equity or at law, and except to the extent
     that the rights to indemnity and contribution contained therein may be
     limited by state or federal securities laws or the public policy underlying
     such laws.

                                  Exhibit B-1
<PAGE>

8.   The Indenture has been duly authorized, executed and delivered by the
     Company and the Guarantor and, assuming the due authorization, execution
     and delivery thereof by the Trustee, constitutes a legal, valid and binding
     agreement of the Company and the Guarantor, enforceable against the Company
     and the Guarantor in accordance with its terms except as the enforcement
     thereof may be limited by (a) bankruptcy, insolvency, reorganization,
     moratorium, fraudulent conveyance and other similar laws affecting the
     rights and remedies of creditors and secured parties generally and (b)
     general principles of equity, whether considered in a proceeding in equity
     or at law.

9.   The Securities are in the form contemplated by the Indenture, have been
     duly authorized by the Company and, when executed by the Company and
     authenticated by the Trustee in the manner provided in the Indenture
     (assuming the due authorization, execution and delivery of the Indenture by
     the Trustee) and issued and delivered against payment of the purchase price
     therefor will constitute valid and binding obligations of the Company,
     enforceable against the Company in accordance with their terms, except as
     the enforcement thereof may be limited by bankruptcy, insolvency,
     reorganization, moratorium (including, without limitation, all laws
     relating to fraudulent transfers), or other similar laws relating to or
     affecting enforcement of creditor's rights generally, or by general
     principles of equity (regardless of whether enforcement is considered in a
     proceeding in equity or at law), and will be entitled to the benefits of
     the Indenture.

10.  [Assuming the Guarantee has been duly authorized, executed and delivered by
     the Guarantor in accordance with the terms of the Indenture and, assuming
     that the Notes have been duly executed by the Company and authenticated by
     the Trustee and delivered to the Initial Purchasers and paid for by the
     Initial Purchaser, in accordance with the terms of the Purchase Agreement,
     such Guarantees have been duly endorsed on the Notes, executed, issued and
     delivered by the Guarantor and constitute valid and binding obligations of
     the Guarantor entitled to the benefits of the Indenture and enforceable
     against the Guarantor in accordance with their terms, except as enforcement
     thereof may be limited by any bankruptcy, insolvency (including, without
     limitation, all laws relating to fraudulent transfers), reorganization,
     moratorium or similar laws affecting enforcement of creditors' rights
     generally and except as enforcement thereof is subject to general
     principles of equity (regardless of whether enforcement is considered in a
     proceeding in equity or at law).]

11.  The Asset Purchase Agreement, the Securities, the Indenture, the Bank
     Credit Agreement, [the Guarantee] and the Registration Rights Agreement
     conform in all material respects to the descriptions thereof contained in
     the Offering Memorandum.

12.  The statements in the Offering Memorandum under the captions "Description
     of Notes" and "Exchange Offer; Registration Rights," to the extent that
     they purport to constitute a summary of the terms of the Securities and the
     Registration Rights Agreement, or under the caption "Certain United States
     Federal Income Tax Considerations" and "Notice to Investors", to the extent
     that they refer to statements of law or legal conclusions, are correct in
     all material respects.

13.  No consent, license, approval or authorization of, or filing, registration
     or declaration with, or exemption by, any Massachusetts or federal
     governmental authority is required to be obtained

                                  Exhibit B-2
<PAGE>

     or made by the Company in connection with the execution or delivery of the
     Asset Purchase Agreement by the Company, other than filings which have been
     made and approvals which have been obtained prior to the Closing Time and
     other than filings required to perfect the liens granted by the inventory
     security agreement referred to therein and filings required to perfect the
     liens granted to the lenders party to the Bank Credit Agreement.

14.  No filing with, or authorization, approval, consent, license, order,
     registration, qualification or decree of, any Massachusetts or federal
     court or Massachusetts or federal governmental authority or agency (other
     than such as may be required under the applicable securities or Blue Sky
     laws of the various jurisdictions in which the Securities will be offered
     or sold, as to which we express no opinion) is necessary or required in
     connection with the due authorization, execution and delivery of the
     Purchase Agreement or the due execution, delivery or performance of the
     Indenture by the Company and the Guarantor or for the offering, issuance,
     sale or delivery of the Securities to the Initial Purchasers or the resale
     by the Initial Purchasers in accordance with the terms of the Purchase
     Agreement.

15.  Assuming the accuracy of the representations and warranties of the Company
     and the Initial Purchasers contained in the Purchase Agreement and the
     compliance with the agreements of the Company and the Initial Purchasers
     contained in the Purchase Agreement, no registration of the Securities
     under the 1933 Act is required, and no qualification of the Indenture under
     the 1939 Act is necessary, for the offer and sale of the Securities to the
     Initial Purchasers as contemplated by the Purchase Agreement or in
     connection with the initial resale of the Securities by the Initial
     Purchasers in accordance with the terms of the Purchase Agreement.

16.  The execution, delivery and performance by the Company of the Purchase
     Agreement, the Indenture, the Registration Rights Agreement, the
     Securities, the Bank Credit Agreement, [the Guarantee] and the Asset
     Purchase Agreement and the consummation by the Company of the transactions
     contemplated in the Purchase Agreement and in the Offering Memorandum to be
     consummated at or prior to the sale of the Securities to the Initial
     Purchasers (including the consummation of the QPF, L.L.C. Acquisition and
     the use of the proceeds from the sale of the Securities as described in the
     Offering Memorandum under the caption "Use Of Proceeds") and compliance by
     the Company, and, with respect to the Indenture, the Guarantor, with its
     obligations under the Purchase Agreement, the Indenture, the Registration
     Rights Agreement and the Securities, and compliance by the Company with its
     obligations under the Asset Purchase Agreement do not and will not, whether
     with or without the giving of notice or lapse of time or both conflict with
     or constitute a breach of, or default or Repayment Event (as defined in
     Section 1(a)(xvii) of the Purchase Agreement) under (i) any contract,
     indenture, mortgage, lease or other agreement to which the Company or any
     subsidiaries is a party or by which any of them may be bound, or to which
     any of its properties or assets are bound and that has been filed as an
     exhibit to the Company's Form 10-K for the year ended September 30, 2000
     and Form 10-Q for the quarter ended March 31, 2001, (ii) the Asset Purchase
     Agreement or the Bank Credit Agreement (except for such conflicts, breaches
     or defaults or Repayment Events that would not have a Material Adverse
     Effect) nor will such action result in (a) a violation of any provision of
     the law of The Commonwealth of Massachusetts, the General Corporation Law
     of the State of Delaware, or the federal laws of the United States
     applicable to the Company, (b) the certificate of incorporation or by-laws
     of the Company or (c) to the best of our knowledge, without independent
     investigation other than inquiries of responsible officers

                                  Exhibit B-3
<PAGE>

     of the Company, any judgment, order or decree of any governmental body,
     agency or court having jurisdiction over the Company or any subsidiary,
     except that we express no opinion (x) as to state securities or blue sky
     laws, (y) for purposes of the opinion contained in this paragraph, as to
     compliance with the antifraud provisions of federal and state securities
     laws or (z) federal and state antitrust laws.

17.  The Company is not an "investment company" or an entity "controlled" by an
     "investment company," as such terms are defined in the 1940 Act.

18.  In the course of the preparation by the Company of the Offering Memorandum,
     we have participated in conferences with officers and other representatives
     of the Company, representatives of the independent public accountants of
     the Company and representatives of the Initial Purchasers at which the
     contents of the Offering Memorandum were discussed. Based on such
     information and participation, nothing has come to our attention that would
     lead us to believe that the Offering Memorandum or any amendment or
     supplement thereto (except for financial statements and schedules and other
     financial data included or incorporated by reference therein or omitted
     therefrom, as to which we make no statement), at the time the Offering
     Memorandum was issued, at the time any such amended or supplemented
     Offering Memorandum was issued or at the Closing Time, included or includes
     an untrue statement of a material fact or omitted or omits to state a
     material fact required to be stated therein or necessary in order to make
     the statements therein, in the light of the circumstances under which they
     were made, not misleading.

          * The Asset Purchase Agreement includes the Asset Purchase Agreement
Amendment and the Bank Credit Agreement includes the Bank Credit Agreement
Amendment.

                                  Exhibit B-4
<PAGE>

                                                                       EXHIBIT C


                      FORM OF OPINION OF GENERAL COUNSEL
                          TO BE DELIVERED PURSUANT TO
                                 SECTION 5(b)*

1.   The Company is duly qualified as a foreign corporation to transact business
     and is in good standing in each jurisdiction in which such qualification is
     required, whether by reason of the ownership or leasing of property or the
     conduct of business, except where the failure so to qualify or to be in
     good standing could not reasonably be expected to result in a Material
     Adverse Effect.

2.   Each Subsidiary has been duly incorporated and is validly existing as a
     corporation in good standing under the laws of the jurisdiction of its
     incorporation, has corporate power and authority to own, lease and operate
     its properties and to conduct its business as described in the Offering
     Memorandum and is duly qualified as a foreign corporation to transact
     business and is in good standing in each jurisdiction in which such
     qualification is required, whether by reason of the ownership or leasing of
     property or the conduct of business, except where the failure so to qualify
     or to be in good standing could not reasonably be expected to result in a
     Material Adverse Effect; all of the issued and outstanding capital stock of
     each Subsidiary has been duly authorized and validly issued, is fully paid
     and non-assessable and is owned by the Company, directly or through
     subsidiaries, free and clear of any security interest, mortgage, pledge,
     lien, encumbrance, claim or equity other than pursuant to the Bank Credit
     Agreement.

3.   None of the outstanding shares of capital stock of the Company was issued
     in violation of the preemptive rights of any stockholder of the Company.

4.   There is not pending or, to the best of my knowledge, threatened any
     action, suit, proceeding, inquiry or investigation, to which the Company or
     any subsidiary is a party, or to which the property of the Company or any
     subsidiary thereof is subject, before or brought by any court or
     governmental agency or body, which could reasonably be expected to result
     in a Material Adverse Effect, or which could reasonably be expected to
     materially and adversely affect the properties or assets thereof or the
     consummation of the transactions contemplated in the Purchase Agreement or
     by the QPF, L.L.C. Acquisition, or the performance by the Company or its
     Subsidiaries of their obligations thereunder or the transactions
     contemplated by the Offering Memorandum.

5.   The information in the Offering Memorandum under "Risk Factors",
     "Business--Acquisition of Assets from QPF, L.L.C. ", "Business--Products"
     and "Business--Facilities", "Business--Legal Proceedings", "Business--
     Research and Development" and "Business--Patents and Trademarks", to the
     extent that it constitutes matters of law, summaries of legal matters, the
     Company's or its Subsidiaries' charter and bylaws or legal proceedings, or
     legal conclusions, has been reviewed by me and is correct in all material
     respects.

6.   All descriptions in the Offering Memorandum of contracts and other
     documents to which the Company or any of its subsidiaries are a party are
     accurate in all material respects; to the best

                                  Exhibit C-1
<PAGE>

     of my knowledge, there are no franchises, contracts, indentures, mortgages,
     loan agreements, notes, leases or other instruments that would be required
     to be described in the Offering Memorandum if the Offering Memorandum were
     a prospectus filed as part of a registration statement on Form S-1 under
     the 1933 Act that are not described or referred to in the Offering
     Memorandum other than those described or referred to therein and other than
     those required by items 401 and 402 of Regulation S-K, and the descriptions
     thereof or references thereto are correct in all material respects.

7.   To the best of my knowledge, none of the Company or any of its subsidiaries
     is in violation of its charter or by-laws and no default by the Company,
     any of its subsidiaries exists in the due performance or observance of any
     material obligation, agreement, covenant or condition contained in any
     contract, indenture, mortgage, loan agreement, note, lease or other
     agreement or instrument that is described or referred to in the Offering
     Memorandum.

8.   No facts have come to my attention that would cause me to believe that the
     information contained in the Offering Memorandum concerning patents and
     trademarks, as of the date of the Offering Memorandum or as of the Closing
     Time, contained or contains an untrue statement of material fact or omitted
     or omits to state a material fact necessary to make the statements therein,
     in the light of the circumstances under which they were made, not
     misleading.

9.   I am not aware of any valid U.S. patent that is or would be infringed by
     the transactions described in the Offering Memorandum.

10.  The execution, delivery and performance of the Purchase Agreement, the
     Indenture, the Registration Rights Agreement, the Securities, the Bank
     Credit Agreement, the Guarantee and the Asset Purchase Agreement and the
     consummation of the transactions contemplated in the Purchase Agreement and
     in the Offering Memorandum to be consummated at or prior to the sale of the
     Securities to the Initial Purchasers (including the consummation of the
     QPF, L.L.C. Acquisition and the use of the proceeds from the sale of the
     Securities as described in the Offering Memorandum under the caption "Use
     Of Proceeds") and compliance by the Company and the Guarantor with their
     obligations under the Purchase Agreement, the Indenture, the Registration
     Rights Agreement and, in the case of the Company, the Securities and
     compliance by the parties to the Asset Purchase Agreement and Bank Credit
     Agreement of their obligations thereunder do not and will not, whether with
     or without the giving of notice or lapse of time or both, conflict with or
     constitute a breach of, or default or Repayment Event (as defined in
     Section 1(a)(xvii) of the Purchase Agreement) under or result in the
     creation or imposition of any lien, charge or encumbrance upon any property
     or assets of the Company or any subsidiary thereof pursuant to any
     contract, indenture, mortgage, deed of trust, loan or credit agreement,
     note, lease or any other agreement or instrument (other than pursuant to
     the Bank Credit Agreement and in connection with the acquisition of QPF,
     L.L.C.), to which the Company or any of its subsidiaries is a party or by
     which it or any of them may be bound, or to which any of the property or
     assets of the Company or any subsidiary thereof is subject (except for such
     conflicts, breaches or defaults or liens, charges or encumbrances that
     would not have a Material Adverse Effect).

                                  Exhibit C-2
<PAGE>

          * The Asset Purchase Agreement includes the Asset Purchase Agreement
Amendment and the Bank Credit Agreement includes the Bank Credit Agreement
Amendment.

                                  Exhibit C-3
<PAGE>

                                                                       EXHIBIT D

                                                                  EXECUTION COPY

                                AMENDMENT NO. 1

                                      to

                           ASSET PURCHASE AGREEMENT


          This Amendment No. 1 (the "Amendment") is entered into as of June 12,
2001, by and among (i) Applied Extrusion Technologies, Inc., a Delaware
corporation (the "Buyer"), and (ii) QPF, LLC, a Mississippi limited liability
company (the "Seller"), and Hood Companies, Inc., a Mississippi corporation (the
"Parent"; each of the Seller and the Parent is sometimes referred to herein as
"Selling Party" and collectively as the "Selling Parties"). The Buyer and the
Selling Parties are collectively referred to herein as the "Parties."

          The Parties entered into an Asset Purchase Agreement dated as of May
3, 2001. The Parties now desire to enter into this Amendment in order to amend
and supplement certain of the terms and provisions of such Asset Purchase
Agreement. Such Asset Purchase Agreement as in effect immediately prior to the
effectiveness of this Amendment is referred to herein as the "Prior Agreement",
and such Asset Purchase Agreement as in effect immediately after the
effectiveness of this Amendment is referred to herein as the "Amended
Agreement."

          The purposes of this Amendment include, without limitation, to remove
from the Amended Agreement all references to the Purchase Note and the Purchase
Security Agreement, to provide for the Closing to occur on June 19, 2001 and to
provide that, notwithstanding the Closing on June 19, 2001, the Seller will
continue to operate the assets to be transferred to the Buyer under the Amended
Agreement until June 30, 2001, when title to such assets shall be transferred to
the Buyer.

          Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.

     Section 1.   Definitions. Terms defined in the Amended Agreement and not
                  -----------
otherwise defined herein are used herein with the meanings so defined.

     Section 2.   Amendments to Prior Agreement. Effective as of the date of
                  -----------------------------
this Amendment, the Prior Agreement is hereby amended as follows:

          (a)  Defined Terms. Section 1.1 of the Prior Agreement is amended as
               -------------
follows:

          (i)     The definitions of "Purchase Note" and "Purchase Security
Agreement" are deleted.

                                  Exhibit D-1
<PAGE>

          (ii)    The definition of "Note" is amended to read in its entirety as
follows:"Note" means the Inventory Note.

          (iii)   The definition of "Security Agreement" is amended to read in
its entirety as follows:

                  "Security Agreement" means the Inventory Security Agreement.

          (b)   Section 2.5. Section 2.5 of the Prior Agreement is amended to
                -----------
read in its entirety as follows:

          2.5.    Purchase Price. In consideration for the Acquired Assets, the
                  --------------
     Buyer agrees to assume the Assumed Liabilities and to deliver to the Seller
     as set forth below in this (S). 2.5, (i) $15,000,000 (the "Asset Purchase
     Price") plus (ii) a note, in substantially the form attached hereto as
     Exhibit C (the "Inventory Note"), payable to the Buyer in an amount equal
     to the sum of the Raw Materials and Supply Inventory Amount plus the Work-
     in-Process and Finished Goods Inventory Amount, ((i) and (ii) together, the
     "Purchase Price").

                  (a)  The Purchase Price shall be payable by the Buyer to the
Seller as follows

     A.                 Concurrently with the execution and delivery of this
                  Agreement, the Buyer is delivering to the Seller, by wire
                  transfer of immediately available funds, the amount of
                  $2,000,000 (the "Deposit") in prepayment of a portion of the
                  Asset Purchase Price. The Seller shall be entitled to retain
                  the Deposit whether or not the Closing actually occurs, unless
                  any of the following shall have occurred: (A) the Seller shall
                  have failed to issue a WARN notice with respect to all of the
                  employees at the Streamwood facility not more than five (5)
                  Business Days after the date hereof; (B) the Seller shall have
                  failed to publicly announce the transactions contemplated
                  hereby not more than five (5) Business Days after the date
                  hereof; (C) after the date hereof, the Seller shall have
                  failed to provide the Buyer and its representatives with full
                  access to the Streamwood Facility, all of the Acquired Assets
                  and all employees engaged in the Business; or (D) the Selling
                  Parties shall have failed to assist the Buyer in conducting an
                  orderly transition of the Business from the Seller to the
                  Buyer in accordance with the last sentence of (S) 5.3;
                  provided, however, that, if the Closing shall not occur by
                  --------  -------
                  virtue of either (A) a willful or grossly negligent failure by
                  either of the Selling Parties to satisfy any condition set
                  forth in (S).6.1 or (B) the Buyer having terminated this
                  Agreement pursuant to (S) 10.1(b) and if a basis for such
                  termination arose by virtue of a willful or grossly negligent
                  act, failure to act or omission by either of the Selling
                  Parties, then the Seller shall promptly, and in any event
                  within two (2) Business Days, return the Deposit to the Buyer.

          Concurrently with the execution and delivery of this Agreement, the
                  Buyer is delivering to State Street Bank and Trust Company, as
                  Escrow Agent (the "Escrow Agent"), pursuant to the Escrow
                  Agreement in substantially the form attached hereto as Exhibit
                  M (as from time to time in effect, the "Escrow Agreement") the
                  amount of $4,000,000 (the "Escrow Amount"). Such funds

                                  Exhibit D-2
<PAGE>

                  shall be held by the Escrow Agent in accordance with the terms
                  of the Escrow Agreement and shall be delivered to the Seller
                  at the Closing in payment of a portion of the Asset Purchase
                  Price. The Seller shall be paid the Escrow Amount whether or
                  not the Closing actually occurs, unless the Closing shall not
                  occur by virtue of either (A) a failure by the Selling Parties
                  to satisfy any condition set forth in (S) 6.1 or (B) the Buyer
                  having terminated this Agreement pursuant to (S) 10.1(b), in
                  which event the Escrow Amount shall be returned to the Buyer.

               At the Closing, the Buyer shall pay the balance of the Asset
                  Purchase Price ($9,000,000) by delivering to the Seller, by
                  wire transfer to such account as the Seller may specify not
                  less than two Business Days prior to the Closing, immediately
                  available funds in the amount of $9,000,000.

               On June 30, 2001, the Buyer shall execute and deliver to the
                  Seller the Inventory Note. The Buyer's payment of the
                  Inventory Note shall be secured by a security interest in the
                  Inventory pursuant to an Inventory Security Agreement (the
                  "Inventory Security Agreement") in substantially the form of
                  Exhibit D hereto, which the Buyer shall execute and deliver to
                  the Seller on June 30, 2001.

                  (b)   The Buyer will use its reasonable commercial efforts to
          consume or sell the Inventory. The Buyer will remit cash payments to
          the Seller in the amount of the purchase price paid by the Buyer for
          any Inventory determined pursuant to Exhibit E which is consumed or
          sold, such payments to be made at the time the Buyer moves such
          Inventory from a facility under the control of the Seller. Each such
          payment shall automatically reduce the balance outstanding on the
          Inventory Note by the amount of such payment, and the Buyer shall pay
          the outstanding balance on the Inventory Note, if any, to the Seller
          on the date which is 230 days after June 30, 2001.

          (c)  Section 2.6. Section 2.6 of the Prior Agreement is amended to
               -----------
read in its entirety as follows:

          2.6.    Inventory Amount Calculations.
                  -----------------------------

                  (i)   Raw Materials and Supply Inventory. On June 30, 2001,
                        ----------------------------------
          the Buyer and the Seller shall together conduct a physical count of
          that portion of raw materials and supply inventory acquired and held
          by the Seller for use in the Business in the Ordinary Course of
          Business that will not be slow moving or obsolete as of June 30, 2001.
          The Seller shall prepare, and shall furnish to the Buyer on June 30,
          2001, a certificate, executed by the Chief Financial Officer of the
          Seller, that sets forth the aggregate cost of such raw materials and
          supply inventory calculated in accordance with Exhibit E (the "Raw
          Materials and Supply Inventory Amount") and that sets forth the book
          value of such raw materials and supply inventory calculated in
          accordance with GAAP.

                  (ii)  Work-in-Process and Finished Goods Inventories. On June
                        ----------------------------------------------
          30, 2001, the Buyer and the Seller shall together conduct a physical
          count of work-in-process inventory and finished goods inventory
          acquired and held by the Seller for use in the

                                  Exhibit D-3
<PAGE>

          Business in the Ordinary Course of Business. The Seller shall prepare,
          and shall furnish to the Buyer on June 30, 2001, a certificate,
          executed by the Chief Financial Officer of the Seller, that sets forth
          the aggregate cost of such work-in-process and finished goods
          inventory calculated in accordance with Exhibit E (the "Work-in-
          Process and Finished Goods Inventory Amount") and that sets forth the
          book value of such work-in-process and finished goods inventory
          calculated in accordance with GAAP.

          (d)    Section 2.7. Section 2.7 of the Prior Agreement is amended to
                 -----------
read in its entirety as follows:

          2.7    Determination of Amounts. The Buyer and the Seller, on June 30,
                 ------------------------
     2001, will agree upon each of the Raw Materials and Supply Inventory Amount
     and the Work-in-Process and Finished Goods Inventory Amount. The principal
     amount of the Inventory Note shall be equal to the sum of the Raw Materials
     and Supply Inventory Amount plus the Work-in-Process and Finished Goods
                                 ----
     Inventory Amount. If the Parties disagree as to any of such amounts: (a)
     the Buyer and the Seller shall each deliver to the other its determination
     of the sum of the Raw Materials and Supply Inventory Amount plus the Work-
                                                                 ----
     in-Process and Furnished Goods Inventory Amount (each a "Disputed Amount");
     (b) the Buyer shall deliver to the Seller the Inventory Note in an amount
     equal to (x) the sum of the Buyer's Disputed Amount plus the Seller's
                                                         ----
     Disputed Amount divided by (y) 2.0; (c) PricewaterhouseCoopers (the
                     ----------
     "Independent Accountant") shall review the Disputed Amounts and shall,
     within ten (10) days of June 30, 2001, select either the Buyer's Disputed
     Amount or the Seller's Disputed Amount as most closely being equal to the
     sum of the actual Raw Materials and Supply Inventory Amount plus the Work-
                                                                 ----
     in-Process and Finished Goods Inventory Amount, and this determination will
     be final and binding on the Parties; (d) the Parties shall co-operate with
     the Independent Accountant in responding to requests for information; (e)
     the expenses of the Independent Accountant shall be borne by the Party
     whose Disputed Amount was not so selected by the Independent Accountant;
     and (f) the Buyer shall deliver to the Seller a new Inventory Note
     reflecting the Disputed Amount chosen by the Independent Accountant in
     exchange for the Inventory Note delivered to the Seller at June 30, 2001,
     which the Seller shall deliver to the Buyer marked "Cancelled".

          (e) Section 2.8. Section 2.8 of the Prior Agreement is amended by
              -----------
substituting the date "June 19, 2001" for the date "June 30, 2001" appearing
therein.

          (f) Section 2.9. Section 2.9 of the Prior Agreement is amended to read
              -----------
in its entirety as follows:

          2.9    Deliveries at the Closing.
                 -------------------------

                 (i)  At the Closing, the Selling Parties will deliver to the
          Buyer properly executed and acknowledged, if requested by the Buyer,
          (i) the Bill of Sale in the form attached hereto as Exhibit G and the
          Assignment and Assumption Agreement in the form attached hereto as
          Exhibit H, (ii) the various certificates, instruments, and documents
          referred to in (S). 6.1 and elsewhere herein, (iii) such other
          instruments of sale, transfer, conveyance and assignment as the Buyer
          and its counsel may reasonably request.

                                  Exhibit D-4
<PAGE>

               (ii)   At the Closing, the Buyer will deliver to the Selling
          Parties properly executed and acknowledged, if requested by the
          Selling Parties, (i) the Assignment and Assumption Agreement in the
          form attached hereto as Exhibit H, (ii) the various certificates,
          instruments, and documents referred to in (S) 6.2 and elsewhere
          herein, (iii) such other instruments of sale, transfer, conveyance and
          assignment as the Selling Parties and their counsel may reasonably
          request, and (iv) the consideration specified in (S) 2.5 to be
          delivered by the Buyer to the Seller at the Closing.

               (iii)  On or prior to June 30, 2001, the Seller shall collect and
          assemble all of the Acquired Assets which are tangible into the
          Streamwood Facility, provided that finished goods Inventory may
                               --------
          continue to be stored with warehousemen and at the locations specified
          by the Seller in a certificate given by the Seller to the Buyer at the
          Closing.

               (iv)   It is understood and agreed that, although the Buyer will
          acquire title to, and ownership of, all of the Acquired Assets on June
          30, 2001, the Acquired Assets not constituting Inventory shall remain
          in the possession of the Seller after such date and, in the case of
          such Acquired Assets as are tangible, located at the Streamwood
          Facility, provided that the Buyer shall be entitled to possession of
                    --------
          any thereof as from time to time may be requested by the Buyer after
          June 30, 2001. The Seller shall take all actions reasonably requested
          by the Buyer in order to identify such Acquired Assets as the property
          of the Buyer. The Buyer agrees that it shall remove all Inventory from
          the Streamwood Facility within 120 days after June 30, 2001.

          (g)  Addition of Section 2.12. The Prior Agreement is amended by
               ------------------------
adding thereto a new Section 2.12 which shall read in its entirety as follows:

          2.12 Continuing Operations. The Parties agree that, notwithstanding
               ---------------------
     the occurrence of the Closing, the Seller shall continue to have title to
     and possession of all of the Acquired Assets until June 30, 2001, and shall
     continue to operate the Acquired Assets to produce Inventory between the
     Closing and June 30, 2001. The Seller shall be responsible for all Losses
     arising out of or related to the conduct of the Business or the ownership
     of the Acquired Assets until title to the Acquired Assets is transferred to
     the Buyer in accordance with the terms hereof. On and as of June 30, 2001,
     except solely to the extent required to comply with (S) 5.10, the Selling
     Parties shall have: (i) ceased all manufacturing operations at the
     Streamwood Facility; (ii) closed the Streamwood Facility in accordance with
     (S) 5.12; and (iii) terminated the employment of all of the employees of
     the Seller except those employees that are to be retained by the Seller.

          (h) Section 5.10. Section 5.10 of the Prior Agreement is amended by
              ------------
     substituting the phrase "June 30, 2001" for the phrase "the Closing Date"
     each place where it appears therein.

          (i) Section 5.11. Section 5.11 of the Prior Agreement is amended by
              ------------
     substituting the phrase "June 30, 2001" for the phrase "the Closing Date"
     each place where it appears therein. The first paragraph of Section 5.11 is
     amended to read in its entirety as follows:

                                  Exhibit D-5
<PAGE>

          5.11 Accounts Receivable. For a period not exceeding six (6) months
               -------------------
     after June 30, 2001, the Buyer shall be responsible for managing the
     collection of accounts receivable retained by the Seller and relating to
     the Business; provided, however, that the Buyer shall not be responsible
                   --------  -------
     for managing the collection of accounts receivable retained by the Seller
     and listed on Exhibit N and, provided, further, that the Buyer shall not be
                                  --------  -------
     required to condition any sale to a customer on the payment by such
     customer of all or any part of such an account receivable, commence any
     collection proceedings in the nature of litigation, or take any other
     action which is or may be adverse to such customer or the Buyer's
     relationship with such customer.

          (j) Section 5.12. Section 5.12 of the Prior Agreement is amended to
read in its entirety as follows:

          5.12 Closing of Streamwood Facility; Maintenance, Storage, Removal and
               -----------------------------------------------------------------
     Shipment of Acquired Assets.
     ---------------------------

               (i)    The parties acknowledge that the Acquired Assets are
          located on real property and in buildings which, at and after June 30,
          2001, either will be owned by Seller or will be owned by a third party
          to which Seller has sold such real property and buildings (the "Third
          Party Owner") either as of June 30, 2001 or sometime after June 30,
          2001. The parties further acknowledge that, as of June 30, 2001,
          substantially all of the Acquired Assets which are tangible (excluding
          Inventory which is held in third party warehouses or on consignment)
          will be located at the Streamwood Facility.

               (ii)   On or prior to June 30, 2001, Seller shall discontinue all
          manufacturing activities at the Streamwood Facility, except for its
          slitting and shipping operations, as contemplated in Section 5.10
          hereof, and except as may be mutually agreed to in writing by the
          parties.

               (iii)  Seller shall, and (if applicable) shall cause the Third
          Party Owner to, continue to allow the Acquired Assets to remain in the
          Streamwood Facility as follows:

          A.             Seller shall, and (if applicable) shall cause the Third
               Party Owner to, continue to allow the Acquired Assets to remain
               in the Streamwood Facility for a period of not less than six (6)
               months after June 30, 2001; provided that any Inventory at the
                                           --------
               Streamwood Facility will be removed in accordance with ss. 2.9(d)
               hereof. At such time as the Acquired Assets are no longer allowed
               to remain in the Streamwood Facility pursuant to the immediately
               preceding sentence, the Buyer will remove all Acquired Assets
               from the Streamwood Facility in accordance with the other
               provisions of this ss. 5.12.

          B.             Intentionally Omitted.

          C.             Seller will, and will (if applicable) cause the Third
               Party Owner to, from time to time allow Buyer reasonable access
               to the Acquired Assets for the express intent of selling or
               moving all or a portion of the Acquired Assets.

                                  Exhibit D-6
<PAGE>

               When the Asset Purchase Price is paid in full at Closing, Seller
               shall, and (if applicable) shall cause the Third Party Owner to,
               give Buyer and its representatives all reasonable access to the
               Acquired Assets for the purposes of dismantling, crating and
               shipping any equipment included in the Acquired Assets. From and
               after June 30, 2001, Seller shall use reasonable efforts to keep
               Seller's employees, agents and representatives away from the
               Acquired Assets to the extent that they remain in Seller's
               Streamwood Facility, except as contemplated in Section 5.10
               hereof. From and after June 30, 2001, Buyer shall be solely
               responsible for the Acquired Assets, including without limitation
               the protection and insuring thereof and all Taxes relating
               thereto.

                    (iv)   Seller shall, and (if applicable) shall cause the
               Third Party Owner to, maintain all insurance, security, services
               and utilities relating to the Streamwood Facility so long as any
               of the Acquired Assets remain therein, and, prior June 30, 2001,
               Seller shall maintain all insurance on the Acquired Assets on the
               same terms and conditions as such insurance exists on the date
               hereof.

                    (v)    Intentionally Omitted.

                    (vi)   When Buyer removes the Acquired Assets from the
               Streamwood Facility, Buyer shall not be required to restore or
               repair those areas of the Streamwood Facility which may be
               required to be damaged in order to separate and remove the
               Acquired Assets from the Streamwood Facility. Notwithstanding the
               immediately preceding sentence, Buyer shall be responsible for
               any and all other damage caused by Buyer, its employees, agents
               and contractors to the Streamwood Facility other than such damage
               as may be reasonably necessary in connection with the separation
               and removal of the Acquired Assets from the Streamwood Facility.

                    (vii)  Prior to commencing removal of any of the Acquired
               Assets, Buyer shall furnish to the Selling Parties and (if
               applicable) the Third Party Owner certificates of insurance from
               Buyer's insurance carrier and from the insurance carrier of the
               Person which is to perform the removal activity. Such
               certificates of insurance shall be in such amounts and with such
               deductibles as may be reasonably required by the Selling Parties
               and (if applicable) the Third Party Owner; provided, however,
                                                          --------  -------
               that such amounts of coverage and deductibles must be reasonable
               in light of the removal activity to be performed and shall name
               the Selling Parties and (if applicable) the Third Party Owner as
               an additional insured.

                    (viii) Each Person, including without limitation Buyer,
               which is removing any of the Acquired Assets shall carry workers
               compensation as required by the law of the State of Illinois and
               shall furnish evidence of the same to the Selling Parties and (if
               applicable) the Third Party Owner prior to commencing any work at
               the Streamwood Facility.

                    (ix)   All Persons while on the Streamwood Facility shall
               comply with all Federal, state and local laws, rules and
               regulations and shall further comply with Seller's and (if
               applicable) the Third Party Owner's reasonable general safety
               rules while on the Streamwood Facility.

                                  Exhibit D-7
<PAGE>

                    (x)    After June 30, 2001, the Selling Parties and (if
               applicable) the Third Party Owner shall have no obligation
               whatsoever to maintain, repair and replace any Equipment included
               in the Acquired Assets, including but not limited to the
               Equipment used for the slitting and shipping operations
               contemplated in Section 5.10 hereof and any Equipment used for
               manufacturing if the parties have mutually agreed in writing to
               continue manufacturing operations after June 30, 2001. Buyer
               specifically understands, agrees and acknowledges that from and
               after June 30, 2001, all costs and expenses for repairing and
               maintaining repairing the Equipment shall be at the sole cost and
               expense of Buyer and all obligation to repair and maintain the
               Equipment shall be the sole responsibility of Buyer.

                    (xi)   Buyer agrees to save harmless and indemnify the
               Selling Parties and their successors and assigns for any loss,
               cost, damage or injury arising or resulting from acts or
               omissions of the Buyer or its agents in connection with their
               activities in the Streamwood Facility and all work and activities
               undertaken by the Buyer pursuant to this Agreement shall be
               undertaken by qualified personnel. Buyer agrees to use reasonable
               commercial efforts to obtain the agreement of any third party
               contractors performing work on Buyer's behalf at the Streamwood
               Facility to indemnify the Selling Parties and their successors
               and assigns for any loss, cost, damage or injury arising or
               resulting from acts or omissions of such third party contractor.
               The provisions of thisss.5.12(k) are in addition to the
               indemnities provided elsewhere in this Agreement.

                    (l)    Each Selling Party, jointly and severally with the
               other Selling Party, agrees to save harmless and indemnify the
               Buyer and its successors and assigns for any loss, cost, damage
               or injury arising or resulting from acts or omissions of either
               Selling Party or the agents of either of them in connection with
               their activities in the Streamwood Facility and all work and
               activities undertaken by each Selling Party pursuant to this
               Agreement shall be undertaken by qualified personnel. Buyer
               agrees to use reasonable commercial efforts to obtain the
               agreement of any third party contractors performing work on
               behalf of either Selling Party at the Streamwood Facility to
               indemnify the Buyer and its successors and assigns for any loss,
               cost, damage or injury arising or resulting from acts or
               omissions of such third party contractor. The provisions of this
               ss. 5.12(l) are in addition to the indemnities provided elsewhere
               in this Agreement.

               (k)  Section 5.14. Section 5.14 of the Prior Agreement is amended
                    ------------
to read in its entirety as follows:

               5.14   Intentionally Omitted.
                      ---------------------

               (l) Section 6.1(c). Section 6.1(c) of the Prior Agreement is
amended to read in its entirety as follows:

               (c)    Intentionally Omitted.
                      ---------------------

               (m) Exhibits.
                   --------

               (i)    Exhibits A and B to the Prior Agreement are hereby
                      deleted.

                                  Exhibit D-8
<PAGE>

          (ii)  Exhibits G and H are amended to read in their entirety as
     set forth in Exhibits G and H, respectively, to this Amendment.

          (iii) The legal opinions attached as Exhibits K and L to the
     Prior Agreement will be modified as mutually agreed to by the Parties
     at Closing.

        Section 24. Miscellaneous.
                    -------------

          (a)   Entire Agreement. This Amendment and the Amended Agreement
                ----------------
(including the documents referred to herein and therein) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.

          (b)   Counterparts. This Agreement may be executed in one or more
                ------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

          (c)   Headings.  The section headings contained in this Agreement
                --------
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

          (d)   Governing Law. This Amendment shall be governed by and
                -------------
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.

          (e)   Effect of Amendments. Except as specifically amended hereby,
                --------------------
the Prior Agreement shall remain unchanged, and the Amended Agreement is hereby
confirmed by each Party as being in full force and effect.

          (f)   Severability. Any term or provision of this Agreement that
                ------------
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.

          (g)   Construction. The Parties have participated jointly in the
                ------------
negotiation and drafting of this Amendment. In the event an ambiguity or
question of intent or interpretation arises, this Amendment shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring either Party by virtue of the authorship of any of
the provisions of this Amendment.

          (h)   Incorporation of Exhibits.  The Exhibits identified in this
                -------------------------
Amendment are incorporated herein by reference and made a part hereof.

                IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on the date first above written.

                                  Exhibit D-9
<PAGE>

                                                                       EXHIBIT G

                                 BILL OF SALE

         BILL OF SALE, made, executed and delivered on June 19, 2001, by QPF,
L.L.C., a Mississippi limited liability company (the "Seller"), to Applied
Extrusion Technologies, Inc., a Delaware corporation (the "Buyer")

                             W I T N E S S E T H:

         WHEREAS, the Buyer and the Seller are parties to an Asset Purchase
Agreement dated as of May 3, 2001 (the "Agreement") and Amendment No. 1 to the
Agreement, dated as of June __, 2001 (the "Amendment"; the Agreement, as amended
by the Amendment, the "Amended Agreement");

         WHEREAS, the Buyer and the Seller now desire to carry out the intent
and purpose of the Amended Agreement by the Seller's execution and delivery to
the Buyer of this instrument evidencing the sale, conveyance, assignment,
transfer and delivery to the Buyer of the Acquired Assets (as defined in the
Amended Agreement), subject to the Assumed Liabilities (as defined in the
Amended Agreement); provided, however, that there shall be excluded all Excluded
                    --------  -------
Liabilities (as defined in the Amended Agreement) and all Liabilities that are
not specifically stated in the Amended Agreement to be Assumed Liabilities; and

         WHEREAS, it is the intention of the Buyer and the Seller that the Buyer
will not assume the Assumed Liabilities and the Seller will not transfer title
to the Acquired Assets until June 30, 2001, during which time the Seller will
continue to operate the Acquired Assets pursuant to the Amended Agreement;

         NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Seller does hereby sell, convey, assign, transfer and
deliver unto the Buyer, effective on June 30, 2001, all of the Seller's right,
title and interest in and to the Acquired Assets, subject to the Assumed
Liabilities and free and clear of all Liens (as defined in the Amended
Agreement), except as listed on Schedule 2.1(a) of the Amended Agreement.

         TO HAVE AND TO HOLD the Acquired Assets unto the Buyer, its successors
and assigns, FOREVER.

         In the event that any provision of this Bill of Sale be construed to
conflict with a provision in the Amended Agreement, the provision in the Amended
Agreement shall be deemed to be controlling.

         This instrument shall be binding upon and shall inure to the benefit of
the respective successors and assigns of the Buyer and the Seller.

                                 Exhibit D-11
<PAGE>

         This Bill of Sale shall be construed and enforced in accordance with
the domestic substantive laws of the State of New York.


                                 Exhibit D-12
<PAGE>

         IN WITNESS WHEREOF, the undersigned has executed this instrument under
seal of the Seller on the date first above written.


                                                  QPF, LLC


                                                  By:___________________________
                                                     Title:

                                 Exhibit D-13
<PAGE>

                                                                 EXHIBIT H


                      ASSIGNMENT AND ASSUMPTION AGREEMENT


         ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of June 19, 2001 (the
"Assignment Agreement") by and between Applied Extrusion Technologies, Inc., a
Delaware corporation (the "Buyer"), and QPF, L.L.C., a Mississippi limited
liability company (the "Seller")

                             W I T N E S S E T H:

         WHEREAS, the Buyer and the Seller are parties to a Asset Purchase
Agreement dated as of May 3, 2001 (the "Agreement") and Amendment No. 1 to the
Agreement, dated as of June __, 2001 (the "Amendment"; the Agreement, as amended
by the Amendment, the "Amended Agreement");

         WHEREAS, pursuant to the Amended Agreement, the Buyer agreed to assume
certain liabilities and obligations of the Seller as are expressly described as
being Assumed Liabilities in Section 2.3 of the Amended Agreement and the Seller
agreed to retain all other liabilities of the Seller, including, without
limitation, all Excluded Liabilities (as defined in the Amended Agreement);

         WHEREAS, it is the intention of the Buyer and the Seller to reflect the
transfer of title of the Acquired Assets by the execution and delivery of this
Assignment Agreement between the Seller and the Buyer; and

         WHEREAS, it is the intention of the Buyer and the Seller that the Buyer
will not assume the Assumed Liabilities and the Seller will not transfer title
to the Acquired Assets until June 30, 2001, during which time the Seller will
continue to operate the Acquired Assets pursuant to the Amended Agreement;

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Buyer and the Seller hereby agree as follows:

         Section 25. Terms defined in the Amended Agreement and not otherwise
defined herein are used herein with the meanings so defined.

         Section 26. The Seller hereby assigns to the Buyer, free and clear of
all Liens (except as listed on Schedule 2.1(a) of the Amended Agreement), all of
the Seller's right, title and interest in, to and under all Contractual
Obligations and other property and assets constituting the Acquired Assets,
effective as of June 30, 2001.

                                 Exhibit D-14
<PAGE>

         Section 27. The Buyer hereby assumes all Liabilities of the Seller
constituting the Assumed Liabilities, effective as of June 30, 2001.
Notwithstanding anything to the contrary herein, or in any other writing
delivered in connection herewith, the Buyer is not assuming and will not perform
any Liabilities not specifically stated by the Amended Agreement to be Assumed
Liabilities and, in particular, is not assuming and will not perform any of the
Excluded Liabilities.

         Section 28. In the event that any provision of this Assignment
Agreement be construed to conflict with a provision of the Amended Agreement,
the provision in the Amended Agreement shall be deemed controlling.

         Section 29. This Assignment Agreement shall bind and shall inure to the
benefit of the respective parties and their assigns, transferees and successors.

         Section 30. This Assignment Agreement shall be construed and enforced
in accordance with the domestic substantive laws of the State of New York.

         Section 31. This Assignment Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

                 [Remainder of Page Intentionally Left Blank]

                                 Exhibit D-15
<PAGE>

                  IN WITNESS WHEREOF, the undersigned have executed this
instrument under seal as of the date first above written.


                                        QPF, LLC


                                        By: _____________________________
                                            Title:



                                        APPLIED EXTRUSION TECHNOLOGIES, INC.


                                        By: _____________________________
                                            Title:


                                 Exhibit D-16
<PAGE>

                                                             EXHIBIT N


                         Excluded Accounts Receivable



         Packaging Products Corporation


                                 Exhibit D-17
<PAGE>

                                                                       EXHIBIT E
                                  WAIVER AND
                                AMENDMENT NO. 1


         WAIVER AND AMENDMENT NO. 1 (the "Amendment") dated as of June 15, 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 and further amended and restated as of April 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, in connection with the refinancing of the Company's senior
notes, the Company and the Lenders have agreed to amend the interest coverage
ratio and leverage ratio covenants, reduce the amount of working capital
commitments by $16,000,000, and make certain other changes, 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 and Exhibit C.

         (a) The definitions of "Available PP&E Amount" and "Borrowing Base" in
                                 ---------------------       --------------
Section 1.01 of the Credit Agreement, and Exhibit C to the Credit Agreement, are
amended to replace the phrase "$56,000,000 (provided that such amount (x)

                                  Exhibit E-1
<PAGE>

shall be reduced to $40,000,000 on the date the Working Capital Commitments
cease to exceed $80,000,000, (y) at any time when such amount otherwise would
exceed $40,000,000, shall be reduced, but to no less than $40,000,000, by the
Capital Expenditure Shortfall (or the requisite portion thereof); and (z) in any
event, shall be reduced, but to no less than $40,000,000, by $1,500,000 (or the
requisite portion thereof) on the last day of each calendar quarter, commencing
on September 30, 2001)" with the number "$35,000,000".

         The definition of "Available PP&E Amount" is further amended to replace
                            ---------------------
the date "April 15, 2001" with the date "June 19, 2001".

         (b) The definition of "Basic Documents" in Section 1.01 of the Credit
                                ---------------
Agreement is amended to add, before the period at the end thereof, the words "or
providing for the issuance of the Senior Notes".

         (c) The definition of "Capital Expenditure Shortfall" in Section 1.01
                                -----------------------------
of the Credit Agreement is deleted.

         (d) The definition of "Indenture" in Section 1.01 of the Credit
                                ---------
Agreement is amended to read in its entirety as follows:

                  "Indenture" shall mean the Indenture dated as of June 19, 2001
                   ---------
                  between the Company and Wells Fargo Bank, N.A., as Trustee, as
                  such agreement shall, subject to Section 9.19 hereof, be
                  modified and supplemented and in effect from time to time.

         (e) The definitions of "QPF Acquisition" and "QPF Escrow Account" in
                                 ---------------       ------------------
Section 1.01 of the Credit Agreement are amended to add, before the period at
the end thereof, the words ", as amended by Amendment No. 1 dated as of June 12,
2001".

         (f) The definition of "QPF Notes" in Section 1.01 of the Credit
                                ---------
Agreement is amended to read in its entirety as follows:

                  "QPF Notes" shall mean the Inventory Note to be issued by the
                   ---------
                  Company to QPF, LLC upon the consummation of the QPF
                  Acquisition, substantially in the form attached hereto as
                  Exhibit J.

         (g) The definition of "Senior Notes" in Section 1.01 of the Credit
                                ------------
Agreement is amended to read in its entirety as follows:

                  "Senior Notes" shall mean the Company's 10 3/4% Senior Notes
                   ------------
                  due 2011 issued pursuant to the Indenture, as such Senior
                  Notes

                                  Exhibit E-2
<PAGE>

                  shall, subject to Section 9.19 hereof, be modified and
                  supplemented and in effect from time to time.

         (h) The definition of "Working Capital Availability Period" in Section
                                -----------------------------------
1.01 of the Credit Agreement is amended to read in its entirety as follows:

                  "Working Capital Availability Period" shall mean the period
                   -----------------------------------
                  from and including the date hereof to but not including
                  January 29, 2003.

         SECTION 3. Section 9.08. Section 9.08 of the Credit Agreement is
amended as follows.

         (a) The proviso to Section 9.08(ii) is amended to read in its entirety
as follows:

                  provided that such renewals, extensions or refinancings shall
                  not increase the amount of such Indebtedness or of the
                  collateral securing it,

         (b) The word "and" at the end of Section 9.08(vi) is replaced with a
comma, and Section 9.08(vii) is amended to read in its entirety as follows:

                  (vii) the QPF Notes; provided that cash payments with respect
                  to the QPF Notes (whether principal, interest or other
                  payments) may be made only if no Default has occurred and is
                  continuing and (x) prior to the later of March 29, 2002 and
                  the 270/th/ day after issuance of the QPF Notes (the "Note
                                                                        ----
                  Date"), only from the purchase price of inventory which is
                  ----
                  permitted to secure the QPF Notes pursuant to Section 9.13 and
                  is consumed or sold, and (y) on and after the Note Date, only
                  if the sum of the Company's cash on hand and the aggregate
                  unused amount of the Working Capital Commitments which the
                  Company would be permitted to use pursuant to Section 2.01(ii)
                  equals or exceeds $5,000,000 after giving effect to such cash
                  payment, and the Company shall demonstrate compliance with its
                  obligations under Sections 9.09, 9.10 and 9.11 as of the most
                  recently ended fiscal quarter, in each case determined on a
                  pro forma basis as if the Indebtedness outstanding after
                  giving effect to such cash payment had been incurred at the
                  beginning of the period for which compliance is measured,

         (c) The following clause (viii) is added before the period at the end
of Section 9.08:

                                  Exhibit E-3
<PAGE>

               and (viii) the Senior Notes.


         Section 4. Section 9.10. The chart set forth in Section 9.10 of the
Credit is amended for the periods set forth below to read as follows:

         Period                                               Ratio

         April 1, 2001 through September 30, 2001             1.35:1

         October 1, 2001 through June 30, 2002                1.50:1

         July 1, 2002 and thereafter                          2.00:1

         Section 5. Section 9.11. (a) The heading of Section 9.11 is amended to
replace to replace the expression "Ratio." with the expression "Ratios. (a)",
and the chart set forth in Section 9.11(a) of the Credit Agreement is amended
for the periods set forth below to read as follows:

         Period                                               Ratio

         April 1, 2001 through June 30, 2001                  6.75:1

         July 1, 2001 through September 30, 2001              6.30:1

         October 1, 2001 through December 31, 2001            5.50:1

         January 1, 2002 through March 31, 2002               5.25:1

         April 1, 2002 through June 30, 2002                  5.00:1

         July 1, 2002 and thereafter                          4.75:1

         (b) Section 9.11(a) of the Credit Agreement is amended to add the
following sentence at the end thereof:

                For purposes of this Section 9.11, Funded Indebtedness as at
         June 30, 2001 shall be calculated net of cash and cash equivalents of
         the Company on such date (up to an aggregate amount of cash and cash
         equivalents not to exceed $25,000,000).

         (c) Section of 9.11 of the Credit Agreement is further amended to add
the following subsection (b) at the end thereof:

                (b) The Company will not permit the ratio on any date of (i)
         Working Capital Obligations on such date to (ii) Cash Flow, calculated
         as of the Relevant Quarter End for the four fiscal quarters then ended,
         to exceed 2.5:1. For purposes of this Section 9.11(b), "Relevant
         Quarter

                                  Exhibit E-4
<PAGE>

         End" shall mean the end of the most recently ended fiscal quarter for
         which financial statements have been delivered pursuant to Section
         9.01(a) or (b).

         Section 6. Section 9.22. Section 9.22 of the Credit Agreement is
amended to delete the proviso thereto.

         Section 7. Schedule I. Schedule I to the Credit Agreement is amended to
delete the words "Purchase Note, Purchase Security Agreement,".

         Section 8. Exhibit J. Exhibit J to the Credit Agreement is amended to
read as set forth in Exhibit J hereto.

         Section 9. Waiver. The Lenders waive the provisions of (i) Section 9.22
to the extent (and only to the extent) necessary to permit the Company to redeem
its 11 1/2% Senior Notes Due 2002 (the "Old Notes") within 75 days after the
Amendment Effective Date (as hereinafter defined) and (ii) Section 9.08 to the
extent (and only to the extent) necessary to permit the Old Notes to remain
outstanding during such period. For the avoidance of doubt, the Lenders and the
Administrative Agent confirm that upon such redemption the Old Notes will have
been refinanced on terms and conditions reasonably satisfactory to them, and
further confirm that the QPF Acquisition does not require their consent as long
as it is made in accordance with Section 9.12(v) of the Credit Agreement.

         Section 10. Decreased Commitments. The aggregate amount of the Working
Capital Commitments is decreased on and as of the Amendment Effective Date (as
hereinafter defined) by $16,000,000 to $80,000,000, and each Lender's Working
Capital Commitment on and as of the Amendment Effective Date is the amount set
forth opposite its name on the signature pages hereof.

         Section 11. 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 12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                                  Exhibit E-5
<PAGE>

         Section 13. 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 (i) from each of the
Company 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, (ii) from
the Company for the account of each Lender which has delivered an executed
counterpart hereof (or satisfactory confirmation thereof) to the Administrative
Agent on or before June 13, 2001, an amendment fee equal to 0.10% of such
Lender's Working Capital Commitment as in effect immediately prior to the
Amendment Effective Date, and (iii) evidence satisfactory to the Administrative
Agent of the receipt by the Company of at least $192,500,000 but no more than
$275,000,000 in gross cash proceeds from the issuance and sale of its 10 3/4%
Senior Notes due 2011 substantially in the form described in the Preliminary
Offering Memorandum dated June 2, 2001 and distributed to the Lenders on June 4,
2001.

                                  Exhibit E-6
<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
                                      -----------------------------------------
                                      Name: Anthony J. Allott
                                      Title: Senior Vice President and Chief
                                          Financial Officer


Working Capital Commitment         THE CHASE MANHATTAN BANK
$ 13,777,777.78


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


Working Capital Commitment         LASALLE BUSINESS CREDIT, INC.
$ 15,746,031.77


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


Working Capital Commitment         FLEET NATIONAL BANK
$ 13,777,777.78


                                   By
                                      -----------------------------------------
                                      Name: Thomas E. Hjerpe
                                      Title:Authorized Officer

                                  Exhibit E-7

<PAGE>


Working Capital Commitment            PNC BANK, N.A.
$ 13,206,349.20

                                      By
                                         -----------------------------------
                                         Name: Craig T. Sheetz
                                         Title: Vice President


Working Capital Commitment            FIRST UNION NATIONAL BANK
$ 14,603,174.59

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


Working Capital Commitment            PROVIDENT BANK
$ 8,888,888.89

                                      By
                                         -----------------------------------
                                         Name: Jose V. Garde
                                         Title: Vice President

                                  Exhibit E-8
<PAGE>

                                                                       EXHIBIT J
                                                                       ---------

                            FORM OF INVENTORY NOTE


This note has not been registered under the Securities Act of 1933, as amended,
    and may not be sold, assigned, pledged or otherwise transferred in the
         absence of an effective registration statement under said Act
          covering the transfer or an opinion of counsel satisfactory
                     to the issuer that registration under
                           said Act is not required.

                                     NOTE
                                     ----


$____________                                                __________ __, 2001

     THIS NOTE is made as of the date stated above by APPLIED EXTRUSION
TECHNOLOGIES, INC., a Delaware corporation ("Debtor"), to the order of QPF, LLC,
a Mississippi limited liability company ("Secured Party").

                                   ARTICLE I
                                   ---------

                                    PAYMENT
                                    -------

     FOR VALUE RECEIVED, Debtor hereby promises to pay to the order of Secured
Party, on or before [230th day after issuance] (the "Maturity Date"), at Secured
Party's office at c/o Hood Companies, Inc., 623 Main Street, Suite 100,
Hattiesburg, Mississippi 39403, or such other place as Secured Party may from
time to time designate in writing to Debtor, the principal amount of
____________________ Dollars ($______________), together with interest as
specified below, in repayment of a credit extended by Secured Party to Debtor
(the "Loan"), all in lawful money of the United States of America, as follows:

     1.1  Installments of Interest. Debtor shall pay Secured Party interest on
          ------------------------
the amount of the principal balance outstanding under this Note from time to
time at the following rates:

               (i)   from the date of initial issuance of this Note to and
                     including the Maturity Date, a per annum rate of zero
                     percent (0%); and

               (ii)  from the Maturity Date, a per annum rate of fifteen percent
                     (15%).

Unless otherwise agreed by Secured Party, all installments of principal and
interest shall be applied first to interest at the rate herein specified to the
date of receipt of payment and the balance shall be applied on account of
principal.  Interest shall be computed for any period as excluding the first day
of such period but including the last day of such period, on a daily basis

                                  Exhibit E-9
<PAGE>

and on the basis of a three hundred sixty (360) day year. All accrued but unpaid
interest shall be due and payable upon the payment in full hereof.

     1.2  Payment of Indebtedness at Maturity.  The term "Indebtedness" shall
          -----------------------------------
mean the indebtedness evidenced by this Note, including the principal and all
interest, and all fees, costs and expenses incurred by Secured Party in
connection with the Loan that are reimbursable by Debtor, and all other sums due
or required to be paid to Secured Party under the Security Agreement (described
below). The entire Indebtedness shall be due and payable on the Maturity Date.
Debtor acknowledges that Secured Party has no obligation to refinance the Loan
at maturity.

     1.3  Mandatory Prepayments.  Debtor shall prepay, without premium or
          ---------------------
penalty, unpaid principal under this Note in the amount of the purchase price
paid by Debtor for any Inventory (as defined in the Purchase Agreement referred
to below) determined pursuant to Exhibit E to the Purchase Agreement which is
consumed or sold, such payments to be made within forty-five (45) days of
consumption or shipment (as applicable) of such Inventory.

     1.4  Optional Prepayments.  Debtor reserves the right to prepay, without
          --------------------
premium or penalty, any unpaid principal of this Note, in whole or in part,
provided that Debtor gives Secured Party not less than two (2) business days'
prior written notice of its intention to do so. Any payment of this Note in full
shall be accompanied by the payment of all accrued and unpaid interest and any
other amounts due hereunder.

     1.5  Payment Time.  All payments shall be delivered in good funds to
          ------------
Secured Party prior to 2:30 p.m., Central Time, on the date due at its principal
office set forth above, or at such other place as Secured Party designates in
writing.

     1.6  Time of Essence.  Time is of the essence of this Note.
          ---------------

                                  ARTICLE II
                                  ----------

                        SECURITY, DEFAULT AND REMEDIES
                        ------------------------------

     2.1  Security for Payment.  Payment of this Note is secured by the
          --------------------
"Inventory Security Agreement" (as such term is defined in the Asset Purchase
Agreement dated as of May 3, 2001, as from time to time in effect (the "Purchase
Agreement"), pursuant to which Secured Party sold certain assets to the Debtor;
as from time to time in effect, the "Security Agreement") from Debtor to Secured
Party.

     2.2  Events of Default.  The following constitute events of default under
          -----------------
this Note ("Default"): (a) failure of Debtor to pay any amount of Indebtedness
when due, whether principal or otherwise and whether as an installment, on the
Maturity Date or otherwise; or (b) any "Default" as such term is defined in
clauses (b) and (c) of the definition thereof contained in the Security
Agreement.

                                 Exhibit E-10
<PAGE>

     2.3  Acceleration of Maturity.  At any time after the occurrence of any
          ------------------------
Default and at the option of Secured Party, the entire principal balance under
this Note, together with all other Indebtedness (including all sums expended by
Secured Party in connection with such Default), shall upon notice to Debtor
become immediately due and payable.

     2.4  Attorneys' Fees.  If any counsel (whether an employee of Secured
          ---------------
Party or otherwise) is employed, retained or engaged (a) upon a Default, to
collect the Indebtedness or any part thereof, whether or not legal proceedings
are instituted by Secured Party, (b) to represent Secured Party in any
bankruptcy, reorganization, receivership, or other proceedings affecting
creditors' rights and involving Debtor or a claim under this Note, (c) upon a
Default, to enforce the liens or security interests created by the Security
Agreement, or (d) to represent Secured Party in any other proceedings in
connection with the Security Agreement or the property described therein, then
Debtor shall pay on demand to Secured Party all related reasonable attorneys'
fees, time charges and expenses as a part of the Indebtedness; provided,
                                                               --------
however, that Secured Party shall be entitled to such fees, charges and expenses
-------
only to the extent that Debtor has agreed to pay such fees, charges and expenses
in the Security Agreement.

     2.5  Secured Party's Remedies.  Upon Default, Secured Party, at its option,
          ------------------------
may proceed to exercise any other rights and remedies available to Secured Party
under the Security Agreement and to exercise any other rights and remedies
against Debtor or with respect to this Note which Secured Party may have at law,
at equity or otherwise. Secured Party's remedies under this Note, or the
Security Agreement shall be cumulative and concurrent and may be pursued singly,
successively, or together against Debtor, and any security described in the
Security Agreement. Secured Party may resort to every other right or remedy
available at law or in equity without first exhausting the rights and remedies
contained herein, all in Secured Party's sole discretion. Failure of Secured
Party, for any period of time or on more than one occasion, to exercise its
option to accelerate the Maturity Date shall not constitute a waiver of that
right at any time during the Default or in the event of any subsequent Default.
Secured Party shall not by any other omission or act be deemed to waive any of
its rights or remedies unless such waiver is written and signed by an officer of
Secured Party, and then only to the extent specifically set forth. A waiver in
connection with one event shall not be construed as continuing or as a bar to or
waiver of any right or remedy in connection with a subsequent event.

                                  ARTICLE III
                                  -----------

                                 OTHER MATTERS
                                 -------------

     3.1  Waivers.  Except as expressly provided herein or in the Security
          -------
Agreement, Debtor hereby (a) waives and renounces any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges,
(b) waives presentment and demand for payment, notices of nonpayment and of
dishonor, protest of dishonor, and notice of protest, (c) waives all notices in
connection with the performance, default, or enforcement or collection of this
Note, and (d) waives any and all lack of diligence and delays in the enforcement
or collection of the Note.

                                 Exhibit E-11
<PAGE>

     3.2  Interpretation.  The headings of sections and paragraphs in this Note
          --------------
are for convenience of reference only and shall not be construed in any way to
limit or define the content, scope, or intent of the provisions. The use of
singular and plural nouns, and masculine, feminine, and neuter pronouns, shall
be fully interchangeable, where the context so requires. If any provision of
this Note, or any paragraph, sentence, clause, phrase, or word, or the
application thereof, in any circumstances, is adjudicated to be invalid or
unenforceable, the validity or enforceability of the remainder of this Note
shall be construed as if such invalid or unenforceable part were never included.

     3.3  Business Loan.  Debtor hereby represents that the Loan constitutes a
          -------------
"business loan" within the purview of 815 ILCS 205/4(1)(c), as amended.

     3.4  Interest Laws.  Secured Party and Debtor intend to comply with the
          -------------
laws of the State of Illinois with regard to the rate of interest charged.
Notwithstanding any provision to the contrary in this Note or the Security
Agreement, no such provision shall require the payment or permit the collection
of any amount ("Excess Interest") in excess of the maximum amount of interest
permitted by law to be charged for the use or detention, or the forbearance in
the collection, of all or any portion of the Indebtedness. If any Excess
Interest is provided for, or is adjudicated to be provided for, in this Note or
the Security Agreement, then in such event (a) the provisions of this paragraph
shall govern and control; (b) Debtor shall not be obligated to pay any Excess
Interest; (c) any Excess Interest that Secured Party may have received shall, at
the option of Secured Party, be (i) applied as a credit against the then
outstanding principal balance of the Loan, accrued and unpaid interest thereon
not to exceed the maximum amount permitted by law, or both, (ii) refunded to the
payor, or (iii) so applied or refunded in any combination of the foregoing; (d)
the applicable interest rate shall be automatically subject to reduction to the
maximum lawful contract rate allowed under the applicable usury laws of the
State, and this Note and the Security Agreement shall be deemed to have been,
and shall be, reformed and modified to reflect such reduction in the applicable
interest rate; and (e) Debtor shall not have any action against Secured Party
for any damages whatsoever arising out of the payment or collection of Excess
Interest.

     3.5  Subsequent Holders.  Upon any endorsement, assignment, or other
          ------------------
transfer of this Note by Secured Party or by operation of law, the term "Secured
Party" shall mean such endorsee, assignee, or other transferee or successor to
Secured Party then becoming the holder of this Note.

     3.6  Subsequent Obligors.  This Note shall be binding on all persons
          -------------------
claiming under or through Debtor. The term "Debtor", as used herein, shall
include the respective successors, assigns, legal and other representatives of
Debtor.

     3.7  Governing Law.  This Note shall be governed by and construed in
          -------------
accordance with the domestic laws of the State of Illinois without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Illinois.

                                 Exhibit E-12
<PAGE>

     3.8  Severability.  Any term or provision of this Note that is invalid or
          ------------
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.

     3.9  Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
          --------------------
WHICH CANNOT BE WAIVED, DEBTOR HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF,
WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR
CONTRACT OR OTHERWISE.

     IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the
date first stated above.

                                            APPLIED EXTRUSION TECHNOLOGIES, INC.



                                            By:  _______________________________
                                            Its: _______________________________

                                 Exhibit E-13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>dex31.txt
<DESCRIPTION>CERTIFICATE OF INCORPORATION OF APPLIED EXTRUSION TECH
<TEXT>

<PAGE>
                                                                     Exhibit 3.1

                         CERTIFICATE OF INCORPORATION

                                      of

                 APPLIED EXTRUSION TECHNOLOGIES (CANADA), INC.


     1.  The name of this corporation is Applied Extrusion Technologies
(Canada), Inc.

     2.  The registered office of this corporation in the State of Delaware is
located at 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.

     3.  The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

     4.  The total number of shares of stock that this corporation shall have
authority to issue is 3,000 shares of Common Stock, $.01 par value per share.
Each share of Common Stock shall be entitled to one vote.

     5.  The name and mailing address of the incorporator is: Linda S. Day, One
International Place, Boston, MA 02110-2624.

     6.  Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of this corporation
of any class or classes may be increased or decreased by the affirmative vote of
the holders of a majority of the stock of this corporation entitled to vote.

     7.  The election of directors need not be by ballot unless the by-laws
shall so require.

     8.  In furtherance and not in limitation of the power conferred upon the
board of directors by law, the board of directors shall have power to make,
adopt, alter, amend and repeal from time to time by-laws of this corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to alter and repeal by-laws made by the board of directors.

     9.  A director of this corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the General Corporation Law of the State of Delaware as in effect at the
time such liability is determined. No amendment or repeal of this paragraph 9
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with


<PAGE>

respect to any acts or omissions of such director occurring prior to such
amendment or repeal.

     10.  This corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or officer of
this corporation or while a director or officer is or was serving at the request
of this corporation as a director, officer, partner, trustee, employee or agent
of any corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against expenses
(including attorney's fees and expenses), judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided, however, that the foregoing shall not require this corporation to
--------  -------
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any by-law, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this paragraph 10 shall be
deemed to have met the standard of conduct required for such indemnification
unless the contrary shall be established. Any repeal or modification of the
foregoing provisions of this paragraph 10 shall not adversely affect any right
or protection of a director or officer of this corporation with respect to any
acts or omissions of such director or officer occurring prior to such repeal or
modification.

     11.  The books of this corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
board of directors or in the by-laws of this corporation.

     12.  If at any time this corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent.

                                      -2-


<PAGE>

    THE UNDERSIGNED, the sole incorporator named above, hereby certifies that
the facts stated above are true as of this 14th day of February 1994.

                                              /s/ Linda S. Day
                                              -------------------------------
                                              Linda S. Day, Incorporator


                                      -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>4
<FILENAME>dex32.txt
<DESCRIPTION>BY-LAWS OF APPLIED EXTRUSION TECHNOLOGIES (CANADA)
<TEXT>

<PAGE>
                                                                     Exhibit 3.2

                                    BY-LAWS

                                      OF

                 APPLIED EXTRUSION TECHNOLOGIES (CANADA), INC.

                 Section 1. LAW, CERTIFICATE OF INCORPORATION
                            AND BY-LAWS

     1.1. These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to law, the certificate of
incorporation and by-laws mean the law, the provisions of the certificate of
incorporation and the by-laws as from time to time in effect.

                            Section 2. STOCKHOLDERS

     2.1. Annual Meeting. The annual meeting of stockholders shall be held at
          --------------
10:00 A.M. on the second Tuesday in February in each year, unless that day be a
legal holiday at the place where the meeting is to be held, in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday, or at such other date and time as shall be designated from time to time
by the board of directors and stated in the notice of the meeting, at which they
shall elect a board of directors and transact such other business as may be
required by law or these by-laws or as may properly come before the meeting.

     2.2. Special Meeting. A special meeting of the stockholders may be called
          ---------------
at any time by the chairman of the board, if any, the president or the board of
directors. A special meeting of the stockholders shall be called by the
secretary, or in the case of the death, absence, incapacity or refusal of the
secretary, by an assistant secretary or some other officer, upon application of
a majority of the directors. Any such application shall state the purpose or
purposes of the proposed meeting. Any such call shall state the place, date,
hour, and purposes of the meeting.

     2.3. Place of Meeting. All meetings of the stockholders for the election of
          -----------------
directors or for any other purpose shall be held at such place within or without
the State of Delaware as may be determined from time to time by the chairman of
the board, if any, the president or the board of directors. Any adjourned
session of any meeting of the stockholders shall be held at the place designated
in the vote of adjournment.

     2.4. Notice of Meetings. Except as otherwise provided by law, a written
          -------------------
notice of each meeting of stockholders stating the place, day and hour thereof
and, in the case of a special meeting, the purposes for which the meeting is
called, shall be

<PAGE>

given not less than ten nor more than sixty days before the meeting, to each
stockholder entitled to vote thereat, and to each stockholder who, by law, by
the certificate of incorporation or by these by-laws, is entitled to notice, by
leaving such notice with him or at his residence or usual place of business, or
by depositing it in the United States mail, postage prepaid, and addressed to
such stockholder at his address as it appears in the records of the corporation.
Such notice shall be given by the secretary, or by an officer or person
designated by the board of directors, or in the case of a special meeting by the
officer calling the meeting. As to any adjourned session of any meeting of
stockholders, notice of the adjourned meeting need not be given if the time and
place thereof are announced at the meeting at which the adjournment was taken
except that if the adjournment is for more than thirty days or if after the
adjournment a new record date is set for the adjourned session, notice of any
such adjourned session of the meeting shall be given in the manner heretofore
described. No notice of any meeting of stockholders or any adjourned session
thereof need be given to a stockholder if a written waiver of notice, executed
before or after the meeting or such adjourned session by such stockholder, is
filed with the records of the meeting or if the stockholder attends such meeting
without objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders or any adjourned session thereof need be specified in any written
waiver of notice.

     2.5. Quorum of Stockholders. At any meeting of the stockholders a quorum as
          -----------------------
to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except where a larger quorum is required by law, by the certificate
of incorporation or by these by-laws. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon the question, whether or not
a quorum is present. If a quorum is present at an original meeting, a quorum
need not be present at an adjourned session of that meeting. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.

     2.6. Action by Vote. When a quorum is present at any meeting, a plurality
          ---------------
of the votes properly cast for election to any office shall elect to such office
and a majority of the votes

                                      -2-
<PAGE>

properly cast upon any question other than an election to an office shall decide
the question, except when a larger vote is required by law, by the certificate
of incorporation or by these by-laws. No ballot shall be required for any
election unless requested by a stockholder present or represented at the meeting
and entitled to vote in the election.

    2.7 Action without Meetings. Unless otherwise provided in the certificate
        -----------------------
of incorporation, any action required or permitted to be taken by stockholders
for or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in Delaware by hand or certified or registered
mail, return receipt requested, to its principal place of business or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Each such written consent
shall bear the date of signature of each stockholder who signs the consent. No
written consent shall be effective to take the corporate action referred to
therein unless written consents signed by a number of stockholders sufficient to
take such action are delivered to the corporation in the manner specified in
this paragraph within sixty days of the earliest dated consent so delivered.

    If action is taken by consent of stockholders and in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.

    If action is taken by less than unanimous consent of stockholders, prompt
notice of the taking of such action without a meeting shall be given to those
who have not consented in writing and a certificate signed and attested to by
the secretary that such notice was given shall be filed with the records of the
meetings of stockholders.

    In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been


                                      -3-
<PAGE>

given under Section 228 of said General Corporation Law and that written notice
has been given as provided in such Section 228.

    2.8 Proxy Representation. Every stockholder may authorize another person or
        --------------------
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of stockholders, unless otherwise
specifically provided such proxy shall entitle the holder thereof to vote at any
adjourned session but shall not be valid after the final adjournment thereof.

    2.9 Inspectors. The directors or the person presiding at the meeting may,
        ----------
but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.

    2.11. List of Stockholders. The secretary shall prepare and make, at least
          --------------------
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are

                                      -4-
<PAGE>

stockholders entitled to examine such list or to vote in person or by proxy at
such meeting.

                         Section 3. BOARD OF DIRECTORS

     3.1. Number. The number of directors which shall constitute the whole
          ------
board shall not be less than one nor more than five in number. Thereafter,
within the foregoing limits, the stockholders at the annual meeting shall
determine the number of directors and shall elect the number of directors as
determined. Within the foregoing limits, the number of directors may be
increased at any time or from time to time by the stockholders or by the
directors by vote of a majority of the directors then in office. The number of
directors may be decreased to any number permitted by the foregoing at any time
either by the stockholders or by the directors by vote of a majority of the
directors then in office, but only to eliminate vacancies existing by reason of
the death, resignation or removal of one or more directors. Directors need not
be stockholders.

     3.2. Tenure. Except as otherwise provided by law, by the certificate of
          ------
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified.

     3.3. Powers. The business and affairs of the corporation shall be managed
          ------
by or under the direction of the board of directors who shall have and may
exercise all the powers of the corporation and do all such lawful acts and
things as are not by law, the certificate of incorporation or these by-laws
directed or required to be exercised or done by the stockholders.

     3.4. Vacancies. Vacancies and any newly created directorships resulting
          ---------
from any increase in the number of directors may be filled by vote of the
stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.

                                      -5-
<PAGE>

     3.5. Committees. The board of directors may, by vote of a majority of the
          ----------
whole board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers of the board of directors in the management of
the business and affairs of the corporation, including the power to authorize
the seal of the corporation to be affixed to all papers which require it and the
power and authority to declare dividends or to authorize the issuance of stock;
excepting, however, such powers which by law, by the certificate of
incorporation or by these by-laws they are prohibited from so delegating. In the
absence or disqualification of any member of such committee and his alternate,
if any, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the board or such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these by-laws for the conduct of business by the board of directors.
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors upon request.

     3.6. Regular Meetings. Regular meetings of the board of directors may be
          ----------------
held without call or notice at such places within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of stockholders.

     3.7. Special Meetings. Special meetings of the board of directors may be
          ----------------
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the chairman of the
board, if any, the president, or by one-third or more in number of the
directors, reasonable notice thereof being given to each director by the
secretary or by the chairman of the board, if any, the president or any one of
the directors calling the meeting.

     3.8. Notice. It shall be reasonable and sufficient notice to a director to
          ------
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting

                                      -6-

<PAGE>

addressed to him at his usual or last known business or residence address or to
give notice to him in person or by telephone at least twenty-four hours before
the meeting. Notice of a meeting need not be given to any director if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him.
Neither notice of a meeting nor a waiver of a notice need specify the purposes
of the meeting.

3.9.  Quorum.  Except as may be otherwise provided by law, by the certificate
      ------
of incorporation or by these by-laws, at any meeting of the directors a majority
of the directors of the directors then in office shall constitute a quorum; a
quorum shall not in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.

3.10.  Action by Vote.  Execpt as may be otherwise provided by law, by the
       --------------
certificate of incorporation or by these majority by-laws, when a quorum is
present at any meeting the vote of a majority of the directors present shall be
the act of the board of directors.

3.11. Action Without a Meeting.  Any action required or permitted to be taken
      ------------------------
at any meeting of the board of directors or a committee thereof may be taken
without a meeting if all the members of the board or of such committee, as the
case may be, consent thereto in writing, and such writing or writings are filed
with the records of the meetings of the board or of such committee. Such consent
shall be treated for all purposes as the act of the board or of such committee,
as the case may be.

3.12.  Participation in Meetings by Confrence Telephone.  Members of the board
       ------------------------------------------------
of directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other or by any other means permitted by law. Such
participation shall constitute presence in person at such meeting.

3.13.  Compensation.  In the descretion of the boar of directors, each director
       ------------
may be paid such fees for his services as director and be reimbursed for his
reasonable expenses incurred in the performance of his duties as director as the
board or directors from time to time may determine. Nothing contained in this
section shall be construed to preclude any

                                      -7-
<PAGE>

director from serving the corporation in any other capacity and receiving
reasonable compensation therefor.

     3.14. Interested Directors and Officers.
           ---------------------------------

     (a)  No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of the
corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:

         (1)  The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board or directors
or the committee, and the board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or

        (2)  The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract of transaction is specifically approved in
good faith by vote of the stockholders; or

        (3)  The contract or transaction is fair as to the corporation as of the
time its is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.

      (b)  Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.

                        Section 4. OFFICERS AND AGENTS

     4.1.  Enumeration; Qualification. The officers of the corporation shall be
           --------------------------
a president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation a chairman of the board, one or more vice
presidents and a controller. The corporation may also have such agents, if any,
as the board of directors from time to time may in its discretion choose. Any
officer may be but none need be a

                                      -8-
<PAGE>

director or stockholder. Any two or more offices may be held by the same person.
Any officer may be required by the board of directors to secure the faithful
performance of his duties to the corporation by giving bond in such amount and
with sureties or otherwise as the board of directors may determine.

     4.2  Powers.  Subject to law, to the certificate of incorporation and to
          ------
the other provisions of these by-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.

     4.3  Election.  The officers may be elected by the board of directors at
          --------
their first meeting following the annual meeting of the stockholders or at any
other time. At any time or from time to time the directors may delegate to any
officer their power to elect or appoint any other officer or any agents.

    4.4  Tenure.  Each officer shall hold office until the first meeting of the
         ------
board of directors following the next annual meeting of the stockholders and
until his respective successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or appointment, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Each agent shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.

     4.5  Chairman of the Board of Directors, President and Vice President.  The
          ----------------------------------------------------------------
chairman of the board, if any, shall have such duties and powers as shall be
designated from time to time by the board of directors. Unless the board of
directors otherwise specifies, the chairman of the board, or if there is none
the chief executive officer, shall preside, or designate the person who shall
preside, at all meetings of the stockholders and of the board of directors.

     Unless the board of directors otherwise specifies, the president shall be
the chief executive officer and shall have direct charge of all business
operations of the corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the corporation.

     Any vice presidents shall have such duties and powers as shall be set
forth in these by-laws or as shall be designated from time to time by the board
of directors or by the president.

                                      -9-

<PAGE>

    4.6. Treasurer and Assistant Treasurers. Unless the board of directors
         -----------------------------------
otherwise specifies, the treasurer shall be the chief financial officer of the
corporation and shall be in charge of its funds and valuable papers, and shall
have such other duties and powers as may be designated from time to time by the
board of directors or by the president. If no controller is elected, the
treasurer shall, unless the board of directors otherwise specifies, also have
the duties and powers of the controller.

    Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.

    4.7 Controller and Assistant Controllers. If a controller is elected, he
        ------------------------------------
shall, unless the board of directors otherwise specifies, be the chief
accounting officer of the corporation and be in charge of its books of account
and accounting records, and of its accounting procedures. He shall have such
other duties and powers as may be designated form time to time by the board of
directors, the present of the treasurer.

    Any assistant controller shall have such duties and powers as shall be
designated from time to time by the board of directors, the president, the
treasurer or the controller.

    4.8. Secretary and Assistant Secretaries. The secretary shall record all
         ----------------------------------
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefor and
shall filed therein all actions by written consent of stockholders or directors.
In the absence of the secretary from any meeting, an assistant secretary, or if
there be none or he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof. Unless a transfer agent has been appointed
the secretary shall keep or cause to be kept the stock and transfer records of
the corporation, which shall contain the names and record addresses of all
stockholders and the number of shares registered in the name of each
stockholder. He shall have such other duties and powers as may from time to time
be designated by the board of directors or the president.

    Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.

                     Section 5. RESIGNATIONS AND REMOVALS

    5.1. Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the

                                     -10-




<PAGE>

board, if any, the president, or the secretary or to a meeting of the board of
directors. Such resignation shall be effective upon receipt unless specified to
be effective at some other time, and without in either case the necessity of its
being accepted unless the resignation shall so state. A director (including
persons elected by directors to fill vacancies in the board) may be removed from
office with or without cause by the vote of the holders of a majority of the
shares issued and outstanding and entitled to vote in the election of directors.
The board of directors may at any time remove any officer either with or without
cause. The board of directors may at any time terminate or modify the authority
of any agent. No director of officer resigning and (except where a right to
receive compensation shall be expressly provided in a duly authorized written
agreement with the corporation) no director or officer removed shall have any
right to any compensation as such director or officer for any period following
his resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; unless, in
the case of a resignation, the directors, or, in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.

                             Section 6. VACANCIES

     6.1. If the office of the president or the treasurer or the secretary
becomes vacant, the directors may elect a successor by vote of a majority of the
directors then in office. If the office of any other officer becomes vacant, any
person or body empowered to elect or appoint that officer may choose a
successor. Each such successor shall hold office for the unexpired term, and in
the case of the president, the treasurer and the secretary until his successor
is chosen and qualified or in each case until he sooner dies, resigns, is
removed or becomes disqualified. Any vacancy of a directorship shall be filled
as specified in Section 3.4 of these by-laws.

                           Section 7. CAPITAL STOCK

     7.1. Stock Certificates. Each stockholder shall be entitled to a
          ------------------
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the certificate of incorporation and the by-laws, be prescribed from time to
time by the board of directors. Such certificate shall be signed by the chairman
or vice chairman of the board, if any, or the president or a vice president and
by the treasurer or an assistant treasurer or by the secretary or an assistant
secretary. Any of or all the signatures on the certificate may be a facsimile.
In case an officer, transfer agent, or registrar who has signed or

                                     -11-


<PAGE>

whose facsimile signature has been placed on such certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the time of its issue.

     7.2. Loss of Certificates. In the case of the alleged theft, loss,
          ---------------------
destruction or mutiliation of a certificate of stock, a duplicate certificate
may be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the board of directors may prescribe.

                    Section 8. TRANSFER OF SHARES OF STOCK

     8.1. Transfer on Books. Subject to the restrictions, if any, stated or
          ------------------
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
board of directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the certificate of
incorporation or by these by-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to receive notice
and to vote or to give any consent with respect thereto and to be held liable
for such calls and assessments, if any, as may lawfully be made thereon,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been properly transferred on the books of the corporation.

     It shall be the duty of each stockholder to notify the corporation of his
post office address.

     8.2. Record Date and Closing Transfer Books. In order that the corporation
          --------------------------------------
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no such record date is fixed by the board of directors,
the record date for determining the stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is

                                     -12-
<PAGE>

waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.

   In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no such record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the General Corporation Law of the State of Deleware, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware by hand or certified or registered mail, return
receipt requested, to its principal place of business or to an officer or agent
of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. If no record date has been fixed by the board of
directors and prior action by the board of directors is required by the General
Corporation Law of the State of Delaware, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.

     In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty days prior to such payment, exercise or other action. If no such
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.

                                     -13-
<PAGE>

                           Section 9. CORPORATE SEAL

    9.1 Subject to alteration by the directors, the seal of the corporation
shall consist of a flat-faced circular die with the word "Delaware" and the name
of the corporation cut or engraved thereon, together with such other words,
dates or images as may be approved from time to time by the directors.

                        Section 10. EXECUTION OF PAPERS

    10.1 Except as the board of directors may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the chairman of the
board, if any, the president, a vice president or the treasurer.

                            Section 11. FISCAL YEAR

    11.1. The fiscal year of the corporation shall end on the 30th of September.

                            Section 12. AMENDMENTS

    12.1. These by-laws may be adopted, amended or repealed by vote of a
majority of the directors then in office or by vote of a majority of the stock
outstanding and entitled to vote. Any by-law, whether adopted, amended or
repealed by the stockholders or directors, may be amended or reinstated by the
stockholders or directors, may be amended or reinstated by the stockholders or
the directors.

                                     -14-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>5
<FILENAME>dex41.txt
<DESCRIPTION>EXHIBIT 4.1 - INDENTURE
<TEXT>

<PAGE>

                                                                     Exhibit 4.1

                                                                  EXECUTION COPY
                                                                  --------------



                     APPLIED EXTRUSION TECHNOLOGIES, INC.

                                      And

                APPLIED EXTRUSION TECHNOLOGIES (CANADA), INC.,

                                   Guarantor



                                      TO

               WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,

                                    Trustee

                        ______________________________

                                   Indenture

                           Dated as of June 19, 2001

                        ______________________________

                                 $275,000,000

                         10 3/4% Senior Notes due 2011


                                      and

                    10 3/4% Series B Senior Notes due 2011


<PAGE>

                     APPLIED EXTRUSION TECHNOLOGIES, INC.

              Reconciliation and tie between Trust Indenture Act
               of 1939 and Indenture, dated as of June 19, 2001
               ------------------------------------------------


Trust Indenture                                                      Indenture
  Act Section                                                         Section
-----------------------------------------------------------------------------

(s) 310  (a)(1)                                                         607
         (a)(2)                                                         607
         (b)                                                            608

(s) 312  (c)                                                            701
(s) 314  (a)(4)                                                        1008(a)
         (c)(1)                                                         103
         (c)(2)                                                         103
         (e)                                                            103
(s) 315  (b)                                                            601
(s) 316  (a)(last sentence)                                             101
         (a)(1)(A)                                                      502, 512
         (a)(1)(B)                                                      513
         (b)                                                            508
         (c)                                                            105(d)
(s) 317  (a)(1)                                                         503
         (a)(2)                                                         504
         (b)                                                           1003
(s) 318  (a)                                                            112


<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
PARTIES......................................................................................................     1
RECITALS.....................................................................................................     1

                        ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

         Section 101.   Definitions..........................................................................     2
         Section 102.   Incorporation by Reference of Trust Indenture Act....................................    19
         Section 103.   Compliance Certificates and Opinions.................................................    20
         Section 104.   Form of Documents Delivered to Trustee...............................................    20
         Section 105.   Acts of Holders......................................................................    21
         Section 106.   Notices, Etc., to Trustee, Company...................................................    22
         Section 107.   Notice to Holders; Waiver............................................................    22
         Section 108.   Effect of Headings and Table of Contents.............................................    23
         Section 109.   Successors and Assigns...............................................................    23
         Section 110.   Separability Clause..................................................................    23
         Section 111.   Benefits of Indenture................................................................    23
         Section 112.   Governing Law........................................................................    23
         Section 113.   Legal Holidays.......................................................................    23

                                             ARTICLE TWO SECURITY FORMS

         Section 201.   Forms Generally......................................................................    24
         Section 202.   Restrictive Legends..................................................................    24

                                            ARTICLE THREE THE SECURITIES

         Section 301.   Title and Terms......................................................................    26
         Section 302.   Denominations........................................................................    26
         Section 303.   Execution, Authentication, Delivery and Dating.......................................    26
         Section 304.   Temporary Securities.................................................................    27
         Section 305.   Registration, Registration of Transfer and Exchange..................................    28
         Section 306.   Book-Entry Provisions for U.S. Global Security.......................................    29
         Section 307.   Special Transfer Provisions..........................................................    30
         Section 308.   Mutilated, Destroyed, Lost and Stolen Securities.....................................    31
         Section 309.   Payment of Interest; Interest Rights Preserved.......................................    32
         Section 310.   Persons Deemed Owners................................................................    33
         Section 311.   Cancellation.........................................................................    33
         Section 312.   Computation of Interest..............................................................    33

                                      ARTICLE FOUR SATISFACTION AND DISCHARGE

         Section 401.   Satisfaction and Discharge of Indenture..............................................    34
         Section 402.   Application of Trust Money...........................................................    35
</TABLE>

                                       i
<PAGE>

<TABLE>
         <S>                                                                                                     <C>
                                               ARTICLE FIVE REMEDIES

         Section 501.   Events of Default....................................................................    35
         Section 502.   Acceleration of Maturity; Rescission and Annulment...................................    37
         Section 503.   Collection of Indebtedness and Suits for Enforcement by Trustee......................    38
         Section 504.   Trustee May File Proofs of Claim.....................................................    38
         Section 505.   Trustee May Enforce Claims Without Possession of Securities..........................    39
         Section 506.   Application of Money Collected.......................................................    39
         Section 507.   Limitation on Suits..................................................................    40
         Section 508.   Unconditional Right of Holders to Receive Principal, Premium and Interest............    40
         Section 509.   Restoration of Rights and Remedies...................................................    40
         Section 510.   Rights and Remedies Cumulative.......................................................    41
         Section 511.   Delay or Omission Not Waiver.........................................................    41
         Section 512.   Control by Holders...................................................................    41
         Section 513.   Waiver of Past Defaults..............................................................    41
         Section 514.   Waiver of Stay or Extension Laws.....................................................    42

                                              ARTICLE SIX THE TRUSTEE

         Section 601.   Notice of Defaults...................................................................    42
         Section 602.   Certain Rights of Trustee............................................................    43
         Section 603.   Trustee Not Responsible for Recitals or Issuance of Securities.......................    44
         Section 604.   May Hold Securities..................................................................    44
         Section 605.   Money Held in Trust..................................................................    44
         Section 606.   Compensation and Reimbursement.......................................................    44
         Section 607.   Corporate Trustee Required; Eligibility..............................................    45
         Section 608.   Resignation and Removal; Appointment of Successor....................................    45
         Section 609.   Acceptance of Appointment by Successor...............................................    46
         Section 610.   Merger, Conversion, Consolidation or Succession to Business..........................    47

                                ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE

         Section 701.   Disclosure of Names and Addresses of Holders.........................................    47
         Section 702.   Reports by Trustee...................................................................    47

                         ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

         Section 801.   Company May Consolidate, Etc., Only on Certain Terms.................................    48
         Section 802.   Successor Substituted................................................................    49
         Section 803.   Securities to Be Secured in Certain Events...........................................    49

                                        ARTICLE NINE SUPPLEMENTAL INDENTURES

         Section 901.   Supplemental Indentures Without Consent of Holders...................................    49
         Section 902.   Supplemental Indentures with Consent of Holders......................................    50
         Section 903.   Execution of Supplemental Indentures.................................................    51
         Section 904.   Effect of Supplemental Indentures....................................................    51
</TABLE>

                                      ii
<PAGE>

<TABLE>
         <S>                                                                                                     <C>
         Section 905.    Conformity with Trust Indenture Act.................................................    51
         Section 906.    Reference in Securities to Supplemental Indentures..................................    51
         Section 907.    Notice of Supplemental Indentures...................................................    51

                                               ARTICLE TEN COVENANTS

         Section 1001.   Payment of Principal, Premium, if any, and Interest.................................    51
         Section 1002.   Maintenance of Office or Agency.....................................................    52
         Section 1003.   Money for Security Payments to Be Held in Trust.....................................    52
         Section 1004.   Corporate Existence.................................................................    53
         Section 1005.   Payment of Taxes and Other Claims...................................................    53
         Section 1006.   Maintenance of Properties...........................................................    54
         Section 1007.   Insurance...........................................................................    54
         Section 1008.   Statement by Officers as to Default.................................................    54
         Section 1009.   Provision of Financial Statements...................................................    54
         Section 1010.   Limitation on Indebtedness..........................................................    55
         Section 1011.   Limitation on Restricted Payments...................................................    56
         Section 1012.   Limitation on Issuances and Sales of Restricted Subsidiary Stock....................    58
         Section 1013.   Limitation on Transactions with Affiliates..........................................    59
         Section 1014.   Limitation on Liens.................................................................    59
         Section 1015.   Change of Control...................................................................    59
         Section 1016.   Limitation on Disposition of Proceeds of Asset Sales................................    60
         Section 1017.   Limitation on Guarantees of Indebtedness by Restricted Subsidiaries.................    61
         Section 1018.   Limitation on Dividends and Other Payment Restrictions Affecting Restricted
                         Subsidiaries........................................................................    62
         Section 1019.   Restriction on Transfer of Assets to Subsidiaries...................................    63
         Section 1020.   Waiver of Certain Covenants.........................................................    63

                                      ARTICLE ELEVEN REDEMPTION OF SECURITIES

         Section 1101.   Right of Redemption.................................................................    63
         Section 1102.   Applicability of Article............................................................    64
         Section 1103.   Election to Redeem; Notice to Trustee...............................................    64
         Section 1104.   Selection by Trustee of Securities to Be Redeemed...................................    64
         Section 1105.   Notice of Redemption................................................................    64
         Section 1106.   Deposit of Redemption Price.........................................................    65
         Section 1107.   Securities Payable on Redemption Date...............................................    65
         Section 1108.   Securities Redeemed in Part.........................................................    65

                                 ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE

         Section 1201.   Company's Option to Effect Defeasance or Covenant Defeasance........................    66
         Section 1202.   Defeasance and Discharge............................................................    66
         Section 1203.   Covenant Defeasance.................................................................    66
         Section 1204.   Conditions to Defeasance or Covenant Defeasance.....................................    67
         Section 1205.   Deposited Money and U.S. Government Obligations to Be Held in Trust; Other
                         Miscellaneous Provisions............................................................    68
         Section 1206.   Reinstatement.......................................................................    69
</TABLE>

                                      iii
<PAGE>

<TABLE>
         <S>                                                                                                     <C>
                                            ARTICLE THIRTEEN GUARANTEES

         Section 1301.   Guarantees..........................................................................    69
         Section 1302.   Severability........................................................................    71
         Section 1303.   Restricted Subsidiaries.............................................................    71
         Section 1304.   Priority of Guarantees..............................................................    71
         Section 1305.   Limitation of Guarantors' Liability.................................................    72
         Section 1306.   Subrogation.........................................................................    72
         Section 1307.   Reinstatement.......................................................................    72
         Section 1308.   Release of the Guarantor............................................................    72
         Section 1309.   Benefits Acknowledged...............................................................    73
</TABLE>


EXHIBITS

         EXHIBIT A   Form of Securities, Trustee's Certificate of Authentication

         EXHIBIT B   Form of Guaranty

         EXHIBIT C   Exhibit to be delivered on the Closing Date evidencing
                     Indebtedness of the Company outstanding on the date of this
                     Indenture

                                      iv
<PAGE>


          INDENTURE, dated as of June 19, 2001 between APPLIED EXTRUSION
TECHNOLOGIES, INC., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 3 Centennial Drive, Peabody, Massachusetts 01960, APPLIED EXTRUSION
TECHNOLOGIES (CANADA), INC., a Delaware corporation (herein called the
"Guarantor"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association, as Trustee (herein called the "Trustee").

                            RECITALS OF THE COMPANY

          The Company has duly authorized the creation of an issue of 10 3/4%
Senior Notes due 2011 (herein called the "Initial Securities"), and 10 3/4%
Series B Senior Notes due 2011 (the "Exchange Securities" and, together with the
Initial Securities, the "Securities") of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.

          Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Shelf Registration Statement (as defined), this Indenture
will be subject to the provisions of the Trust Indenture Act of 1939, as
amended, that are required to be part of this Indenture and shall, to the extent
applicable, be governed by such provisions.

          All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.

          NOW, THEREFORE, THIS INDENTURE WITNESSETH:

          For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
<PAGE>

                                  ARTICLE ONE

                       DEFINITIONS AND OTHER PROVISIONS
                            OF GENERAL APPLICATION

          Section 101. Definitions.
          ------------------------

          For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

          (a)  the terms defined in this Article have the meanings assigned to
     them in this Article, and include the plural as well as the singular;

          (b)  all other terms used herein which are defined in the Trust
     Indenture Act, either directly or by reference therein, have the meanings
     assigned to them therein, and the terms "cash transaction" and "self-
     liquidating paper", as used in TIA Section 311, shall have the meanings
     assigned to them in the rules of the Commission adopted under the Trust
     Indenture Act;

          (c)  all accounting terms not otherwise defined herein have the
     meanings assigned to them in accordance with GAAP; and

          (d)  the words "herein", "hereof" and "hereunder" and other words of
     similar import refer to this Indenture as a whole and not to any particular
     Article, Section or other subdivision.

          Certain terms, used principally in Articles Two, Ten and Twelve, are
defined in those Articles.

          "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a subsidiary).

          "Act", when used with respect to any Holder, has the meaning specified
in Section 105.

          "Administrative Agent" means The Chase Manhattan Bank (National
Association), as administrative agent for the Banks, and its successors in such
capacity.

          "Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person.

          "Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any such Person shall be merged with or into
the Company or any Restricted Subsidiary or (b) the acquisition by the Company
or any Restricted Subsidiary of the assets of

                                       2
<PAGE>

any Person which constitute all or substantially all of the assets of such
Person or any division or line of business of such Person.

          "Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or a Restricted
Subsidiary, in one or a series of related transactions, of (a) any Capital Stock
of any Restricted Subsidiary held by the Company or any Restricted Subsidiary;
(b) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary; or (c) any other
properties or assets of the Company or any Restricted Subsidiary other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any sale, issuance, conveyance, transfer, lease
or other disposition of properties or assets (i) that is governed by the
provisions of Article Eight of this Indenture, (ii) to an Unrestricted
Subsidiary, if permitted under Section 1011 of this Indenture or (iii) having a
fair market value of less than $500,000 in any transaction or series of related
transactions.

          "Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years from such date to the date or dates of each
successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.

          "Bank Credit Agreement" means 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 as of June 15,
2001, among the Company and the Banks as in effect on the date hereof and as
such Agreement may be amended, restated, renewed, extended, supplemented,
replaced, substituted, refinanced or otherwise modified from time to time.

          "Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.

          "Banks" means banks and other financial institutions from time to time
that are lenders under the Bank Credit Agreement.

          "Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.

          "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

          "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.

                                       3
<PAGE>

          "Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.

          "Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.

          "Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; and (iii) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-1 by
Moody's.

          "Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the ultimate "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 40% of
the total Voting Stock of the Company; (b) the Company consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or of a
corporation in control of such surviving or transferee corporation, or (2) cash,
securities and other property in an amount that could be paid by the Company as
a Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is the ultimate "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 40% of the total
Voting Stock of the surviving or transferee corporation or of a corporation in
control of such surviving or transferee corporation; or (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3% of
the directors then still in office who were

                                       4
<PAGE>

either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.

          "Closing Date" means June 19, 2001.

          "Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of the Indenture such Commission is not existing and
performing the duties now assigned to it under the Securities Act, Exchange Act
and Trust Indenture Act then the body performing such duties at such time.

          "Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.

          "Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, Chief Executive Officer, its
President, any Vice President, its Treasurer, Director of Finance or an
Assistant Treasurer, and delivered to the Trustee.

          "Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock, whether
outstanding at the Closing Date, and includes, without limitation, all series
and classes of such common stock.

          "Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding (a)
net after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) net after-tax gains or losses (less all fees and expenses relating
thereto) attributable to asset dispositions, (c) the net income (or net loss) of
any Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any of its Restricted
Subsidiaries has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or its Restricted
Subsidiaries in cash by such other Person during such period, (d) net income (or
net loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination and (e) the net income of any Restricted Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders.

          "Consolidated Fixed Charge Coverage Ratio" means, for any period, the
ratio of (a) the sum of Consolidated Adjusted Net Income, Consolidated Interest
Expense, Consolidated Income Tax Expense and Consolidated Non-cash Charges, in
each case, for such period, of the Company and its Restricted Subsidiaries on a
consolidated basis, all determined in accordance with GAAP, to (b) the sum of
such Consolidated Interest Expense for such period; provided that (i) in making
                                                    --------
such computation, the Consolidated Interest Expense attributable to interest on
any

                                       5
<PAGE>

Indebtedness computed on a pro forma basis and bearing a floating interest rate
                           --- -----
shall be computed as if the rate in effect on the date of computation had been
the applicable rate for the entire period, (ii) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness under
a revolving credit facility computed on a pro forma basis shall be computed
                                          --- -----
based upon the average daily balance of such Indebtedness during the applicable
period, and (iii) notwithstanding clauses (i) and (ii) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Rate Protection Obligations, shall be
deemed to have accrued at the rate per annum resulting after giving effect to
the operation of such agreements.

          "Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.

          "Consolidated Interest Expense" means, for any period, without
duplication, the sum of (i) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all accrued interest, (ii) the interest expense on Indebtedness of any
Person (other than the Company or any Restricted Subsidiary) guaranteed by the
Company or any Restricted Subsidiary, (iii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP and (iv) the
aggregate dividends paid or accrued, without duplication (other than dividends
paid in Common Stock of the Company), on Preferred Stock of the Company, to the
extent such Preferred Stock is owned by Persons other than the Company's
Restricted Subsidiaries.

          "Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders' equity
attributable to Redeemable Capital Stock or treasury stock of the Company and
its Restricted Subsidiaries, as determined in accordance with GAAP.

          "Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and its
Restricted Subsidiaries reducing Consolidated Adjusted Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).

          "Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be principally administered, which office at the date of execution of this
Indenture is located at 213 Court Street, Suite 902 Attention: Corporate Trust
Services, Middletown, CT 06457, except that with respect to presentation of
Securities for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which, at any particular time,
its corporate agency business shall be conducted.

                                       6
<PAGE>

          "corporation" includes corporations, associations, companies and
business trusts.

          "Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.

          "Defaulted Interest" has the meaning specified in Section 309.

          "Depositary" means The Depository Trust Company, its nominees and
their respective successors.

          "Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.

          "domestic Restricted Subsidiary" means any Restricted Subsidiary that
was formed under the laws of the United States or any state or dependency
thereof or the District of Columbia.

          "Event of Default" has the meaning set forth in Section 501.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated by the
Commission thereunder.

          "Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.

          "Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.

          "Exchange Securities" has the meaning stated in the first recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Right Agreement and this Indenture.

          "Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.

          "Fully Traded Common Stock" means Common Stock issued by any
corporation if (A) such Common Stock is listed on The New York Stock Exchange,
The American Stock Exchange or The London Stock Exchange or is included for
trading privileges in the National Market System of the National Association of
Securities Dealers Automated Quotation System; provided that such Common Stock
                                               --------
is freely tradeable under the Securities Act (or, in the case of The London
Stock Exchange, any applicable law, rule or regulation) upon issuance; and (B)
such Common Stock does not constitute more than 15% of the issued and
outstanding Common Stock of such corporation held by Persons other than 10%
holders of such Common Stock and Affiliates and insiders of such corporation.

                                       7
<PAGE>

          "GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the Closing Date.

          "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.

          "Guarantee" means any guarantee of the Securities by any Restricted
Subsidiary in accordance with the provisions set forth in Section 1017 or
Article Thirteen. When used as a verb, "Guarantee" shall have a corresponding
meaning.

          "Guarantor" means each Restricted Subsidiary that executes the
Indenture and any other Restricted Subsidiary that incurs a Guarantee, provided
                                                                       --------
that upon the release and discharge of any Person from its Guarantee in
accordance with the Indenture, such person shall cease to be a Guarantor.

          "Holder" means a Person in whose name a Security is registered in the
Security Register.

          "Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit, bankers' acceptance or other
similar credit transaction and in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock of
such Person, or any warrants, rights or options to acquire such Capital Stock,
now or hereafter outstanding, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of

                                       8
<PAGE>

the value of such property or asset or the amount of the obligation so secured),
(f) all guarantees by such Person of Indebtedness referred to in this
definition, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (h) all obligations of such Person under or in respect of
currency exchange contracts and Interest Rate Protection Obligations and (i) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of such Person of the types referred to in clauses (a) through
(h) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.

          "Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

          "Initial Securities" has the meaning stated in the first recital of
this Indenture.

          "Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.

          "Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.

          "Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.

          "Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a Lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.

                                       9
<PAGE>

          "Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.

          "Moody's" means Moody's Investors Service, Inc. and its successors.

          "Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company),
net of (i) brokerage commissions and other fees and expenses (including fees and
expenses of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale
and (iv) amounts to be provided by the Company or any Restricted Subsidiary, as
the case may be, as a reserve established in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee.

          "Officers' Certificate" means a certificate signed by the Chairman,
the Chief Executive Officer, the President or a Vice President, and by the
Treasurer, the Director of Finance, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.

          "Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.

          "Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:

          (i)    Securities theretofore cancelled by the Trustee or delivered to
     the Trustee for cancellation;

          (ii)   Securities, or portions thereof, for whose payment or
     redemption money in the necessary amount has been theretofore deposited
     with the Trustee or any Paying Agent (other than the Company) in trust or
     set aside and segregated in trust by the Company (if the Company shall act
     as its own Paying Agent) for the Holders of such Securities; provided that,
                                                                  --------
     if such Securities are to be redeemed, notice of such redemption has been
     duly given pursuant to this Indenture or provision therefor satisfactory to
     the Trustee has been made;

          (iii)  Securities, except to the extent provided in Sections 1202 and
     1203, with respect to which the Company has effected defeasance and/or
     covenant defeasance as provided in Article Twelve; and

                                       10
<PAGE>

                  (iv) Securities which have been paid pursuant to Section 308
         or in exchange for or in lieu of which other Securities have been
         authenticated and delivered pursuant to this Indenture, other than any
         such Securities in respect of which there shall have been presented to
         the Trustee proof satisfactory to it that such Securities are held by a
         bona fide purchaser in whose hands the Securities are valid obligations
         of the Company;

provided, however, that, in determining whether the Holders of the requisite
--------  -------
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.

                  "Pari Passu Indebtedness" means Indebtedness of the Company
which is pari passu with the Securities, and with respect to any Guarantee,
Indebtedness which is pari passu with such Guarantee.

                  "Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any, on) or interest on any Securities on behalf of the Company.

                  "Permitted Business" means any business conducted by the
Company or its Restricted Subsidiaries, as the case may be, on the Closing Date
and any other businesses reasonably related or ancillary thereto.

                  "Permitted Indebtedness" means any of the following:

                  (i)   Indebtedness of the Company under the Bank Credit
         Agreement in an aggregate principal amount not to exceed $95,000,000 at
         any one time outstanding;

                  (ii)  Indebtedness of the Company under the Securities;

                  (iii) Indebtedness of the Company outstanding on the date of
         the Indenture (other than under the Bank Credit Agreement) as listed on
         the attached Exhibit C provided by the Company on the Closing Date;

                  (iv)  obligations of the Company pursuant to Interest Rate
         Protection Obligations, which obligations do not exceed the aggregate
         principal amount of the Indebtedness covered by such Interest Rate
         Protection Obligations and obligations under currency exchange entered
         into in the ordinary course of business;

                  (v)   Indebtedness of the Company to any Restricted
         Subsidiaries, provided that any disposition, pledge or transfer of any
                       --------
         such Indebtedness to a Person (other than a

                                       11
<PAGE>

         disposition, pledge or transfer to a Restricted Subsidiary) shall be
         deemed to be an incurrence of such Indebtedness by the Company or other
         obligor not permitted by this clause (v);

                  (vi)   Indebtedness of the Company consisting of guarantees,
         indemnities or obligations in respect of purchase price adjustments in
         connection with the acquisition or disposition of assets, including,
         without limitation, shares of Capital Stock of Restricted Subsidiaries;

                  (vii)  letters of credit in the amount not to exceed
         $6,500,000 at any one time outstanding, all or a portion of which may
         be incurred under the Bank Credit Agreement, in addition to the amount
         permitted to be incurred under the Bank Credit Agreement pursuant to
         clause (i) and (x) of this definition;

                  (viii) any renewals, extensions, substitutions, refinancings
         or replacements (each, for purposes of this clause, a "refinancing") by
         the Company of any Indebtedness of the Company other than Indebtedness
         incurred pursuant to clauses (i), (iv), (v), (vi), (vii), (ix) or (x)
         of this definition, including any successive refinancings by the
         Company, so long as (A) any such new Indebtedness shall be in a
         principal amount that does not exceed the principal amount (or, if such
         Indebtedness being refinanced provides for an amount less than the
         principal amount thereof to be due and payable upon a declaration of
         acceleration thereof, such lesser amount as of the date of
         determination) so refinanced plus the amount of any premium required to
         be paid in connection with such refinancing pursuant to the terms of
         the Indebtedness refinanced or the amount of any premium reasonably
         determined by the Company as necessary to accomplish such refinancing,
         plus the amount of expenses of the Company incurred in connection with
         such refinancing, (B) in the case of any refinancing of Subordinated
         Indebtedness, such new Indebtedness is made subordinate to the
         Securities at least to the same extent as the Indebtedness being
         refinanced and (C) such new Indebtedness has an Average Life longer
         than the Average Life of the Securities and a final Stated Maturity
         later than the final Stated Maturity of the Securities;

                  (ix)   Indebtedness of the Company or any Guarantor
         represented by Capitalized Lease Obligations or Purchase Money
         Obligations or other Indebtedness incurred or assumed in connection
         with the acquisition or development of real or personal, movable or
         immovable, property in each case incurred for the purpose of financing
         or refinancing all or any part of the purchase price or cost of
         construction or improvement of property used in the business of the
         Company or such Guarantor, as the case may be, in an aggregate
         principal amount pursuant to this clause (ix) not to exceed $10,000,000
         outstanding at any time; provided that the principal amount of any
                                  --------
         Indebtedness permitted under this clause (ix) did not in each case at
         the time of incurrence exceed the Fair Market Value, as determined by
         the Company in good faith, of the acquired or constructed asset or
         improvement so financed; and

                  (x)    Indebtedness in an aggregate principal amount not in
         excess of $30,000,000 at any one time outstanding, less the amount of
         Permitted Subsidiary Indebtedness then outstanding pursuant to clause
         (vii) of the definition thereof. All or a portion of the Permitted
         Indebtedness referred to in this clause (x) may be incurred under

                                       12
<PAGE>

         the Bank Credit Agreement, in addition to the amounts permitted to be
         incurred under the Bank Credit Agreement pursuant to clauses (i) and
         (vii) of this definition.

                  "Permitted Investments" means any of the following: (i)
Investments in Cash Equivalents; (ii) Investments in the Company or any
Restricted Subsidiary; (iii) Investments in an amount not to exceed $10,000,000
at any one time outstanding; (iv) Investments by the Company or any Restricted
Subsidiary in another Person, if as a result of such Investment (A) such other
Person becomes a Restricted Subsidiary or (B) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; or (v) Investments in
joint ventures engaged in a Permitted Business not in excess of $10,000,000 at
any one time outstanding.

                  "Permitted Liens" means the following types of Liens:

                  (a) Liens existing as of the Closing Date;

                  (b) Liens securing the Securities;

                  (c) Liens in favor of the Company;

                  (d) Liens securing Indebtedness of the Company under the Bank
         Credit Agreement;

                  (e) Liens for taxes, assessments or governmental charges or
         claims either (i) not delinquent or (ii) contested in good faith by
         appropriate proceedings and as to which the Company or its Restricted
         Subsidiaries shall have set aside on its books such reserves as may be
         required pursuant to GAAP;

                  (f) statutory Liens of landlords and Liens of carriers,
         warehousemen, mechanics, suppliers, materialmen, repairmen and other
         Liens imposed by law incurred in the ordinary course of business for
         sums not delinquent or being contested in good faith, if such reserve
         or other appropriate provision, if any, as shall be required by GAAP
         shall have been made in respect thereof;

                  (g) Liens incurred or deposits made in the ordinary course of
         business in connection with workers' compensation, unemployment
         insurance and other types of social security, or to secure the
         performance of tenders, statutory obligations, surety and appeal bonds,
         bids, leases, government contracts, performance and return-of-money
         bonds and other similar obligations (exclusive of obligations for the
         payment of borrowed money);

                  (h) judgment Liens not giving rise to an Event of Default so
         long as any appropriate legal proceedings which may have been duly
         initiated for the review of such judgment shall not have been finally
         terminated or the period within which such proceedings may be initiated
         shall not have expired;

                  (i) easements, rights-of-way, restrictions and other similar
         charges or encumbrances not interfering in any material respect with
         the ordinary conduct of the business of the Company or any of its
         Restricted Subsidiaries;

                                       13
<PAGE>

                  (j) any interest or title of a lessor under any Capitalized
         Lease Obligation or operating lease;

                  (k) purchase money Liens; provided, however, that (i) the
                                            --------  -------
         related purchase money Indebtedness shall not be secured by any
         property or assets of the Company or any Restricted Subsidiary other
         than the property and assets so acquired and (ii) the Lien securing
         such Indebtedness shall be created (A) in the case of any Asset
         Acquisition, within 180 days of the closing of such Asset Acquisition
         and (B) in all other cases, in the ordinary course of business within
         90 days of such acquisition;

                  (l) Liens in favor of customs and revenue authorities arising
         as a matter of law to secure payment of custom duties in connection
         with the importation of goods;

                  (m) Liens upon specific items of inventory or other goods and
         proceeds of any Person securing such Person's obligations in respect of
         bankers' acceptances issued or created for the account of such Person
         to facilitate the purchase, shipment or storage of such inventory or
         other goods;

                  (n) Liens securing reimbursement obligations with respect to
         commercial letters of credit which encumber documents and other
         property relating to such letters of credit and products and proceeds
         thereof;

                  (o) Liens encumbering property or assets under construction
         arising from progress or partial payments by a customer of the Company
         or its Restricted Subsidiaries relating to such property or assets;

                  (p) Liens encumbering deposits made to secure obligations
         arising from statutory, regulatory, contractual or warranty
         requirements of the Company or any of its Restricted Subsidiaries,
         including rights of offset and set-off;

                  (q) Liens securing Interest Rate Protection Obligations which
         Interest Rate Protection Obligations relate to Indebtedness that is
         secured by Liens otherwise permitted under this Indenture; and

                  (r) Liens securing an aggregate of $30,000,000 of Indebtedness
         permitted to be incurred under this Indenture by the Company and any
         Restricted Subsidiary.

                  "Permitted Subsidiary Indebtedness" means any of the
         following:

                  (i) Indebtedness of any Restricted Subsidiary outstanding on
         the date of the Indenture;

                  (ii) obligations of any Restricted Subsidiary pursuant to
         Interest Rate Protection Obligations, which obligations do not exceed
         the aggregate principal amount of the Indebtedness covered by such
         Interest Rate Protection Obligations;

                  (iii) Indebtedness of any Restricted Subsidiary to any
         Restricted Subsidiary or to the Company, provided that any disposition,
                                                  --------
         pledge or transfer of any Indebtedness to a Person (other than a
         disposition, pledge or transfer to a Restricted Subsidiary or to the

                                       14
<PAGE>

         Company) shall be deemed to be an incurrence of such Indebtedness by
         the obligor not permitted by this clause (iii);

                  (iv)   Indebtedness of any Restricted Subsidiary consisting of
         guaranties, indemnities or obligations in respect of purchase price
         adjustments in connection with the acquisition or disposition of
         assets, including, without limitation, shares of Capital Stock of
         Restricted Subsidiaries;

                  (v)    any renewals, extensions, substitutions, refinancings
         or replacements (each, for purposes of this clause, a "refinancing") by
         any Restricted Subsidiary of any Indebtedness of such Restricted
         Subsidiary other than Indebtedness incurred pursuant to clauses (ii),
         (iii), (iv) and (vii) of this definition, including any successive
         refinancings by such Restricted Subsidiary, so long as (x) any such new
         Indebtedness shall be in a principal amount that does not exceed the
         principal amount (or, if such Indebtedness being refinanced provides
         for an amount less than the principal amount thereof to be due and
         payable upon a declaration of acceleration thereof, such lesser amount
         as of the date of determination) so refinanced plus the amount of any
         premium required to be paid in connection with such refinancing
         pursuant to the terms of the Indebtedness refinanced or the amount of
         any premium reasonably determined by such Restricted Subsidiary as
         necessary to accomplish such refinancing, plus the amount of expenses
         of such Restricted Subsidiary incurred in connection with such
         refinancing and (y) such new Indebtedness has an Average Life longer
         than the Average Life of the Securities and a final Stated Maturity
         later than the final Stated Maturity of the Securities;

                  (vi)   Indebtedness (as defined in clauses (e) and (f) of the
         definition of Indebtedness) to the Securityholders incurred pursuant to
         provisions of the Indenture;

                  (vii)  Indebtedness in an amount not to exceed $30,000,000 at
         any one time outstanding, less the amount of Permitted Indebtedness
         then outstanding pursuant to clause (x) of the definition thereof; and

                  (viii) Indebtedness of any Restricted Subsidiary relating to
         guarantees by such Restricted Subsidiary of Indebtedness pursuant to
         the Bank Credit Agreement.

                  "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof, or other similar entity.

                  "Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.

                  "Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock whether now outstanding, or
issued after the Closing Date, and including, without limitation, all classes
and series of preferred or preference stock of such Person.

                                       15
<PAGE>

                  "Public Offering" means an offer and sale of common stock
(which is Qualified Capital Stock) of the Company pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).

                  "Purchase Money Obligation" means any Indebtedness secured by
a Lien on assets related to the business of the Company or its Restricted
Subsidiaries, as the case may be, and any additions and accessions thereto,
which are purchased by the Company or a Restricted Subsidiary at any time after
the Notes are issued; provided that (i) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase Money Security Agreement") shall be
entered into within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company of the assets subject thereto
or (B) the Indebtedness secured thereby shall be with recourse solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom.

                  "Qualified Capital Stock" of any person means any and all
Capital Stock of such person other than Redeemable Capital Stock.

                  "Qualified Equity Offering" means (a) any Public Offering; and
(b) any offering of Qualified Capital Stock of the Company to non-Affiliates
with gross proceeds to the Company in excess of $10,000,000.

                  "Redeemable Capital Stock" means any class or series of
Capital Stock that, either by its terms, by the terms of any security into which
it is convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity.

                  "Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.

                  "Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.

                  "Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Initial Purchasers named therein, dated as
of June 19, 2001, relating to the Securities.

                                       16
<PAGE>

                  "Registration Statement" means the Registration Statement as
defined in the Registration Rights Agreement.

                  "Regular Record Date" for the interest payable on any Interest
Payment Date means the December 15 or June 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.

                  "Reimbursement Obligations" means, as at any date, the
obligations of the Company then outstanding under the Bank Credit Agreement to
reimburse any Bank in the case of Syndicated Letters of Credit or Chase in the
case of Participation Letters of Credit.

                  "Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.

                  "Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.

                  "S&P" means Standard and Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc., and its successors.

                  "Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture. For all purposes of this Indenture, the term
"Securities" shall include any Exchange Securities to be issued and exchanged
for any Securities pursuant to the Registration Rights Agreement and this
Indenture and, for purposes of this Indenture, all Securities and Exchange
Securities shall vote together as one series of Securities under this Indenture.

                  "Securities Act" means the Securities Act of 1933, as amended,
or any successor statute, and the rules and regulations promulgated by the
Commission thereunder.

                  "Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.

                  "Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.

                  "Significant Subsidiary" of the Company means any Restricted
Subsidiary of the Company that is a "significant subsidiary" as defined in Rule
1.02(v) of Regulation S-X under the Securities Act, and in any event shall
include any Guarantor.

                  "Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 309.

                                       17
<PAGE>

                  "Stated Maturity" means, when used with respect to any
Security or any installment of interest thereon, the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable, and, when used with respect to any
other Indebtedness, means the date specified in the instrument governing such
Indebtedness as the fixed date on which the principal of such Indebtedness, or
any installment of interest thereon, is due and payable.

                  "Subordinated Indebtedness" means Indebtedness of the Company
or a Guarantor, as the case may be, which is expressly subordinated in right of
payment to the Securities.

                  "Subsidiary" means, with respect to any Person, (i) a
corporation a majority of whose Voting Stock is at the time, directly or
indirectly, owned by such Person, by one or more Subsidiaries of such Person or
by such Person and one or more Subsidiaries thereof or (ii) any other Person
(other than a corporation), including, without limitation, a joint venture, in
which such Person, one or more Subsidiaries thereof or such Person and one or
more Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions). Unless specifically provided to the contrary herein,
Unrestricted Subsidiaries shall not be included in the definition of
Subsidiaries for any purpose of the Indenture (other than for the purposes of
the definition of "Unrestricted Subsidiary" herein).

                  "Subsidiary Guarantor" means each of the following Restricted
Subsidiaries of the Company: Applied Extrusion Technologies (Canada), Inc., a
Delaware corporation, and each other Restricted Subsidiary of the Company that
from time to time becomes a party to the Subsidiary Guaranty or otherwise
guarantees the obligations of the Company under the Bank Credit Agreement.

                  "Subsidiary Guaranty" means the Subsidiary Guaranty dated as
of the Closing Date issued pursuant to the Bank Credit Agreement, as such
Guaranty shall be modified and supplemented and in effect from time to time.

                  "Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force at the date as of which this Indenture was executed, except
as provided in Section 905.

                  "Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.

                  "Unrestricted Subsidiary" means (1) any Subsidiary of the
Company which at the time of determination shall be designated an Unrestricted
Subsidiary (as designated by the Board of Directors of the Company, as provided
below) and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
so long as (a) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable for any Indebtedness of such Subsidiary, (b) no default with
respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse
of time or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable

                                       18
<PAGE>

prior to its stated maturity, (c) neither the Company nor any Restricted
Subsidiary has made an Investment in such Subsidiary unless such Investment was
permitted under Section 1011, (d) neither the Company nor any Restricted
Subsidiary has a contract, agreement, arrangement, understanding or obligation
of any kind, whether written or oral, with such Subsidiary other than those that
might be obtained at the time from persons who are not Affiliates of the
Company, and (e) neither the Company nor any Restricted Subsidiary has any
obligation (i) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary, or (ii) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Company shall be evidenced to the Trustee by filing a board resolution with
the Trustee giving effect to such designation. The Board of Directors of the
Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if
immediately after giving effect to such designation, there would be no Default
or Event of Default under the Indenture and the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
1010.

               "Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".

               "Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the time,
stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).

               Section 102.  Incorporation by Reference of Trust Indenture Act.
               ---------------------------------------------------------------

               Whenever this Indenture refers to a provision of the Trust
Indenture Act, the provision is incorporated by reference in and made a part of
this Indenture. The following Trust Indenture Act terms used in this Indenture
have the following meanings:

               "indenture securities" means the Securities;

               "indenture security holder" means a Holder;

               "indenture to be qualified" means this Indenture;

               "indenture trustee or "institutional trustee" means the Trustee;
and

               "obligor" on the indenture securities means the Company or any
other obligor on the Securities.

               All other Trust Indenture Act terms used in this Indenture
that are defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by a rule of the Commission and not
otherwise defined herein shall have the meanings assigned to them therein.

                                       19
<PAGE>

                  Section 103.  Compliance Certificates and Opinions.
                  --------------------------------------------------

                  Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate and an Opinion of Counsel each
satisfactory in form and substance to the Trustee, which, taken together, state
that all conditions precedent, if any, provided for in this Indenture (including
any covenant compliance with which constitutes a condition precedent) relating
to the proposed action have been complied with, except that in the case of any
such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.

                  Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:

                  (1)    a statement that each individual signing such
         certificate or opinion has read such covenant or condition and the
         definitions herein relating thereto;

                  (2)    a brief statement as to the nature and scope of the
         examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                  (3)    a statement that, in the opinion of each such
         individual, he has made such examination or investigation as is
         necessary to enable him to express an informed opinion as to whether or
         not such covenant or condition has been complied with; and

                  (4)    a statement as to whether, in the opinion of each such
         individual, such condition or covenant has been complied with.

                  Section 104.  Form of Documents Delivered to Trustee.
                  ----------------------------------------------------

                  In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

                  Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.

                                       20
<PAGE>

          Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

          Section 105. Acts of Holders.
          ----------------------------

          (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.

          (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.

          (c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.

          (d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
                  --------
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.

                                       21
<PAGE>

          (e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.

          Section 106. Notices, Etc., to Trustee, Company.
          -----------------------------------------------

          Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,

          (1)  the Trustee by any Holder or by the Company shall be sufficient
      for every purpose hereunder if made, given, furnished or filed in writing
      to or with the Trustee at its Corporate Trust Office, Attention: Corporate
      Trust Division, or

          (2)  the Company by the Trustee or by any Holder shall be sufficient
      for every purpose hereunder (unless otherwise herein expressly provided)
      if in writing and mailed, first-class postage prepaid, to the Company
      addressed to it at the address of its principal office specified in the
      first paragraph of this Indenture, or at any other address previously
      furnished in writing to the Trustee by the Company.

          Section 107. Notice to Holders; Waiver.
          --------------------------------------

          Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.

          In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.

                                       22
<PAGE>

          Section 108.  Effect of Headings and Table of Contents.
          ------------------------------------------------------

          The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

          Section 109.  Successors and Assigns.
          ------------------------------------

          All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.

          Section 110.  Separability Clause.
          ---------------------------------

          In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

          Section 111.  Benefits of Indenture.
          -----------------------------------

          Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder or the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.

          Section 112.  Governing Law.
          ---------------------------

          This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York, without regard to the
principles of conflicts of law. Upon the issuance of the Exchange Securities or
the effectiveness of the Shelf Registration Statement, this Indenture shall be
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.

          Section 113.  Legal Holidays.
          ----------------------------

          In any case where any Interest Payment Date, Redemption Date, Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.

                                       23
<PAGE>

                                  ARTICLE Two

                                SECURITY FORMS

          Section 201.  Forms Generally.
          -----------------------------

          The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.

          The Initial Securities shall be known as the "10 3/4% Senior Notes due
2011" and the Exchange Securities shall be known as the "10 3/4% Series B Senior
Notes due 2011", in each case, of the Company. The Securities and the Trustee's
certificate of authentication shall be in substantially the form annexed hereto
as Exhibit A. The Securities may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the Indenture
and may have letters, notations or other marks of identification and such
notations, legends or endorsements required by law, stock exchange agreements to
which the Company is subject or usage. Any portion of the text of any Security
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Security. The Company shall approve the form of the
Securities and any notation, legend or endorsement on the Securities. Each
Security shall be dated the date of its authentication.

          The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.

          Initial Securities are being offered and sold in reliance on Rule 144A
and shall be issued initially in the form of one or more permanent global
Securities substantially in the form set forth in Exhibit A (the "U.S. Global
Security") deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the U.S. Global Security may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.

          Initial Securities offered and sold other than as described in the
preceding two paragraphs shall be issued in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
(the "U.S. Physical Securities" or the "Physical Securities").

          Section 202.  Restrictive Legends.
          ---------------------------------

          Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each such U.S. Global Security
and each U.S. Physical Security shall bear the following legend (the "Private
Placement Legend") on the face thereof:

                                       24
<PAGE>

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
         AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
         NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
         REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
         OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
         SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE
         HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
         OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO
         YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST
         DATE ON WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY WAS THE
         OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A)
         TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
         DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
         SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
         SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
         "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES
         FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
         BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
         RELIANCE ON RULE 144A, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
         PROVIDED BY RULE 144 (IF AVAILABLE) OR (E) PURSUANT TO ANOTHER
         AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR
         TO ANY SUCH OFFER, SALE OR TRANSFER (1) PURSUANT TO CLAUSES (C), (D) OR
         (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
         AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (2) IN EACH
         OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
         THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
         DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.

                  Each U.S. Global Security, whether or not an Initial Security,
shall also bear the following legend on the face thereof:

         UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
         THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
         REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
         ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY
         AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
         COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
         SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED

                                       25
<PAGE>

    REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS
    MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
    OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
    CEDE & CO., HAS AN INTEREST HEREIN.

    TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
    BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
    SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
    BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
    IN SECTIONS 306 AND 307 OF THE INDENTURE.

                                 ARTICLE THREE

                                THE SECURITIES

          Section 301.  Title and Terms.
          -----------------------------

          The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $275,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 307, 308, 906, 1015, 1016 or 1108.

          The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
                                                   --------  -------
the option of the Company, interest may be paid by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Security
Register.

          The Securities shall be redeemable as provided in Article Eleven.

          Section 302.  Denominations.
          ---------------------------

          The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.

          Section 303.  Execution, Authentication, Delivery and Dating.
          ------------------------------------------------------------

          The Securities shall be executed on behalf of the Company by its
Chairman, Chief Financial Officer, its President or a Vice President. The
signature of any of these officers on the Securities may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Securities.

          Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

                                       26
<PAGE>

          At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Securities, and the Trustee in
accordance with such Company Order shall authenticate and deliver such Initial
Securities. On Company Order, the Trustee shall authenticate for original issue
Exchange Securities in an aggregate principal amount not to exceed $275,000,000;
provided that such Exchange Securities shall be issuable only upon the valid
--------
surrender for cancellation of Initial Securities of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Securities. Such order shall
specify the amount of Securities to be authenticated and the date on which the
original issue of Initial Securities or Exchange Securities is to be
authenticated.

          Each Security shall be dated the date of its authentication.

          No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.

          In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.

          Section 304.  Temporary Securities.
          ----------------------------------

          Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the

                                       27
<PAGE>

officers executing such Securities may determine, as conclusively evidenced by
their execution of such Securities.

          If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.

          Section 305.  Registration, Registration of Transfer and Exchange.
          -----------------------------------------------------------------

          The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.

          Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.

          Furthermore, any Holder of the U.S. Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interest
in such Global Security may be effected only through a book-entry system
maintained by the Holder at such Global Security (or its agent), and that
ownership of a beneficial interest in the Security shall be required to be
reflected in a book entry.

          At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange (including an
exchange of Initial Securities for Exchange Securities), the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive; provided that no exchange
                                                       --------
of Initial Securities for Exchange Securities shall occur until an Exchange
Offer Registration Statement shall have been declared effective by the
Commission and that the Initial Securities to be exchanged for the Exchange
Securities shall be cancelled by the Trustee.

          All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same

                                       28
<PAGE>

benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.

          Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.

          No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1015, 1016 or 1108 not involving
any transfer.

          The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.

          Section 306.  Book-Entry Provisions for U.S. Global Security.
          ------------------------------------------------------------

          (a) The U.S. Global Security initially shall (i) be registered in the
name of the Depositary for such global Security or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 202.

          Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any U.S. Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the U.S. Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such U.S. Global Security for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Trustee or any
agent of the Company or the Trustee, from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or shall
impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a holder of any
Security.

          (b) Transfers of the U.S. Global Security shall be limited to
transfers of such U.S. Global Security in whole, but not in part, to the
Depositary, its successors or their respective nominees. Interests of beneficial
owners in the U.S. Global Security may be transferred in accordance with the
rules and procedures of the Depositary and the provisions of Section 307.
Beneficial owners may obtain U.S. Physical Securities in exchange for their
beneficial interests in the U.S. Global Security upon request in accordance with
the Depository's and the Registrar's Procedures. In addition, U.S. Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in the U.S. Global Security if (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for the
U.S. Global Security and a successor depositary is not appointed by the Company
within 90 days of such notice or

                                       29
<PAGE>

(ii) an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary.

          (c) In connection with any transfer of a portion of the beneficial
interest in the U.S. Global Security to beneficial owners pursuant to subsection
(b) of this Section, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of the U.S. Global Security in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more U.S. Physical Securities of
like tenor and amount.

          (d) In connection with the transfer of the entire U.S. Global Security
to beneficial owners pursuant to subsection (b) of this Section, the U.S. Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the U.S. Global Security, an equal aggregate principal
amount of U.S. Physical Securities of authorized denominations.

          (e) Any U.S. Physical Security delivered in exchange for an interest
in the U.S. Global Security pursuant to subsection (c) or subsection (d) of this
Section shall bear the applicable legend regarding transfer restrictions
applicable to the U.S. Physical Securities set forth in Section 202.

          (f) The registered holder of the U.S. Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.

          Section 307.  Special Transfer Provisions.
          -----------------------------------------

          Unless and until (i) an Initial Security is sold under an effective
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:

          (a)    Transfers to QIBs. The following provisions shall apply with
                 -----------------
respect to the registration of any proposed transfer of an Initial Security to a
QIB:

          (i)    If the Security to be transferred consists of U.S. Physical
     Securities, the Registrar shall register the transfer if such transfer is
     being made by a proposed transferor who has checked the box provided for on
     the form of Initial Security stating, or has otherwise advised the Company
     and the Registrar in writing, that the sale has been made in compliance
     with the provisions of Rule 144A to a transferee who has signed the
     certification provided for on the form of Initial Security stating, or has
     otherwise advised the Company and the Registrar in writing, that it is
     purchasing the Initial Security for its own account or an account with
     respect to which it exercises sole investment discretion and that it, or
     the person on whose behalf it is acting with respect to any such account,
     is a QIB within the meaning of Rule 144A, and is aware that the sale to it
     is being made in reliance on Rule 144A and acknowledges that it has
     received such information regarding the Company as it has requested
     pursuant to Rule 144A or has determined not to request

                                       30
<PAGE>

         such information and that it is aware that the transferor is relying
         upon its foregoing registration provided by Rule 144A.

               (ii)  If the proposed transferee is an Agent Member, and the
         Initial Security to be transferred consists of U.S. Physical
         Securities, upon receipt by the Registrar of instructions given in
         accordance with the Depositary's and the Registrar's procedures
         therefor, the Registrar shall reflect on its books and records the date
         and an increase in the principal amount of the U.S. Global Security in
         an amount equal to the principal amount of the U.S. Physical Securities
         to be transferred, and the Trustee shall cancel the U.S. Physical
         Security so transferred.

               (b)   Private Placement Legend. Upon the transfer, exchange or
                     ------------------------
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.

               (c)   General. By its acceptance of any Security bearing the
                     -------
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.

               The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.

               Section 308.  Mutilated, Destroyed, Lost and Stolen Securities.
               --------------------------------------------------------------

               If (i) any mutilated Security is surrendered to the Trustee, or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.

               In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.

               Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

                                       31
<PAGE>

          Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.

          The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

          Section 309. Payment of Interest; Interest Rights Preserved.
          -----------------------------------------------------------

          Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
      --------  -------
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 301, to the
address of such Person as it appears in the Security Register or (ii) transfer
to an account maintained by the payee located in the United States.

          Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provide d in clause
(1) or (2) below:

          (1)  The Company may elect to make payment of any Defaulted Interest
     to the Persons in whose names the Securities (or their respective
     Predecessor Securities) are registered at the close of business on a
     Special Record Date for the payment of such Defaulted Interest, which shall
     be fixed in the following manner. The Company shall notify the Trustee in
     writing of the amount of Defaulted Interest proposed to be paid on each
     Security and the date of the proposed payment, and at the same time the
     Company shall deposit with the Trustee an amount of money equal to the
     aggregate amount proposed to be paid in respect of such Defaulted Interest
     or shall make arrangements satisfactory to the Trustee for such deposit
     prior to the date of the proposed payment, such money when deposited to be
     held in trust for the benefit of the Persons entitled to such Defaulted
     Interest as in this clause provided. Thereupon the Trustee shall fix a
     Special Record Date for the payment of such Defaulted Interest which shall
     be not more than 15 days and not less than 10 days prior to the date of the
     proposed payment and not less than 10 days after the receipt by the Trustee
     of the notice of the proposed payment. The Trustee shall promptly notify
     the Company of such Special Record Date, and in the name and at the expense
     of the Company, shall cause notice of the proposed payment of such
     Defaulted Interest and the Special Record Date therefor to be given in the
     manner provided for in Section 106, not less than 10 days prior to such
     Special Record Date. Notice of the proposed payment of such Defaulted
     Interest and the Special Record Date therefor having been so given, such
     Defaulted Interest shall be paid to the Persons in

                                       32
<PAGE>

     whose names the Securities (or their respective Predecessor Securities) are
     registered at the close of business on such Special Record Date and shall
     no longer be payable pursuant to the following clause (2).

          (2)  The Company may make payment of any Defaulted Interest in any
     other lawful manner not inconsistent with the requirements of any
     securities exchange on which the Securities may be listed, and upon such
     notice as may be required by such exchange, if, after notice given by the
     Company to the Trustee of the proposed payment pursuant to this clause,
     such manner of payment shall be deemed practicable by the Trustee.

          Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.

          Section 310.  Persons Deemed Owners.
          -----------------------------------

          Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Sections 305 and 307) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.

          Section 311.  Cancellation.
          --------------------------

          All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.

          Section 312.  Computation of Interest.
          -------------------------------------

          Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.

                                       33
<PAGE>

                                 ARTICLE FOUR

                          SATISFACTION AND DISCHARGE

          Section 401.  Satisfaction and Discharge of Indenture.
          ---------------------------------------------------------

          This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities herein expressly provided for) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when

          (1)  either

               (a)  all Securities theretofore authenticated and delivered
          (other than (i) Securities which have been destroyed, lost or stolen
          and which have been replaced or paid as provided in Section 308 and
          (ii) Securities for whose payment money has theretofore been deposited
          in trust with the Trustee or any Paying Agent or segregated and held
          in trust by the Company and thereafter repaid to the Company or
          discharged from such trust, as provided in Section 1003) have been
          delivered to the Trustee for cancellation; or

               (b)  all such Securities not theretofore delivered to the Trustee
          for cancellation

                    (i)   have become due and payable, or

                    (ii)  will become due and payable at their Stated Maturity
               within one year, or

                    (iii) are to be called for redemption within one year under
               arrangements satisfactory to the Trustee for the giving of notice
               of redemption by the Trustee in the name, and at the expense, of
               the Company,

          and the Company or any Guarantor, in the case of (i), (ii) or (iii)
          above, has irrevocably deposited or caused to be deposited with the
          Trustee as trust funds in trust for the purpose an amount sufficient
          to pay and discharge the entire indebtedness on such Securities not
          theretofore delivered to the Trustee for cancellation, for principal
          (and premium, if any) and interest to the date of such deposit (in the
          case of Securities which have become due and payable) or to the Stated
          Maturity or Redemption Date, as the case may be;

          (2)  the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

          (3)  the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each satisfactory in form and substance to the
Trustee, which, taken together, state that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.

                                       34
<PAGE>

          Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.

          Section 402.  Application of Trust Money.
          ----------------------------------------

          Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.

                                 ARTICLE FIVE

                                   REMEDIES

          Section 501.  Events of Default.
          -------------------------------

          "Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):

          (1)  default in the payment of the principal of or premium, if any,
     when due and payable, on any of the Securities; or

          (2)  default in the payment of an installment of interest on any of
     the Securities, when due and payable, for 30 days; or

          (3)  default in the performance or breach of the provisions of Article
     Eight of this Indenture, the failure to make or consummate a Change in
     Control Offer in accordance with the provisions of Section 1015 or the
     failure to make or consummate an Excess Proceeds Offer in accordance with
     the provisions of Section 1016; or

          (4)  the Company or any Guarantor shall fail to perform or observe any
     other term, covenant or agreement contained in the Securities, any
     Guarantee or this Indenture (other than a default specified in (1), (2) or
     (3) above) for a period of 30 days after written notice of such failure
     requiring the Company to remedy the same shall have been given (x) to the
     Company by the Trustee or (y) to the Company and the Trustee by the holders
     of 25% in aggregate principal amount of the Securities then outstanding; or

          (5)  default or defaults under one or more mortgages, bonds,
     debentures or other evidences of Indebtedness under which the Company or
     any Significant Subsidiary then has outstanding Indebtedness in excess of
     $5,000,000, individually or in the aggregate, and either (a) such
     Indebtedness is already due and payable in full or (b) such

                                       35
<PAGE>

     default or defaults have resulted in the acceleration of the maturity of
     such Indebtedness; or

          (6)  one or more final judgments, orders or decrees of any court or
     regulatory or administrative agency of competent jurisdiction for the
     payment of money in excess of $5,000,000 either individually or in the
     aggregate, shall be entered against the Company or any of its Significant
     Subsidiaries or any of their respective properties and shall not be
     discharged or fully bonded and there shall have been a period of 60 days
     after the date on which any period for appeal has expired and during which
     a stay of enforcement of such judgment, order or decree, shall not be in
     effect; or

          (7)  (A) any holder of at least $5,000,000 in aggregate principal
     amount of secured Indebtedness of the Company or of any Significant
     Subsidiary as to which a default has occurred and is continuing shall
     commence judicial proceedings (which proceedings shall remain unstayed for
     5 Business Days) to foreclose upon assets of the Company or any Significant
     Subsidiary having an aggregate fair market value, individually or in the
     aggregate, in excess of $5,000,000 or shall have exercised any right under
     applicable law or applicable security documents to take ownership of any
     such assets in lieu of foreclosure or (B) any action described in the
     foregoing clause (A) shall result in any court of competent jurisdiction
     issuing any order for the seizure of such assets; or

          (8)  any Guarantee ceases to be in full force and effect or is
     declared null and void or any Guarantor denies that it has any further
     liability under any Guarantee, or gives notice to such effect (other than
     by reason of the termination of this Indenture or the release of any such
     Guarantee in accordance with this Indenture) and such condition shall have
     continued for a period of 30 days after written notice of such failure
     requiring the Guarantor and the Company to remedy the same shall have been
     given (x) to the Company by the Trustee or (y) to the Company and the
     Trustee by the holders of 25% in aggregate principal amount of the
     Securities then outstanding; or

          (9)  the entry of a decree or order by a court having jurisdiction in
     the premises adjudging the Company or any Significant Subsidiary a bankrupt
     or insolvent, or approving as properly filed a petition seeking
     reorganization, arrangement, adjustments or composition of or in respect of
     the Company or any Significant Subsidiary under the Federal Bankruptcy Code
     or any other applicable federal or state law, or appointing a receiver,
     liquidator, assignee, trustee, sequestrator (or other similar official) of
     the Company or any Significant Subsidiary or of any substantial part of its
     property, or ordering the winding up or liquidation of its affairs, and the
     continuance of any such decree or order unstayed and in effect for a period
     of 90 consecutive days; or

          (10) the institution by the Company or any Significant Subsidiary of
     proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
     to the institution of bankruptcy or insolvency proceeding seeking
     reorganization or relief under the Federal Bankruptcy Code or any other
     applicable federal or state law, or the consent by it to the filing of any
     such petition or to the appointment of a receiver, liquidator, assignee,
     trustee, sequestrator (or other similar official) of the Company or any
     ignificant Subsidiary or of any substantial part of its property, or the
     making by it of an assignment

                                       36
<PAGE>

     for the benefit of creditors, or the admission by it in writing of its
     inability to pay its debts generally as they become due.

          Section 502. Acceleration of Maturity; Rescission and Annulment.
          ---------------------------------------------------------------

          If an Event of Default (other than an Event of Default specified in
Section 501(9) or 501(10)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Securities Outstanding may declare the principal amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such principal
amount shall become immediately due and payable. If an Event of Default
specified in Section 501(9) or 501(10) occurs and is continuing, then the
principal amount of all the Securities shall ipso facto become and be
                                             ---- -----
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.

          At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of the Securities Outstanding, by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if

          (1)  the Company has paid or deposited with the Trustee a sum
     sufficient to pay,

               (A)  all overdue interest on all Outstanding Securities,

               (B)  all unpaid principal of (and premium, if any, on) any
          Outstanding Securities which has become due otherwise than by such
          declaration of acceleration, and interest on such unpaid principal at
          the rate borne by the Securities,

               (C)  to the extent that payment of such interest is lawful,
          interest on overdue interest and overdue principal at the rate borne
          by the Securities, which has become due otherwise than by such
          declaration of acceleration, and

               (D)  all sums paid or advanced by the Trustee hereunder and the
          reasonable compensation, expenses, disbursements and advances of the
          Trustee, its agents and counsel;

          (2)  such rescission would not conflict with any judgment or decree of
     a court of competent jurisdiction; and

          (3)  all Events of Default, other than the non-payment of amounts of
     principal of (or premium, if any, on) or interest on Securities which have
     become due solely by such declaration of acceleration, have been cured or
     waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

          Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Securities because of an Event of Default
specified in

                                       37
<PAGE>

Section 501(5) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness, and
written notice of such discharge or rescission, as the case may be, shall have
been given to the Trustee by the Company and countersigned by the holders of
such Indebtedness or a trustee, fiduciary or agent for such holders, within 30
days after such declaration of acceleration in respect of the Securities, and no
other Event of Default has occurred during such 30-day period which has not been
cured or waived during such period.

          Section 503. Collection of Indebtedness and Suits for Enforcement by
          --------------------------------------------------------------------
Trustee.
-------
          The Company covenants that if

          (a)   default is made in the payment of any installment of interest on
     any Security when such interest becomes due and payable and such default
     continues for a period of 30 days, or

          (b)  default is made in the payment of the principal of (or premium,
     if any, on) any Security at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.

          If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.

          If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.

          Section 504. Trustee May File Proofs of Claim.
          ---------------------------------------------

          In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective

                                       38
<PAGE>

of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,

          (i)  to file and prove a claim for the whole amount of principal (and
     premium, if any) and interest owing and unpaid in respect of the Securities
     and to file such other papers or documents as may be necessary or advisable
     in order to have the claims of the Trustee (including any claim for the
     reasonable compensation, expenses, disbursements and advances of the
     Trustee, its agents and counsel) and of the Holders allowed in such
     judicial proceeding, and

          (ii) to collect and receive any moneys or other property payable or
     deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.

          Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

          Section 505. Trustee May Enforce Claims Without Possession of
          -------------------------------------------------------------
Securities.
----------

          All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.

          Section 506. Application of Money Collected.
          --------------------------------------------

          Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:

          FIRST: To the payment of all amounts due the Trustee under Section
     606;

          SECOND: To the payment of the amounts then due and unpaid for
     principal of (and premium, if any, on,) and interest on the Securities in
     respect of which or for the benefit of which such money has been collected,
     ratably, without preference or priority of

                                       39
<PAGE>

     any kind, according to the amounts due and payable on such Securities for
     principal (and premium, if any) and interest, respectively; and

          THIRD: The balance, if any, to the Person or Persons entitled thereto.

          Section 507. Limitation on Suits.
          --------------------------------

          No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless

          (1)  such Holder has previously given written notice to the Trustee of
     a continuing Event of Default;

          (2)  the Holders of not less than 25% in aggregate principal amount of
     the Outstanding Securities shall have made written request to the Trustee
     to institute proceedings in respect of such Event of Default in its own
     name as Trustee hereunder;

          (3)  such Holder or Holders have offered to the Trustee reasonable
     indemnity against the costs, expenses and liabilities to be incurred in
     compliance with such request;

          (4)  the Trustee for 15 days after its receipt of such notice, request
     and offer of indemnity has failed to institute any such proceeding; and

          (5)  no direction inconsistent with such written request has been
     given to the Trustee during such 15-day period by the Holders of a majority
     or more in principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.

          Section 508. Unconditional Right of Holders to Receive Principal,
          -----------------------------------------------------------------
Premium and Interest.
--------------------

          Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Twelve)
and in such Security of the principal of (and premium, if any, on) and (subject
to Section 309) interest on, such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.

          Section 509. Restoration of Rights and Remedies.
          ------------------------------------------------

          If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such

                                       40
<PAGE>

case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.

          Section 510.  Rights and Remedies Cumulative.
          ---------------------------------------------

          Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 308, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.

          Section 511.  Delay or Omission Not Waiver.
          -------------------------------------------

          No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.

          Section 512.  Control by Holders.
          ---------------------------------

          The Holders of not less than a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
                                                        --------

          (1)  such direction shall not be in conflict with any rule of law or
with this Indenture,

          (2)  the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and

          (3)  the Trustee need not take any action which might subject it to
personal liability or be unjustly prejudicial to the Holders not consenting.

          Section 513.  Waiver of Past Defaults.
          --------------------------------------

          The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default

          (1)  in respect of the payment of the principal of (or premium, if
any, on) or interest on any Security, or

                                       41
<PAGE>

          (2)  in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.

          Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.

          Section 514.  Waiver of Stay or Extension Laws.
          -----------------------------------------------

          The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                                  ARTICLE SIX

                                  THE TRUSTEE

          Section 601.  Notice of Defaults.
          ---------------------------------

          If any Default hereunder is known to the Trustee, the Trustee shall
transmit in the manner and to the extent provided in TIA Section 313(c), notice
of such Default within 5 days after the occurrence of any such Default, unless
such Default shall have been cured or waived; provided, however, that, except in
the case of a Default in the payment of the principal of (or premium, if any,
on) or interest on any Security, the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors and/or Responsible Officers of the Trustee in
good faith determines that the withholding of such notice is in the interest of
the Holders; and provided further that in the case of any Default of the
                 -------- -------
character specified in Section 501(4) no such notice to Holders shall be given
until at least 30 days after the occurrence thereof.

                                       42
<PAGE>

          Section 602.  Certain Rights of Trustee.
          ----------------------------------------

          Subject to the provisions of TIA Sections 315(a) through 315(d):

          (1)  the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;

          (2)  any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;


          (3)  whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;

          (4)  the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;

          (5)  the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;

          (6)  the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;

          (7)  the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and

          (8)  the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.

                                       43
<PAGE>

               The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.

               Section 603. Trustee Not Responsible for Recitals or Issuance of
               ----------------------------------------------------------------
Securities.
----------

               The recitals contained herein and in the Securities, except for
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and except, upon the
effectiveness of a Registration Statement, that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Securities or the
proceeds thereof.

               Section 604.  May Hold Securities.
               ---------------------------------

               The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Company or of the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to TIA
Sections 310(b) and 311, may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Security Registrar or
such other agent.

               Section 605.  Money Held in Trust.
               ---------------------------------

               Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.

               Section 606.  Compensation and Reimbursement.
               --------------------------------------------

               The Company agrees:

               (1)  to pay to the Trustee from time to time reasonable
         compensation for all services rendered by it hereunder (which
         compensation shall not be limited by any provision of law in regard to
         the compensation of a trustee of an express trust);

               (2)  except as otherwise expressly provided herein, to reimburse
         the Trustee upon its request for all reasonable expenses, disbursements
         and advances incurred or made by the Trustee in accordance with any
         provision of this Indenture (including the reasonable compensation and
         the expenses and disbursements of its agents and counsel); and

               (3)  to indemnify the Trustee for, and to hold it harmless
         against, any loss, liability or expense incurred without negligence or
         bad faith on its part, arising out of or in connection with the
         acceptance or administration of this trust, including the costs and
         expenses of defending itself against any claim or liability in
         connection with the exercise or performance of any of its powers or
         duties hereunder.

                                       44
<PAGE>

               The obligations of the Company under this Section to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Securities.

               When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(9) or Section
501(10), the expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy law.

               Section 607.   Corporate Trustee Required; Eligibility.
               ------------------------------------------------------

                  There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

               Section 608.  Resignation and Removal; Appointment of Successor.
               ---------------------------------------------------------------

               (a)  No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.

               (b)  The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

               (c)  The Trustee may be removed at any time by Act of the Holders
of not less than a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.

               (d)  If at any time:

               (1)  the Trustee shall fail to comply with the provisions of TIA
        Section 310(b) after written request therefor by the Company or by any
        Holder who has been a bona fide Holder of a Security for at least six
        months, except when the Trustee's duty to resign is stayed in accordance
        with the provisions of TIA Section 310(b), or

                                       45
<PAGE>

               (2)  the Trustee shall cease to be eligible under Section 607 and
         shall fail to resign after written request therefor by the Company or
         by any Holder who has been a bona fide Holder of a Security for at
         least six months, or

               (3)  the Trustee shall become incapable of acting or shall be
         adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
         property shall be appointed or any public officer shall take charge or
         control of the Trustee or of its property or affairs for the purpose of
         rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.

               (e)  If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided subject to
TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

               (f)  The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 107. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.

               Section 609.   Acceptance of Appointment by Successor.
               -----------------------------------------------------

               Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder subject to the retiring Trustee's rights
as provided under the last sentence of Section 606. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.

                                       46
<PAGE>

               No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.

               Section 610. Merger, Conversion, Consolidation or Succession to
               ----------------------------------------------------------------

Business.
--------
               Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities;
and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture provided that the certificate of
the Trustee shall have; provided, however, that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.

                                 ARTICLE SEVEN

                     HOLDERS' LISTS AND REPORTS BY TRUSTEE

               Section 701.  Disclosure of Names and Addresses of Holders.
               -----------------------------------------------------------

               Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).

               Section 702.   Reports by Trustee.
               ---------------------------------

               Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Securities, the Trustee shall transmit
to the Holders, in the manner and to the extent provided in TIA Section 313(c),
a brief report dated as of such May 15 if required by TIA Section 313(a).

                                       47
<PAGE>

                                 ARTICLE EIGHT

             CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

               Section 801. Company May Consolidate, Etc., Only on Certain
               -----------------------------------------------------------
Terms.
-----

               The Company shall not, in any transaction or series of
transactions, merge or consolidate with or into, or sell, assign, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets as an entirety to, any Person or Persons, and the Company will not permit
any Restricted Subsidiary to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, transfer, lease or other disposition of all
or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis to any other Person or Persons,
unless at the time and after giving effect thereto:

               (1)  either (A) if the transaction or transactions is a merger
     or consolidation, the Company shall be the surviving Person of such merger
     or consolidation, or (B) the Person formed by such consolidation or into
     which the Company or such Restricted Subsidiary is merged or to which the
     properties and assets of the Company or such Restricted Subsidiary, as the
     case may be, substantially as an entirety, are sold, assigned, transferred,
     leased or otherwise disposed of (any such surviving Person or transferee
     Person being the "Surviving Entity") shall be a corporation organized and
     existing under the laws of the United States of America, any state thereof
     or the District of Columbia and shall expressly assume by a supplemental
     indenture executed and delivered to the Trustee, in form satisfactory to
     the Trustee, all the obligations of the Company under the Securities and
     the Indenture, and, in each case, the Indenture shall remain in full force
     and effect;

               (2)  immediately before and immediately after giving effect to
     such transaction or series of transactions on a pro forma basis (including,
                                                     ---------
     without limitation, any Indebtedness incurred or anticipated to be incurred
     in connection with or in respect of such transaction or series of
     transactions), no Default or Event of Default shall have occurred and be
     continuing and the Company or the Surviving Entity, as the case may be,
     after giving effect to such transaction or series of transactions on a pro
                                                                            ---
     forma basis, could incur $1.00 of additional Indebtedness (other than
     -----
     Permitted Indebtedness) pursuant to Section 1010;

               (3)  immediately after giving effect to such transaction or
     series of transactions on a pro forma basis, the Consolidated Net Worth of
                                 ---------
     the Company, or the Surviving Entity, as the case may be, is at least equal
     to the Consolidated Net Worth of the Company immediately before such
     transaction or series of transactions; and


               (4)  the Company or such Person shall have delivered to the
     Trustee an Officers' Certificate and an Opinion of Counsel satisfactory in
     form and substance to the Trustee, which, taken together, state that such
     consolidation, merger, conveyance, transfer or lease and, if a supplemental
     indenture is required in connection with such transaction, such
     supplemental indenture, comply with this Article and that all conditions
     precedent herein provided for relating to such transaction have been
     complied with.

                                       48
<PAGE>

               Section 802.   Successor Substituted.
               ------------------------------------

               Upon any consolidation of the Company with or merger of the
Company with or into any other corporation or any sale, assignment, lease, or
other disposition of all or substantially all of the properties and assets of
the Company as an entirety to any Person in accordance with Section 801 in which
the Company is not the continuing corporation, the Surviving Entity formed by
such consolidation or into which the Company is merged or to which such sale,
assignment, lease, or other disposition of all or substantially all of the
properties and assets of the Company is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such Surviving Entity had been named
as the Company herein, and in the event of any such conveyance or transfer, the
Company (which term shall for this purpose mean the Person named as the
"Company" in the first paragraph of this Indenture or any Surviving Entity which
shall theretofore become such in the manner described in Section 801), except in
the case of a lease, shall be discharged of all obligations and covenants under
this Indenture and the Securities and may be dissolved and liquidated.

               Section 803.   Securities to Be Secured in Certain Events.
               ---------------------------------------------------------

               If, upon any such consolidation of the Company with or merger of
the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1014 without equally and ratably securing the Securities, the Company, prior to
or simultaneously with such consolidation, merger, conveyance, lease or
transfer, will as to such property or assets, secure the Securities Outstanding
(together with, if the Company shall so determine any other Indebtedness of the
Company now existing or hereinafter created which is not subordinate in right of
payment to the Securities) equally and ratably with (or prior to) the
Indebtedness which upon such consolidation, merger, conveyance, lease or
transfer is to become secured as to such property or assets by such Lien, or
will cause such Securities to be so secured.

                                 ARTICLE NINE

                            SUPPLEMENTAL INDENTURES

          Section 901.   Supplemental Indentures Without Consent of Holders.
          -----------------------------------------------------------------

          Without the consent of any Holder, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

          (1)  to evidence the succession of another Person to the Company and
     the assumption by any such successor of the covenants of the Company
     contained herein and in the Securities; or

          (2)  to add to the covenants of the Company for the benefit of the
     Holders or to surrender any right or power herein conferred upon the
     Company; or

                                       49
<PAGE>

          (3)  to add any additional Events of Default; or

          (4)  to evidence and provide for the acceptance of appointment
     hereunder by a successor Trustee pursuant to the requirements of Section
     609; or

          (5)  to cure any ambiguity, to correct or supplement any provision
     herein which may be inconsistent with any other provision herein, or to
     make any other provisions with respect to matters or questions arising
     under this Indenture; provided that such action shall not adversely affect
     the interests of the Holders in any material respect; or

          (6)  to secure the Securities pursuant to the requirements of Section
     803 or 1014 or otherwise.


          Section 902.   Supplemental Indentures with Consent of Holders.
          --------------------------------------------------------------

          With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
--------  -------
consent of the Holder of each Outstanding Security affected thereby:

          (1)  change the Stated Maturity of the principal of, or any
     installment of interest on, any Security, or reduce the principal amount
     thereof or the rate of interest thereon or any premium payable upon the
     redemption thereof, or change the coin or currency in which any Security or
     any premium or the interest thereon is payable, or impair the right to
     institute suit for the enforcement of any such payment after the Stated
     Maturity thereof (or, in the case of redemption, on or after the Redemption
     Date), or

          (2)  reduce the percentage in principal amount of the Outstanding
     Securities, the consent of whose Holders is required for any such
     supplemental indenture, or the consent of whose Holders is required for any
     waiver of compliance with certain provisions of this Indenture or certain
     defaults hereunder and their consequences provided for in this Indenture,
     or

          (3)  release any Guarantor from any of its obligations under its
     Guarantee or this Indenture other than in accordance with the terms of this
     Indenture, or

          (4)  modify any of the provisions of this Section or Sections 513 and
     1020, except to increase any such percentage or to provide that certain
     other provisions of this Indenture cannot be modified or waived without the
     consent of the Holder of each Outstanding Security affected thereby.

          It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.

                                       50
<PAGE>

          Section 903.   Execution of Supplemental Indentures.
          ---------------------------------------------------

          In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

          Section 904.   Effect of Supplemental Indentures.
          ------------------------------------------------

          Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.

          Section 905.   Conformity with Trust Indenture Act.
          --------------------------------------------------

          Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.

          Section 906.   Reference in Securities to Supplemental Indentures.
          -----------------------------------------------------------------

          Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.

          Section 907.   Notice of Supplemental Indentures.
          ------------------------------------------------

          Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 107, setting forth in general terms the
substance of such supplemental indenture.

                                  ARTICLE TEN

                                   COVENANTS

          Section 1001.  Payment of Principal, Premium, if any, and Interest.
          ------------------------------------------------------------------

          The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.

                                       51
<PAGE>

          Section 1002.  Maintenance of Office or Agency.
          ----------------------------------------------

          The Company will maintain in The City of New York, an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.

          The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
                                      --------  -------
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.

          Section 1003.  Money for Security Payments to Be Held in Trust.
          --------------------------------------------------------------

          If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.

          Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of (and
premium, if any, on), or interest on, any Securities, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.

          The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:

          (1)  hold all sums held by it for the payment of the principal of (and
     premium, if any, on) or interest on Securities in trust for the benefit of
     the Persons entitled thereto until such sums shall be paid to such Persons
     or otherwise disposed of as herein provided;

                                       52
<PAGE>

          (2)  give the Trustee notice of any default by the Company (or any
     other obligor upon the Securities) in the making of any payment of
     principal (and premium, if any) or interest; and

          (3)  at any time during the continuance of any such default, upon the
     written request of the Trustee, forthwith pay to the Trustee all sums so
     held in trust by such Paying Agent.

          The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.

          Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any, on) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
                                --------  -------
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.

          Section 1004.  Corporate Existence.
          ----------------------------------

          Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
            --------  -------
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.

          Section 1005.  Payment of Taxes and Other Claims.
          ------------------------------------------------

          The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
                                                                      --------
however, that the Company shall not be required to pay or discharge or cause to
-------
be

                                       53
<PAGE>

paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.

          Section 1006.  Maintenance of Properties.
          ----------------------------------------

          The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
                        --------  -------
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.

          Section 1007.  Insurance.
          ------------------------

          The Company will at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.

          Section 1008.  Statement by Officers as to Default.
          --------------------------------------------------

          (a)  The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year and within 45 days after the end of each fiscal
quarter, a brief certificate from the principal executive officer, principal
financial officer or principal accounting officer as to his or her knowledge of
compliance by the Company and the Guarantors with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.

          (b)  When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $5,000,000), the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action within 10 days of its occurrence.

          Section 1009.  Provision of Financial Statements.
          ------------------------------------------------

          The Company will file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee, and provide to each
holder of Securities, without cost to such holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or

                                       54
<PAGE>

the date on which the Company would be required to file such reports and
documents if the Company were so required and (b) if filing such reports and
documents with the Commission is not accepted by the Commission or is prohibited
under the Exchange Act, to supply at the Company's cost copies of such reports
and documents to any prospective holder of Securities promptly upon written
request.

          Section 1010.  Limitation on Indebtedness.
          -----------------------------------------

          (a)  The Company will not create, incur, issue, assume, guarantee or
in any manner become directly or indirectly liable for the payment of
(collectively "incur") any Indebtedness (including any Acquired Indebtedness),
other than Permitted Indebtedness, unless (x) the Company's Consolidated Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period (and after giving pro
                                                                           ---
forma effect to: (i) the incurrence of such Indebtedness and (if applicable) the
-----
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred and the application of such
proceeds occurred at the beginning of such four-quarter period; (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company or
its Restricted Subsidiaries since the first day of such four-quarter period as
if such Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period; and (iii) notwithstanding clause (d) of the definition of
Consolidated Adjusted Net Income, the acquisition (whether by purchase, merger
or otherwise) or disposition (whether by sale, merger or otherwise) of any
company, entity, business or division, or assets constituting any of the
foregoing, acquired or disposed of by the Company or its Restricted
Subsidiaries, as the case may be, since the first day of such four-quarter
period, as if such acquisition or disposition occurred at the beginning of such
four-quarter period), would have been at least equal to (i) 2.0 to 1.0 for the
period from the date of the Indenture through September 30, 2002 and (ii) 2.25
to 1.0 for all periods thereafter, and (y) if such Indebtedness is Subordinated
Indebtedness, such Indebtedness shall have an Average Life longer than the
Average Life of the Securities and a final Stated Maturity of principal later
than the final Stated Maturity of principal of the Securities.

          (b)  The Company will not permit any Restricted Subsidiary to incur
any Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness, unless (x) the Company's Consolidated Fixed Charge
Coverage Ratio for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness, taken as one period (and after giving pro forma
                                                                       ---------
effect to the matters referred to in clauses (i), (ii) and (iii) in the
parenthetical in clause (x) of paragraph (a) of this Section 1010), would have
been at least equal to 3.0 to 1.0, provided that a non-domestic Restricted
                                   --------
Subsidiary may incur any Indebtedness (including any Acquired Indebtedness) so
long as at the time of such incurrence the Consolidated Fixed Charge Coverage
Ratio for the four fiscal quarters immediately preceding the incurrence of such
Indebtedness, taken as one period (and after giving pro forma effect to the
matters referred to in clauses (i), (ii) and (iii) in the parenthetical in
clause (x) of paragraph (a) of this Section 1010), would have complied with the
ratio test in clause (x) of paragraph (a) of the "Limitation on Indebtedness"
covenant and (y) any Restricted Subsidiary that incurs any Indebtedness pursuant
to clause (x) of this paragraph (b) shall Guarantee the Securities.

          (c)  The Company shall not incur any Indebtedness that is expressly
subordinated to any other Indebtedness of the Company unless such Indebtedness,
by its terms or the terms of any agreement or instrument pursuant to which such
Indebtedness is issued or

                                       55
<PAGE>

outstanding, is also expressly made subordinate to the Securities at least to
the extent it is subordinated to such other Indebtedness, except that the
Securities shall not be required to become designated senior indebtedness or its
equivalent due solely to the incurrence of such other Indebtedness in accordance
with this sentence.

          Section 1011.  Limitation on Restricted Payments.
          ------------------------------------------------

          (a)    The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, take the following actions:

          (i)    declare or pay any dividend on, or make any distribution to
     holders of, any shares of the Company's Capital Stock (other than dividends
     or distributions payable in shares of its Capital Stock or in options,
     warrants or other rights to purchase such Capital Stock, but excluding
     dividends or distributions payable in Redeemable Capital Stock or in
     options, warrants or other rights to purchase Redeemable Capital Stock),

          (ii)   purchase, redeem or otherwise acquire or retire for value any
     Capital Stock of the Company or any options, warrants or other rights
     to acquire such Capital Stock,

          (iii)  make any principal payment on or repurchase, redeem, defease or
     otherwise acquire or retire for value, prior to a scheduled principal
     payment, scheduled sinking fund payment or maturity, any Subordinated
     Indebtedness, or

          (iv)   make any Investment (other than any Permitted Investment) in
     any Person

(such payments or other actions described in (but not excluded from) clauses (i)
through (iv) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution), (1) no Default or Event of Default shall have
occurred and be continuing, (2) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1010, and
(3) the aggregate amount of all Restricted Payments declared or made after the
date of the Indenture shall not exceed the sum of (A) 50% of the aggregate
cumulative Consolidated Adjusted Net Income of the Company accrued on a
cumulative basis during the period beginning on the first day of the Company's
first fiscal quarter after the date of the Indenture and ending on the last day
of the Company's last fiscal quarter ending prior to the date of such proposed
Restricted Payment (or, if such aggregate cumulative Consolidated Adjusted Net
Income shall be a loss, minus 100% of such loss), plus (B) the aggregate net
                                                  ----
cash proceeds received after the date of the Indenture by the Company from the
issuance or sale (other than to any Restricted Subsidiary) of shares of Capital
Stock of the Company (other than Redeemable Capital Stock) or warrants, options
or rights to purchase such shares of Capital Stock of the Company, plus (C) the
                                                                   ----
aggregate net cash proceeds received after the date of the Indenture by the
Company from the issuance or sale (other than to any Restricted Subsidiary) of
debt securities that have been converted into or exchanged for Capital Stock of
the Company (other than Redeemable Capital Stock) to the extent such debt
securities were originally sold for cash, together with the aggregate cash
received by the Company at the time of such conversion or exchange, plus (D) to
                                                                    ----
the extent not otherwise included in the Company's Consolidated Adjusted Net
Income, the net reduction in Investments (other than

                                       56
<PAGE>

reductions in Permitted Investments) constituting a Restricted Payment resulting
from the payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or a
Restricted Subsidiary or from the sale of such Investment after the date of the
Indenture or from the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary (valued in each case as provided in the definition of
Investment), not to exceed the total amount of Investments (other than Permitted
Investments) after the date of the Indenture in such Unrestricted Subsidiary or
such Investment by the Company and its Restricted Subsidiaries, plus (E)
                                                                ----
$5,000,000.

          (b)  Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as (with respect
to clauses (ii), (iii), (iv), (v) and (vi) below) no Default or Event of Default
shall have occurred and be continuing:

          (i)    the payment of any dividend within 60 days after the date of
     declaration thereof, if at such declaration date such declaration complied
     with the provisions of paragraph (a) above;

          (ii)   the purchase, redemption or other acquisition or retirement for
     value of any shares of Capital Stock of the Company, in exchange for, or
     out of the net cash proceeds of, a substantially concurrent issuance and
     sale (other than to a Restricted Subsidiary) of shares of Capital Stock
     (other than Redeemable Capital Stock) of the Company;

          (iii)  the purchase, redemption, defeasance or other acquisition or
     retirement for value of any Subordinated Indebtedness (other than
     Redeemable Capital Stock) in exchange for or out of the net cash proceeds
     of a substantially concurrent issuance and sale (other than to a Restricted
     Subsidiary) of shares of Capital Stock (other than Redeemable Capital
     Stock) of the Company;

          (iv)   the repurchase of any Subordinated Indebtedness of the Company
     at a purchase price not greater than 101% of the principal amount of such
     Subordinated Indebtedness in the event of a Change of Control pursuant to a
     provision similar to the "Change of Control" covenant; provided that prior
                                                            --------
     to such repurchase the Company has made the Change of Control Offer as
     provided in such covenant with respect to the Securities and has
     repurchased all Securities validly tendered for payment in connection with
     such Change of Control Offer;

          (v)    the purchase, redemption or other acquisition or retirement for
     value of Subordinated Indebtedness (other than Redeemable Capital Stock) in
     exchange for, or out of the net cash proceeds of a substantially concurrent
     incurrence (other than to a Restricted Subsidiary) of, Subordinated
     Indebtedness of the Company so long as (A) the principal amount of such new
     Indebtedness does not exceed the principal amount (or, if such Subordinated
     Indebtedness being refinanced provides for an amount less than the
     principal amount thereof to be due and payable upon a declaration of
     acceleration thereof, such lesser amount as of the date of determination)
     of the Subordinated Indebtedness being so purchased, redeemed, acquired or
     retired plus the amount of any premium required to be paid in connection
             ----
     with such refinancing pursuant to the terms of the Subordinated
     Indebtedness refinanced or the amount of any premium reasonably determined
     by the Company as necessary to accomplish such refinancing, plus the
                                                                 ----

                                       57
<PAGE>

     amount of expenses of the Company incurred in connection with such
     refinancing, (B) such new Subordinated Indebtedness is subordinated to the
     Securities to the same extent as such Subordinated Indebtedness so
     purchased, redeemed, acquired or retired and (C) such new Subordinated
     Indebtedness has an Average Life longer than the Average Life of the
     Securities and a final Stated Maturity of principal later than the final
     Stated Maturity of principal of the Securities;

          (vi)   the purchase, redemption or other acquisition or retirement for
     value of shares of Common Stock of the Company issued pursuant to options
     granted by the Company in order to pay withholding taxes due as a result of
     income recognized upon the exercise of such options; provided that (1) the
                                                          --------
     Company is required, by the terms of such options, to effect such purchase,
     redemption or other acquisition or retirement for value of such shares and
     (2) the aggregate consideration paid by the Company for such shares so
     purchased, redeemed or otherwise acquired or retired for value pursuant to
     this clause (vi) does not exceed $2,000,000 during any fiscal year of the
     Company; and

          (vii)  repurchases of Capital Stock of the Company deemed to occur
     upon the cashless exercise of stock options and warrants of the Company.

The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
(provided that any dividend paid pursuant to clause (i) of this paragraph (b)
 --------
shall reduce the amount that would otherwise be available under clause (3) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clauses (v) and (vii) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a).

          (c)    In computing Consolidated Adjusted Net Income of the Company
under paragraph (a) above, (1) the Company shall use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (2) the Company shall
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment which, at the time of the making of such Restricted Payment would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period.

          Section 1012. Limitation on Issuances and Sales of Restricted
          -------------------------------------------------------------
          Subsidiary Stock.
          ----------------

          The Company (i) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Restricted Subsidiary) and (ii)
will not permit any Person (other than the Company or a Restricted Subsidiary)
to own any Capital Stock of any Restricted

                                      58
<PAGE>

Subsidiary; provided, however, that this covenant shall not prohibit the (1) the
            --------  -------
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of the
Indenture, or (2) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.

          Section 1013. Limitation on Transactions with Affiliates.
          ---------------------------------------------------------

          The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into any transaction with, or for the benefit
of, any Affiliate of the Company or any beneficial owner of 5% or more of any
class of the Company's Capital Stock at any time outstanding ("Interested
Persons"), unless (i) such transaction is among the Company and Restricted
Subsidiaries or (ii) (A) such transaction is on terms that are no less favorable
to the Company, or such Restricted Subsidiary, as the case may be, than those
that could have been obtained in an arm's length transaction with third parties
who are not Interested Persons and (B)(1) with respect to any transaction or
series of related transactions involving the aggregate value in excess of
$500,000, the Company delivers an Officer's Certificate to the Trustee
certifying that such transaction or series of related transactions complies with
clause (A) above and (2) with respect to any transaction or series of related
transactions involving aggregate value in excess of $2,500,000, either (i) such
transaction or series of related transactions has been approved by a majority of
the Disinterested Directors of the board of directors of the Company, or in the
event there is only one Disinterested Director, by such Disinterested Director,
or (ii) the Company delivers to the Trustee a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or
Restricted Subsidiary from a financial point of view; provided, however, that
                                                      --------  -------
this covenant will not restrict the Company from paying reasonable compensation
and fees to directors of the Company or any Restricted Subsidiary who are not
employees of the Company or any Restricted Subsidiary.

          Section 1014.  Limitation on Liens.
          ----------------------------------

          The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind, except for Permitted Liens, on or with respect to any of its property
or assets, whether owned at the date of the Indenture or thereafter acquired, or
any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Securities are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Securities are equally and ratably secured.


          Section 1015.  Change of Control.
          --------------------------------

          (a)   Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase all of the outstanding Securities (a
"Change of Control

                                       59
<PAGE>

Offer"), and shall purchase, on a business day (the "Change of Control Purchase
Date") not more than 70 nor less than 60 days following the Change of Control,
all of the then outstanding Securities validly tendered pursuant to such Change
of Control Offer, at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Purchase Date. The Change of Control Offer is
required to remain open for at least 20 Business Days and until the close of
business on the Change of Control Purchase Date.

          (b)  In order to effect such Change of Control Offer, the Company
shall, not later than the 30th day after the Change of Control, mail to each
Holder notice of the Change of Control Offer in the manner provided in Section
107, which notice shall govern the terms of the Change of Control Offer and
shall state:

          (1)  that a Change of Control has occurred and that such Holder has
     the right to require the Company to repurchase such Holder's Securities at
     the Change of Control Purchase Price;

          (2)  the circumstances and relevant facts regarding such Change of
     Control (including but not limited to information with respect to pro forma
     historical income, cash flow and capitalization after giving effect to such
     Change of Control);

          (3)  the Change of Control Purchase Date; and

          (4)  the instructions a Holder must follow in order to have its
     Securities repurchased in accordance with paragraph (c) of this Section.

          (c)  Holders electing to have Securities purchased will be required to
surrender such Securities to the Company at the address specified in the notice
at least five Business Days prior to the Change of Control Purchase Date.
Holders will be entitled to withdraw their election if the Company receives, not
later than three Business Days prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Securities delivered for purchase by the
Holder as to which his election is to be withdrawn and a statement that such
Holder is withdrawing his election to have such Securities purchased. Holders
whose Securities are purchased only in part will be issued new Securities equal
in principal amount of the unpurchased portion of the Securities surrendered.

          (d)  The Company will comply with Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Securities as described above.

          Section 1016.  Limitation on Disposition of Proceeds of Asset Sales.
          -------------------------------------------------------------------

          (a)  The Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) such Asset Sale is for not
less than the fair market value of the assets sold (as determined by the Board
of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at

                                       60
<PAGE>

least 75% cash or Cash Equivalents; provided that the Company and its Restricted
Subsidiaries may engage in Asset Sales for consideration not in the form of Cash
Equivalents in amounts in excess of that permitted in this clause (ii), so long
as (x) such excess consideration is in the form of Fully Traded Common Stock,
(y) the aggregate fair market value of such Fully Traded Common Stock received
by the Company and its Restricted Subsidiaries (measured as of the date of
receipt) from all Asset Sales in reliance on this proviso since the date of the
Indenture that has not been converted into cash or Cash Equivalents does not
exceed $10,000,000 and (z) any Fully Traded Common Stock that is converted into
cash or Cash Equivalents shall be applied as provided in paragraphs (b) and (c)
of this Section.

          (b)  If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 12 months after
such Asset Sale, to (i) repay or prepay any then outstanding Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary (other than Subordinated
Indebtedness) or (ii) invest (or enter into a legally binding agreement to
invest) in properties and assets to replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in a
Permitted Business. If any such legally binding agreement to invest such Net
Cash Proceeds is terminated, then the Company may, within 90 days of such
termination or within 12 months of such Asset Sale, whichever is later, invest
such Net Cash Proceeds as provided in clause (i) or (ii) (without regard to the
parenthetical contained in such clause (ii)) above. The amount of such Net Cash
Proceeds not so used as provided in clauses (i) and (ii) above constitutes
"Excess Proceeds."

          (c)  When the aggregate amount of Excess Proceeds exceeds $10,000,000,
the Company shall, within 15 business days, make an offer to purchase (an
"Excess Proceeds Offer") from all holders of Securities and from the holders of
Pari Passu Indebtedness, if any, to the extent required by the terms thereof, on
a pro rata basis, in accordance with the procedures set forth below, the maximum
principal amount (expressed as a multiple of $1,000) of Securities, and Pari
Passu Indebtedness, if any, that may be purchased with the Excess Proceeds. The
offer price as to each Security and Pari Passu Indebtedness, if any, shall be
payable in cash in an amount equal to 100% of the principal amount of such
Security and Pari Passu Indebtedness, if any, plus accrued and unpaid interest,
if any, to the date such Excess Proceeds Offer is consummated. To the extent
that the aggregate principal amount of Securities and Pari Passu Indebtedness,
if any, tendered pursuant to an Excess Proceeds Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes. If
the aggregate principal amount of Securities and Pari Passu Indebtedness, if
any, validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Securities and Pari Passu Indebtedness, if any, to be purchased will
be selected on a pro rata basis on the basis of the aggregate principal amount
of the tendered Securities and Pari Passu Indebtedness, if any. Upon completion
of such offer to purchase, the amount of Excess Proceeds shall be reset to zero.

          Section 1017.  Limitation on Guarantees of Indebtedness by Restricted
          ---------------------------------------------------------------------
Subsidiaries.
------------

          (a)  The Company will not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary unless (i) (A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for an unsubordinated Guarantee of payment of the Securities by such
Restricted Subsidiary and (B) with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated

                                       61
<PAGE>

to such Restricted Subsidiary's Guarantee with respect to the Securities at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Securities; (ii) such Restricted Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Guarantee; (iii) such Restricted Subsidiary shall appoint
CT Corporation in the City of New York as its agent for the service of process;
and (iv) such Restricted Subsidiary shall deliver to the Trustee an Opinion of
Counsel to the effect that (A) such appointment of CT Corporation is valid, (B)
such Guarantee of the Securities has been duly executed and authorized and (C)
such Guarantee of the Securities constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
                                                                --------
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company;
and provided further that the provisions of this paragraph (a) shall not apply
    -------- -------
to the guarantee by any non-domestic Restricted Subsidiary of the payment of any
Indebtedness of any other non-domestic Restricted Subsidiary that is permitted
to be incurred under the terms of this Indenture.

          (b)  Notwithstanding the foregoing and the other provisions of the
Indenture, any Guarantee by a Restricted Subsidiary of the Securities shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture), (ii) the merger of such Restricted Subsidiary into the Company or a
Restricted Subsidiary (provided the surviving Restricted Subsidiary assumes the
Guarantee) or the liquidation and dissolution of such Restricted Subsidiary (in
each case to the extent not prohibited by the Indenture) or (iii) the release or
discharge of the guarantee which resulted in the creation of such Guarantee,
except a discharge or release by or as a result of payment under such guarantee.

          Section 1018.  Limitation on Dividends and Other Payment Restrictions
          ---------------------------------------------------------------------
Affecting Restricted Subsidiaries.
---------------------------------

          The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, (b) pay any Indebtedness
owed to the Company or any other Restricted Subsidiary, (c) make loans or
advances to the Company or any other Restricted Subsidiary, (d) transfer any of
its properties or assets to the Company or any other Restricted Subsidiary or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) customary non-assignment provisions of any
lease governing a leasehold interest of the Company or any Restricted
Subsidiary, (iii) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any

                                       62
<PAGE>

Person, other than the Person, or the property or assets of the Person, so
acquired, (iv) encumbrances or restrictions under the Bank Credit Agreement as
such agreement exists on the Closing Date, (v) any agreement providing for the
incurrence of Indebtedness of Restricted Subsidiaries pursuant to either clause
(x) of paragraph (b) of Section 1010 or clause (vii) of the definition of
Permitted Subsidiary Indebtedness; provided that any Restricted Subsidiary that
                                   --------
becomes subject to any such encumbrances or restrictions pursuant to this clause
(v) shall Guarantee the Securities.

          Section 1019.  Restriction on Transfer of Assets to Subsidiaries.
          ----------------------------------------------------------------

          The Company will not sell, convey, transfer or otherwise dispose of
its assets or property to any of its Subsidiaries that are not Guarantors,
except for sales, conveyances, transfers or other dispositions (a) of assets or
property having an aggregate fair market value no greater than $5,000,000 made
after the date of the Indenture and in the ordinary course of business; or (b)
of assets or property having a fair market value not in excess of the amount of
Investments (other than Permitted Investments) then permitted to be made
pursuant to Section 1011. The amount of any sale, conveyance, transfer or other
disposition permitted pursuant to clause (b) of this Section will be treated as
the payment of a Restricted Payment in calculating the amount of Restricted
Payments made by the Company.

          Section 1020.  Waiver of Certain Covenants.
          ------------------------------------------

          The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1019, inclusive, if before or after the time for such compliance the Holders of
at least a majority in principal amount of the Outstanding Securities, by Act of
such Holders, waive such compliance in such instance with such term, provision
or condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.

                                ARTICLE ELEVEN

                           REDEMPTION OF SECURITIES

          Section 1101.  Right of Redemption.
          ----------------------------------

          The Securities may be redeemed at the election of the Company, as a
whole or from time to time in part, at any time after July 1, 2006 subject to
the conditions and at the Redemption Prices specified in the form of Security,
together with accrued interest, if any, to the Redemption Date.

          In addition, up to 35% of the initial aggregate principal amount of
the Securities may be redeemed, from time to time, on or prior to July 1, 2004,
at the option of the Company, within 60 days of one or more Qualified Equity
Offerings with the net proceeds of such offering at a redemption price equal to
110.75% of the principal amount, together with accrued and unpaid interest, if
any, to the date of redemption (subject to the right of holders of record on
relevant record dates to receive interest due on relevant interest payment
dates); provided that
        --------

                                       63
<PAGE>

after giving effect to such redemption at least 65% of the aggregate principal
amount of the Securities originally issued remains outstanding.

          Section 1102.  Applicability of Article.
          ---------------------------------------

          Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.

          Section 1103.  Election to Redeem; Notice to Trustee.
          ----------------------------------------------------

          The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.

          Section 1104.  Selection by Trustee of Securities to Be Redeemed.
          ----------------------------------------------------------------

          If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 30 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Securities; provided, however, that no such partial
                                --------  -------
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000.

          The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.

          For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.

          Section 1105.  Notice of Redemption.
          -----------------------------------

          Notice of redemption shall be given in the manner provided for in
Section 107 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.

          All notices of redemption shall state:

          (1)     the Redemption Date,

          (2)     the Redemption Price,

                                       64
<PAGE>

          (3)     if less than all Outstanding Securities are to be redeemed,
     the identification (and, in the case of a partial redemption, the principal
     amounts) of the particular Securities to be redeemed,

          (4)     that on the Redemption Date the Redemption Price (together
     with accrued interest, if any, to the Redemption Date payable as provided
     in Section 1107) will become due and payable upon each such Security, or
     the portion thereof, to be redeemed, and that interest thereon will cease
     to accrue on and after said date, and

          (5)     the place or places where such Securities are to be
     surrendered for payment of the Redemption Price.

          Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.

          Section 1106.  Deposit of Redemption Price.
          ------------------------------------------

          Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.

          Section 1107.  Securities Payable on Redemption Date.
          ----------------------------------------------------

          Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; provided, however, that installments of interest whose Stated
                 --------  -------
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 309.

          If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.

          Section 1108.  Securities Redeemed in Part.
          ------------------------------------------

          Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new

                                       65
<PAGE>

Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.

                                ARTICLE TWELVE

                      DEFEASANCE AND COVENANT DEFEASANCE

          Section 1201. Company's Option to Effect Defeasance or Covenant
          ---------------------------------------------------------------
Defeasance.
----------

          The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Twelve.

          Section 1202.  Defeasance and Discharge.
          ---------------------------------------

          Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and the Guarantors shall be deemed
to have been discharged from their respective obligations with respect to all
Outstanding Securities on the date the conditions set forth in Section 1204 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Securities, which shall thereafter
be deemed to be "Outstanding" only for the purposes of Section 1205 and the
other Sections of this Indenture referred to in (A) and (B) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Securities to receive,
solely from the trust fund described in Section 1204 and as more fully set forth
in such Section, payments in respect of the principal of (and premium, if any,
on) and interest on such Securities when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 304, 305,
308, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Twelve. Subject to compliance with this
Article Twelve, the Company may exercise its option under this Section 1202
notwithstanding the prior exercise of its option under Section 1203 with respect
to the Securities.

          Section 1203.  Covenant Defeasance.
          ----------------------------------

          Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company and the Guarantors shall be
released from their respective obligations under any covenant contained in
Section 801 and Section 803 and in Sections 1007 through 1019 with respect to
the Outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Securities shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Outstanding Securities, the Company
and the Guarantors may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly,

                                       66
<PAGE>

by reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 501(3) or Section 501(4), but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby.

          Section 1204.  Conditions to Defeasance or Covenant Defeasance.
          --------------------------------------------------------------

          The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Securities:

          (1)      The Company shall irrevocably have deposited or caused to be
     deposited with the Trustee (or another trustee satisfying the requirements
     of Section 607 who shall agree to comply with the provisions of this
     Article Twelve applicable to it) as trust funds in trust for the purpose of
     making the following payments, specifically pledged as security for, and
     dedicated solely to, the benefit of the Holders of such Securities, (A)
     money in an amount, or (B) U.S. Government Obligations which through the
     scheduled payment of principal and interest in respect thereof in
     accordance with their terms will provide, not later than one day before the
     due date of any payment, money in an amount, or (C) a combination thereof,
     sufficient, in the opinion of a nationally recognized firm of independent
     public accountants expressed in a written certification thereof delivered
     to the Trustee, to pay and discharge, and which shall be applied by the
     Trustee (or other qualifying trustee) to pay and discharge, the principal
     of (and premium, if any, on) and interest on the Outstanding Securities on
     the Stated Maturity (or Redemption Date, if applicable) of such principal
     (and premium, if any) or installment of interest; provided that the Trustee
                                                       --------
     shall have been irrevocably instructed to apply such money or the proceeds
     of such U.S. Government Obligations to said payments with respect to the
     Securities. Before such a deposit, the Company may give to the Trustee, in
     accordance with Section 1103 hereof, a notice of its election to redeem all
     of the Outstanding Securities at a future date in accordance with Article
     Eleven hereof, which notice shall be irrevocable. Such irrevocable
     redemption notice, if given, shall be given effect in applying the
     foregoing. For this purpose, "U.S. Government Obligations" means securities
     that are (x) direct obligations of the United States of America for the
     timely payment of which its full faith and credit is pledged or (y)
     obligations of a Person controlled or supervised by and acting as an agency
     or instrumentality of the United States of America the timely payment of
     which is unconditionally guaranteed as a full faith and credit obligation
     by the United States of America, which, in either case, are not callable or
     redeemable at the option of the issuer thereof, and shall also include a
     depository receipt issued by a bank (as defined in Section 3(a)(2) of the
     Securities Act of 1933, as amended), as custodian with respect to any such
     U.S. Government Obligation or a specific payment of principal of or
     interest on any such U.S. Government Obligation held by such custodian for
     the account of the holder of such depository receipt, provided that (except
                                                           --------
     as required by law) such custodian is not authorized to make any deduction
     from the amount payable to the holder of such depository receipt from any
     amount received by the custodian in respect of the U.S. Government
     Obligation or the specific payment of principal of or interest on the U.S.
     Government Obligation evidenced by such depository receipt.

                                       67
<PAGE>

          (2)      No Default or Event of Default with respect to the Securities
     shall have occurred and be continuing on the date of such deposit.

          (3)      Such defeasance or covenant defeasance shall not cause the
     Trustee to have a conflicting interest with respect to any securities of
     the Company or any Guarantor.

          (4)      Such defeasance or covenant defeasance shall not result in a
     breach or violation of, or constitute a default under, this Indenture or
     any other material agreement or instrument to which the Company or any
     Guarantor is a party or by which it is bound.

          (5)      In the case of an election under Section 1202, the Company
     shall have delivered to the Trustee an Opinion of Counsel stating that (x)
     the Company has received from, or there has been published by, the Internal
     Revenue Service a ruling, or (y) since June 19, 2001 there has been a
     change in the applicable federal income tax law, in either case to the
     effect that, and based thereon such opinion shall confirm that, the Holders
     of the Outstanding Securities will not recognize income, gain or loss for
     federal income tax purposes as a result of such defeasance and will be
     subject to federal income tax on the same amounts, in the same manner and
     at the same times as would have been the case if such defeasance had not
     occurred.

          (6)      In the case of an election under Section 1203, the Company
     shall have delivered to the Trustee an Opinion of Counsel to the effect
     that the Holdings of the Outstanding Securities will not recognize income,
     gain or loss for federal income tax purposes as a result of such covenant
     defeasance and will be subject to federal income tax on the same amounts,
     in the same manner and at the same times as would have been the case if
     such covenant defeasance had not occurred.

          (7)      The Company shall have delivered to the Trustee an Opinion of
     Counsel to the effect that after the 91st day following the deposit, the
     trust funds will not be subject to the effect of any applicable bankruptcy,
     insolvency, reorganization or similar laws affecting creditors' rights
     generally.

          (8)      The Company shall have delivered to the Trustee an Officers'
     Certificate and an Opinion of Counsel satisfactory to the Trustee, which,
     taken together, state that all conditions precedent provided for relating
     to either the defeasance under Section 1202 or the covenant defeasance
     under Section 1203 (as the case may be) have been complied with.

          Section 1205. Deposited Money and U.S. Government Obligations to Be
          -------------------------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
---------------------------------------------

          Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to

                                       68
<PAGE>

become due thereon in respect of principal (and premium, if any) and interest,
but such money need not be segregated from other funds except to the extent
required by law.

          The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.

          Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.

          Section 1206.  Reinstatement.
          ----------------------------

          If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1205; provided, however, that if the Company makes any payment of
              --------  -------
principal of (or premium, if any, on) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.

                               ARTICLE THIRTEEN

                                  GUARANTEES

          Section 1301.  Guarantees.
          -------------------------

          The Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Securities and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Security
authenticated and delivered by the Trustee in accordance with the terms hereof,
and to the Trustee on behalf of such Holder, that: (a) the principal of (and
premium, if any) and interest on the Securities will be paid in full when due,
whether at Stated Maturity, by acceleration or otherwise (including, without
limitation, the amount that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Law), together with
interest on the overdue principal, if any, and interest on any overdue interest,
to the extent lawful, and all other obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Securities or of any such other
obligations, the same shall be paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at

                                       69
<PAGE>

Stated Maturity, by acceleration or otherwise, subject, however, in the case of
clauses (a) and (b) above, to the limitation set forth in Section 1305 hereof.

          The Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Securities or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a Guarantor.

          The Guarantor hereby waives (to the extent permitted by law) the
benefits of diligence, presentment, demand for payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company or any other Person, protest,
notice and all demands whatsoever and covenants that the Guarantee of such
Guarantor shall not be discharged as to any Security except by complete
performance of the obligations contained in such Security, this Indenture and
such Guarantee. The Guarantor acknowledges that the Guarantee is a guarantee of
payment and not of collection.

          The obligations of the Guarantor under its Subsidiary Guaranty are
independent of the obligations guaranteed by such Guarantor hereunder, and a
separate action or actions may be brought and prosecuted by the Trustee on
behalf of, or by, the Holders, subject to the terms and conditions set forth in
this Indenture, against a Guarantor to enforce this Guarantee, irrespective of
whether any action is brought against the Company or whether the Company is
joined in any such action or actions.

          The Guarantor hereby agrees that, in the event of a default in payment
of principal (or premium, if any) or interest on such Security, whether at its
Stated Maturity, by acceleration, purchase or otherwise, legal proceedings may
be instituted by the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in this Indenture, directly
against each of the Guarantors to enforce such Guarantor's Guarantee without
first proceeding against the Company or any other Guarantor. The Guarantor
agrees that if, after the occurrence and during the continuance of an Event of
Default, the Trustee or any of the Holders are prevented by applicable law from
exercising their respective rights to accelerate the Maturity of the Securities,
to collect interest on the Securities, or to enforce or exercise any other right
or remedy with respect to the Securities, such Guarantor shall pay to the
Trustee for the account of the Holder, upon demand therefor, the amount that
would otherwise have been due and payable had such rights and remedies been
permitted to be exercised by the Trustee or any of the Holders.

          If any Holder or the Trustee is required by any court or otherwise to
return to the Company or any Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to either the Company or any
Guarantor, any amount paid by any of them to the Trustee or such Holder, the
Guarantee of each of the Guarantors, to the extent theretofore discharged, shall
be reinstated in full force and effect. The Guarantor further agrees that as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) subject to this Article Thirteen, the Maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Five
hereof for the purposes of the Guarantee of such Guarantor notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any acceleration of
such obligation

                                       70
<PAGE>

as provided in Article Five hereof, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Guarantor for the
purpose of the Guarantee of such Guarantor.

          Each Guarantee shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Company for
liquidation, reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Securities
are, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee on the Securities, whether as a
"voidable preference", "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment or any
part thereof, is rescinded, reduced, restored or returned, the Securities shall,
to the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned. The form
of Guarantee is attached hereto as Exhibit B.

          Section 1302.  Severability.
          ---------------------------

          In case any provision of any Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

          Section 1303.  Restricted Subsidiaries.
          --------------------------------------

          If the Company or any of its Restricted Subsidiaries acquires or forms
a Restricted Subsidiary organized under the laws of the United States or any
State or dependency thereof or the District of Columbia, the Company will cause
any such Restricted Subsidiary (and any other Restricted Subsidiary as required
pursuant to Section 1017; Limitations on Guarantees) to (i) execute and deliver
to the Trustee any amendment or supplement to this Indenture in accordance with
the provisions of Article Nine of this Indenture pursuant to which such
Restricted Subsidiary shall guarantee all of the obligations on the Securities,
whether for principal, premium, if any, interest (including interest accruing
after the filing of, or which would have accrued but for the filing of, a
petition by or against the Company under Bankruptcy Law, whether or not such
interest is allowed as a claim after such filing in any proceeding under such
law) and other amounts due in connection therewith (including any fees, expenses
and indemnities), on a senior unsecured basis and (ii) deliver to such Trustee
an Opinion of Counsel reasonably satisfactory to such Trustee to the effect that
such amendment or supplement has been duly executed and delivered by such
Restricted Subsidiary and is in compliance with the terms of this Indenture.
Upon the execution of any such amendment or supplement, the obligations of the
Guarantors and any such Restricted Subsidiary under their respective Guarantees
shall become joint and several and each reference to the "Guarantor" in this
indenture shall, subject to Section 1308, be deemed to refer to all Guarantors,
including such Restricted Subsidiary.

          Section 1304.  Priority of Guarantees.
          -------------------------------------

          The Guarantee issued by any Guarantor shall be unsecured senior
obligations of such Guarantor, ranking pari passu with all other existing and
                                       ----------
future senior unsecured indebtedness of such Guarantor, if any.

                                       71
<PAGE>

                  Section 1305. Limitation of Guarantors' Liability.
                  -------------------------------------------------

                  The Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by the
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law or
the provisions of its local law relating to fraudulent transfer or conveyance.
To effectuate the foregoing intention, the Holders and the Guarantor hereby
irrevocably agree that the obligations of such Guarantor under its Guarantee
shall be limited to the maximum amount that will not, after giving effect to all
other contingent and fixed liabilities of such Guarantor result in the
obligations of such Guarantor under its Guarantee constituting such fraudulent
transfer or conveyance.

                  Section 1306. Subrogation.
                  -------------------------

                  Each Guarantor shall be subrogated to all rights of Holders
against the Company in respect of any amounts paid by any Guarantor pursuant to
the provisions of Section 1301; provided, however, that, if an Event of Default
                                --------  -------
has occurred and is continuing, no Guarantor shall be entitled to enforce or
receive any payments arising out of, or based upon, such right of subrogation
until all amounts then due and payable by the Company under this Indenture or
the Securities shall have been paid in full.

                  Section 1307. Reinstatement.
                  ---------------------------

                  The Guarantor hereby agrees (and each Person who becomes a
Guarantor shall agree) that the Guarantee provided for in Section 1301 shall
continue to be effective or be reinstated, as the case may be, if at any time,
payment, or any part thereof, of any obligations or interest thereon is
rescinded or must otherwise be restored by a Holder to the Company upon the
bankruptcy or insolvency of the Company or any Guarantor.

                  Section 1308. Release of the Guarantor.
                  --------------------------------------

                  Concurrently with the discharge of the Securities under
Section 401, the Legal Defeasance of the Securities under Section 1202 hereof,
or the Covenant Defeasance of the Securities under Section 1203 hereof, the
Guarantor shall be released from all their obligations under its Guarantee under
this Article Thirteen.

                  So long as no Default exists or upon the occurrence of either
(a) or (b) below with notice or lapse of time or both, would exist, the
Guarantee issued by any Guarantor and any Liens securing such Guarantee shall be
automatically and unconditionally released and discharged upon: (a) any sale,
exchange, transfer to any Person that is not an Affiliate of the Company of all
of the Company's Capital Stock in such Guarantor, which transaction is otherwise
in compliance with the Indenture or (b) the designation of such Restricted
Subsidiary as an Unrestricted Subsidiary in accordance with the terms of this
Indenture.

                                       72
<PAGE>

                  Section 1309. Benefits Acknowledged.
                  -----------------------------------

                  The Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that its guarantee and waivers pursuant to its Guarantee are knowingly made
in contemplation of such benefits.

                  This Indenture may be signed in any number of counterparts
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.

                                       73
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.





                                   APPLIED EXTRUSION TECHNOLOGIES, INC.



                                   By /s/ Thomas E. Williams
                                      -----------------------------------------
                                   Name: Thomas E. Williams
                                   Title: President and Chief Executive Officer


                                   APPLIED EXTRUSION TECHNOLOGIES (CANADA), INC,
                                    as Guarantor

                                   By /s/ Thomas E. Williams
                                      ------------------------------------------
                                   Name: Thomas E. Williams
                                   Title: President


                                   WELLS FARGO BANK MINNESOTA,
                                   NATIONAL ASSOCIATION, as Trustee



                                   By /s/ Robert L. Reynolds
                                      ------------------------------------------
                                   Name: Robert L. Reynolds
                                   Title: Vice President

                                       74
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                              [FACE OF SECURITY]

                     APPLIED EXTRUSION TECHNOLOGIES, INC.

                   10 3/4% [Series B]** Senior Note due 2011

                                                         CUSIP 038196 AC5[AD3]**

No. _______                                        $_________________

          APPLIED EXTRUSION TECHNOLOGIES, INC., a Delaware corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ____________________________________
($___________), on       , 2011.

          [Initial Interest Rate:   10 3/4% per annum.]*
          [Interest Rate:           10 3/4% per annum.]**
          Interest Payment Dates:   January 1 and July 1 of each year
                                    commencing January 1, 2002.

          Regular Record Dates:      December 15/th/ or June 15/th/ of each year

          Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

          IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.

Date:______________________        APPLIED EXTRUSION TECHNOLOGIES, INC.


                                        By:_____________________________________
                                           Title:




_______________________
*    Include only for Initial Securities

**   Include only for Exchange Securities

                                      A-1
<PAGE>

               (Form of Trustee's Certificate of Authentication)



This is one of the 10 3/4% [Series B]* Senior Notes due 2011 described in the
within-mentioned Indenture.

                                             WELLS FARGO BANK MINNESOTA,
                                             NATIONAL ASSOCIATION, as Trustee

                                             By:________________________________
                                                Authorized Signatory

___________________

*    Include only for Exchange Securities

                                      A-2
<PAGE>

                          [REVERSE SIDE OF SECURITY]

                     APPLIED EXTRUSION TECHNOLOGIES, INC.

                   10 3/4% [Series B]** Senior Note due 2011


1.   Principal and Interest.

          The Company will pay the principal of this Security on July 1, 2011.

          The Company promises to pay interest on the principal amount of this
Security on each Interest Payment Date, as set forth below, at the rate of 10
3/4% per annum (subject to adjustment as provided below)]* [10 3/4% per annum,
except that interest accrued on this Security pursuant to the penultimate
paragraph of this Section 1 for periods prior to the applicable Exchange Date
(as such term is defined in the Registration Rights Agreement referred to below)
will accrue at the rate or rates borne by the Securities from time to time
during such periods].**

          Interest will be payable semiannually (to the holders of record of the
Securities (or any predecessor Securities) at the close of business on the
December 15th or June 15th immediately preceding the Interest Payment Date) on
each Interest Payment Date, commencing January 1, 2002.

          [The Holder of this Security is entitled to the benefits of the
Registration Rights Agreement, dated June 19, 2001, between the Company and the
Purchasers named therein (the "Registration Rights Agreement"). In the event
that either (a) the Exchange Offer Registration Statement (as such term is
defined in the Registration Rights Agreement) is not filed with the Securities
and Exchange Commission on or prior to the 30th calendar day following the date
of original issue of the Securities, (b) the Exchange Offer Registration
Statement has not been declared effective on or prior to the 120th calendar day
following the date of original issue of the Securities or (c) the Exchange Offer
(as such term is defined in the Registration Rights Agreement) is not
consummated or a Shelf Registration Statement (as such term is defined in the
Registration Rights Agreement) is not declared effective on or prior to the
150th calendar day following the date of original issue of the Securities, the
interest rate borne by this Security shall be increased by one-half of one
percent per annum following such 30-day period in the case of (a) above,
following such 120-day period in the case of (b) above or following such 150-day
period in the case of (c) above. The aggregate amount of such increase from the
original interest rate pursuant to these provisions shall in no event exceed
one-half of one percent per annum. Upon (x) the filing of the Exchange

____________________
*    Include only for Initial Securities

**   Include only for Exchange Securities

                                      A-3
<PAGE>

Offer Registration Statement after the 30-day period described in clause (a)
above, (y) the effectiveness of the Exchange Offer Registration Statement after
the 120-day period described in clause (b) above or (z) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 150-day period described in clause (c) above, the
interest rate borne by this Security from the date of such filing, effectiveness
or consummation, as the case may be, will be reduced to the interest rate set
forth above.]*

          Interest on this Security will accrue from the most recent date to
which interest has been paid [on this Security or the Security surrendered in
exchange herefor]** or, if no interest has been paid, from June 19, 2001;
provided that, if there is no existing default in the payment of interest and if
--------
this Security is authenticated between a Regular Record Date referred to on the
face hereof and the next succeeding Interest Payment Date, interest shall accrue
from such Interest Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.

          The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the rate of interest applicable to the Securities.

2.   Method of Payment.

          The Company will pay interest (except defaulted interest) on the
principal amount of the Securities on each January 1/st/ and July 1/st/ to the
persons who are Holders (as reflected in the Security Register at the close of
business on the December 15/th/ and June 15/th/ immediately preceding the
Interest Payment Date), in each case, even if the Security is cancelled on
registration of transfer or registration of exchange after such record date;
provided that, with respect to the payment of principal, the Company will make
--------
payment to the Holder that surrenders this Security to any Paying Agent on or
after July 1, 2011.

          The Company will pay principal, premium, if any, and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may pay principal, premium, if
any, and interest by its check payable in such money. The Company may mail an
interest check to a Holder's registered address (as reflected in the Security
Register). If a payment date is a date other than a Business Day at a place of
payment, payment may be made at that place on the next succeeding day that is a
Business Day and no interest shall accrue for the intervening period.

3.   Paying Agent and Registrar.

          Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar upon written notice thereto.
The Company, any Subsidiary or any Affiliate of any of them may act as Paying
Agent, Registrar or co-registrar.

____________________
*    Include only for Initial Securities

**   Include only for Exchange Securities

                                      A-4
<PAGE>

4.   Indenture; Limitations.

          The Company issued the Securities under an Indenture dated as of June
19, 2001 (the "Indenture"), between the Company, Applied Extrusion Technologies
(Canada), Inc., as guarantor (the "Guarantor"), and Wells Fargo Bank Minnesota,
National Association, as trustee (the "Trustee"). Capitalized terms herein are
used as defined in the Indenture unless otherwise indicated. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The Securities are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this
Security and the terms of the Indenture, the terms of the Indenture shall
control.

          The Securities are general unsecured obligations of the Company. The
Indenture limits the aggregate principal amount of the Securities to
$275,000,000.

5.   Redemption.

          Optional Redemption. The Securities may be redeemed at the option of
          -------------------
the Company, in whole or in part, at any time and from time to time on or after
July 1, 2006, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior to
the Redemption Date), if redeemed during the 12-month period beginning on July 1
of each of the years set forth below:

                                                               Redemption
          Year                                                    Price
          ---------------------------------------------------------------

          2006                                                  105.375%

          2007                                                  103.583%

          2008 and thereafter                                   101.792%

          2009 and thereafter                                     100.0%

          Optional Redemption upon a Public Offering.

          Up to 35% of the initial aggregate principal amount of the Securities
may be redeemed from time to time on or prior to July 1, 2004, at the option of
the Company, (within 60 days of one or more Qualified Equity Offerings,) with
the net proceeds of such offering at a redemption price equal to 110.75% of the
principal amount, together with an accrued and unpaid interest, if any, to the
date of redemption (subject to the right of holders of record on relevant record
dates to receive interest due on relevant interest payment dates); provided that
                                                                   --------
after giving effect to such redemption at least 65% of the aggregate principal
amount of the Securities originally issued remains outstanding.

                                      A-5
<PAGE>

          Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Security Register. Securities in
original denominations larger than $1,000 may be redeemed in part in integral
multiples of $1,000. On and after the Redemption Date, interest ceases to accrue
on Securities or portions of Securities called for redemption, unless the
Company defaults in the payment of the Redemption Price.

6.   Repurchase upon a Change in Control and Asset Sales.

          (a)  Upon the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Securities at a
redemption price of 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase and (b) upon Asset Sales, the
Company may be obligated to make offers to purchase Securities with a portion of
the Net Cash Proceeds of such Asset Sales at a redemption price of 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.

7.   Denominations; Transfer; Exchange.

          The Securities are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess thereof. A Holder may
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer or exchange of any Securities selected for redemption (except the
unredeemed portion of any Security being redeemed in part). Also, it need not
register the transfer or exchange of any Securities for a period of 15 days
before a selection of Securities to be redeemed is made.

8.   Persons Deemed Owners.

          A Holder may be treated as the owner of a Security for all purposes.

9.   Unclaimed Money.

          If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.

10.  Discharge Prior to Redemption or Maturity.

          If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the
Securities (a) to redemption or maturity, the Company will be discharged from
the Indenture and the Securities, except in certain circumstances for certain
sections thereof, and (b) to the Stated Maturity, the Company will be discharged
from certain covenants set forth in the Indenture.

                                      A-6
<PAGE>

11.  Amendment; Supplement; Waiver.

          Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Securities then outstanding, and any
existing default or compliance with any provision may be waived with the consent
of the Holders of a majority in aggregate principal amount of the Securities
then outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Securities to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not materially adversely affect the rights of any Holder.

12.  Restrictive Covenants.

          The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Indebtedness;
(ii) Restricted Payments; (iii) issuances and sales of Restricted Subsidiary
stock; (iv) transactions with Affiliates; (v) Liens; (vi) guarantees of
Indebtedness by Restricted Subsidiaries; (vii) disposition of proceeds of Asset
Sales; (viii) dividends and other payment restrictions affecting Restricted
Subsidiaries; (ix) transfer of assets to Subsidiaries; and (x) merger and
certain transfers of assets. Within 120 days after the end of each fiscal year
and within 45 days after each fiscal quarter, the Company must report to the
Trustee on compliance with such limitations.

13.  Successor Persons.

          When a successor person or other entity assumes all the obligations of
its predecessor under the Securities and the Indenture, the predecessor person
will be released from those obligations.

14.  Remedies for Events of Default.

          If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal amount
of the Securities then outstanding may declare all the Securities to be
immediately due and payable. If a bankruptcy or insolvency default with respect
to the Company or any of its Significant Subsidiaries occurs and is continuing,
the Securities automatically become immediately due and payable. Holders may not
enforce the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of at least
a majority in principal amount of the Securities then outstanding may direct the
Trustee in its exercise of any trust or power.

15.  Trustee Dealings with Company.

          The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.

                                      A-7
<PAGE>

16.  Authentication.

          This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.

17.  Abbreviations.

          Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).

          The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Applied
Extrusion Technologies, Inc., 3 Centennial Drive, Peabody, Massachusetts 01960,
Attention: President.

                                      A-8
<PAGE>

                           [FORM OF TRANSFER NOTICE]


               FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No.
---------------------------------

(Please print or typewrite name and address including zip code of assignee)

the within Security and all rights thereunder, hereby irrevocably constituting
and appointing

attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.

                    [THE FOLLOWING PROVISION TO BE INCLUDED
                             ON ALL CERTIFICATES]

               In connection with any transfer of this Security occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or [_] the undersigned confirms that without utilizing any general
solicitation or general advertising that:

                                  [Check One]
                                   ---------
[_] (a)        this Security is being transferred in compliance with the
               exemption from registration under the Securities Act of 1933, as
               amended, provided by Rule 144A thereunder.

                                      or
                                      --

[_] (b)        this Security is being transferred other than in accordance with
               (a) above and documents are being furnished which comply with the
               conditions of transfer set forth in this Security and the
               Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.

Date: ____________________________


                                         NOTICE: The signature to this
                                         assignment must correspond with the
                                         name as written upon the face of the
                                         within-mentioned instrument in every
                                         particular, without alteration or any
                                         change whatsoever.


Signature Guarantee: ______________________________________


                                     A-9
<PAGE>

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

               The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, as amended, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.

Dated: _________________________         _________

                                                NOTICE:   To be executed by an
                                                          executive officer

                                     A-10
<PAGE>

                      OPTION OF HOLDER TO ELECT PURCHASE


               If you wish to have this Security purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, check the Box: [_].


               If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1015 or Section 1016 of the Indenture, state the
amount (in original principal amount) below:

                                     $___________________


Date:____________________________

 Your Signature:____________________________________

(Sign exactly as your name appears on the other side of this Security)

Signature Guarantee:_________________________________

                                     A-11
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                               FORM OF GUARANTEE



               [Name of domestic Restricted Subsidiary] (the "Guarantor,"
which term includes any successor Person under the Indenture dated as of June
19, 2001 among Applied Extrusion Technologies, Inc., as issuer, the Guarantor
and Wells Fargo Bank Minnesota, National Association, as trustee (the
"Indenture")) has unconditionally guaranteed, to the extent set forth in the
Indenture and subject to the provisions of the Indenture, the due and punctual
payment of the principal of, any premium and interest on the Securities, when
and as the same shall become due and payable, whether at maturity, by
acceleration, redemption, repayment or otherwise, all in accordance with the
terms set forth in Article 13 of the Indenture.

               The obligation of the undersigned to the Holders of the
Securities and to the Trustee pursuant to this Guarantee and in the Indenture
are expressly set forth in the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.

               This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
or instruments entered into and, in each case, performed in said state.

                                      B-1
<PAGE>

               IN WITNESS WHEREOF, the Guarantor has caused this instrument
to be duly executed.



                                               By and on Behalf of:

                                    [NAME OF DOMESTIC RESTRICTED SUBSIDIARY]



                                               By:______________________________
                                                  Name:
                                                  Title:

                                      B-2
<PAGE>

                                                                  Exhibit C
                                                                  ---------
                                  Exhibit
                    evidencing Indebtedness of the Company
                   outstanding on the date of this Indenture
                   -----------------------------------------

       1. $6.5 million Industrial Revenue Bond payable November 4, 2004


                                      C-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>6
<FILENAME>dex43.txt
<DESCRIPTION>EXHIBIT 4.3 - REGISTRATION RIGHTS AGREEMENT
<TEXT>

<PAGE>

                                                                     Exhibit 4.3

                                                                  EXECUTION COPY
                                                                  --------------

                         Registration Rights Agreement

                           Dated as of June 19, 2001


                                     among


                     Applied Extrusion Technologies, Inc.


                                      and


                             Merrill Lynch & Co.,
                     Merrill Lynch, Pierce, Fenner & Smith
                                 Incorporated

                             Chase Securities Inc.

                    Credit Suisse First Boston Corporation

                                      and

                        Deutsche Banc Alex. Brown Inc.

<PAGE>



                         REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into June 19, 2001, among APPLIED EXTRUSION TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED, CHASE SECURITIES INC., CREDIT SUISSE FIRST
BOSTON CORPORATION and DEUTSCHE BANC ALEX. BROWN INC. (the "Purchasers").

          This Agreement is made pursuant to the Purchase Agreement dated June
12, 2001 between the Company and the Purchasers (the "Purchase Agreement"),
which provides for the sale by the Company to the Purchasers of an aggregate of
$275,000,000 principal amount of the Company's 10 3/4% Senior Notes due 2011
(the "Securities"). In order to induce the Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide to the Purchasers and their direct
and indirect transferees the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the Purchase
Agreement.

          In consideration of the foregoing, the parties hereto agree as
follows:

          1.   Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:

          "1933 Act" shall mean the Securities Act of 1933, as amended from time
           --------
to time.

          "1934 Act" shall mean the Securities Exchange Act of 1934, as amended
           --------
     from time to time.

          "Closing Date" shall mean the Closing Time as defined in the Purchase
           ------------
     Agreement.

          "Company" shall have the meaning set forth in the preamble and also
           -------
     includes the Company's successors.

          "Depositary" shall mean the Depositary Trust Company, or any other
           ----------
     depositary appointed by the Company; provided, however, that such
                                          --------  -------
     depositary must have an address in the Borough of Manhattan, in the City of
     New York.

          "Exchange Offer" shall mean the exchange offer by the Company of
           --------------
     Exchange Securities for Registrable Securities pursuant to Section 2(a)
     hereof.

          "Exchange Offer Registration" shall mean a registration under the 1933
           ---------------------------
     Act effected pursuant to Section 2(a) hereof.

          "Exchange Offer Registration Statement" shall mean an exchange offer
           -------------------------------------
     registration statement on Form S-4 (or, if applicable, on another
     appropriate

                                       1
<PAGE>

     form), and all amendments and supplements to such registration statement,
     in each case including the Prospectus contained therein, all exhibits
     thereto and all material incorporated by reference therein.

          "Exchange Securities" shall mean 10 3/4% Series B Senior Notes due
           -------------------
     2011 issued by the Company under the Indenture containing terms identical
     to the Securities (except that (i) interest thereon shall accrue from the
     last date on which interest was paid on the Securities or, if no such
     interest has been paid, from the date of their original issue (ii) the
     transfer restrictions thereon shall be eliminated and (iii) certain
     provisions relating to an increase in the stated rate of interest thereon
     shall be eliminated), to be offered to Holders of Securities in exchange
     for Securities pursuant to the Exchange Offer.

          "Holders" shall mean the Purchasers, for so long as they own any
           -------
     Registrable Securities, and each of their successors, assigns and direct
     and indirect transferees who become registered owners of Registrable
     Securities under the Indenture.

          "Indenture" shall mean the Indenture relating to the Securities dated
           ---------
     as of June , 2001 between the Company and Wells Fargo Bank Minnesota,
     National Association, as trustee, as the same may be amended from time to
     time in accordance with the terms thereof.

          "Majority Holders" shall mean the Holders of a majority of the
           ----------------
     aggregate principal amount of outstanding Registrable Securities; provided
                                                                       --------
     that whenever the consent or approval of Holders of a specified percentage
     of Registrable Securities is required hereunder, Registrable Securities
     held by the Company shall be disregarded in determining whether such
     consent or approval was given by the Holders of such required percentage or
     amount.

          "Person" shall mean an individual, partnership, limited liability
           ------
     company, corporation, trust or unincorporated organization, or a government
     or agency or political subdivision thereof.

          "Prospectus" shall mean the prospectus included in a Registration
           ----------
     Statement, including any preliminary prospectus, and any such prospectus as
     amended or supplemented by any prospectus supplement, including a
     prospectus supplement with respect to the terms of the offering of any
     portion of the Registrable Securities covered by a Shelf Registration
     Statement, and by all other amendments and supplements to a prospectus,
     including post-effective amendments, and in each case including all
     material incorporated by reference therein.

          "Purchase Agreement" shall have the meaning set forth in the preamble.
           ------------------

          "Purchaser" shall have the meaning set forth in the preamble.
           ---------

                                       2
<PAGE>

          "Registrable Securities" shall mean the Securities; provided, however,
           ----------------------                             --------  -------
     that the Securities shall cease to be Registrable Securities when (i) a
     Registration Statement with respect to such Securities shall have been
     declared effective under the 1933 Act and such Securities shall have been
     disposed of pursuant to such Registration Statement, (ii) such Securities
     shall have been sold to the public pursuant to Rule 144(k) (or any similar
     provision then in force, but not Rule 144A) under the 1933 Act, (iii) such
     Securities shall have ceased to be outstanding or (iv) such Securities have
     been exchanged for Exchange Securities upon consummation of the Exchange
     Offer.

          "Registration Expenses" shall mean any and all expenses incident to
           ---------------------
     performance of or compliance by the Company with this Agreement, including
     without limitation: (i) all SEC, stock exchange or National Association of
     Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
     fees and expenses incurred in connection with compliance with state
     securities or blue sky laws and compliance with the rules of the NASD
     (including reasonable fees and disbursements of counsel for any
     underwriters or Holders in connection with blue sky qualification of any of
     the Exchange Securities or Registrable Securities), (iii) all expenses of
     any Persons in preparing or assisting in preparing, word processing,
     printing and distributing any Registration Statement, any Prospectus, any
     amendments or supplements thereto, any underwriting agreements, securities
     sales agreements and other documents relating to the performance of and
     compliance with this Agreement, (iv) all rating agency fees, (v) all fees
     and expenses incurred in connection with the listing, if any, of any of the
     Registrable Securities on any securities exchange or exchanges, (vi) the
     fees and disbursements of counsel for the Company and of the independent
     public accountants of the Company, including the expenses of any special
     audits or "cold comfort" letters required by or incident to such
     performance and compliance, (vii) the fees and expenses of the Trustee, and
     any escrow agent or custodian, and (viii) any fees and disbursements of the
     underwriters customarily required to be paid by issuers or sellers of
     securities and the reasonable fees and expenses of any special experts
     retained by the Company in connection with any Registration Statement, but
     excluding fees of counsel to the underwriters or the Holders and
     underwriting discounts and commissions and transfer taxes, if any, relating
     to the sale or disposition of Registrable Securities by a Holder.

          "Registration Statement" shall mean any registration statement of the
           ----------------------
     Company which covers any of the Exchange Securities or Registrable
     Securities pursuant to the provisions of this Agreement, and all amendments
     and supplements to any such Registration Statement, including post-
     effective amendments, in each case including the Prospectus contained
     therein, all exhibits thereto and all material incorporated by reference
     therein.

          "SEC" shall mean the Securities and Exchange Commission.
           ---

          "Shelf Registration" shall mean a registration effected pursuant to
           ------------------
     Section 2(b) hereof.

                                       3
<PAGE>

          "Shelf Registration Statement" shall mean a "shelf" registration
         statement of the Company pursuant to the provisions of Section 2(b) of
         this Agreement which covers  all of the Registrable

         Securities on an appropriate form under Rule 415 under the 1933 Act, or
         any similar rule that may be adopted by the SEC, and all amendments and
         supplements to such registration statement, including post-effective
         amendments, in each case including the Prospectus contained therein,
         all exhibits thereto and all material incorporated by reference
         therein.

          "Trustee" shall mean the trustee with respect to the
           -------
Securities under the Indenture.

          2.   Registration Under the 1933 Act. (a) Exchange Offer Registration.
               -------------------------------      ---------------------------
To the extent not prohibited by any applicable law or applicable interpretation
of the Staff of the SEC, the Company shall use its best efforts (A) to file
within 30 days after the Closing Date an Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Securities for Exchange Securities, (B) to cause such Exchange Offer
Registration Statement to be declared effective by the SEC within 120 days after
the Closing Date, (C) to cause such Registration Statement to remain effective
until the closing of the Exchange Offer and (D) to consummate the Exchange Offer
within 150 days following the Closing Date. The Exchange Securities will be
issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer to enable each Holder (other than
Participating Broker-Dealers (as defined in Section 3(f)) eligible and electing
to exchange Registrable Securities for Exchange Securities (assuming that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the 1933 Act, acquires the Exchange Securities in the ordinary course of such
Holder's business and has no arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Securities) to trade such Exchange Securities from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.

          In connection with the Exchange Offer, the Company shall:

          (i)   mail to each Holder a copy of the Prospectus forming part of the
     Exchange Offer Registration Statement, together with an appropriate letter
     of transmittal and related documents;

          (ii)  keep the Exchange Offer open for not less than 30 days after the
     date notice thereof is mailed to the Holders (or longer if required by
     applicable law);

          (iii) use the services of the Depositary for the Exchange Offer;

          (iv)  permit Holders to withdraw tendered Registrable Securities at
     any time prior to the close of business, New York City time, on the last
     business day

                                       4
<PAGE>

     on which the Exchange Offer shall remain open, by sending to the
     institution specified in the notice, a telegram, telex, facsimile
     transmission or letter setting forth the name of such Holder, the principal
     amount of Registrable Securities delivered for exchange, and a statement
     that such Holder is withdrawing his election to have such Securities
     exchanged; and

          (v)  otherwise comply in all respects with all applicable laws
     relating to the Exchange Offer.

          As soon as practicable after the close of the Exchange Offer,
the Company shall:

          (i)   accept for exchange Registrable Securities duly tendered and not
     validly withdrawn pursuant to the Exchange Offer in accordance with the
     terms of the Exchange Offer Registration Statement and the letter of
     transmittal which is an exhibit thereto;

          (ii)  deliver, or cause to be delivered, to the Trustee for
     cancellation all Registrable Securities so accepted for exchange by the
     Company; and

          (iii) cause the Trustee promptly to authenticate and deliver Exchange
     Securities to each Holder of Registrable Securities equal in principal
     amount to the Registrable Securities of such Holder so accepted for
     exchange.

          Interest on each Exchange Security will accrue from the last date on
which interest was paid on the Registrable Securities surrendered in exchange
therefor or, if no interest has been paid on the Registrable Securities, from
the date of its original issue. The Exchange Offer shall not be subject to any
conditions, other than that the Exchange Offer, or the making of any exchange by
a Holder, does not violate applicable law or any applicable interpretation of
the Staff of the SEC. Each Holder of Registrable Securities (other than
Participating Broker-Dealers) who wishes to exchange such Registrable Securities
for Exchange Securities in the Exchange Offer will be required to represent that
(i) it is not an affiliate of the Company, (ii) any Exchange Securities to be
received by it were acquired in the ordinary course of business and (iii) at the
time of the commencement of the Exchange Offer it has no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Securities. The Company shall inform the Purchasers of the
names and addresses of the Holders to whom the Exchange Offer is made, and the
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.

          (b)  Shelf Registration. (i) If, because of any change in law or
               ------------------
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer is not consummated within 150
days after the Closing Date, or (iii) if any Holder (other than a Purchaser) is
not eligible to participate in the Exchange Offer or (iv) upon the request of
any Purchaser (with respect to any Registrable

                                       5
<PAGE>

Securities which it acquired directly from the Company) following the
consummation of the Exchange Offer if such Purchaser shall hold Registrable
Securities which it acquired directly from the Company and if such Purchaser is
not permitted, in the opinion of counsel to such Purchaser, pursuant to
applicable law or applicable interpretation of the Staff of the SEC to
participate in the Exchange Offer, the Company shall, at its cost,

          (A)  as promptly as practicable, file with the SEC a Shelf
     Registration Statement relating to the offer and sale of the Registrable
     Securities by the Holders from time to time in accordance with the methods
     of distribution elected by the Majority Holders of such Registrable
     Securities and set forth in such Shelf Registration Statement, and use its
     best efforts to cause such Shelf Registration Statement to be declared
     effective by the SEC by 150 days after the Closing Date. In the event that
     the Company is required to file a Shelf Registration Statement upon the
     request of any Holder (other than a Purchaser) not eligible to participate
     in the Exchange Offer pursuant to clause (iii) above or upon the request of
     any Purchaser pursuant to clause (iv) above, the Company shall file and
     have declared effective by the SEC both an Exchange Offer Registration
     Statement pursuant to Section 2(a) with respect to all Registrable
     Securities and a Shelf Registration Statement (which may be a combined
     Registration Statement with the Exchange Offer Registration Statement) with
     respect to offers and sales of Registrable Securities held by such Holder
     or such Purchaser after completion of the Exchange Offer.

          (B)  use its best efforts to keep the Shelf Registration Statement
     continuously effective in order to permit the Prospectus forming part
     thereof to be usable by Holders for a period of two years from the date the
     Shelf Registration Statement is declared effective by the SEC (or one year
     from the date the Shelf Registration Statement is declared effective if
     such Shelf Registration Statement is filed upon the request of any
     Purchaser pursuant to clause (iv) above) or such shorter period which will
     terminate when all of the Registrable Securities covered by the Shelf
     Registration Statement have been sold pursuant to the Shelf Registration
     Statement.

          (C)  nothwithstanding any other provisions hereof, use its best
     efforts to ensure that (i) any Shelf Registration Statement and any
     amendment thereto and any Prospectus forming part thereof and any
     supplement thereto complies in all material respects with the 1933 Act and
     the rules and regulations thereunder, (ii) any Shelf Registration Statement
     and any amendment thereto does not, when it becomes effective, contain an
     untrue statement of a material fact or omit to state a material fact
     required to be stated therein or necessary to make the statements therein
     not misleading and (iii) any Prospectus forming part of any Shelf
     Registration Statement, and any supplement to such Prospectus (as amended
     or supplemented from time to time), does not include an untrue statement of
     a material fact or omit to state a material fact necessary in order to make
     the statements, in light of the circumstances under which they were made,
     not misleading.

                                       6
<PAGE>

          The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
thereafter practicable and to furnish to the Holders of Registrable Securities
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.

          (c)  Expenses. The Company shall pay all Registration Expenses in
               --------
connection with the registration pursuant to Section 2(a) or 2(b) and, in the
case of any Shelf Registration Statement, will reimburse the Holders or
Purchasers for the reasonable fees and disbursements of one firm or counsel
designated in writing by the Majority Holders to act as counsel for the Holders
of the Registrable Securities in connection therewith, and, in the case of an
Exchange Offer Registration Statement, will reimburse the Purchasers, as
applicable, for the reasonable fees and disbursements of one counsel in
connection therewith. Each Holder shall pay all expenses of its counsel other
than as set forth in the preceding sentence, underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.

          (d)  Effective Registration Statement. (i) The Company will be deemed
               --------------------------------
not to have used its best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if it voluntarily takes any
action that would result in any such Registration Statement not being declared
effective or in the Holders of Registrable Securities covered thereby not being
able to exchange or offer and sell such Registrable Securities during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the Company in good faith and for valid business reasons (not
including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, so long as the Company promptly complies
with the requirements of Section 3(j) hereof, if applicable.

          (ii) An Exchange Offer Registration Statement pursuant to Section 2(a)
     hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
     will not be deemed to have become effective unless it has been declared
     effective by the SEC; provided, however, that if, after it has been
                           --------  -------
     declared effective, the offering of Registrable Securities pursuant to a
     Registration Statement is interfered with by any stop order, injunction or
     other order or requirement of the SEC or any other governmental agency or
     court, such Registration Statement will be deemed not to have been
     effective during the period of such interference, until the offering of
     Registrable Securities pursuant to such Registration Statement may legally
     resume.

          (e)  Increase in Interest Rate. In the event that (i) the Exchange
               -------------------------
Offer Registration Statement is not filed with the Commission on or prior to the
30th calendar day after the Closing Date, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 120th calendar day after
the Closing Date or (iii) the Exchange

                                       7
<PAGE>

Offer is not consummated or a Shelf Registration Statement with respect to the
Registrable Securities is not declared effective on or prior to the 150th
calendar day after the Closing Date, the interest rate borne by the Securities
shall be increased by one-half of one percent per annum following such 30-day
period in the case of clause (i) above, such 120-day period in the case of
clause (ii) above, or such 150-day period in the case of clause (iii) above;
provided that the aggregate increase in such interest rate will in no event
--------
exceed one-half of one percent per annum. Upon (x) the filing of the Exchange
Offer Registration Statement after the 30-day period described in clause (i)
above, (y) the effectiveness of the Exchange Offer Registration Statement after
the 120-day period described in clause (ii) above or (z) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 150-day period described in clause (iii) above, the
interest rate borne by the Securities from the date of such filing,
effectiveness or consummation, as the case may be, will be reduced to the
original interest rate.

          (f)  Specific Enforcement. Without limiting the remedies available to
               --------------------
the Purchasers and the Holders, the Company acknowledges that any failure by the
Company to comply with its obligations under Section 2(a) and Section 2(b)
hereof may result in material irreparable injury to the Purchasers or the
Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Purchasers or any Holder may obtain such relief as may
be required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.

          3.   Registration Procedures. In connection with the obligations of
               -----------------------
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:

          (a)  prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the 1933
Act, which form (i) shall be selected by the Company, (ii) shall, in the case of
a Shelf Registration, be available for the sale of the Registrable Securities by
the selling Holders thereof and (iii) shall comply as to form in all material
respects with the requirements of the applicable form and include or incorporate
by reference all financial statements required by the SEC to be filed therewith,
and use its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;

          (b)  prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period;
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act; and
comply with the provisions of the 1933 Act with respect to the disposition of
all securities covered by each Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
selling Holders thereof;

                                       8
<PAGE>

          (c)  in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is being filed
and advising such Holders that the distribution of Registrable Securities will
be made in accordance with the method elected by the Majority Holders; and (ii)
furnish to each Holder of Registrable Securities, to counsel for the Purchasers,
to counsel for the Holders and to each underwriter of an underwritten offering
of Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits to be filed (including those incorporated by
reference) in order to facilitate the public sale or other disposition of the
Registrable Securities; and (iii) subject to the last paragraph of Section 3,
hereby consent to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in connection
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto provided that such use
complies with all applicable laws and regulations;

          (d)  use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with the Holders in
connection with any filings required to be made with the NASD, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; provided, however, that the
                                                  --------  -------
Company shall not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) take any action which would
subject it to general service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not then so subject;

          (e)  in the case of a Shelf Registration, notify each Holder of
Registrable Securities and one counsel for the Purchasers promptly and, if
requested by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct in all
material respects, (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable

                                       9
<PAGE>

Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (vi) of the happening of any event or the discovery
of any facts during the period a Shelf Registration Statement is effective which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making of any
changes in such Registration Statement or Prospectus in order to make the
statements therein not misleading and (vii) of any determination by the Company
that a post-effective amendment to a Registration Statement would be
appropriate;

          (f)  (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section covering
the use of the Prospectus included in the Exchange Offer Registration Statement
by broker-dealers who have exchanged their Registrable Securities for Exchange
Securities for the resale of such Exchange Securities, (ii) furnish to each
broker-dealer who desires to participate in the Exchange Offer, without charge,
as many copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or supplement
thereto, as such broker-dealer may reasonably request, (iii) include in the
Exchange Offer Registration Statement a statement that any broker-dealer who
holds Registrable Securities acquired for its own account as a result of market-
making activities or other trading activities (a "Participating Broker-Dealer"),
and who receives Exchange Securities for Registrable Securities pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Securities, (iv) subject to the last paragraph of Section 3, hereby
consent to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any broker-
dealer in connection with the sale or transfer of the Exchange Securities
covered by the Prospectus or any amendment or supplement thereto, and (v)
include in the transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the following
provision:

          "If the undersigned is not a broker-dealer, the undersigned
          represents that it is not engaged in, and does not intend to
          engage in, a distribution of Exchange Securities. If the
          undersigned is a broker-dealer that will receive Exchange
          Securities for its own account in exchange for Registrable
          Securities, it represents that the Registrable Securities to
          be exchanged for Exchange Securities were acquired by it as
          a result of market-making activities or other trading
          activities and acknowledges that it will deliver a
          prospectus meeting the requirements of the 1933 Act in
          connection with any resale of such Exchange Securities
          pursuant to the Exchange Offer; however, by so acknowledging
          and by delivering a prospectus, the undersigned will not be
          deemed to admit that it is an "underwriter" within the
          meaning of the 1933 Act"; and

                                       10
<PAGE>

          (y)  a statement to the effect that by a broker-dealer
          making the acknowledgment described in subclause (x) and by
          delivering a Prospectus in connection with the exchange of
          registrable Securities, the broker-dealer will not be deemed
          to admit that it is an underwriter within the meaning of the
          1933 Act"; and

          (B)  to the extent any Participating Broker-Dealer participates in the
     Exchange Offer, the Company shall use its best efforts to cause to be
     delivered at the request of an entity representing the Participating
     Broker-Dealers (which entity shall be one of the Purchasers, unless they
     elect not to act as such representative) only one, if any, "cold comfort"
     letter with respect to the Prospectus in the form existing on the last date
     for which exchanges are accepted pursuant to the Exchange Offer and with
     respect to each subsequent amendment or supplement, if any, effected during
     the period specified in clause (C) below; and

          (C)  to the extent any Participating Broker-Dealer participates in the
     Exchange Offer, the Company shall use its best efforts to maintain the
     effectiveness of the Exchange Offer Registration Statement for a period of
     180 days following the closing of the Exchange Offer; and

          (D)  the Company shall not be required to amend or supplement the
     Prospectus contained in the Exchange Offer Registration Statement as would
     otherwise be contemplated by Section 3(b), or take any other action as a
     result of this Section 3(f), for a period exceeding 180 days after the last
     date for which exchanges are accepted pursuant to the Exchange Offer (as
     such period may be extended by the Company) and Participating Broker-
     Dealers shall not be authorized by the Company to, and shall not, deliver
     such Prospectus after such period in connection with resales contemplated
     by this Section 3(f) (D) in the case of an Exchange Offer, furnish one
     counsel for the Purchasers and (B) in the case of a Shelf Registration,
     furnish one counsel for the Holders of Registrable Securities copies of any
     request by the SEC or any state securities authority for amendments or
     supplements to a Registration Statement and Prospectus or for additional
     information;

          (g)  make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal of any
such order;

          (h)  in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);

          (i)  in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of

                                       11
<PAGE>

certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and cause such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and registered
in such names as the selling Holders or the underwriters, if any, may reasonably
request at least two business days prior to the closing of any sale of
Registrable Securities;

          (j)  in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section 3(e)(vi)
hereof, use its best efforts to prepare a supplement or post-effective amendment
to a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain at the time of such delivery any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission.
At such time as such public disclosure is otherwise made or the Company
determines that such disclosure is not necessary, in each case to correct any
misstatement of a material fact or to include any omitted material fact, the
Company agrees promptly to notify each Holder of such determination and to
furnish each Holder such numbers of copies of the Prospectus, as amended or
supplemented, as such Holder may reasonably request;

          (k)  obtain a CUSIP number for all Exchange Securities, or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;

          (l)  (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities, or Registrable Securities, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such changes,
and all other forms and documents required to be filed with the SEC to enable
the Indenture to be so qualified in a timely manner;

          (m)  in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions (including those reasonably requested by the Majority Holders) in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:

                                       12
<PAGE>

          (i)    make such representations and warranties to the Holders of such
     Registrable Securities and the underwriters, if any, in form, substance and
     scope as are customarily made by issuers to underwriters in similar
     underwritten offerings as may be reasonably requested by them;

          (ii)   obtain opinions of counsel to the Company and updates thereof
     (which counsel and opinions (in form, scope and substance) shall be
     reasonably satisfactory to the managing underwriters, if any, and the
     holders of a majority in principal amount of the Registrable Securities
     being sold) addressed to each selling Holder and the underwriters, if any,
     covering the matters customarily covered in opinions requested in sales of
     securities or underwritten offerings and such other matters as may be
     reasonably requested by such Holders and underwriters;

          (iii)  obtain "cold comfort" letters and updates thereof from the
     Company's independent certified public accountants addressed to the
     underwriters, if any, and will use reasonable best efforts to have such
     letter addressed to the selling Holders of Registrable Securities, such
     letters to be in customary form and covering matters of the type
     customarily covered in "cold comfort" letters to underwriters in connection
     with similar underwritten offerings;

          (iv)   enter into a securities sales agreement with the Holders and an
     agent of the Holders providing for, among other things, the appointment of
     such agent for the selling Holders for the purpose of soliciting purchases
     of Registrable Securities, which agreement shall be in form, substance and
     scope customary for similar offerings;

          (v)    if an underwriting agreement is entered into, cause the same to
     set forth indemnification provisions and procedures substantially
     equivalent to the indemnification provisions and procedures set forth in
     Section 5 hereof with respect to the underwriters and all other parties to
     be indemnified pursuant to said Section; and

          (vi)   deliver such documents and certificates as may be reasonably
     requested and as are customarily delivered in similar offerings.

     The above shall be done at (i) the effectiveness of such Registration
     Statement (and, if appropriate, each post-effective amendment thereto) and
     (ii) each closing under any underwriting or similar agreement as and to the
     extent required thereunder. In the case of any underwritten offering, the
     Company shall provide written notice to the Holders of all Registrable
     Securities of such underwritten offering at least 30 days prior to the
     filing of a prospectus supplement for such underwritten offering. Such
     notice shall (x) offer each such Holder the right to participate in such
     underwritten offering, (y) specify a date, which shall be no earlier than
     10 days following the date of such notice, by which such Holder must inform
     the Company of its intent to participate in such underwritten offering and

                                       13
<PAGE>

     (z) include the instructions such Holder must follow in order to
     participate in such underwritten offering;

          (n)  in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Securities and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any one counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent corporate
documents and properties of the Company reasonably requested by any such
persons, and cause the respective officers, directors, employees, and any other
agents of the Company to supply all information reasonably requested by any such
representative, underwriter, one special counsel or accountant in connection
with a Registration Statement;

          (o)  (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any amendment to
an Exchange Offer Registration Statement or amendment or supplement to a
Prospectus, provide copies of such document to the Purchasers, and make such
changes in any such document prior to the filing thereof as any of the
Purchasers or their counsel may reasonably request; (ii) in the case of a Shelf
Registration, a reasonable time prior to filing any Shelf Registration
Statement, any Prospectus forming a part thereof, any amendment to such Shelf
Registration Statement or amendment or supplement to such Prospectus, provide
copies of such document to the Holders of Registrable Securities, to the
Purchasers, to one counsel on behalf of the Holders and to the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any, and
make such changes in any such document prior to the filing thereof as the
Holders of Registrable Securities, the Purchasers on behalf of such Holders,
their counsel and any underwriter may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such document
as shall be reasonably requested by the Holders of Registrable Securities, the
Purchasers on behalf of such Holders or any underwriter and shall not at any
time make any filing of any such document of which such Holders, the Purchasers
on behalf of such Holders, their counsel or any underwriter shall not have
previously been advised and furnished a copy or to which such Holders, the
Purchasers on behalf of such Holders, their counsel or any underwriter shall
reasonably object;

          (p)  in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the  Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of an
underwritten offering of Registrable Securities, if any;

          (q)  in the case of a Shelf Registration, use its best efforts to
cause the Registrable Securities to be rated with the appropriate rating
agencies, if so requested by the Majority Holders or by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any,
unless the Registrable Securities are already so rated;

                                       14
<PAGE>

          (r)  otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933 Act and
Rule 158 thereunder; and

          (s)  provide reasonable cooperation and assistance in any filings
required to be made with the NASD and in the performance of any due diligence
investigation by any underwriter and its counsel.

          In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to promptly furnish to the Company such
information regarding such Holder and the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time reasonably
request in writing.

          In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section 3(e)(ii)-
(vi) hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to a Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
3(j) hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company shall give any such notice to suspend the disposition of Registrable
Securities pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension provided that the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Shelf Registration Statement and shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including the
date of the giving of such notice to and including the date when the Holders
shall have received copies of the supplemented or amended Prospectus necessary
to resume such dispositions.

          4.   Underwritten Registrations. If any of the Registrable Securities
               --------------------------
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Securities included in such offering and shall be reasonably acceptable to the
Company.

          No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes

                                       15
<PAGE>

all questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such
underwriting arrangements.

          5.    Indemnification and Contribution. (a) The Company shall
                --------------------------------
indemnify and hold harmless each Purchaser, each Holder, including Participating
Broker-Dealers, each underwriter who participates in an offering of Registrable
Securities, their respective affiliates, and the respective directors, officers,
employees, agents and each Person, if any, who controls any of such parties
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:

          (i)   against any and all losses, liabilities, claims, damages and
     expenses whatsoever, as incurred, arising out of any untrue statement or
     alleged untrue statement of a material fact contained in any Registration
     Statement (or any amendment thereto) pursuant to which Exchange Securities
     or Registrable Securities were registered under the 1933 Act, including all
     documents incorporated therein by reference, or the omission or alleged
     omission therefrom of a material fact required to be stated therein or
     necessary to make the statements therein not misleading or arising out of
     any untrue statement or alleged untrue statement of a material fact
     contained in any Prospectus (or any amendment or supplement thereto) or the
     omission or alleged omission therefrom of a material fact necessary in
     order to make the statements therein, in the light of the circumstances
     under which they were made, not misleading;

          (ii)  against any and all losses, liabilities, claims, damages and
     expenses whatsoever, as incurred, to the extent of the aggregate amount
     paid in settlement of any litigation, or investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission, if such settlement is effected with
     the written consent of the Company; and

          (iii) against any and all expenses whatsoever, as incurred (including
     fees and disbursements of counsel chosen by any indemnified party),
     reasonably incurred in investigating, preparing or defending against any
     litigation, or investigation or proceeding by any court or governmental
     agency or body, commenced or threatened, or any claim whatsoever based upon
     any such untrue statement or omission, or any such alleged untrue statement
     or omission, to the extent that any such expense is not paid under
     subparagraph (i) or (ii) of this Section 5(a);

provided, however, that this indemnity does not apply to any loss, liability,
--------  -------
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the Purchasers,
any Holder, including Participating Broker-Dealers or any underwriter expressly
for use in the Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto).

                                       16
<PAGE>

          (b)  In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, the
Purchasers, each underwriter who participates in an offering of Registrable
Securities and the other selling Holders and each of their respective directors
and officers (including each officer of the Company who signed the Registration
Statement) and each Person, if any, who controls the Company, the Purchasers,
any underwriter or any other selling Holder within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, against any and all losses,
liabilities, claims, damages and expenses described in the indemnity contained
in Section 5(a) hereof, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Holder, as the case may be,
expressly for use in the Registration Statement (or any amendment thereto), or
the Prospectus (or any amendment or supplement thereto); provided, however, that
                                                         --------  -------
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.

          (c)  Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability which it may
have other than on account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of such action. In no event
shall the indemnifying party or parties be liable for the fees and expenses of
more than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.

          (d)  In order to provide for just and equitable contribution in
circumstances in which any of the indemnity provisions set forth in this Section
5 are for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company, the Purchasers
and the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, the Purchasers and the Holders, as incurred; provided,
                                                                      --------
however, that no person guilty of fraudulent misrepresentation (within the
-------
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any Person that was not guilty of such fraudulent misrepresentation. As between
the Company, the Purchasers and the Holders, such parties shall contribute to
such aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (i) the relative benefits received by the Company on the
one hand, the Purchasers on another hand, and the Holders on another hand, from
the offering of the Exchange Securities or Registrable Securities included in
such offering, and (ii) the relative fault of the Company on the one hand, the
Purchasers on another hand, and the Holders on another hand, with respect to the
statements or omissions which resulted in such loss, liability, claim, damage or
expense, or action in respect thereof, as well as any other relevant equitable
considerations. The Company, the Purchasers and the Holders of the

                                       17
<PAGE>

Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 5 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 5, each
affiliate of a Purchaser or Holder, and each director, officer, employee, agent
and Person, if any, who controls a Purchaser or Holder or such affiliate within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as such Purchaser or Holder, and each
director of the Company, each officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The parties hereto agree that any
underwriting discount or commission or reimbursement of fees paid to any
Purchaser pursuant to the Purchase Agreement shall not be deemed to be a benefit
received by any Purchaser in connection with the offering of the Exchange
Securities or Registrable Securities included in such offering.

          6.   Miscellaneous. (a)  Rule 144 and Rule 144A. For so long as the
               -------------       ----------------------
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder, that if it ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable Securities (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (ii) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and it will take such further action as
any Holder of Registrable Securities may reasonably request, and (iii) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (y) Rule 144A under the 1993 Act, as such Rule may be
amended from time to time, or (z) any similar rules or regulations hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.

          (b)  No Inconsistent Agreements. The Company has not entered into nor
               --------------------------
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.

          (c)  Amendments and Waivers. The provisions of this Agreement,
               ----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Majority
Holders affected by such amendment, modification, supplement, waiver or
departure; provided,
           --------

                                       18
<PAGE>

however, that no amendment, modification, supplement or waiver or consent to any
-------
departure from the provisions of Section 5 hereof shall be effective as against
any Holder of Registrable Securities unless consented to in writing by such
Holder.

          (d)  Notices. All notices and other communications provided for or
               -------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 6(d), which address initially is, with respect to a Purchaser, the
address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(d).

          All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.

          Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.

          (e)  Successors and Assigns. This Agreement shall inure to the benefit
               ----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
                                --------
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms hereof or of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.

          (f)  Third Party Beneficiary. The Purchasers shall be third party
               -----------------------
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other hand, and shall have the right to enforce
such agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.

          (g)  Counterparts. This Agreement may be executed in any number of
               ------------
counterparts and by the parties hereto in separate counterparts, each of which
when so

                                       19
<PAGE>

executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.

          (h)  Headings.  The headings in this Agreement are for convenience of
               --------
reference only and shall not limit or otherwise affect the meaning hereof.

          (i)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
               -------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          (j)  Severability. In the event that any one or more of the provisions
               ------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

                                       20
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                             APPLIED EXTRUSION
                                             TECHNOLOGIES, INC.


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

Confirmed and accepted as of
 the date first above
 written:

MERRILL LYNCH & CO.
   Merrill Lynch, Pierce, Fenner & Smith Incorporated
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
DEUTSCHE BANC ALEX. BROWN INC.

By:  MERRILL LYNCH & CO.
          Merrill Lynch, Pierce, Fenner & Smith Incorporated

By: /s/ Keith Alexander
    ------------------------
    Name: Keith Alexander
    Title: Managing Director

                                       21
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>7
<FILENAME>dex51.txt
<DESCRIPTION>EXHIBIT 5.1 - OPINION - ROPES & GRAY
<TEXT>

<PAGE>

                                                                     Exhibit 5.1

                                   July 18, 2001



Applied Extrusion Technologies, Inc.
3 Centennial Drive
Peabody, Massachusetts  01960

     Re:  $275,000,000 aggregate principal amount of 10% Series B Senior Notes
          due 2011 of Applied Extrusion Technologies, Inc. issued in exchange
          for $275,000,000 aggregate principal amount of 10% Senior Notes due
          2011 of Applied Extrusion Technologies, Inc.

Ladies and Gentlemen:

     We have acted as counsel to Applied Extrusion Technologies, Inc., a
Delaware corporation (the "Company"), in connection with (i) the issuance by the
Company in an exchange offer (the "Exchange Offer") of $275,000,000 aggregate
principal amount of its 10% Series B Senior Notes due 2011 (the "Exchange
Notes"), which are to be registered under the Securities Act of 1933, as amended
(the "Securities Act"), in exchange for $275,000,000 aggregate principal amount
of the Company's outstanding 10% Senior Notes due 2011 (the "Initial Notes"),
which have not been, and will not be, so registered, and (ii) the preparation of
the registration statement on Form S-4 filed by the Company with the Securities
and Exchange Commission on the date hereof (the "Registration Statement") for
the purpose of registering the Exchange Notes under the Securities Act of 1933
(the "Act"). The Initial Notes have been, and the Exchange Notes will be, issued
pursuant to an Indenture dated as of June 19, 2001 (the "Indenture") between the
Company and Wells Fargo Bank Minnesota, National Association, as trustee (the
"Trustee"). Capitalized terms defined in the Indenture and not otherwise defined
herein are used herein with the meanings so defined.

     This opinion is furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
<PAGE>

Applied Extrusion Technologies, Inc.   -2-                        July 18, 2001

     We have examined such documents and made such other investigation as we
have deemed appropriate to render the opinions set forth below.  As to matters
of fact material to our opinions, we have relied, without independent
verification, on representations made in the Indenture, certificates and other
documents and other inquiries of officers of the Company and of public
officials.

     The opinions expressed below are limited to matters governed by the laws of
The Commonwealth of Massachusetts, the General Corporation Law of the State of
Delaware, the laws of the State of New York and the federal laws of the United
States of America.

     Based upon the foregoing, we are of the opinion that:

     1.   When the Exchange Notes have been duly executed and authenticated in
accordance with the terms of the Indenture and have been delivered against
receipt of the Initial Notes surrendered in exchange therefor upon completion of
the Exchange Offer, the Exchange Notes will be entitled to the benefits of the
Indenture and will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as may be limited by (a) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting the rights
and remedies of creditors or secured parties generally and (b) general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).

     2.   Assuming the Guarantee has been duly authorized, executed and
delivered by the Guarantor in accordance with the terms of the Indenture, when
the Exchange Notes have been duly executed and authenticated in accordance with
the terms of the Indenture and have been delivered against receipt of the
Initial Notes surrendered in exchange therefor upon completion of the Exchange
Offer, the Guarantee will constitute a legal, valid and binding obligation of
the Guarantor, enforceable against the Guarantor in accordance with its terms,
except as may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting the rights and remedies of creditors or secured parties generally and
(b) general principles of equity (regardless of whether considered in a
proceeding in equity or at law).

     We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement.  We also
consent to the reference to our firm under the caption "Legal Matters" in the
Registration Statement.  In giving this consent, we do not thereby admit that we
are included in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities and Exchange
Commission.

                                   Very truly yours,

                                   /s/ Ropes & Gray

                                   Ropes & Gray
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>8
<FILENAME>dex231.txt
<DESCRIPTION>EXHIBIT 23.1 - CONSENT - DELOITTE & TOUCHE
<TEXT>

<PAGE>

                                                                    Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Applied Extrusion Technologies, Inc. and its subsidiaries (the "Company") on
Form S-4 of our report dated November 13, 2000, included and incorporated by
reference in the Annual Report on Form 10-K of the Company for the year ended
September 30, 2000, and to the use of our report dated November 13, 2000,
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the headings "Summary Financial Data"
and "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
July 17, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>9
<FILENAME>dex232.txt
<DESCRIPTION>EXHIBIT 23.2 - CONSENT OF KPMG
<TEXT>

<PAGE>

                                                                    Exhibit 23.2

                           Independent Accountants' Consent

The Board of Directors
QPF, LLC:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

                                          /s/ KPMG LLP

Jackson, Mississippi
July 13, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-25.1
<SEQUENCE>10
<FILENAME>dex251.txt
<DESCRIPTION>EXHIBIT 25.1 - STATEMENT OF ELIGIBILITY - TRUSTEE
<TEXT>

<PAGE>
                                                                    Exhibit 25.1

                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549
                         _____________________________

                                    FORM T-1

                            STATEMENT OF ELIGIBILITY
                   UNDER THE TRUST INDENTURE ACT OF 1939 OF A
                    CORPORATION DESIGNATED TO ACT AS TRUSTEE
                         _____________________________

_____ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO

                               SECTION 305(b) (2)

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
              (Exact name of trustee as specified in its charter)

A U.S. NATIONAL BANKING ASSOCIATION                   41-1592157
(Jurisdiction of incorporation or                     (I.R.S. Employer
organization if not a U.S. national                   Identification No.)
bank)

SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota                                55479
(Address of principal executive offices)              (Zip code)

                       Stanley S. Stroup, General Counsel
                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                       Sixth Street and Marquette Avenue
                         Minneapolis, Minnesota  55479
                                 (612) 667-1234
                              (Agent for Service)
                         _____________________________

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

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

3 CENTENNIAL DRIVE
PEABODY, MASSACHUSETTS                                01960
(Address of principal executive offices)              (Zip code)

                         10 3/4% SENIOR NOTES DUE 2011
                          ___________________________
                      (Title of the indenture securities)
<PAGE>

Item 1.  General Information.  Furnish the following information as to the
         --------------------
         trustee:

          (a)  Name and address of each examining or supervising authority to
               which it is subject.

               Comptroller of the Currency
               Treasury Department
               Washington, D.C.

               Federal Deposit Insurance Corporation
               Washington, D.C.

               The Board of Governors of the Federal Reserve System
               Washington, D.C.

          (b)  Whether it is authorized to exercise corporate trust powers.

               The trustee is authorized to exercise corporate trust powers.

Item 2.  Affiliations with Obligor.  If the obligor is an affiliate of the
         --------------------------
         trustee, describe each such affiliation.

         None with respect to the trustee.

No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.

Item 15.  Foreign Trustee.  Not applicable.
          ----------------

Item 16.  List of Exhibits.  List below all exhibits filed as a part of this
          -----------------  Statement of Eligibility. Wells Fargo Bank
                             incorporates by reference into this Form T-1 the
                             exhibits attached hereto.

     Exhibit 1.  a.          A copy of the Articles of Association of the
                             trustee now in effect.***

     Exhibit 2.  a.          A copy of the certificate of authority of the
                             trustee to commence business issued June 28, 1872,
                             by the Comptroller of the Currency to The
                             Northwestern National Bank of Minneapolis.*

                 b.          A copy of the certificate of the Comptroller of the
                             Currency dated January 2, 1934, approving the
                             consolidation of The Northwestern National Bank of
                             Minneapolis and The Minnesota Loan and Trust
                             Company of Minneapolis, with the surviving entity
                             being titled Northwestern National Bank and Trust
                             Company of Minneapolis.*

                 c.          A copy of the certificate of the Acting Comptroller
                             of the Currency dated January 12, 1943, as to
                             change of corporate title of Northwestern National
                             Bank and Trust Company of Minneapolis to
                             Northwestern National Bank of Minneapolis.*
<PAGE>

               d.   A copy of the letter dated May 12, 1983 from the Regional
                    Counsel, Comptroller of the Currency, acknowledging receipt
                    of notice of name change effective May 1, 1983 from
                    Northwestern National Bank of Minneapolis to Norwest Bank
                    Minneapolis, National Association.*

               e.   A copy of the letter dated January 4, 1988 from the
                    Administrator of National Banks for the Comptroller of the
                    Currency certifying approval of consolidation and merger
                    effective January 1, 1988 of Norwest Bank Minneapolis,
                    National Association with various other banks under the
                    title of "Norwest Bank Minnesota, National Association."*

               f.   A copy of the letter dated July 10, 2000 from the
                    Administrator of National Banks for the Comptroller of the
                    Currency certifying approval of consolidation effective July
                    8, 2000 of Norwest Bank Minnesota, National Association with
                    various other banks under the title of "Wells Fargo Bank
                    Minnesota, National Association."****

    Exhibit 3. A copy of the authorization of the trustee to exercise
               corporate trust   powers issued January 2, 1934, by the Federal
               Reserve Board.*

    Exhibit 4. Copy of By-laws of the trustee as now in effect.***

    Exhibit 5. Not applicable.

    Exhibit 6. The consent of the trustee required by Section 321(b) of the
               Act.

    Exhibit 7. A copy of the latest report of condition of the trustee
               published pursuant to law or the requirements of its supervising
               or examining authority. **

    Exhibit 8. Not applicable.

    Exhibit 9. Not applicable.



     *     Incorporated by reference to exhibit number 25 filed with
           registration statement number 33-66026.

     **    Incorporated by reference to exhibit number 25 filed with
           registration statement number 333-56748

     ***   Incorporated by reference to exhibit T3G filed with registration
           statement number 022-22473.

     ****  Incorporated by reference to exhibit number 25.1 filed with
           registration statement number 001-15891.
<PAGE>

                                   SIGNATURE


Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Wells Fargo Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 12th day of July 2001.



                    WELLS FARGO BANK MINNESOTA,
                    NATIONAL ASSOCIATION


                    /s/ Robert L. Reynolds
                    --------------------------
                    Robert L. Reynolds
                    Vice President
<PAGE>

                                                                       EXHIBIT 6



July 12, 2001



Securities and Exchange Commission
Washington, D.C.  20549

Gentlemen:

In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.



                    Very truly yours,

                    WELLS FARGO BANK MINNESOTA,
                    NATIONAL ASSOCIATION


                    /s/ Robert L. Reynolds
                    --------------------------
                    Robert L. Reynolds
                    Vice President
<PAGE>

                                Board of Governors of the Federal Reserve System
                                OMB Number: 7100-0036
                                Federal Deposit Insurance Corporation
                                OMB Number: 3064-0052
                                Office of the Comptroller of the Currency
                                OMB Number: 1557-0081
                                Expires March 31, 2002
Federal Financial Institutions Examination Council
--------------------------------------------------------------------------------

                                                              ---------------
                                 Please refer to page i,              1
                                 Table of Contents, for       ---------------
                                 the required disclosure
                                 of estimated burden.
--------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031

Report at the close of business March 31, 200l

This report is required by law: 12 U.S.C. (S)324 (State nonmember banks); 12
U.S.C. (S)1817 (State nonmember banks); and 12 U.S.C. (S)161 (National banks).

       20010331
    -------------
     (RCRI 9999)

This report form is to be filed by banks with domestic offices only. Banks with
foreign offices (as defined in the instructions) must file FFIEC 031.
--------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, James E. Hanson, Vice President
------------------------------------------------------------
  Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that the Reports of Condition and Income
(including the supporting schedules) for this report date have been prepared in
conformance with the instructions issued by the appropriate Federal regulatory
authority and are true to the best of my knowledge and belief.

/s/ James E. Hanson
------------------------------------------------------------
Signature of Officer Authorized to Sign Report

4/24/01
------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions.

We, the undersigned directors (trustees), attest to the correctness of the
Report of Condition (including the supporting schedules) for this report date
and declare that it has been examined by us and to the best of our knowledge and
belief has been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true and correct.


------------------------------------------------------------
Director (Trustee)

[ILLEGIBLE SIGNATURE]
--------------------------------------------------------------------------------
Director (Trustee)

[ILLEGIBLE SIGNATURE]
--------------------------------------------------------------------------------
Director (Trustee)

[ILLEGIBLE SIGNATURE]
--------------------------------------------------------------------------------

Submission of Reports

Each bank must prepare its Reports of Condition and Income either:

(a)  in electronic form and then file the computer data file directly with the
     banking agencies' collection agent, Electronic Data Systems Corporation
     (EDS), by modem or on computer diskette; or
(b)  in hard-copy (paper) form and arrange for another party to convert the
     paper report to electronic form. That party

(if other than EDS) must transmit the bank's computer data file to EDS.

For electronic filing assistance, contact EDS Call Report Services, 2150 N.
Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571.

To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page (or a
photocopy or a computer-generate version of this page) to the hard-copy record
of the complete report that the bank places in its files.
--------------------------------------------------------------------------------
FDIC Certificate Number:                                            05208
                                                                  ---------
                                                                 (RCRI 9050)
http://www.wellsfargo.com
------------------------------------------------------------
Primary Internet Web Address of Bank
(Home Page), if any (TEXT4087)
(Example: www.examplebank.com)


Wells Fargo Bank Minnesota, N.A.
--------------------------------------------------------------------------------
Legal Title of Bank (TEXT 9010)

Minneapolis
--------------------------------------------------------------------------------
City (TEXT 9130)


MN                           55479
--------------------------------------------------------------------------------
State Abbrev. (TEXT 9200)    Zip Code (TEXT 9220)

Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE>

                                                                       FFIEC 031
Consolidated Reports of Condition and Income for                       Page i
A Bank With Domestic Offices Only                                         2
--------------------------------------------------------------------------------
Table of Contents


Signature Page                                           Cover

Report of Income
Schedule RI - Income Statement                           RI-1, 2, 3
Schedule RI-A - Changes in Equity Capital                RI-4
Schedule RI-B - Charge-offs and Recoveries on
  Loans and Leases and Changes in Allowance
  for Loan and Lease Losses                              RI-4, 5
Schedule RI-D - Income from
  International Operations                               RI-6
Schedule RI-E -Explanations                              RI-6, 7


Disclosure of Estimated Burden

The estimated average burden associated with this information collection is 35.5
hours per respondent and is estimated to vary from 14 to 500 hours per response,
depending on individual circumstances. Burden estimates include the time for
reviewing instructions, gathering and maintaining data in the required form, and
completing the information collection, but exclude the time for compiling and
maintaining business records in the normal course of a respondent's activities.
A Federal agency may not conduct or sponsor, and an organization (or a person)
is not required to respond to a collection of information, unless it displays a
currently valid OMB control number. Comments concerning the accuracy of this
burden estimate and suggestions for reducing this burden should be directed to
the Office of Information and Regulatory Affairs, Office of Management and
Budget, Washington, D.C. 20503, and to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

Report of Condition
Schedule RC - Balance Sheet                                  RC-1, 2
Schedule RC-A - Cash and Balances Due From Depository
 Institutions                                                RC-3
Schedule RC-B - Securities                                   RC-3, 4, 5
Schedule RC-C - Loans and Lease Financing Receivables:
 Part I. Loans and Leases                                    RC-6, 7
 Part II. Loans to Small Businesses and
 Small Farms (to be completed for
 the June report only; not included in the forms
 for the September and December                              RC-7a, 7b
Schedule RC-D - Trading Assets and Liabilities
 (to be completed only by selected b:                        RC-8
Schedule RC-E - Deposit Liabilities                          RC-9, 10
Schedule RC-F - Other Assets                                 RC-11
Schedule RC-G - Other Liabilities                            RC-11
Schedule RC-H - Selected Balance Sheet Items for
 Domestic Offices                                            RC-12
Schedule RC-I - Assets and Liabilities                       RC-12
Schedule RC-K - Quarterly Averages                           RC-13
Schedule RC-L - Derivatives and Off-Balance Sheet Items      RC-14, 15
Schedule RC-M - Memoranda                                    RC-16
Schedule RC-N - Past Due and Nonaccrual Loans, Leases, and
 Other Assets                                                RC-17, 18
Schedule RC-O - Other Data for Deposit
  Insurance and FICO Assessments                             RC-19, 20
Schedule RC-R - Regulatory Capital                           RC-21, 22, 23, 24
Schedule RC-S - Securitization and Asset Sales Activities    RC-25, 26, 27,27a
Schedule RC-T - Fiduciary and Related Services
 (to be completed beginning December 31,                     RC-28, 29, 30
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income              RC-31


Special Report (to be completed by all banks)

For information or assistance, national and state nonmember banks should contact
the FDIC's Reports Analysis and Quality Control Section, 550 17th Street, NW,
Washington, D.C. 20429, toll free on (800) 688-FDIC(3342), Monday through Friday
between 8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact
their Federal Reserve District Bank.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
-----------------------------------------------                       RI-1
Legal Title of Bank
Minneapolis
-----------------------------------------------
City                                                                  3
MN                                     55479
-----------------------------------------------
State                                Zip Code

FDIC Certificate Number - 05208

Consolidated Report of Income
for the period January 1, 2001 - March 31, 2001

All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.

Schedule RI--Income Statement

<TABLE>
<CAPTION>

                                                                  Dollar Amounts in Thousands  RIAD  Bil Mil Thou
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>   <C> <C> <C>  <C>
1.  Interest Income:
  a.  Interest and fee income on loans:
      (1) In domestic offices:
          (a) Loans secured by real estate                                                      4011      246,809 1.a.1.a
          (b) Loans to finance agricultural production and other loans to farmers               4024        6,375 1.a.1.b
          (c) Commercial and industrial loans                                                   4012      126,702 1.a.1.c
          (d) Loans to individuals for household, family, and
              other personal expenditures:
              (1) Credit cards                                                                  B485       47,886 1.a.1.d.1
              (2) Other (includes single payment, installment, all student loans, and revolving
                  credit plans other than credit cards)                                         B486       33,965 1.a.1.d.2
          (e) Loans to foreign governments and official institutions                            4056            0 1.a.1.e
          (f) All other loans in domestic offices                                               B487       37,859 1.a.1.f
      (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs                         4059          121 1.a.2
      (3) Total interest and fee income on loans (sum of items 1.a.(1)(a) through 1.a.(2))      4010      499,717 1.a.3
  b.  Income from lease financing receivables                                                   4065       35,865 1.b
       c. Interest income on balances due from depository institutions: (1)                     4115          391 1.c
       d. Interest and dividend income on securities:
          (1) U.S. Treasury securities and U.S. Government agency obligations (excluding
              mortgage-backed securities)                                                       B488       6,143  1.d.1
          (2) Mortgage-backed securities                                                        B489      17,514  1.d.2
          (3) All other securities (includes securities issued
              by states and political subdivisions in the U.S.)                                 4060       9,964  1.d.3
       e. Interest income from trading assets                                                   4069          74  1.e
       f. Interest income on federal funds sold and securities purchased
          under agreements to resell                                                            4020     268,918  1.f
       g. Other interest income                                                                 4518       5,095  1.g
       h. Total interest income (sum of items 1.a.(3) through 1.g)                              4107     843,681  1.h
2. Interest expense:
       a. Interest on deposits:
          (1) Interest on deposits in domestic offices:
              (a) Transaction accounts (NOW accounts, ATS accounts, and
                  telephone and preauthorized transfer accounts)                                4508       1,538  2.a.1.a
              (b) Nontransaction accounts:
                  (1) Savings deposits (includes MMDAs)                                         0093      66,246  2.a.1.b.1
                  (2) Time deposits of $100,000 or more                                         A517       4,800  2.a.1.b.2
                  (3) Time deposits of less than $100,000                                       A518      27,145  2.a.1.b.3
          (2) Interest on deposits in foreign offices, Edge and agreement subsidiaries,
                and IBFs                                                                        4172     121,495  2.a.2
       b. Expense of federal funds purchased and securities sold under agreements to repurchase 4180     165,349  2.b
       c. Interest on trading liabilities and other borrowed money                              4185      95,549  2.c
</TABLE>

---------
(1) Includes interest income on time certificates of deposits not held for
trading.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                       FFIEC 031
--------------------------------------------                           RI-2
Legal Title of Bank

FDIC Certificate Number - 05208                                          4

Schedule RI--Continued

<TABLE>
<CAPTION>

                                                                             Year-to-date
                                                                             ------------
                                          Dollar Amounts in Thousands  RIAD  Bil Mil Thou
-----------------------------------------------------------------------------------------
<S>                                                                     <C>  <C> <C> <C> <C>    <C>     <C>
2. Interest expense (continued):
    d. Interest on subordinated notes and debentures                    4200           0                2.d
    e. Total interest expense (sum of items 2.a through 2.d)            4073     482,122                2.e
3. Net interest income (item 1.h minus 2.e)                                              4074   361,559 3
4. Provision for loan and lease losses                                                   4230    21,038 4
5. Noninterest income:
    a. Income from fiduciary activities (1)                             4070      77,756                5.a
    b. Service charges on deposit accounts in domestic offices          4080      30,240                5.b
    c. Trading revenue (2)                                              A220       1,793                5.c
    d. Investment banking, advisory, brokerage, and underwriting fees
       and commissions                                                  B490       7,236                5.d
    e. Venture capital revenue                                          B491           0                5.e
    f. Net servicing fees                                               B492           0                5.f
    g. Net securitization income                                        B493           0                5.g
    h. Insurance commissions and fees                                   B494       7,025                5.h
    i. Net gains (losses) on sales of loans and leases                  5416           0                5.i
    j. Net gains (losses) on sales of other real-estate owned           5415        (309)               5.j
    k. Net gains (losses) on sales of other assets (excluding           B496         238                5.k
       securities)
       l. Other noninterest income*                                     B497      76,452                5.l
       m. Total noninterest income (sum of items 5.a through 5.l)                        4079   200,431 5.m
6.  a. Realized gains (losses) on held-to-maturity securities                            3521         0 6.a
    b. Realized gains (losses) on available-for-sale securities                          3196     2,023 6.b
7. Noninterest expense:
    a. Salaries and employee benefits                                   4135     123,147                7.a
    b. Expenses of premises and fixed assets (net of rental income)
       (excluding salaries and employee benefits and mortgage interest) 4217      25,250                7.b
    c. Amortization expense of intangible assets (including goodwill)   4531       2,858                7.c
    d. Other noninterest expense *                                      4092     184,798                7.d
    e. Total noninterest expense (sum of items 7.a through 7.d)                          4093   336,053 7.e
8.  Income (loss) before income taxes and extraordinary
    items, and other adjustments (item 3 plus or minus items 4, 5.m,
    6.a, 6.b, and 7.e)                                                                   4301   206,922 8
9.  Applicable income taxes (on item 8)                                                  4302   76,565  9
10. Income (loss) before extraordinary items and other adjustments
    (item 8 minus item 9)                                                                4300  130,357  10
11. Extraordinary items and other adjustments, net of income taxes *                     4320        0  11
12. Net income (loss) (sum of items 10 and 11)                                           4340  130,357  12
</TABLE>

-----------
* Describe on Schedule RI-E - Explanations.
(1)  For banks required to complete Schedule RC-T, items 12 through 19, income
     from fiduciary activities reported in Schedule RI, item 5.a, must equal the
     amount reported in Schedule RC-T, item 19.
(2)  For banks required to complete Schedule RI, Memorandum item 8, trading
     revenue reported in Schedule RI, item 5.c must equal the sum of Memorandum
     items 8.a through 8.d.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
--------------------------------------------                          RI-3
Legal Title of Bank

FDIC Certificate Number - 05208                                          5

Schedule RI--Continued

<TABLE>
<CAPTION>

                                                                                                          Year-to-Date
                                                                                                          ------------
Memoranda                                                               Dollar Amounts in Thousands  RIAD Bil  Mil  Thou
------------------------------------------------------------------------------------------------------------------------
<S> <C>                                                                                              <C>  <C>  <C>  <C>   <C>
1.  Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after
    August 7, 1986, that is not deductible for federal income tax purposes                           4513        127      M.1
2.  Income from the sale and servicing of mutual funds and annuities in domestic offices
    (included in Schedule RI, item 8)                                                                8431        881      M.2
3.  Income on tax-exempt loans and leases to states and political subdivisions in
    the U.S. (included in Schedule RI, items 1.a and 1.b)                                            4313        369      M.3
4.  Income on tax-exempt securities issued by states and political subdivisions in the U.S.
     (included in Schedule RI, item 1.d.(3))                                                         4507      3,478      M.4
5.  Number of full-time equivalent employees at end of current period (round to                              Number
    nearest whole number)                                                                            4150      7,228      M.5
6.  Not applicable
7.  If the reporting bank has restated its balance sheet as a result of applying push down             CCYY / MM / DD
    accounting this calendar year, report the date of the bank's acquisition (1)                     9106        N/A      M.7
8.  Trading revenue (from cash instruments and derivative instruments) (sum
    of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c) (To
    be completed by banks that reported average trading assets (Schedule
    RC-K, item 7) of $2 million or more for any quarter of the preceding
    calendar year.):
<CAPTION>
                                                                                                     RIAD Bil  Mil  Thou
                                                                                                     -------------------
<S>                                                                                                  <C>  <C>  <C>  <C>   <C>
    a. Interest rate exposures                                                                       8757        720      M.8.a
    b. Foreign exchange exposures                                                                    8758      1,073      M.8.b
    c. Equity security and index exposures                                                           8759          0      M.8.c
    d. Commodity and other exposures                                                                 8760          0      M.8.d

<CAPTION>

9.  Impact on income of derivatives held for purposes other than trading:                            RIAD Bil  Mil  Thou
                                                                                                     -------------------
<S>                                                                                                  <C>  <C>  <C> <C>    <C>
    a. Net increase (decrease) to interest income                                                    8761          0      M.9.a
    b. Net (increase) decrease to interest expense                                                   8762          0      M.9.b
    c. Other (noninterest) allocations                                                               8763          0      M.9.c
10. Credit losses on derivatives (see instructions)                                                  A251          0      M.10
11. Does the reporting bank have a Subchapter S election in effect for                                   YES / NO
    federal income tax purposes for the current tax year?                                            A530   NO            M.11
</TABLE>

-----------
(1) For example, a bank acquired on June 1, 2001, would report 20010601
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
--------------------------------------------                          RI-4
Legal Title of Bank

FDIC Certificate Number - 05208                                          6

Schedule RI-A--Changes in Equity Capital

Indicate decreases and losses in parentheses.

<TABLE>
<CAPTION>

                                                               Dollar Amounts in Thousands    RIAD Bil Mil Thou
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>  <C> <C> <C>   <C>
1. Total equity capital most recently reported for the December 31, 2000, Reports
   of Condition and Income (i.e., after adjustments from amended Reports of Income)           3217    3,084,474  1
2. Restatements due to corrections of material accounting errors and changes in
   accounting principles*                                                                     B507            0  2
3. Balance end of previous calendar year as restated (sum of items 1 and 2)                   B508    3,084,474  3
4. Net income (loss) (must equal Schedule RI, item 12)                                        4340      130,357  4
5. Sale, conversion, acquisition, or retirement of capital stock, net
   (excluding treasury stock transactions)                                                    B509            0  5
6. Treasury stock transactions, net                                                           B510            0  6
7. Changes incident to business combinations, net                                             4356       23,496  7
8. LESS: Cash dividends declared on preferred stock                                           4470            0  8
9. LESS: Cash dividends declared on common stock                                              4460            0  9
10. Other comprehensive income (1)                                                            B511       10,970  10
11. Other transactions with parent holding company * (not included in items 5, 6, 8,
    or 9 above)                                                                               4415            0  11
12. Total equity capital end of current period (sum of items 3 through 11) (must equal
    Schedule RC, item 28)                                                                     3210    3,249,297  12
</TABLE>

---------
* Describe on Schedule RI-E - Explanations.
(1)  Includes changes in net unrealized holding gains (losses) on
     available-for-sale securities, changes in accumulated net gains (losses) on
     cash flow hedges, foreign currency translation adjustments, and changes in
     minimum pension liability adjustments.

Schedule RI-B--Charge-offs and Recoveries on Loans and Leases and Changes in
               Allowance for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

<TABLE>
<CAPTION>

                                                                               (Column A)          (Column B)
Part I excludes charge-offs and recoveries through                             Charge-offs         Recoveries
the allocated transfer risk reserve.                                        ------------------------------------
                                                                                    Calendar year-to-date
                                                                            -----------------------------------
                                           Dollar Amounts in Thousands      RIAD Bil Mil Thou RIAD Bil Mil Thou
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>  <C> <C> <C> <C>   <C> <C> <C> <C>
1.  Loans secured by real estate:
    a. Construction, land development, and other land loans in domestic
       offices                                                               3582       3     3583          0   1.a
    b. Secured by farmland in domestic offices                               3584       0     3585          0   1.b
    c. Secured by 1-4 family residential properties in domestic offices:
         (1) Revolving, open-end loans secured by 1-4 family residential
             properties and extended under lines of credit                   5411      33     5412         12   1.c.1
         (2) Closed-end loans secured by 1-4 family residential properties   5413     547     5414        180   1.c.2
    d. Secured by multifamily (5 or more) residential properties in
       domestic offices                                                      3588       0     3589          0   1.d
    e. Secured by nonfarm nonresidential properties in domestic offices      3590     381     3591        515   1.e
    f. In foreign offices                                                    B512       0     B513          0   1.f
2.  Loans to depository institutions and acceptances of other banks:
    a. To U.S. banks and other U.S. depository institutions                  4653       0     4663          0   2.a
    b. To foreign banks                                                      4654       0     4664          0   2.b
3.  Loans to finance agricultural production and other loans to farmers      4655       0     4665        310   3
4.  Commercial and industrial loans:
    a. To U.S. addressees (domicile)                                         4645   6,143     4617        318   4.a
    b. To non-U.S. addressees (domicile)                                     4646       0     4618          0   4.b
5.  Loans to individuals for household, family, and other personal
    expenditures:
    a. Credit cards                                                          B514  16,192     B515        464   5.a
    b. Other (includes single payment, installment, all student loans
       and revolving credit plans other than credit cards)                   B516   6,004     B517      3,462   5.b
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                       FFIEC 031
--------------------------------------------                           RI-5
Legal Title of Bank

FDIC Certificate Number - 05208                                          7

Schedule RI-B--Continued

<TABLE>
<CAPTION>

Part I. Continued                                                                   ( Column A )       ( Column B )
                                                                                    Charge-offs         Recoveries
                                                                               -------------------------------------
                                                                                        Calendar year-to-date
                                                                               -------------------------------------
                                                   Dollar Amounts in Thousands RIAD  Bil  Mil Thou RIAD Bil  Mil Thou
---------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>   <C>  <C> <C>  <C>  <C>  <C> <C>  <C>
6.  Loans to foreign governments and official institutions                     4643             0  4627            0  6
7.  All other loans                                                            4644             0  4628           25  7
8.  Lease financing receivables:
    a. To U.S. addressees (domicile)                                           4658             0  4668            0  8.a
    b. To non-U.S. addressees (domicile)                                       4659             0  4669            0  8.b
9.  Total (sum of items 1 through 8)                                           4635        29,303  4605        5,286  9

<CAPTION>

Memoranda                                                                           ( Column A )       ( Column B )
                                                                                    Charge-offs         Recoveries
                                                                               -------------------------------------
                                                                                        Calendar year-to-date
                                                                               -------------------------------------
                                                   Dollar Amounts in Thousands RIAD  Bil  Mil Thou RIAD Bil  Mil Thou
---------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>   <C>  <C> <C>  <C>  <C>  <C> <C>  <C>
1.  Loans to finance commercial real estate, construction, and land
    development activities (not secured by real estate) included in
    Schedule RI-B, part I, items 4 and 7, above                                5409             0  5410            0  M.1
2.  Loans secured by real estate to non-U.S. addresses (domicile)
    (included in Schedule RI-B, part I, item 1, above):                        4652             0  4662            0  M.2

<CAPTION>

Part II. Changes in Allowance for Loan and Lease Losses


                                                                     Dollar Amounts in Thousands   RIAD Bil  Mil Thou
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>  <C>  <C> <C>  <C>
1.  Balance most recently reported for the December 31, 2000, Reports of Condition
    and Income (i.e., after adjustments from amended Reports of Income)                            B522      259,516  1
2.  Recoveries (must equal part I, item 9, column B above)                                         4605        5,286  2
3.  LESS: Charge-offs (must equal part I, item 9, column A above)                                  4635       29,303  3
4.  Provision for loan and lease losses (must equal Schedule RI, item 4)                           4230       21,038  4
5.  Adjustments * (see instructions for this schedule)                                             4815       20,943  5
6.  Balance end of current period (sum of items 1 through 5)
    (must equal Schedule RC, item 4.c)                                                             3123      277,480  6
</TABLE>

--------
* Describe on Schedule RI-E - Explanations.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
--------------------------------------------                          RI-6
Legal Title of Bank

FDIC Certificate Number - 05208                                            8

Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.

<TABLE>
<CAPTION>

                                                                                                          Year-to-Date
                                                                                                         --------------
                                                                      Dollar Amounts in Thousands  RIAD  Bil  Mil  Thou
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>   <C>  <C>  <C>  <C>
1.  Interest income and expense attributable to international operations:
    a. Gross interest income                                                                       B523            N/A  1.a
    b. Gross interest expense                                                                      B524            N/A  1.b
2.  Net interest income attributable to international operations (item 1.a minus 1.b)              B525            N/A  2.
3.  Noninterest income and expense attributable to international operations:
    a. Noninterest income attributable to international operations                                 4097            N/A  3.a
    b. Provision for loan and lease losses attributable to international operations                4235            N/A  3.b
    c. Other noninterest expense attributable to international operations                          4239            N/A  3.c
    d. Net noninterest income (expense) attributable to international operations (item 3.a minus
        3.b and 3.c)                                                                               4843            N/A  3.d
4. Estimated pretax income attributable to international operations before capital allocation
   adjustment (sum of items 2 and 3.d)                                                             4844            N/A  4
5. Adjustment to pretax income for internal allocations to international operations to reflect
   the effects of equity capital on overall bank funding costs                                     4845            N/A  5
6. Estimated pretax income attributable to international operations after capital allocation
   adjustment (sum of items 4 and 5)                                                               4846            N/A  6
7. Income taxes attributable to income from international operations as estimated in item 6        4797            N/A  7
8. Estimated net income attributable to international operations (item 6 minus 7)                  4341            N/A  8
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
--------------------------------------------                          RI-7
Legal Title of Bank

FDIC Certificate Number - 05208                                            9

Schedule RI-E--Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI. (See instructions for
details.)

<TABLE>
<CAPTION>

                                                                                                               Year-to-Date
                                                                                                             ---------------
                                                                  Dollar Amounts in Thousands         RIAD   Bil   Mil  Thou
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                   <C>    <C>   <C>  <C>  <C>
1.    Other noninterest income (from Schedule RI, item 5.l)
      Itemize and describe the three largest amounts that exceed 1% of the sum
      of Schedule RI, items 1.h and 5.m:
              TEXT
      a. C013 Income and fees from the printing and sale of checks                                    C013                0  1.a
      b. C014 Earnings on/increase in value of cash surrender value of life insurance                 C014                0  1.b
      c. C016 Income and fees from automated teller machines (ATMs)                                   C016                0  1.c
      d. 4042 Rent and other income from other real estate owned                                      4042                0  1.d
      e. C015 Safe deposit box rent                                                                   C015                0  1.e
      f. 4461 Credit card loan fees                                                                   4461           33,125  1.f
      g. 4462 Affiliate service fee                                                                   4462           38,789  1.g
      h. 4463                                                                                         4463                0  1.h
2.    Other noninterest expense (from Schedule RI, item 7.d): Itemize and
      describe the three largest amounts that exceed 1% of the sum of of
      Schedule RI, items 1.h and 5.m:
              TEXT
      a. C017 Data processing expenses                                                                C017                0  2.a
      b. 0497 Advertising and marketing expenses                                                      0497                0  2.b
      c. 4136 Director's fees                                                                         4136                0  2.c
      d. C018 Printing, stationary, and supplies                                                      C018                0  2.d
      e. 8403 Postage                                                                                 8403                0  2.e
      f. 4141 Legal fees and expenses                                                                 4141                0  2.f
      g. 4146 FDIC deposit insurance assessments                                                      4146                0  2.g
      h. 4464 Affiliate expense allocation                                                            4464           90,106  2.h
      I. 4467                                                                                         4467                0  2.I
      j. 4468                                                                                         4468                0  2.j
3.    Extraordinary items and other adjustments and applicable income tax effect (from Schedule RI,
      item 11) (itemize and describe all extraordinary items and other adjustments):
              TEXT
a.   (1) 6373 Effect of adopting FAS 133, "Accounting for Derivative Instruments and Hedging
         Activities"                                                                                  6373                0  3.a.1
     (2) Applicable income tax effect                                                                 4486                0  3.a.2
b.   (1) 4487                                                                                         4487                0  3.b.1
     (2) Applicable income tax effect                                                                 4488                0  3.b.2
c.   (1) 4489                                                                                         4489                0  3.c.1
     (2) Applicable income tax effect                                                                 4491                0  3.c.2
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
--------------------------------------------                          RI-8
Legal Title of Bank

FDIC Certificate Number - 05208                                       10

Schedule RI-E--Continued

<TABLE>
<CAPTION>

                                                                                                   Year-to-Date
                                                                                                  --------------
                                                             Dollar Amounts in Thousands   RIAD   Bil  Mil  Thou
----------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>     <C>  <C>  <C>  <C>
4. Restatements due to corrections of material accounting errors and changes in
   accounting principles (from Schedule RI-A, item 2) (itemize and describe all
   restatements):
              TEXT
   a.  B526                                                                                B526               0  4.a
   b.  B527                                                                                B527               0  4.b
5. Other transactions with parent holding company (from Schedule RI-A, item 11)
   (itemize and describe all such transactions):
              TEXT
   a.  4498                                                                                4498               0  5.a
   b.  4499                                                                                4499               0  5.b
6. Adjustments to allowance for loan and lease losses (from Schedule RI-B,
   part II, item 5) (itemize and describe all adjustments):
              TEXT
   a.  4521 Credit card securitizations                                                     4521         19,973  6.a
   b.  4522 Loan purchase                                                                   4522            970  6.b
7. Other explanations (the space below is provided for the bank to briefly describe,
   at its option, any other significant
   items affecting the Report of Income):    RIAD
   X = NO COMMENT - Y = COMMENT              4769   X
   Other explanations (please type or print clearly):
              TEXT ( 70 characters per line )
</TABLE>
       4769
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<PAGE>

 Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
--------------------------------------------                           RC-1
 Legal Title of Bank
 Minneapolis
--------------------------------------------
 City                                                                      11
 MN                               55479
--------------------------------------------
 State                            Zip Code

FDIC Certificate Number - 05208

Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 2001

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

Schedule RC--Balance Sheet

<TABLE>
<CAPTION>

                                                                 Dollar Amounts in Thousands RCFD   Bil  Mil  Thou
------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>    <C>  <C>  <C>  <C>
ASSETS
 1. Cash and balances due from depository institutions (from Schedule RC-A):
    a. Noninterest-bearing balances and currency and coin (1)                                0081       1,836,044  1.a
    b. Interest-bearing balances (2)                                                         0071          12,288  1.b
 2. Securities:
    a. Held-to-maturity securities (from Schedule RC-B, column A)                             1754              0  2.a
    b. Available-for-sale securities (from Schedule RC-B, column D)                           1773      2,007,473  2.b
 3. Federal funds sold and securities purchased under agreements to resell                    1350     16,566,668  3
 4. Loans and lease financing receivables (from Schedule RC-C):
    a. Loans and leases held for sale                                                         5369      9,715,194  4.a
    b. Loans and leases, net of unearned income                          B528     17,706,259                       4.b
    c. LESS: Allowance for loan and lease losses                         3123        277,480                       4.c
    d. Loans and leases, net of unearned income and allowance (item 4.b minus 4.c)            B529     17,428,779  4.d
 5. Trading assets (from Schedule RC-D)                                                       3545         24,172  5
 6. Premises and fixed assets (including capitalized leases)                                  2145        162,321  6
 7. Other real estate owned (from Schedule RC-M)                                              2150          5,153  7
 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)  2130              0  8
 9. Customers' liability to this bank on acceptances outstanding                              2155          3,621  9
10. Intangible assets
    a. Goodwill                                                                               3163        144,894  10.a
    b. Other intangible assets (from Schedule RC-M)                                           0426          2,960  10.b
11. Other assets (from Schedule RC-F)                                                         2160      1,062,471  11
12. Total assets (sum of items 1 through 11)                                                  2170     48,972,038  12
</TABLE>
-------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                       FFIEC 031
--------------------------------------------                           RC-2
Legal Title of Bank

FDIC Certificate Number - 05208                                               12

Schedule RC--Continued

<TABLE>
<CAPTION>

                                                              Dollar Amounts in Thousands             Bil   Mil   Thou
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>    <C>   <C>   <C>  <C>
LIABILITIES
13. Deposits:
    a. In domestic offices (sum of totals of columns A and C from Schedule RC-E,               RCON
       part I)                                                                                 2200         20,512,275 13.a
       (1) Noninterest-bearing (1)                                            6631 11,327,587                          13.a.1
       (2) Interest-bearing                                                   6636  9,184,688                          13.a.2
    b. In foreign offices, Edge and Agreement subsidiaries, and IBFs                           RCFN
       (from Schedule RC-E, part II)                                                           2200          7,422,159 13.b
       (1) Noninterest-bearing                                                6631     13,469                          13.b.1
       (2) Interest-bearing                                                   6636  7,408,690  RCFD                    13.b.2
14. Federal funds purchased and securities sold under agreements to repurchase                 2800         10,285,656 14
15. Trading liabilities (from Schedule RC-D)                                                   3548             39,084 15
16. Other borrowed money (includes mortgage indebtedness and obligations
    under capitalized leases) (from Schedule RC-M):                                            3190          6,242,232 16
17. Not applicable
18. Bank's liability on acceptances executed and outstanding                                   2920              3,621 18
19. Subordinated notes and debentures(2)                                                       3200                  0 19
20. Other liabilities (from Schedule RC-G)                                                     2930          1,217,714 20
21. Total liabilities (sum of items 13 through 20)                                             2948         45,722,741 21
22. Minority interest in consolidated subsidiaries                                             3000                  0 22
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus                                              3838                  0 23
24. Common stock                                                                               3230            100,000 24
25. Surplus (exclude all surplus related to preferred stock)                                   3839          1,658,434 25
26. a. Retained earnings                                                                       3632          1,455,881 26.a
    b. Accumulated other comprehensive income (3)                                              B530             34,982 26.b
27. Other equity capital components (4)                                                        A130                  0 27
28. Total equity capital (sum of items 23 through 27)                                          3210          3,249,297 28
29. Total liabilities, minority interest, and equity capital (sum of items 21, 22, and 28)     3300         48,972,038 29

Memorandum
 To be reported only with the March Report of Condition.
 1. Indicate in the box at the right the number of the statement below that best describes the
    most comprehensive level of auditing
    work performed for the bank by independent external                                        RCFD            Number
    auditors as of any date during 2000                                                        6724                 2  M.1
</TABLE>

1 = Independent audit of the bank conducted in accordance with generally
    accepted auditing standards by a certified public accounting firm which
    submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
    accordance with generally accepted auditing standards by a certified public
    accounting firm which submits a report on the consolidated holding company
    (but not on the bank separately)
3 = Attestation on bank management's assertion on the effectiveness of the
    bank's internal control over financial reporting by a certified public
    accounting firm
4 = Directors' examination of the bank conducted in accordance with generally
    accepted auditing standards by a certified public accounting firm (may be
    required by state chartering authority)
5 = Directors' examination of the bank performed by other external auditors (may
    be required by state chartering authority)
6 = Review of the bank's financial statements by external auditors
7 = Compilation of the bank's financial statements by external auditors
8 = Other audit procedures (excluding tax preparation work)
9 = No external audit work

--------------
(1) Includes total demand deposits and noninterest-bearing time and savings
    deposits.
(2) Includes limited-life preferred stock and related surplus.
(3) Includes net unrealized holding gains (losses) on available-for-sale
    securities, accumulated net gains (losses) on cash flow hedges, cumulative
    foreign currency translation adjustments, and minimum pension liability
    adjustments.
(4) Includes treasury stock and unearned Employee Stock Ownership Plan shares.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
---------------------------------------                               RC-3
Legal Title of Bank

FDIC Certificate Number - 05208                                         13

Schedule RC-A--Cash and Balances Due From Depository Institutions

Exclude assets held for trading.
<TABLE>
<CAPTION>
                                                                                   (Column A)             (Column B)
                                                                                  Consolidated             Domestic
                                                 Dollar Amounts in Thousands          Bank                  Offices
---------------------------------------------------------------------------------------------------------------------------
                                                                              RCFD Bil  Mil   Thou     RCON Bil   Mil Thou
<S>                                                                          <C>      <C>    <C>       <C>  <C>  <C>   <C>
1. Cash items in process of collection, unposted debits, and currency and
   coin                                                                       0022     1,638,992                           1
   a. Cash items in process of collection and unposted debits                                          0020    1,527,519   1.a
   b. Currency and coin                                                                                0080      111,473   1.b
2. Balance due from depository institutions in the U.S.                                                0082      189,180   2
   a. U.S. branches and agencies of foreign banks (including their IBFs)      0083             0                           2.a
   b. Other commercial banks in the U.S. and other depository institutions
      in the U.S. (including their IBFs)                                      0085       189,274                           2.b
3. Balances due from banks in foreign countries and foreign central banks     0070        9,5543
   a. Foreign branches of other U.S. banks                                    0073             0                           3.a
   b. Other banks in foreign countries and foreign central banks              0074         9,554                           3.b
4. Balances due from Federal Reserve Banks                                    0090        10,512       0090       10,512   4
5. Total (sum of items 1 through 4) (total of column A must equal
   Schedule RC, sum of items 1.a and 1.b)                                     0010     1,848,332       0010    1,848,238   5
</TABLE>

Schedule RC-B--Securities

Exclude assets held for trading.
<TABLE>
<CAPTION>

                                                           Held-to-maturity                  Available-for-sale
                                                         (Column A)        (Column B)        (Column C)          (Column D)
                                                     Amortized Cost        Fair Value      Amortized Cost        Fair Value
                Dollar Amounts in Thousands      RCFD Bil Mil Thou  RCFD Bil  Mil Thou RCFD Bil  Mil Thou RCFD Bil Mil Thou
---------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>  <C> <C> <C>   <C>       <C> <C>  <C>  <C>  <C>  <C> <C> <C>  <C> <C>   <C>
1. U.S. Treasury securities                      0211         0     0213          0    1286      315,476  1287      327,397  1
2. U.S. Government agency obligations
   (exclude mortgage-backed securities):
   a. Issued by U.S. Government agencies (1)     1289         0     1290          0    1291          668  1293          729  2.a
   b. Issued by U.S. Government-sponsored
      agencies (2)                               1294         0     1295          0    1297       70,195  1298       72,117  2.b
3. Securities issued by states and
   political subdivisions in the U.S.            8496         0     8497          0    8498      199,299  8499      210,731  3
</TABLE>
----------
(1)  Includes Small Business Administration 'Guaranteed Loan Pool Certificates,'
     U.S. Maritime Administration obligations, and Export - Import Bank
     participation certificates.
(2)  Includes obligations (other than mortgage-backed securities) issued by the
     Farm Credit System, the Federal Home Loan Bank System, The Federal Home
     Loan Mortgage Corporation, the Federal National Mortgage Association, the
     Financing Corporation, Resolution Funding Corporation, the Student Loan
     Marketing Association, and the Tennessee Valley Authority.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                  FFIEC 031
---------------------------------------                           RC-4
Legal Title of Bank

FDIC Certificate Number - 05208                                      14

Schedule RC-B--Continued

<TABLE>
<CAPTION>
                                                            Held-to-maturity                    Available-for-sale
                                                        (Column A)            (Column B)      (Column C)          (Column D)
                     Dollar Amounts in Thousands      Amortized Cost          Fair Value    Amortized Cost        Fair Value
----------------------------------------------------------------------------------------------------------------------------
                                                   RCFD Bil Mil Thou RCFD Bil  Mil  Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
<S>                                                <C>  <C> <C> <C>  <C>  <C>  <C>  <C>  <C>  <C> <C> <C>  <C>  <C> <C> <C>   <C>
4. Mortgage-backed securities (MBS):
   a. Pass-through securities:
        (1) Guaranteed by GNMA                     1698          0   1699            0   1701     301,196  1702      305,096  4.a.1
        (2) Issued by FNMA and FHLMC               1703          0   1705            0   1706     664,774  1707      681,023  4.a.2
        (3) Other pass-through securities          1709          0   1710            0   1711           0  1713            0  4.a.3
     b. Other mortgage-backed securities (include
        CMOs, REMICs and stripped MBS):
        (1) Issued or guaranteed by FNMA,
            FHLMC, or GNMA                         1714          0   1715            0   1716       6,057  1717        6,119  4.b.1
        (2) Collateralized by MBS issued or
            guaranteed by FNMA, FHLMC, or
            GNMA                                   1718          0   1719            0   1731         504  1732          503  4.b.2
        (3) All other mortgage-backed
            securities                             1733          0   1734            0   1735      15,653  1736       16,661  4.b.3
5. Asset-backed securities (ABS):
     a. Credit card receivables                    B838          0   B839            0   B840           0  B841            0  5.a
     b. Home equity lines                          B842          0   B843            0   B844           0  B845            0  5.b
     c. Automobile loans                           B846          0   B847            0   B848           0  B849            0  5.c
     d. Other consumer loans                       B850          0   B851            0   B852       6,267  B853        6,604  5.d
     e. Commercial and industrial loans            B854          0   B855            0   B856       1,364  B857        1,438  5.e
     f. Other                                      B858          0   B859            0   B860           0  B861            0  5.f
6. Other debt securities:
     a. Other domestic debt securities             1737          0   1738            0   1739     337,210  1741      350,032  6.a
     b. Foreign debt securities                    1742          0   1743            0   1744           0  1746            0  6.b
7. Investments in mutual funds and
   other equity securities with
   readily determinable fair values (1)                                                  A510      31,136  A511       29,023  7
8. Total (sum of items 1 through 7) (total of
   Column A must equal Schedule RC item 2.a)
   (total of column D must equal Schedule RC,
   item 2.b)                                       1754          0   1771            0   1772   1,949,799  1773    2,007,473  8
</TABLE>
----------
(1)  Report Federal Reserve stock, Federal Home Loan Bank stock, and banker's
     bank stock in Schedule RC-F, item 4.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                    FFIEC 031
---------------------------------------                               RC-5
Legal Title of Bank

FDIC Certificate Number - 05208                                        15

Schedule RC-B--Continued

<TABLE>
<CAPTION>

 Memoranda                                                            Dollar Amounts in Thousands        RCFD Bil Mil Thou
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                      <C>  <C> <C> <C>   <C>
1. Pledged securities (1)                                                                                 0416    312,219   M.1
2. Maturity and repricing data for debt securities (1, 2) (excluding those in nonaccrual status):
   a. Securities issued by the U.S. Treasury, U.S. Government agencies, and states
      and political subdivisions in the U.S.; other non-mortgage debt securities; and
      mortgage pass-through securities other than those backed by closed-end
      first lien 1-4 family residential mortgages with a remaining maturity or next repricing
      date of: (3,4)
     (1) Three months or less                                                                             A549      5,562   M.2.a.1
     (2) Over three months through 12 months                                                              A550    190,558   M.2.a.2

     (3) Over one year through three years                                                                A551    204,522   M.2.a.3

     (4) Over three years through five years                                                              A552    103,895   M.2.a.4

     (5) Over five years through 15 years                                                                 A553    336,745   M.2.a.5

     (6) Over 15 years                                                                                    A554    127,766   M.2.a.6

   b. Mortgage pass-through securities backed by closed-end first lien 1-4 family
      residential mortgages with a remaining maturity or next repricing date of: (3,5)
     (1) Three months or less                                                                             A555      9,211   M.2.b.1
     (2) Over three months through 12 months                                                              A556     24,536   M.2.b.2
     (3) Over one year through three years                                                                A557      1,485   M.2.b.3

     (4) Over three years through five years                                                              A558      7,770   M.2.b.4

     (5) Over five years through 15 years                                                                 A559     23,067   M.2.b.5

     (6) Over 15 years                                                                                    A560    920,050   M.2.b.6
   c. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS;
      exclude mortgage pass-through securities) with an expected average life of: (6)
     (1) Three years or less                                                                              A561      3,787   M.2.c.1
     (2) Over three years                                                                                 A562     19,496   M.2.c.2

   d. Debt securities with a REMAINING MATURITY of one
      year or less (included in Memorandum items 2.a through 2.c above)                                   A248    196,289   M.2.d
3. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or
   trading securities during the calendar year-to-date (report the amortized cost at date
   of sale or transfer)                                                                                   1778          0   M.3
4. Structured notes (included in the held-to-maturity and available-for-sale accounts in
   Schedule RC-B, items 2, 3, 5, and 6):
   a. Amortized cost                                                                                      8782          0   M.4.a
   b. Fair value                                                                                          8783          0   M.4.b
</TABLE>
----------
(1)  Includes held-to-maturity securities at amortized cost and
     available-for-sale securities at fair value.
(2)  Exclude investments in mutual funds and other equity securities with
     readily determinable fair values.
(3)  Report fixed rate debt securities by remaining maturity and floating rate
     debt securities by next repricing date.
(4)  Sum of Memorandum items 2.a.(1) through 2.a.(6) plus any nonaccrual debt
     securities in the categories of debt securities reported in Memorandum item
     2.a that are included in Schedule RC-N, item 9, column C, must equal
     Schedule RC-B, sum of items 1, 2, 3, 5, and 6, columns A and D, plus
     mortgage pass-through securities other than those backed by closed-end
     first lien 1-4 family residential mortgages included in Schedule RC-B, item
     4.a, columns A and D.
(5)  Sum of Memorandum items 2.b.(1) through 2.b.(6) plus any nonaccrual
     mortgage pass-through securities backed by closed-end first lien 1-4 family
     residential mortgages included in Schedule RC-N, item 9, column C, must
     equal Schedule RC-B, item 4.a, sum of columns A and D, less the amount of
     mortgage pass-through securities other than those backed by closed-end
     first lien 1-4 family residential mortgages included in Schedule RC-B, item
     4.a, columns A and D.
(6)  Sum of Memorandum items 2.c.(1) and 2.c.(2) plus any nonaccrual "Other
     mortgage-backed securities" included in Schedule RC-N, item 9, column C,
     must equal Schedule RC-B, item 4.b, sum of columns A and D.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                  FFIEC 031
---------------------------------------                             RC-6
Legal Title of Bank

FDIC Certificate Number - 05208                                      16

Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts reported in
this schedule. Report (1) loans and leases held for sale and (2) other loans
and leases, net of unearned income. Report loans and leases net of any
applicable allocated transfer risk reserve. Exclude assets held for trading
and commercial paper.

<TABLE>
<CAPTION>
                                                                                 (Column A)           (Column B)
                                                                                Consolidated           Domestic
                                                                                    Bank               Offices
                                                                             --------------------------------------
                                              Dollar Amounts in Thousands    RCFD Bil Mil Thou    RCON Bil Mil Thou
-------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>  <C> <C> <C>     <C>  <C> <C> <C>    <C>
   1. Loans secured by real estate                                           1410   14,106,650                        1
      a. Construction, land development, and other land loans                                     1415     109,875    1.a
      b. Secured by farmland (including farm residential and other
         improvements)                                                                            1420     110,099    1.b
      c. Secured by 1-4 family residential properties:
          (1) Revolving, open-end loans secured by 1-4 family residential
              properties and extended under lines of credit                                       1797   1,049,904    1.c.1
          (2) Closed-end loans secured by 1-4 family residential properties:
              (a) Secured by first liens                                                          5367  10,941,693    1.c.2.a
              (b) Secured by junior liens                                                         5368   1,116,733    1.c.2.b
      d. Secured by multifamily (5 or more) residential properties                                1460      86,893    1.d
      e. Secured by nonfarm nonresidential properties                                             1480     691,453    1.e
   2. Loans to depository institutions and acceptances of other banks:
      a. To commercial banks in the U.S.                                                          B531   2,728,937    2.a
         (1) To U.S. branches and agencies of foreign banks                  B532            0                        2.a.1
         (2) To other commercial banks in the U.S.                           B533    2,729,077                        2.a.2
      b. To other depository institutions in the U.S.                        B534          220    B534         220    2.b
      c. To banks in foreign countries                                                            B535           0    2.c
         (1) To foreign branches of other U.S. banks                         B536            0                        2.c.1
         (2) To other banks in foreign countries                             B537           24                        2.c.2
   3. Loans to finance agricultural production and other loans to farmers    1590      181,552    1590     181,552    3
   4. Commercial and industrial loans:
      a. To U.S. addressees (domicile)                                       1763    4,639,924    1763   4,639,392    4.a
      b. To non-U.S. addressees (domicile)                                   1764        2,590    1764          76    4.b
   5. Not applicable.
   6. Loans to individuals for household, family, and other personal
      expenditures (i.e., consumer loans) (includes purchased paper):
      a. Credit cards                                                        B538    1,125,286    B538   1,125,286    6.a
      b. Other revolving credit plans                                        B539      362,157    B539     362,157    6.b
      c. Other consumer loans (includes single payment, installment,
         and all student loans                                               2011    1,129,877    2011   1,129,877    6.c
   7. Loans to foreign government and official institutions (including
      foreign central banks)                                                 2081            0    2081           0    7
   8. Obligations (other than securities and leases) of states and political
      subdivisions in the U.S.                                               2107       22,393    2107      22,393    8
   9. Other loans                                                            1563      929,204                        9
      a. Loans for purchasing or carrying securities (secured and unsecured)                      1545     206,104    9.a
      b. All other loans (exclude consumer loans)                                                 1564     723,100    9.b
  10. Lease financing receivables (net of unearned income)                                        2165   2,192,499    10
      a. Of U.S. addressees (domicile)                                       2182    2,192,499                        10.a
      b. Of non-U.S. addressees (domicile)                                   2183            0                        10.b
  11. LESS: Any unearned income on loans reflected in items 1-9 above        2123            0    2123           0    11
  12. Total loans and leases, net of unearned income (sum of items 1
      through 10 minus item 11) (total of column A must equal
      Schedule RC, item 4.a and 4.b)                                         2122   27,421,453    2122  27,418,243    12
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                 FFIEC 031
---------------------------------------                            RC-7
Legal Title of Bank

FDIC Certificate Number - 05208                                     17

Schedule RC-C--Continued

Part I. Continued
<TABLE>
<CAPTION>

Memoranda                                                    Dollar Amounts in Thousands   RCFD Bil Mil Thou
-------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>  <C> <C> <C>     <C>

1. Loans and Leases restructured and in compliance with modified terms (included
   in Schedule RC-C, part I, and not reported as past due or nonaccrual in
   Schedule RC-N, Memorandum item 1) (exclude loans secured by 1-4 family
   residential properties and loans to individuals for
   household, family, and other personal expenditures)                                     1616              0  M.1
2. Maturity and repricing data for loans and leases (excluding those in nonaccrual
   status):
   a. Closed-end loans secured by first liens on 1-4 family residential properties in
      domestic offices (reported in Schedule RC-C, part I, item 1.c.(2)(a), column B)
      with a remaining maturity or next repricing date of: (1, 2)                          RCON
     (1) Three months or less                                                              A564      9,117,607  M.2.a.1
     (2) Over three months through 12 months                                               A565        740,423  M.2.a.2
     (3) Over one year through three years                                                 A566         41,227  M.2.a.3
     (4) Over three years through five years                                               A567         60,015  M.2.a.4
     (5) Over five years through 15 years                                                  A568        475,875  M.2.a.5
     (6) Over 15 years                                                                     A569        499,732  M.2.a.6
   b. All loans and leases (reported in Schedule RC-C, part I, items 1 through 10, column
      A) EXCLUDING closed-end loans secured by first liens on 1-4 family residential
      properties in domestic offices (reported in Schedule RC-C, part I item
      1.c.(2)(a), column B) with a remaining maturity or next repricing date of:
      (1,3)                                                                                RCFD
     (1) Three months or less                                                              A570      8,104,386  M.2.b.1
     (2) Over three months through 12 months                                               A571      2,274,416  M.2.b.2
     (3) Over one year through three  years                                                A572      2,347,267  M.2.b.3
     (4) Over three years through five years                                               A573      1,460,398  M.2.b.4
     (5) Over five years through 15 years                                                  A574      1,340,413  M.2.b.5
     (6) Over 15 years                                                                     A575        776,421  M.2.b.6
   c. Loans and leases (reported in Schedule RC-C, part I, items 1 through 10, column A)
     with a REMAINING MATURITY of one year or less (excluding those in nonaccrual status)  A247     15,509,866  M.2.c
3. Loans to finance commercial real estate, construction, and
   land development activities (not secured by real estate)
   included in Schedule RC-C,  part I, items 4 and 9, column A (4)                         2746              0  M.3
4. Adjustable rate closed-end loans secured by first liens on
   1-4 family residential properties in domestic offices                                   RCON
   (included in Schedule RC-C, part I, item 1.c.(2)(a), column B)                          5370      2,561,997  M.4
5. Loans secured by real estate to non-U.S. addresses (domicile) (included in              RCFD
   Schedule RC-C, part I, item 1, column A)                                                B837              0  M.5
</TABLE>
----------
(1)  Report fixed rate loans and leases by remaining maturity and floating rate
     loans by next repricing date.
(2)  Sum of Memorandum items 2.a.(1) through 2.a.(6) plus total nonaccrual
     closed-end loans secured by first liens on 1-4 family residential
     properties in domestic offices included in Schedule RC-N, item 1.c.(2),
     column C must equal total closed-end loans secured by first liens on 1-4
     family residential properties from Schedule RC-C, part I, item
     1.c.(2)(a), column B
(3)  Sum of Memorandum items 2.b.(1) through 2.b.(6) plus total nonaccrual loans
     and leases from Schedule RC-N, sum of items 1 through 8, column C, minus
     nonaccrual closed-end loans secured by first liens on 1-4 family
     residential properties in domestic offices included in Schedule RC-N, item
     1.c.(2), column C, must equal total loans and leases from Schedule RC-C,
     Part I, sum or items 1 through 10, column A, minus total closed-end loans
     secured by first liens on 1-4 family residential properties in domestic
     offices from Schedule RC-C, part I, item 1.c.(2)(a), column B.
(4)  Exclude loans secured by real estate that are included in Schedule RC-C,
     part I, item 1, column A.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                   FFIEC 031
---------------------------------------                            RC-8
Legal Title of Bank

FDIC Certificate Number - 05208                                       18

Schedule RC-D--Trading Assets and Liabilities

Schedule RC-D is to be completed by banks that reported average trading assets
(Schedule RC-K, item 7) of $2 million or more for any quarter of the preceding
year.

<TABLE>
<CAPTION>

                                                                Dollar Amounts in Thousands           RCON Bil Mil Thou
-------------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                                                   <C>  <C> <C> <C>     <C>
1.  U.S. Treasury securities in domestic offices                                                      3531             0   1
2.  U.S. Government agency obligations in domestic offices (exclude mortgage-
    backed securities)                                                                                3532             0   2
3.  Securities issued by states and political subdivisions in the U.S. in domestic offices            3533             0   3
4.  Mortgage-backed securities (MBS) in domestic offices:
    a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA                           3534         3,691   4.a
    b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA
       (include CMOs, REMICs, and stripped MBS)                                                       3535             0   4.b
    c. All other mortgage-backed securities                                                           3536             0   4.c
5.  Other debt securities in domestic offices                                                         3537             0   5
6.  - 8. Not applicable
9.  Other trading assets in domestic offices                                                          3541             0   9
                                                                                                      RCFN
10. Trading assets in foreign offices                                                                 3542             0  10
11. Revaluation gains on interest rate, foreign exchange rate,
    and other commodity and equity contracts:                                                         RCON
    a. In domestic offices                                                                            3543        20,481  11.a
                                                                                                      RCFN
    b. In foreign offices                                                                             3543             0  11.b
                                                                                                      RCFD
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5)                 3545        24,172  12
<CAPTION>
LIABILITIES                                                                                            RCFD Bil Mil Thou
<S>                                                                                                   <C>  <C> <C> <C>     <C>
13. Liability for short positions                                                                     3546             0  13
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity
    contracts                                                                                         3547        39,084  14
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15)              3548        39,084  15
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-9
Legal Title of Bank

FDIC Certificate Number - 05208                                         19

Schedule RC-E--Deposit Liabilities

Part I. Deposits in Domestic Offices
<TABLE>
<CAPTION>

                                                                                                Nontransaction
                                                                     Transaction Accounts           Accounts

                                                                (Column A)       (Column B)        (Column C)
                                                                  Total         Memo: Total          Total
                                                               transaction        demand         nontransaction
                                                                accounts         deposits           accounts
                                                            (including total   (included in       (including
                                                            demand deposits)     column A)           MMDAs)
                            Dollar Amounts in Thousands   RCON Bil Mil Thou  RCON Bil Mil Thou  RCON Bil Mil Thou
-----------------------------------------------------------------------------------------------------------------
Deposits of:
<S>                                                       <C>  <C> <C> <C>   <C>  <C> <C> <C>   <C>  <C> <C> <C>  <C>
1. Individuals, partnerships and corporations
   (include all certified and official checks)             B549     2,042,070                   B550  18,046,893  1
2. U.S. Government                                         2202         9,907                   2520           0  2
3. States and political subdivisions in the U.S.           2203        80,583                   2530     208,993  3
4. Commercial banks and other depository
   institutions in the U.S.                                B551       115,813                   B552           0  4
5. Banks in foreign countries                              2213         8,016                   2236           0  5
6. Foreign governments, and official institutions
   (including foreign central banks)                       2216             0                   2377           0  6
7. Total (sum of items 1 through 6) (sum of
   columns A and C must equal Schedule RC,
   item 13.a)                                              2215     2,256,389  2210  2,052,411  2385  18,255,886  7
<CAPTION>
Memoranda                                                      Dollar Amounts in Thousands       RCON   Bil  Mil  Thou
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>    <C>  <C>  <C>   <C>
1. Selected components of total deposits (i.e., sum of item 7, columns A and C):
   a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts                         6835         531,620  M.1.a
   b. Total brokered deposits                                                                     2365               0  M.1.b
   c. Fully insured brokered deposits (included in Memorandum item 1.b above):
      (1) Issued in denominations of less than $100,000                                           2343               0  M.1.c.1
      (2)Issued either in denominations of $100,000 or in denominations greater
        than $100,000 and participated out by the broker in shares of $100,000 or less            2344               0  M.1.c.2
   d. Maturity data for brokered deposits:
      (1) Brokered deposits issued in denominations of less than $100,000 with a remaining
          maturity of one year or less (included in Memorandum item 1.c.(1) above)                A243               0  M.1.d.1
      (2) Brokered deposits issued in denominations of $100,000 or more with a remaining
          maturity of one year or less (included in Memorandum item 1.b above)                    A244               0  M.1.d.2
   e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S.
      reported in item 3 above which are secured or collaterlized as required under state law)
      (to be completed for the December report only)                                              5590             N/A  M.1.e
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.c
   must equal item 7, column C, above):
   a. Savings deposits:
      (1) Money market deposit accounts (MMDAs)                                                   6810       4,529,385  M.2.a.1
      (2) Other savings deposits (excludes MMDAs)                                                 0352      11,429,029  M.2.a.2
   b. Total time deposits of less than $100,000                                                   6648       1,979,881  M.2.b
   c. Total time deposits of $100,000 or more                                                     2604         317,591  M.2.c
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                    FFIEC 031
---------------------------------------                             RC-10
Legal Title of Bank

FDIC Certificate Number - 05208                                        20

Schedule RC-E--Continued

Part I. Continued
<TABLE>
<CAPTION>

Memoranda (continued)                                                  Dollar Amounts in Thousands     RCON  Bil Mil Thou
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>   <C> <C> <C>   <C>
3. Maturity and repricing data for time deposits of less than $100,000:
   a. Time deposits of less than $100,000 with a remaining maturity or next repricing date of (1,2)
      (1) Three months or less                                                                          A579      493,612  M.3.a.1
      (2) Over three months through 12 months                                                           A580      759,719  M.3.a.2
      (3) Over one year through three years                                                             A581      591,938  M.3.a.3
      (4) Over three years                                                                              A582      134,612  M.3.a.4
   b. Time deposits of less than $100,000 with a REMAINING MATURITY
      of one year or less (included in Memorandum items 3.a.(1) through 3.a.(4)above)(3)                A241    1,253,331  M.3.b
4. Maturity and repricing data for time deposits of $100,000 or more:
   a. Time deposits of $100,000 or more with a remaining maturity or next repricing date of (1,4)
      (1) Three months or less                                                                          A584      115,930  M.4.a.1
      (2) Over three months through 12 months                                                           A585      116,841  M.4.a.2
      (3) Over one year through three years                                                             A586       54,833  M.4.a.3
      (4) Over three years                                                                              A587       29,987  M.4.a.4
   b. Time deposits of $100,000 or more with a REMAINING MATURITY
      of one year or less (included in Memorandum items 4.a.(1) through 4.a.(4) above)(3)               A242      232,771  M.4.b
</TABLE>
----------
(1)  Report fixed rate time deposits by remaining maturity and floating rate
     time deposits by next repricing date.
(2)  Sum of Memorandum items 3.a.(1) through 3.a.(4) must equal Schedule RC-E
     Memorandum item 2.b.
(3)  Report both fixed and floating rate time deposits by remaining maturity.
     Exclude floating rate time deposits with a next repricing date of one year
     or less that have a remaining maturity of over one year.
(4)  Sum of Memorandum items 4.a.(1) through 4.a.(4) must equal Schedule RC-E,
     Memorandum item 2.c.

 Part II. Deposits in Foreign Offices (including Edge and
 Agreement subsidiaries and IBFs)

<TABLE>
<CAPTION>

                                                                Dollar Amounts in Thousands       RCFN Bil Mil Thou
--------------------------------------------------------------------------------------------------------------------
Deposits of:
<S>                                                                                               <C>   <C>           <C>
1. Individuals, partnerships, and corporations (include all certified and official checks)         B553   2,449,927     1
2. U.S. banks (including IBFs and foreign branches of U.S. banks) and other U.S.
   depository institutions                                                                         B554   4,969,118     2
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs)     2625       3,114     3
4. Foreign governments and official institutions (including foreign central banks)                 2650           0     4
5. U.S. Government and states and political subdivisions in the U.S.                               B555           0     5
6. Total (sum of items 1 through 5 ) (must equal Schedule RC, item 13.b)                           2200   7,422,159     6
<CAPTION>
Memorandum Dollar Amounts in Thousands                                                            RCFN Bil Mil Thou
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>   <C>           <C>
1. Time deposits with a remaining maturity of one year or less
   (included in Part II, item 6 above)                                                             A245   7,408,690     M.1
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                 FFIEC 031
---------------------------------------                          RC-11
Legal Title of Bank

FDIC Certificate Number - 05208                                     21

Schedule RC-F--Other Assets

<TABLE>
<CAPTION>

                                                           Dollar Amounts in Thousands  RCFD Bil  Mil  Thou
------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>  <C>  <C>  <C>     <C>
1. Accrued interest receivable (1)                                                       B556        197,526   1
2. Net deferred tax assets (2)                                                           2148              0   2
3. Interest-only strips receivable (not in the form of a security) (3) on:
   a. Mortgage loans                                                                     A519              0   3.a
   b. Other financial assets                                                             A520              0   3.b
4. Equity securities that DO NOT have readily determinable fair values (4)               1752        323,832   4
5. Other (itemize and describe amounts greater than $25,000 that exceed 25% of this
   item)                                                                                 2168        541,113   5
<CAPTION>
              TEXT
     <S>  <C>                                                      <C>        <C>       <C>  <C>  <C>  <C>     <C>
     a.   2166  Prepaid expenses                                   2166              0                          5.a
     b.   C009  Cash surrender value of life insurance             C009        241,672                          5.b
     c.   1578  Repossessed personal property (including vehicles) 1578              0                          5.c
     d.   C010  Deriviatives with a positive fair value held for
                purposes other than trading                        C010              0                          5.d
     e.   3549                                                     3549              0                          5.e
     f.   3550                                                     3550              0                          5.f
     g.   3551                                                     3551              0                          5.g
6. Total (sum of items 1 through 5) (must equal Schedule RC, item 11)                    2160      1,062,471    6
</TABLE>

Schedule RC-G--Other Liabilities

<TABLE>
<CAPTION>

                                                                Dollar Amounts in Thousands RCON Bil Mil Thou
--------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>  <C> <C> <C>     <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(5)                           3645     58,665   1.a
   b. Other expenses accrued and unpaid (includes accrued income taxes                        RCFD
      payable)                                                                                 3646    784,082   1.b
2. Net deferred tax liabilities (2)                                                            3049    341,275   2
3. Allowance for credit losses on off-balance sheet credit exposures                           B557          0   3
4. Other (itemize and describe amounts greater than $25,000 that exceed 25% of this
   item)                                                                                       2938     33,692   4
<CAPTION>
              TEXT

    <S>  <C>                                                        <C>           <C> <C>   <C>  <C> <C> <C>     <C>
     a.  3066 Accounts payable                                      3066          0   4.a
     b.  C011 Deferred compensation liabilities                     C011          0   4.b
     c.  2932 Dividends declared but not yet payable                2932          0   4.c
     d.  C012 Derivatives with a negative fair value held for
              purposes other than trading                           C012          0   4.d
     e.  3552                                                       3552          0   4.e
     f.  3553                                                       3553          0   4.f
     g.  3554                                                       3554          0   4.g
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20)                          2930  1,217,714   5
</TABLE>
----------
(1)  Include accrued interest receivable on loans, leases, debt securities, and
     other interest-bearing assets.
(2)  See discussion of deferred income taxes in Glossary entry on "income
     taxes."
(3)  Report interest-only strips receivable in the form of a security as
     available-for sale securities in Schedule RC, item 2.b, or as trading
     assets in Schedule RC, item 5, as appropriate.
(4)  Include Federal Reserve stock, Federal Home Loan Bank stock, and bankers'
     bank stock
(5)  For savings banks, includes "dividends" accrued and unpaid on deposits.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                FFIEC 031
---------------------------------------                         RC-12
Legal Title of Bank

FDIC Certificate Number - 05208                                    22

Schedule RC-H--Selected Balance Sheet Items for Domestic Offices

<TABLE>
<CAPTION>

                                                                                                 Domestic
                                                                                                  Offices
                                                                                           -------------------
                                                             Dollar Amounts in Thousands   RCON Bil  Mil  Thou
---------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C> <C>  <C>  <C>    <C>
1. Customers' liability to this bank on acceptances outstanding                             2155              0  1
2. Bank's liability on acceptances executed and outstanding                                 2920              0  2
3. Federal funds sold and securities purchased under agreements to resell                   1350     16,566,668  3
4. Federal funds purchased and securities sold under agreements to repurchase               2800     10,285,656  4
5. Other borrowed money                                                                     3190      6,231,824  5
   EITHER
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs              2163            N/A  6
   OR
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs                2941      7,512,550  7
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries,
   and IBFs)                                                                                2192     48,951,568  8
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement
   subsidiaries, and IBFs                                                                   3129     38,189,721  9
<CAPTION>
In items 10-17 report the amortized (historical) cost of both held-to-maturity
and available-for-sale securities in domestic offices.                                         RCON Bil  Mil Thou
<S>                                                                                         <C> <C>  <C>  <C>    <C>
10. U.S. Treasury securities                                                                1039        315,476  10
11. U.S. Government agency obligations (exclude mortgage-backed securities)                 1041         70,863  11
12. Securities issued by states and political subdivisions in the U.S.                      1042        199,299  12
13. Mortgage-backed securities (MBS):
     a. Pass-through securities:
        (1) Issued or guaranteed by FNMA, FHLMC, or GNMA                                    1043        965,970  13.a.1
        (2) Other pass-through securities                                                   1044              0  13.a.2
     b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS):
        (1) Issued or guaranteed by FNMA, FHLMC, or GNMA                                    1209          6,057  13.b.1
        (2) All other mortgage-backed securities                                            1280         16,157  13.b.2
14. Other domestic debt securities (include domestic asset-backed securities)               1281        344,841  14
15. Foreign debt securities (include foreign asset-backed securities)                       1282              0  15
16. Investments in mutual funds and other equity securities with readily determinable
    fair values                                                                             A510         31,136  16
17. Total amortized (historical) cost of both held-to-maturity and available-for-sale
    secutities (sum of items 10 through 16)                                                 1374      1,949,799  17
18. Equity securities that do not have readily determinable fair values                     1752        323,832  18
</TABLE>

Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
                                                              Dollar Amounts in Thousands   RCFN Bil Mil Thou
----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>  <C> <C> <C>     <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)            2133             0   1
2. Total IBF liabilities (component of Schedule RC, item 21)                                2898             0   2
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                FFIEC 031
---------------------------------------                         RC-13
Legal Title of Bank

FDIC Certificate Number - 05208                                    23

Schedule RC-K--Quarterly Averages (1)

<TABLE>
<CAPTION>
                                                              Dollar Amounts in Thousands     RCFD Bil Mil Thou
---------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                                           <C>  <C> <C> <C>    <C>
1.  Interest-bearing balances due from depository institutions                                 3381      29,637   1
2.  U.S. Treasury securities and U.S. Government agency obligations (2)
    (excluding mortgage-backed securities)                                                     B558     401,234   2
3.  Mortgage-backed securities (2)                                                             B559     994,436   3
4.  All other securities (2, 3)(includes securities issued by states and political
    subdivisions in the U.S.)                                                                  B560     460,591   4
5.  Federal funds sold and securities purchased under agreements to resell                     3365  18,812,557   5
6.  Loans:
    a. Loans in domestic offices:                                                              RCON
       (1) Total loans                                                                         3360  25,498,931   6.a.1
       (2) Loans secured by real estate                                                        3385  14,119,545   6.a.2
       (3) Loans to finance agricultural production and other loans to farmers                 3386     177,912   6.a.3
       (4) Commercial and industrial loans                                                     3387   5,182,273   6.a.4
       (5) Loans to individuals for household, family, and other personal expenditures:
           (a) Credit cards                                                                    B561   1,137,642   6.a.5.a
           (b) Other (includes single payment, installment, all student loans, and revolving
               credit plans other than credit cards)                                           B562   1,707,040   6.a.5.b
                                                                                               RCFN
    b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs               3360       4,239   6.b
                                                                                               RCFD
7.  Trading assets                                                                             3401       3,894   7
8.  Lease financing receivables (net of unearned income)                                       3484   2,169,918   8
9.  Total assets(4)                                                                            3368  51,358,157   9
<CAPTION>
LIABILITIES
<S>                                                                                           <C>  <C> <C> <C>    <C>
10. Interest-bearing transaction accounts in domestic (NOW accounts, ATS accounts,             RCON
    and telephone and preauthorized transfer accounts) (exclude demand deposits)               3485     250,604   10
11. Nontransaction accounts in domestic offices:
    a. Savings deposits (includes MMDAs)                                                       B563  13,728,713   11.a
    b. Time deposits of $100,000 or more                                                       A514     324,996   11.b
    c. Time deposits of less than $100,000                                                     A529   2,026,108   11.c
                                                                                               RCFN
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs    3404   8,581,843   12
                                                                                               RCFD
13. Federal funds purchased and securities sold under agreements to repurchase                 3353  11,806,612   13
14. Other borrowed money
    (includes mortgage indebtedness and obligations under capitalized leases)                  3355   6,748,439   14
</TABLE>

----------
(1)  For all items, banks have the option of reporting either (1) an average of
     DAILY figures for the quarter, or (2) an average of WEEKLY figures (i.e.,
     the Wednesday of each week of the quarter).
(2)  Quarterly averages for all debt securities should be based on amortized
     cost.
(3)  Quarterly averages for all equity securities should be based on historical
     cost.
(4)  The quarterly averages for total assets should reflect all debt securities
     (not held for trading) at amortized cost, equity securities with readily
     determinable fair values at the lower of cost or fair value, and equity
     securities without readily determinable fair values at historical cost.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                FFIEC 031
---------------------------------------                         RC-14
Legal Title of Bank

FDIC Certificate Number - 05208                                    24

Schedule RC-L--Derivatives and Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.

<TABLE>
<CAPTION>
                                                              Dollar Amounts in Thousands      RCFD Bil Mil Thou
----------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>  <C> <C> <C>   <C>
1. Unused commitments:
   a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home
      equity lines                                                                              3814    865,785   1.a
   b. Credit card lines                                                                         3815          0   1.b
   c. Commercial real estate, construction, and land development:
      (1) Commitments to fund loans secured by real estate                                      3816     84,743   1.c.1
      (2) Commitments to fund loans not secured by real estate                                  6550          0   1.c.2
   d. Securities underwriting                                                                   3817          0   1.d
   e. Other unused commitments                                                                  3818  2,384,454   1.e
2. Financial standby letters of credit and foreign office guarantees                            3819    346,147   2
   a. Amount of financial standby letters of credit conveyed to others    3820     31,349                         2.a
3. Performance standby letters of credit and foreign office guarantees                          3821    247,036   3.
   a. Amount of performance standby letters of credit conveyed to others  3822      1,631                         3.a
4. Commercial and similar letters of credit                                                     3411     56,205   4
5. To be completed by banks with $100 million or more in total assets:
   Participations in acceptances (as described in the instructions) conveyed
   to others by the reporting bank                                                              3428          0   5
6. Securities lent (including customers' securities lent where the customer is indemnified
   against loss by the reporting bank)                                                          3433  4,546,381   6
7. Notional amount of credit derivatives:
   a. Credit derivatives on which the reporting bank is the guarantor                           A534          0   7.a
   b. Credit derivatives on which the reporting bank is the beneficiary                         A535          0   7.b
8. Spot foreign exchange contracts                                                              8765     45,838    8
9. All other off-balance sheet liabilities (exclude derivatives) (itemize and
   describe each component of this item over 25% of Schedule RC, item 28,
   "Total equity capital")                                                                      3430  5,245,581    9
<CAPTION>
          TEXT
<S>                                                                       <C>   <C>            <C>  <C> <C> <C>   <C>
    a. 3432 Securities borrowed                                           3432  5,245,581                          9.a
    b. 3434 Commitments to purchase when-issued securities                3434          0                          9.b
    c. 3555                                                               3555          0                          9.c
    d. 3556                                                               3556          0                          9.d
    e. 3557                                                               3557          0                          9.e
10. All other off-balance sheet assets (exclude derivatives)(itemize and describe
    each component of this item over 25% Schedule RC item 28., "Total equity capital")          5591          0    10
<CAPTION>
          TEXT
<S>                                                                       <C>           <C>    <C>  <C> <C> <C>   <C>
     a. 3435 Commitments to sell when-issued securities                   3435          0                          10.a
     b. 5592                                                              5592          0                          10.b
     c. 5593                                                              5593          0                          10.c
     d. 5594                                                              5594          0                          10.d
     e. 5595                                                              5595          0                          10.e
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                   FFIEC 031
---------------------------------------                            RC-15
Legal Title of Bank

FDIC Certificate Number - 05208                                       25

Schedule RC-L--Continued

<TABLE>
<CAPTION>

               Dollar Amounts in Thousands       (Column A)      (Column B)        (Column C)          (Column D)
                                                  Interest        Foreign            Equity             Commodity
           Derivatives Position Indicators          Rate          Exchange         Derivative           and Other
                                                  Contracts       Contracts         Contracts           Contracts
                                                ---------------------------------------------------------------------
<S>                                             <C>           <C>                <C>                <C>                  <C>
11. Gross amounts (e.g., notional amounts)      Bil Mil Thou  Tril Bil Mil Thou  Tril Bil Mil Thou  Tril Bil Mil Thou
    (for each column, sum of items 11.a
    through 11.a must equal sum of items
    12 and 13):                                    RCFD 8693          RCFD 8694          RCFD 8695          RCFD 8696
    a. Futures contracts                                   0                  0                  0                  0    11.a
                                                   RCFD 8697          RCFD 8698          RCFD 8699          RCFD 8700
    b. Forward contracts                                   0            134,225                  0                  0    11.b
    c. Exchange-traded option contracts:           RCFD 8701          RCFD 8702          RCFD 8703          RCFD 8704
       (1) Written options                                 0                  0                  0                  0    11.c.1
                                                   RCFD 8705          RCFD 8706          RCFD 8707          RCFD 8708
       (2) Purchased options                               0                  0                  0                  0    11.c.2
    d. Over-the-counter option contracts:          RCFD 8709          RCFD 8710          RCFD 8711          RCFD 8712
       (1) Written options                           498,208                  0                  0             40,756    11.d.1
                                                   RCFD 8713          RCFD 8714          RCFD 8715          RCFD 8716
       (2) Purchased options                         547,162                  0                  0             40,213    11.d.2
                                                   RCFD 3450          RCFD 3826          RCFD 8719          RCFD 8720
    e. Swaps                                       1,184,162                  0                  0             50,564    11.e
12. Total gross notional amount of                 RCFD A126          RCFD A127          RCFD 8723          RCFD 8724
    derivative contracts held for trading          2,229,532            134,225                  0            131,533    12
13. Total gross notional amount of
    derivative contracts held for                  RCFD 8725          RCFD 8726          RCFD 8727          RCFD 8728
    purposes other than trading                            0                  0                  0                  0    13
    a. Interest rate swaps where the bank          RCFD A589
       has agreed to pay a fixed rate                      0                                                             13.a
14. Gross fair values of derivative contracts:
    a. Contracts held for trading:                 RCFD 8733          RCFD 8734          RCFD 8735          RCFD 8736
       (1) Gross positive fair value                  18,791              1,691                  0             22,200    14.a.1
                                                   RCFD 8737          RCFD 8738          RCFD 8739          RCFD 8740
       (2) Gross negative fair value                  16,570              2,119                  0             20,395    14.a.2
    b. Contracts held for purposes other than
       trading:                                    RCFD 8741          RCFD 8742          RCFD 8743          RCFD 8744
       (1) Gross positive fair value                       0                  0                  0                  0    14.b.1
                                                   RCFD 8745          RCFD 8746          RCFD 8747          RCFD 8748
       (2) Gross negative fair value                       0                  0                  0                  0    14.b.2
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                              FFIEC 031
---------------------------------------                       RC-16
Legal Title of Bank

FDIC Certificate Number - 05208                                  26

Schedule RC-M--Memoranda

<TABLE>
<CAPTION>
                                                                         Dollar Amounts in Thousands    RCFD Bil  Mil  Thou
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>    <C>     <C>        <C>        <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal
   shareholders, and their related interests as of the report date:
   a. Aggregate amount of all extensions of credit to all executive officers, directors, principal
      shareholders, and their related interests                                                         6164            795   1.a
   b. Number of executive officers, directors, and principal shareholders to whom the amount of
      all extensions of credit by the reporting bank (including extensions of credit to
      related interests) equals or exceeds the lesser of $500,000 or 5 percent                Number
      of total capital as defined for this purpose in agency regulations                 6165      0                          1.b
2. Intangible assets other than goodwill:
   a. Mortgage Servicing Assets                                                                         3164              0   2.a
      (1) Estimated fair value of mortgage servicing assets                              A590      0                          2.a.1
   b. Purchased credit card relationships and nonmortgage servicing assets                              B026              0   2.b
   c. All other identifiable intangible assets                                                          5507          2,960   2.c
   d. Total (sum of items 2.a, 2.b, and 2.c) (must equal Schedule RC, item 10.b)                        0426          2,960   2.d
3. Other real estate owned:
   a. Direct and indirect investments in real estate ventures                                           5372              0   3.a
   b. All other real estate owned:                                                                      RCON
      (1) Construction, land development, and other land loans in domestic offices                      5508              0   3.b.1
      (2) Farmland in domestic offices                                                                  5509             51   3.b.2
      (3) 1-4 family residential properties in domestic offices                                         5510          4,743   3.b.3
      (4) Multifamily (5 or more) residential properties in domestic offices                            5511              0   3.b.4
      (5) Nonfarm nonresidential properties in domestic offices                                         5512            359   3.b.5
                                                                                                        RCFN
      (6) In foreign offices                                                                            5513              0   3.b.6
                                                                                                        RCFD
   c. Total (sum of items 3.a and 3.b) (must equal Schedule RC, item 7)                                 2150          5,153   3.c
4. Investments in unconsolidated subsidiaries and associated companies:
   a. Direct and indirect investments in real estate ventures                                           5374              0   4.a
   b. All other investments in unconsolidated subsidiaries and associated companies                     5375              0   4.b
   c. Total (sum of items 4.a and 4.b) (must equal Schedule RC, item 8)                                 2130              0   4.c
5. Other borrowed money:
   a. Federal Home Loan Bank advances:
      (1) With a remaining maturity of one year or less                                                 2651      4,778,000   5.a.1
      (2) With a remaining maturity of more than one year through three years                           B565        200,000   5.a.2
      (3) With a remaining maturity of more than three years                                            B566        500,000   5.a.3
   b. Other borrowings:
      (1) With a remaining maturity of one year or less                                                 B571        200,000   5.b.1
      (2) With a remaining maturity of more than one year through  three years                          B567        468,852   5.b.2
      (3) With a remaining maturity of more than three years                                            B568         95,380   5.b.3
   c. Total (sum of items 5.a.(1) through 5.b.(3) must equal Schedule RC, item 16)                      3190      6,242,232   5.c

                                                                                                                 YES / NO
6. Does the reporting bank sell private label or third party mutual funds and annuities?                B569        YES       6

                                                                                                        RCFD Bil  Mil  Thou
7. Assets under the reporting bank's management in proprietary mutual funds and annuities               B570              0   7
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                              FFIEC 031
---------------------------------------                       RC-17
Legal Title of Bank

FDIC Certificate Number - 05208                                  27

Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets

<TABLE>
<CAPTION>

                                                                    (Column A)       (Column B)     (Column C)
                                                                     Past due       Past due 90     Nonaccrual
                                                                    30 through 89   days or more
                                                                    days and still    and still
                                                                      accruing         accruing

                                Dollar Amounts in Thousands  RCON Bil  Mil  Thou  RCON Bil  Mil Thou  RCON Bil  Mil  Thou
--------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>    <C>          <C>    <C>        <C>          <C>
1. Loans secured by real estate:
   a. Construction, land development, and other
      land loans in domestic offices                         2759          8,685  2769         1,869  3492            995     1.a
   b. Secured by farmland in domestic offices                3493          3,024  3494           124  3495              0     1.b
   c. Secured by 1-4 family residential
      properties in domestic offices:
      (1) Revolving, open-end loans secured by
          1-4 family residential properties and
          extended under lines of credit                     5398          4,375  5399            99  5400              0     1.c.1
      (2) Closed-end loans secured by
          1-4 family residential properties                  5401         14,511  5402          3,461 5403          6,819     1.c.2
   d. Secured by multifamily (5 or more) residential
      properties in domestic offices                         3499          2,439  3500              0 3501              0     1.d
   e. Secured by nonfarm nonresidential properties
      properties in domestic offices                         3502         13,704  3503          1,154 3504              0     1.e
                                                             RCFN                 RCFN                RCFN
   f. In foreign offices                                     B572              0  B573              0 B574              0     1.f
2. Loans to depository institutions and acceptances
   of other banks:
   a. To U.S. banks and other U.S. depository                RCFD                 RCFD                RCFD
      institutions                                           5377              0  5378              0 5379              0     2.a
   b. To foreign banks                                       5380              0  5381              0 5382              0     2.b
3. Loans to finance agricultural production and
   other loans to farmers                                    1594         15,110  1597            675 1583              0     3
4. Commercial and industrial loans:
   a. To U.S. addressees (domicile)                          1251         72,590  1252          4,420 1253         68,699     4.a
   b. To non-U.S. addressees (domicile)                      1254              0  1255              0 1256              0     4.b
5. Loans to individuals for household, family, and
   other personal expenditures:
   a. Credit cards                                           B575         19,382  B576         16,677 B577              0     5.a
   b. Other (includes single payment, installment,
      all student loans, and revolving
      credit plans other than credit cards)                  B578         23,450  B579         11,455 B580            363     5.b
6. Loans to foreign governments and official
   institutions                                              5389              0  5390              0 5391              0     6
7. All other loans                                           5459         10,394  5460            534 5461              0     7
8. Lease financing receivables:
   a. Of U.S. addressees (domicile)                          1257              0  1258              0 1259        106,397     8.a
   b. Of non-U.S. addressees (domicile)                      1271              0  1272              0 1791              0     8.b
9. Debt securities and other assets (exclude other
   real estate owned and other repossessed assets)           3505              0  3506              0 3507              0     9
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-18
Legal Title of Bank

FDIC Certificate Number - 05208                                         28

Schedule RC-N--Continued

Amounts reported in Schedule RC-N, items 1 through 8, above include guaranteed
and unguaranteed portions of past due and nonaccrual loans and leases. Report in
item 10 below certain guaranteed loans and leases that have already been
included in the amounts reported in items 1 through 8.

<TABLE>
<CAPTION>
                                                                    (Column A)    (Column B)      (Column C)
                                                                     Past due     Past due 90     Nonaccrual
                                                                   30 through 89  days or more
                                                                  days and still    and still
                                                                    accruing        accruing
                                                             ----------------------------------------------------------
                                Dollar Amounts in Thousands  RCFD Bil Mil Thou  RCFD Bil Mil Thou  RCFD Bil Mil Thou
-----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>     <C>         <C>    <C>            <C>   <C>
10. Loans and leases reported in items 1
    through 8 above which are wholly or partially
    guaranteed by the U.S. Government                        5612       11,769  5613        8,390  5614           72    10
    a. Guaranteed portion of loans and leases
       included in item 10 above                             5615       11,611  5616        8,383  5617           67    10.a

<CAPTION>
                                                                    (Column A)    (Column B)      (Column C)
                                                                     Past due     Past due 90     Nonaccrual
                                                                   30 through 89  days or more
                                                                  days and still    and still
                                                                    accruing        accruing
Memoranda                                                    ----------------------------------------------------------
                                Dollar Amounts in Thousands  RCFD Bil Mil Thou  RCFD Bil Mil Thou  RCFD Bil Mil Thou
-----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>     <C>         <C>    <C>            <C>   <C>
1. Restructured loans and leases included in
   Schedule RC-N, items 1 through 8, above
   (and not reported in Schedule RC-C, Part I,
   Memorandum item 1)                                        1658            0  1659            0  1661            0    M.1
2. Loans to finance commercial real estate,
   construction, and land development activities
   (not secured by real estate) included in
   Schedule RC-N, items 4 and 7, above                       6558            0  6559            0  6560            0    M.2
3. Loans secured by real estate to non-U.S.
   addresses (domicile) (included in
   Schedule RC-N, item 1, above)                             1248            0  1249            0  1250            0    M.3
4. Not applicable

<CAPTION>
                                                                    (Column A)    (Column B)
                                                                     Past due     Past due 90
                                                                   30 through     days or more
                                                                     89 days
                                                           ---------------------------------------
                                                             RCFD Bil Mil Thou  RCFD Bil Mil Thou
                                                           ---------------------------------------
<S>                                                          <C>        <C>     <C>         <C>    <C>            <C>   <C>
5. Interest rate, foreign exchange rate, and other
   commodity and equity contracts:
   Fair value of amounts carried as assets                   3529            0  3530            0                       M.5
</TABLE>


Person to whom questions about the Reports of Condition and Income should be
directed:

   Karen B. Martin, Manager - Regulatory Reporting
 -----------------------------------------------------------------
   Name and Title (TEXT 8901)

   karen.b.martin@wellsfargo.com
 -----------------------------------------------------------------
   E-mail Address (TEXT 4086)

   (612) 667-3975
 -----------------------------------------------------------------
   Telephone: Area code/phone number/extension (TEXT 8902)

   (612) 667-3659
 -----------------------------------------------------------------
   FAX: Area code/phone number (TEXT 9116)
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-19
Legal Title of Bank

FDIC Certificate Number - 05208                                         29

Schedule RC-O--Other Data for Deposit Insurance and FICO Assessments


<TABLE>
<CAPTION>
                                                                  Dollar Amounts in Thousands  RCON Bil  Mil Thou
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>     <C>
1. Unposted debits (see instructions):
   a. Actual amount of all unposted debits                                                     0030             0    1.a
      OR
   b. Separate amount of unposted debits:
      (1) Actual amount of unposted debits to demand deposits                                  0031           N/A    1.b.1
      (2) Actual amount of unposted debits to time and savings deposits (1)                    0032           N/A    1.b.2
2. Unposted credits (see instructions):
   a. Actual amount of all unposted credits                                                    3510             0    2.a
      OR
   b. Separate amount of unposted credits:
      (1) Actual amount of unposted credits to demand deposits                                 3512           N/A    2.b.1
      (2) Actual amount of unposted credits to time and savings deposits (1)                   3514           N/A    2.b.2
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total
   deposits in domestic offices)                                                               3520             0    3
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in
   Puerto Rico and U.S. territories and possessions ( not included in total deposits):
   a. Demand deposits of consolidated subsidiaries                                             2211             0    4.a
   b. Time and savings deposits (1) of consolidated subsidiaries                               2351             0    4.b
   c. Interest accrued and unpaid on deposits of consolidated subsidiaries                     5514             0    4.c
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions:
   a. Demand deposits in insured branches (included in Schedule RC-E, Part II)                 2229             0    5.a
   b. Time and saving deposits (1) in insured branches (included in Schedule RC-E, Part II)    2383             0    5.b
   c. Interest accrued and unpaid on deposits in insured branches
      (included in Schedule RC-G, item 1.b)                                                    5515             0    5.c
6. Reserve balances actually passed through to the Federal Reserve by the
   reporting bank on behalf of its respondent depository institutions that are
   also reflected as deposit liabilities of the reporting bank:
   a. Amount reflected in demand deposits (included in Schedule RC-E, Part I,
      Item 7 column B)                                                                         2314             0    6.a
   b. Amount reflected in time and savings deposits (1) (included in Schedule RC-E, Part
      I, Item 7, column A or C, but not column B)                                              2315             0    6.b
7. Unamortized premiums and discounts on time and savings deposits: (1,2)
   a. Unamortized premiums                                                                     5516             0    7.a
   b. Unamortized discounts                                                                    5517             0    7.b
8. To be completed by banks with " Oakar deposits ".
   a. Deposits purchased or acquired from other FDIC-insured institutions during the
      quarter (exclude deposits purchased or acquired from foreign offices other than
      insured branches in Puerto Rico and U.S. territories and possessions):
      (1) Total deposits purchased or acquired from other
          FDIC-insured institutions during the quarter                                         A531             0    8.a.1
      (2) Amount of purchased or acquired deposits reported in item 8.a.(1) above
          attributable to a secondary fund (i.e., BIF members report deposits
          attributable to SAIF; SAIF members report deposits attributable to BIF)              A532             0    8.a.2
   b. Total deposits sold or transferred to other FDIC-insured institutions during the
      quarter (exclude sales or transfers by the reporting bank of deposits in foreign
      offices other than insured branches in Puerto Rico and U.S. territories
      and possessions)                                                                         A533             0    8.b
</TABLE>

---------
(1)  For FDIC and FICO insurance assessment purposes, "time and savings
     deposits" consists of nontransaction accounts and all transaction accounts
     other than demand deposits.
(2)  Exclude core deposit intangibles.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-20
Legal Title of Bank

FDIC Certificate Number - 05208                                         30

Schedule RC-O--Continued

<TABLE>
<CAPTION>
                                                                  Dollar Amounts in Thousands  RCON Bil  Mil Thou
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>     <C>
 9. Deposits in lifeline accounts                                                               5596                 9
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total
    deposits in domestic offices)                                                               8432            0    10
11. Adjustments to demand deposits in domestic offices and in insured branches
    in Puerto Rico and U.S. territories and possessions reported in Schedule RC-E
    for certain reciprocal demand balances :
    a. Amount by which demand deposits would be reduced if the reporting bank's
       reciprocal demand balances with the domestic offices of U.S. banks and
       savings associations and insured branches in Puerto Rico and U.S. territories
       and possessions that were reported on a gross basis in Schedule RC-E
       had been reported on a net basis                                                         8785            0    11.a
    b. Amount by which demand deposits would be increased if the reporting bank's
       reciprocal demand balances with foreign banks and foreign offices of other
       U.S. banks (other than insured branches in Puerto Rico and U.S.
       territories and possessions) that were reported on a net basis in
       Schedule RC-E had been reported on a gross basis                                         A181            0    11.b
    c. Amount by which demand deposits would be reduced if cash items in process
       of collection were included in the calculation of the reporting bank's
       net reciprocal demand balances with the domestic offices of U.S. banks
       and savings associations and insured branches in Puerto Rico and U.S.
       territories and possessions in Schedule RC-E                                             A182            0    11.c
12. Amount of assets netted against deposit liabilities in domestic offices and in
    insured branches in Puerto Rico and U.S. territories and possessions on the
    balance sheet (Schedule RC) in accordance with generally accepted
    accounting principles (exclude amounts related to reciprocal demand
    balances):
    a. Amount of assets netted against demand deposits                                          A527            0    12.a
    b. Amount of assets netted against time and savings deposits                                A528            0    12.b
</TABLE>

Memoranda (to be completed each quarter except as noted)

<TABLE>
<CAPTION>
                                                                  Dollar Amounts in Thousands  RCON Bil  Mil Thou
-----------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>       <C>      <C>           <C>     <C>
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and
   1.b.(1) must equal Schedule RC, item 13.a):
   a. Deposit accounts of $100,000 or less:
      (1) Amount of deposit accounts of $100,0000 or less                                      2702     6,524,362    M.1.a 1
      (2) Number of deposit accounts of $100,000 or less                              Number
          (to be completed for the June report only)                        3779         N/A                         M.1.a 2
   b. Deposit accounts of more than $100,000:
      (1) Amount of deposit accounts of more than $100,000                                     2710    13,987,913    M.1.b 1
                                                                                      Number
      (2) Number of deposit accounts of more than $100,000                  2722             13,688                  M.1.b 2
2. Estimated amount of uninsured deposits in domestic offices of the bank:
   a. An estimate of your bank's uninsured deposits can be determined by multiplying the
      number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
      above by $100,000 and subtracting the result from the amount of deposit accounts of
      more than $100,000 reported in Memorandum item 1.b.(1) above.

      Indicate in the appropriate box at right whether your bank has a method or
      procedure for determining a better estimate of uninsured deposits than the              RCON        YES / NO
      estimate described above                                                                6861           NO      M.2.a
   b. If the box marked YES has been checked, report the estimate of uninsured deposits       RCON Bil  Mil Thou
      determined by using your bank's method or procedure                                     5597              0    M.2.b
3. Has the reporting institution been consolidated with a parent bank
   or savings association in that parent bank's or parent savings association's
   Call Report or Thrift Financial Report ?
   If so, report the legal title and FDIC Certificate Number of the
   parent bank or parent savings association:
          Text                                                                                RCON   FDIC Cert No.
     A545                                                                                     A545            N/A    M.3
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-21
Legal Title of Bank

FDIC Certificate Number - 05208                                         31

Schedule RC-R--Regulatory Capital

<TABLE>
<CAPTION>
                                                                  Dollar Amounts in Thousands  RCON Bil  Mil Thou
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>      <C>          <C>
 Tier 1 capital
 1. Total equity capital (from Schedule RC, item 28)                                            3210    3,249,297    1
 2. Net unrealized gains (losses) on available-for-sale securities (if a gain, the amount will
    be deducted from item 1 in the calculation of Tier 1 capital; if a loss, the amount will
    be added to item 1)                                                                         8434       35,756    2
 3. LESS: Net unrealized loss on available-for-sale EQUITY securities                           A221        2,113    3
 4. Accumulated net gains (losses) on cash flow hedges (if a gain, deduct it from item 1 in
    the calculation of Tier 1 capital; if a loss, add it to item 1)                             4336            0    4
 5. LESS: Nonqualifying perpetual preferred stock                                               B588            0    5
 6. Qualifying minority interests in consolidated subsidiaries                                  B589            0    6
 7. LESS: Disallowed goodwill and other disallowed intangible assets                            B590      147,854    7
 8. LESS: Disallowed servicing assets and purchased credit card relationships                   B591            0    8
 9. LESS: Disallowed deferred tax assets                                                        5610            0    9
10. Other additions to (deductions from) Tier 1 capital                                         B592            0    10
11. Tier 1 capital (sum of items 1 through 10)                                                  8274    3,063,574    11

<CAPTION>
Tier 2 Capital
<S>                                                                                            <C>      <C>          <C>
12. Qualifying subordinated debt and redeemable preferred stock                                 5306            0    12
13. Cumulative perpetual preferred stock includible in Tier 2 capital                           B593            0    13
14. Allowance for loan and lease losses includible in Tier 2 capital                            5310      277,480    14
15. Unrealized gains on available-for-sale equity securities includible in Tier 2 capital       2221            0    15
16. Other Tier 2 capital components                                                             B594            0    16
17. Tier 2 capital (sum of items 12 through 16)                                                 5311      277,480    17
18. Allowable Tier 2 capital (lesser of item 11 or 17)                                          8275      277,480    18

19. Tier 3 capital allocated for market risk                                                    1395            0    19
20. LESS: Deductions for total risk-based capital                                               B595            0    20
21. Total risk-based capital (sum of items 11, 18, and 19, less item 20)                        3792    3,341,054    21

<CAPTION>
Total assets for leverage ratio
<S>                                                                                            <C>      <C>          <C>
22. Average total assets (from Schedule RC-K, item 9)                                           3368   51,358,157    22
23. LESS: Disallowed goodwill and other disallowed intangible assets (from item 7 above)        B590      147,854    23
24. LESS: Disallowed servicing assets and purchased credit card relationships
    (from item 8 above)                                                                         B591            0    24
25. LESS: Disallowed deferred tax assets (from item 9 above)                                    5610            0    25
26. LESS: Other deductions from assets for leverage capital purposes                            B596            0    26
27. Average total assets for leverage capital purposes (item 22 less items 23 through 26)       A224   51,210,303    27

<CAPTION>
Adjustments for financial subsidiaries
<S>                                                                                            <C>      <C>          <C>
28. Adjustment to total risk-based capital reported in item 21                                  B503            0    28
29. Adjustment to risk-weighted assets reported in item 62                                      B504            0    29
30. Adjustment to average total assets reported in item 27                                      B505            0    30

<CAPTION>
Capital Ratios
(Column B is to be completed by all banks. Column A is to be
completed by banks with financial subsidiaries)                                           (Column A)               (Column B)
                                                                                    RCFD  Percentage     RCFD      Percentage
                                                                                    -----------------------------------------
<S>                                                                                 <C>        <C>       <C>            <C>     <C>

31. Tier 1 leverage ratio (1)                                                       7273       5.98%     7204            5.98%   31
32. Tier 1 risk-based capital ratio (2)                                             7274      11.14%     7206           11.14%   32
33. Total risk-based capital ratio (3)                                              7275      12.15%     7205           12.15%   33
</TABLE>

------------
(1) The ratio for column B is item 11 divided by item 27. The ratio for column A
    is item 11 minus one half of item 28 divided by (item 27 minus
(2) The ratio for column B is item 11 divided by item 62. The ratio for column A
    is item 11 minus one half of item 28 divided by (item 62 minus
(3) The ratio for column B is item 21 divided by item 62. The ratio for column A
    is item 21 minus item 28 divided by (item 62 minus item 29).
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-22
Legal Title of Bank

FDIC Certificate Number - 05208                                         32

Schedule RC-R--Continued

Banks are not required to risk-weight each on-balance sheet asset and the credit
equivalent amount of each off-balance sheet item that qualifies for a risk
weight of less than 100 percent (50 percent for derivatives) at its lower risk
rate. When completing items 34 through 54 of Schedule RC-R, each bank should
decide for itself how detailed a risk-weight analysis it wishes to perform. In
other words, a bank can choose from among its assets and off-balance sheet items
that have a risk weight of less than 100 percent which ones to risk-weight at an
appropriate lower risk, or it can simply risk-weight some or all of these items
at a 100 percent risk weight (50 percent for derivatives).

<TABLE>
<CAPTION>

                                                                    (Column A)        (Column B)
                                                                      Totals           Items Not
                                                                      (from           Subject to
                                                                   Schedule RC)     Risk-Weighting
                                                                   --------------------------------
Balance Sheet Asset Categories                       in Thousands  Bil   Mil  Thou  Bil   Mil  Thou
----------------------------------------------------------------------------------------------------
<S>                                                                    <C>    <C>       <C>   <C>
34. Cash and balances due from depository institutions (Column A        RCFD  0010
    equals the sum of Schedule RC, items 1.a and 1.b)                    1,848,332
                                                                        RCFD  1754       RCFD  B603
35. Held-to-maturity securities                                                  0                0
                                                                        RCFD  1773       RCFD  B608
36. Available-for-sale securities                                        2,007,473           57,674
37. Federal funds sold and securities purchased under                   RCFD  1350
    agreements to resell                                                16,566,668
                                                                        RCFD  5369       RCFD  B617
38. Loans and leases held for sale                                       9,715,194                0
                                                                        RCFD  B528       RCFD  B622
39. Loans and leases, net of unearned income (1)                        17,706,259                0
                                                                        RCFD  3123       RCFD  3123
40. LESS: Allowance for loan and lease losses                              277,480          277,480
                                                                        RCFD  3545       RCFD  B627
41. Trading assets                                                          24,172           20,481
                                                                        RCFD  B639       RCFD  B640
42. All other assets (2)                                                 1,381,420          147,854
                                                                        RCFD  2170       RCFD  B644
43. Total assets (sum of items 34 through 42)                           48,972,038          (51,471)

<CAPTION>

                                                                (Column C)      (Column D)       (Column E)       (Column F)
                                                               -------------------------------------------------------------
                                                                                Allocation by Risk Weight Category
                                                               -------------------------------------------------------------
                                                                    0%              20%              50%              100%
Balance Sheet Asset Catagories                  in Thousands  Bil  Mil  Thou  Bil  Mil  Thou  Bil  Mil  Thou  Bil  Mil  Thou
----------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>   <C>       <C>   <C>      <C>    <C>       <C>   <C>    <C>
34. Cash and balances due from depository institutions            RCFD  B600      RCFD  B601                      RCFD  B602
    (Column A equals the sum of Schedule RC,
    items 1.a and 1.b)                                               121,985       1,726,347                               0    34
                                                                  RCFD  B604      RCFD  B605      RCFD  B606      RCFD  B607
35. Held-to-maturity securities                                            0               0               0               0    35
                                                                  RCFD  B609      RCFD  B610      RCFD  B611      RCFD  B612
36. Available-for-sale securities                                    617,340         741,530               0         590,929    36
37. Federal funds sold and securities purchased under             RCFD  B613      RCFD  B614                      RCFD   616
    agreements to resell                                                   0      16,566,668                               0    37
                                                                  RCFD  B618      RCFD  B619      RCFD  B620      RCFD  B621
38. Loans and leases held for sale                                         0         370,000       9,345,194               0    38
                                                                  RCFD  B623      RCFD  B624      RCFD  B625      RCFD  B626
39. Loans and leases, net of unearned income (1)                           0       2,728,937       1,585,732      13,391,590    39
40. LESS: Allowance for loan and lease losses                                                                                   40
                                                                  RCFD  B628      RCFD  B629      RCFD  B630      RCFD  B631
41. Trading assets                                                         0           3,691               0               0    41
                                                                  RCFD  B641      RCFD  B642      RCFD  B643      RCFD  5339
42. All other assets (2)                                                   0               0               0       1,233,566    42
                                                                  RCFD  5320      RCFD  5327      RCFD  5334      RCFD  5340
43. Total assets (sum of items 34 through 42)                        739,325      22,137,173      10,930,926      15,216,085    43
</TABLE>

---------
(1) Include any allocated transfer risk reserve in column B.
(2) Includes premises and fixed assets, other real estate owned, investments in
    unconsolidated subsidiaries and associated companies, customers' liability
    on acceptances outstanding, intangible assets, and other assets.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-23
Legal Title of Bank

FDIC Certificate Number - 05208                                         33

Schedule RC-R--Continued

<TABLE>
<CAPTION>

                                                     (Column A)                      (Column B)
                                                     Face Value        Credit          Credit
                                                    or Notional      Conversion      Equivalent
                                                       Amount          Factor         Amount (1)
                                                  ------------------------------------------------
                            Amounts in Thousands  Bil   Mil   Thou                Bil   Mil   Thou
--------------------------------------------------------------------------------------------------
<S>                                               <C>  <C>    <C>       <C>       <C>  <C>    <C>
Derivatives and Off-Balance Sheet Items                RCFD   3819                     RCFD   B645
44. Financial standby letters of credit                    346,147      1.00               346,147
45. Performance standby letters of                     RCFD   3821                     RCFD   B650
    credit                                                 247,036       .50               123,518
46. Commercial and similar letters                     RCFD   3411                     RCFD   B655
    of credit                                               56,205       .20                11,241
47. Risk participations in bankers
    acceptances acquired by the                        RCFD   3429                     RCFD   B660
    reporting institution                                        0      1.00                     0
                                                       RCFD   3433                     RCFD   B664
48. Securities lent                                      4,546,381      1.00             4,546,381
49. Retained recourse on small business                RCFD   A250                     RCFD   B669
    obligations sold with recourse                               0      1.00                     0
50. Retained recourse on financial assets              RCFD   1727    * Below          RCFD   2243
    sold with low-level recourse                                 0      12.5                     0
51. All other financial assets sold with               RCFD   B675                     RCFD   B676
    recourse                                                 6,135      1.00                 6,135
52. All other off-balance sheet                        RCFD   B681                     RCFD   B682
    liabilities                                                  0      1.00                     0
53. Unused commitments with an original                RCFD   3833                     RCFD   B687
    maturity exceeding one year                          2,388,862       .50             1,194,431
                                                                                       RCFD   A167
54. Derivative contracts                                                                    60,983

<CAPTION>

                                                      (Column C)        (Column D)        (Column E)           (Column F)
                                                  --------------------------------------------------------------------------
                                                                       Allocation by Risk Weight Category
                                                  --------------------------------------------------------------------------
                                                         0%                20%                50%                100%
                                                  --------------------------------------------------------------------------
                    Dollar Amounts in Thousands   Bil   Mil   Thou   Bil   Mil   Thou   Bil   Mil   Thou   Bil   Mil   Thou
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>  <C>    <C>    <C>  <C>    <C>    <C>  <C>    <C>    <C>  <C>    <C>     <C>
Derivatives and Off-Balance Sheet Items                RCFD   B646        RCFD   B647        RCFD   B648        RCFD   B649
44. Financial standby letters of credit                          0                  0                  0            346,147    44
45. Performance standby letters of                     RCFD   B651        RCFD   B652        RCFD   B653        RCFD   B654
    of credit                                                    0                  0                  0            123,518    45
46. Commercial and similar letters                     RCFD   B656        RCFD   B657        RCFD   B658        RCFD   B659
    of credit                                                    0                  0                  0             11,241    46
47. Risk participations in bankers
    acceptances acquired by the                        RCFD   B661        RCFD   B662                           RCFD   B663
    reporting institution                                        0                  0                                     0    47
                                                       RCFD   B665        RCFD   B666        RCFD   B667        RCFD   B668
48. Securities lent                                              0          4,546,381                  0                  0    48
49. Retained recourse on small business                RCFD   B670        RCFD   B671        RCFD   B672        RCFD   B673
    obligations sold with recourse                               0                  0                  0                  0    49
50. Retained recourse on financial assets                                                                       RCFD   B674
    sold with low-level recourse                                                                                          0    50
51. All other financial assets sold with               RCFD   B677        RCFD   B678        RCFD   B679        RCFD   B680
    recourse                                                     0                  0                  0              6,135    51
52. All other off-balance sheet                        RCFD   B683        RCFD   B684        RCFD   B685        RCFD   B686
    liabilities                                                  0                  0                  0                  0    52
53. Unused commitments with an original                RCFD   B688        RCFD   B689        RCFD   B690        RCFD   B691
    maturity exceeding one year                                  0                  0            432,893            761,538    53
                                                       RCFD   B693        RCFD   B694        RCFD   B695
54. Derivative contracts                                         0             18,398             42,585                       54
</TABLE>

--------
* Or institution-specific factor.
(1) Column A multiplied by credit conversion factor.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-24
Legal Title of Bank

FDIC Certificate Number - 05208                                         34

Schedule RC-R--Continued

<TABLE>
<CAPTION>
                                                            (Column C)        (Column D)       (Column E)         (Column F)
                                                         ----------------------------------------------------------------------
                                                                          Allocation by Risk Weight Category
                                                         ----------------------------------------------------------------------
                                                                0%               20%               50%              100%
                                                         ----------------------------------------------------------------------
                            Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>  <C>

Totals
55. Total assets, derivatives, and off-balance sheet
    items by risk weight category                             RCFD   B696       RCFD   B697       RCFD   B698       RCFD   B699
    (for each column, sum of items 43 through 54)                 739,325        26,701,952        11,406,404        16,464,664  55
56. Risk weight factor                                                * 0%             * 20%             * 50%            * 100% 56
57. Risk-weighted assets by risk weight category
    (for each column,                                         RCFD   B700       RCFD   B701       RCFD   B702       RCFD   B703
    item 55 multiplied by item 56)                                      0         5,340,390         5,703,202        16,464,664  57
                                                                                                                    RCFD   1651
58. Market risk equivalent assets                                                                                             0  58
59. Risk-weighted assets before deductions for excess
    allowance for loan and lease losses                                                                             RCFD   B704
    and allocated transfer risk reserve (sum of item 57,
    columns C through F, and item 58)                                                                                27,508,256  59
                                                                                                                    RCFD   A222
60. LESS: Excess allowance for loan and lease losses                                                                          0  60
                                                                                                                    RCFD   3128
61. LESS: Allocated transfer risk reserve                                                                                     0  61
                                                                                                                    RCFD   A223
62. Total risk-weighted assets (item 59 minus items 60 and 61)                                                       27,508,256  62
</TABLE>

<TABLE>
<CAPTION>

Memoranda

                                                                    Dollar Amounts in Thousands   RCFD        Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>          <C>    <C>        <C>

1. Current credit exposure across all derivative contracts covered by
   the risk-based capital standards                                                               8764                  40,991   M.1


<CAPTION>

                                                                       With a remaining maturity of
                                        ---------------------------------------------------------------------------------
                                                                                 (Column B)
                                                      [Column A]               Over one year                  [Column C]
                                                       One year                   through                        Over
                                                       or less                   five years                   five years
2. Notional principal amounts of        ---------------------------------------------------------------------------------
   derivative contracts: (1)            RCFD Tril  Bil  Mil  Thou   RCFD Tril  Bil  Mil  Thou   RCFD Tril  Bil  Mil  Thou
                                        ---------------------------------------------------------------------------------
<S>                                     <C>  <C>   <C>  <C>  <C>    <C>  <C>   <C>  <C>  <C>    <C>  <C>   <C>  <C>  <C>       <C>
   a. Interest rate contracts           3809              403,125   8766              944,103   8767               384,096     M.2.a

   b. Foreign exchange contracts        3812               52,662   8769                1,714   8770                     0     M.2.b

   c. Gold contracts                    8771                    0   8772                    0   8773                     0     M.2.c

   d. Other precious metals contracts   8774                    0   8775                    0   8776                     0     M.2.d

   e. Other commodity contracts         8777               69,171   8778               21,606   8779                     0     M.2.e

   f. Equity derivative contracts       A000                    0   A001                    0   A002                     0    M.2.f
</TABLE>

---------
(1) Exclude foreign exchange contracts with an original maturity of 14 days or
    less and all futures contracts.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-25
Legal Title of Bank

FDIC Certificate Number - 05208                                         35

Schedule RC-S--Securitization and Asset Sale Activities

Memorandum items 1, 2, 4, and 5 are to be completed in the March 31, 2001,
Report of Condition. All of Schedule RC-S (excluding Memorandum items 4 and 5)
is to be completed beginning June 30, 2001.

<TABLE>
<CAPTION>
                                                          (Column A)        (Column B)       (Column C)         (Column D)
                                                          1-4 Family           Home            Credit              Auto
                                                          Residential         Equity            Card               Loans
                                                             Loans             Loans          Receivables
                                                        ----------------------------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
Bank Securitization Activities
1. Outstanding principal balance of assets sold and
   securitized by the reporting bank with servicing
   retained or with recourse or other seller-provided        RCFD   B705       RCFD   B706       RCFD   B707       RCFD   B708
   credit enhancements                                               N/A               N/A               N/A               N/A
2. Maximum amount of credit exposure
   arising from recourse or other
   seller-provided credit enhancements
   provided to structurs reported in
   item 1 in the form of:
   a. Retained interest-only strips
      (included in Schedules RC-B or                         RCFD   B712       RCFD   B713       RCFD   B714       RCFD   B715
      RC-F or in Schedule RC, item 5)                                N/A               N/A               N/A               N/A
   b. Standby letters of credit, sub-
      ordinated securities, and other                        RCFD   B719       RCFD   B720       RCFD   B721       RCFD   B722
      enhancements                                                   N/A               N/A               N/A               N/A
3. Reporting bank's unused commitments
   to provide liquidity to structures                        RCFD   B726       RCFD   B727       RCFD   B728       RCFD   B729
   reported in item 1                                                N/A               N/A               N/A               N/A
4. Past due loan amounts included in item 1:                 RCFD   B733       RCFD   B734       RCFD   B735       RCFD   B736
   a. 30-89 days past due                                            N/A               N/A               N/A               N/A
                                                             RCFD   B740       RCFD   B741       RCFD   B742       RCFD   B743
   b. 90 days or more past due                                       N/A               N/A               N/A               N/A
5. Charge-offs and recoveries on assets sold
   and securitized with servicing retained or with
   recourse or other seller-provided credit
   enhancements (calendar year-to-date):                     RIAD   B747       RIAD   B748       RIAD   B749       RIAD   B750
   a. Charge-offs                                                    N/A               N/A               N/A               N/A
                                                             RIAD   B754       RIAD   B755       RIAD   B756       RIAD   B757
   b. Recoveries                                                     N/A               N/A               N/A               N/A

<CAPTION>

                                                           (Column E)         (Column F)       (Column G)
                                                             Other            Commercial        All Other
                                                           Consumer         and Industrial     Loans and
                                                             Loans             Loans           All Leases
                                                        ----------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>    <C>
Bank Securitization Activities
1. Outstanding principal balance of assets sold and
   securitized by the reporting bank with servicing
   retained or with recourse or other seller-provided        RCFD   B709       RCFD   B710       RCFD   B711
   credit enhancements                                               N/A               N/A               N/A   1
2. Maximum amount of credit exposure
   arising from recourse or other
   seller-provided credit enhancements
   provided to structurs reported in
   item 1 in the form of:
   a. Retained interest-only strips
      (included in Schedules RC-B or                         RCFD   B716       RCFD   B717       RCFD   B718
      RC-F or in Schedule RC, item 5)                                N/A               N/A               N/A   2.a
   b. Standby letters of credit, sub-
      ordinated securities, and other                        RCFD   B723       RCFD   B724       RCFD   B725
      enhancements                                                   N/A               N/A               N/A   2.a
3. Reporting bank's unused commitments
   to provide liquidity to structures                        RCFD   B730       RCFD   B731       RCFD   B732
   reported in item 1                                                N/A               N/A               N/A   3
4. Past due loan amounts included in item 1:                 RCFD   B737       RCFD   B738       RCFD   B739
   a. 30-89 days past due                                            N/A               N/A               N/A   4.a
                                                             RCFD   B744       RCFD   B745       RCFD   B746
   b. 90 days or more past due                                       N/A               N/A               N/A   4.b
5. Charge-offs and recoveries on assets sold
   and securitized with servicing retained or with
   recourse or other seller-provided credit
   enhancements (calendar year-to-date):                     RIAD   B751       RIAD   B752       RIAD   B753
   a. Charge-offs                                                    N/A               N/A               N/A   5.a
                                                             RIAD   B758       RIAD   B759       RIAD   B760
   b. Recoveries                                                     N/A               N/A               N/A   5.b
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-26
Legal Title of Bank

FDIC Certificate Number - 05208                                         36

Schedule RC-S--Continued

<TABLE>
<CAPTION>
                                                          (Column A)        (Column B)       (Column C)         (Column D)
                                                          1-4 Family           Home            Credit              Auto
                                                          Residential         Equity            Card               Loans
                                                             Loans             Loans          Receivables
                                                        ----------------------------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>    <C>  <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
6. Amount of ownership (or seller's)
   interest carried as:                                                        RCFD   B761       RCFD   B762
   a. Securities (included in Schedule RC-B)                                           N/A               N/A
                                                                               RCFD   B500       RCFD   B501
   b. Loans (included in Schedule RC-C)                                                N/A               N/A
7. Past due loan amounts included in
   interests reported in item 6.a:                                             RCFD   B764       RCFD   B765
   a. 30-89 days past due                                                              N/A               N/A
                                                                               RCFD   B767       RCFD   B768
   b. 90 days or more past due                                                         N/A               N/A
8. Charge-offs and recoveries on loan
   amounts included in interests reported
   in item 6.a (calendar year-to-date):                                        RIAD   B770       RIAD   B771
   a. Charge-offs                                                                      N/A               N/A
                                                                               RIAD   B773       RIAD   B774
   b. Recoveries                                                                       N/A               N/A

For Securitization Facilities Sponsored
By or Otherwise Established By Other
Institutions
9. Maximum amount of credit exposure
   arising from credit enhancements
   provided by the reporting bank to other
   institutions' securitization structures in
   the form of standby letters of credit,
   purchased subordinated securities,                        RCFD   B776       RCFD   B777       RCFD   B778       RCFD   B779
   and other enhancements                                            N/A               N/A               N/A               N/A
10. Reporting bank's unused commitments
    to provide liquidity to other institutions'              RCFD   B783       RCFD   B784       RCFD   B785       RCFD   B786
    securitization structures                                        N/A               N/A               N/A               N/A

<CAPTION>
                                                           (Column E)         (Column F)       (Column G)
                                                             Other            Commercial        All Other
                                                           Consumer         and Industrial     Loans and
                                                             Loans             Loans           All Leases
                                                        ----------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>   <C>   <C>    <C>   <C>  <C>   <C>    <C>   <C>
6. Amount of ownership (or seller's)
   interest carried as:                                                        RCFD   B763
   a. Securities (included in Schedule RC-B)                                           N/A                     6.a
                                                                               RCFD   B502
   b. Loans (included in Schedule RC-C)                                                N/A                     6.b
7. Past due loan amounts included in
   interests reported in item 6.a:                                             RCFD   B766
   a. 30-89 days past due                                                              N/A                     7.a
                                                                               RCFD   B769
   b. 90 days or more past due                                                         N/A                     7.b
8. Charge-offs and recoveries on loan
   amounts included in interests reported
   in item 6.a (calendar year-to-date):                                        RIAD   B772
   a. Charge-offs                                                                      N/A                     8.a
                                                                               RIAD   B775
   b. Recoveries                                                                       N/A                     8.b

For Securitization Facilities Sponsored
By or Otherwise Established By Other
Institutions
9. Maximum amount of credit exposure
   arising from credit enhancements
   provided by the reporting bank to other
   institutions' securitization structures in
   the form of standby letters of credit,
   purchased subordinated securities,                        RCFD   B780       RCFD   B781       RCFD   B782
   and other enhancements                                            N/A               N/A               N/A   9
10. Reporting bank's unused commitments
    to provide liquidity to other institutions'              RCFD   B787       RCFD   B788       RCFD   B789
    securitization structures                                        N/A               N/A               N/A   10
</TABLE>
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                     FFIEC 031
---------------------------------------                              RC-27
Legal Title of Bank

FDIC Certificate Number - 05208                                         37

Schedule RC-S--Continued

<TABLE>
<CAPTION>

                                                          (Column A)        (Column B)       (Column C)         (Column D)
                                                          1-4 Family           Home            Credit              Auto
                                                          Residential         Equity            Card               Loans
                                                             Loans             Loans          Receivables
                                                        ----------------------------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>
Bank Asset Sales
11. Assets sold with recourse or other seller-
    provided credit enhancements and not                     RCFD   B790       RCFD   B791       RCFD   B792       RCFD   B793
    securitized by the reporting bank                                N/A               N/A               N/A               N/A
12. Maximum amount of credit exposure
    arising from recourse or other seller-
    provided credit enhancements pro-                        RCFD   B797       RCFD   B798       RCFD   B799       RCFD   B800
    vided to assets reported in item 11                              N/A               N/A               N/A               N/A

<CAPTION>

                                                           (Column E)         (Column F)       (Column G)
                                                             Other            Commercial        All Other
                                                           Consumer         and Industrial     Loans and
                                                             Loans             Loans           All Leases
                                                        ----------------------------------------------------
                           Dollar Amounts in Thousands  Bil   Mil   Thou  Bil   Mil   Thou  Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------
<S>                                                     <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>   <C>  <C>
Bank Asset Sales
11. Assets sold with recourse or other seller-
    provided credit enhancements and not                     RCFD   B794       RCFD   B795       RCFD   B796
    securitized by the reporting bank                                N/A               N/A               N/A  11
12. Maximum amount of credit exposure
    arising from recourse or other seller-
    provided credit enhancements pro-                        RCFD   B801       RCFD   B802       RCFD   B803
    vided to assets reported in item 11                              N/A               N/A               N/A  12
</TABLE>

Memorandum items 1, 2, 4, and 5 are to be completed in the March 31, 2001,
Report of Condition.
Memorandum items 1, 2, and 3 are to be completed beginning June 30, 2001.


Memoranda

<TABLE>
<CAPTION>
                                                                     Dollar Amounts in Thousands   RCFD   Bil   Mil   Thou
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>    <C>   <C>   <C>   <C>
1. Small Business obligations transferred with recourse under Section 208 of the
   Riegle Community Development and Regulatory Improvement Act of 1994:
   a. Outstanding principal balance                                                                A249                  0  M.1.a
   b. Amount of retained recourse on these obligations as of the report date                       A250                  0  M.1.b
2. Outstanding principal balance of assets serviced for others:
   a. 1-4 family residential mortgages serviced with recourse or other servicer-provided
      credit enhancements                                                                          B804                  0  M.2.a
   b. 1-4 family residential mortgages serviced with no recourse or other servicer-provided
      credit enhancements                                                                          B805                  0  M.2.b
   c. Other financial assets (1)                                                                   A591                  0  M.2.c
3. Asset-backed commercial paper conduits:
   a. Maximum amount of credit exposure arising from credit enhancements
      provided to conduit structures in the form of standby letters of credit,
      subordinated securities, and other enhancements:
      (1) Conduits sponsored by the bank, a bank affiliate, or the bank's holding company          B806                N/A  M.3.a.1
      (2) Conduits sponsored by other unrelated institutions                                       B807                N/A  M.3.a.2
   b. Unused commitments to provide liquidity to conduit structures:
      (1) Conduits sponsored by the bank, a bank affiliate, or the bank's holding company          B808                N/A  M.3.b.1
      (2) Conduits sponsored by other unrelated institutions                                       B809                N/A  M.3.b.2
</TABLE>

-------------
(1) Memorandum item 2.c is to be completed in the March 31, 2001, Report of
    Condition, if the principal balance of other financial assets serviced for
    others is more than $10 million and exceeds 10 percent of total assets,
    Memorandum item 2.c is to be completed beginning June 30, 2001, if the
    principal balance of other financial assets serviced for others is more than
    $10 million.
<PAGE>

Wells Fargo Bank Minnesota, N.A.                                      FFIEC 031
-------------------------------------                                 RC-27a
Legal Title of Bank

FDIC Certificate Number - 05208                                          37a

Schedule RC-S--Continued

Memoranda--Continued

<TABLE>
<CAPTION>

                                                                      Dollar Amounts in Thousands   RCFD   Bil   Mil   Thou
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                                  <C>   <C>   <C>   <C>   <C>
4. Financial assets transferred with recourse that have been treated as
   sold for Call Report purposes:
   a. First lien 1-4 family residential mortgage loans:
      (1) Outstanding principal balance of mortgages transferred as of the report date               A521             6,135  M.4.a.1
      (2) Amount of recourse exposure on these mortgages as of the report date                       A522             6,135  M.4.a.2

   b. Other financial assets (excluding small business
      obligations reported in Memorandum item 1):
      (1) Outstanding principal balance of assets transferred as of the report date                  A523                 0  M.4.b.1
      (2) Amount of recourse exposure on these assets as of the report date                          A524                 0  M.4.b.2
5. Loans extended under credit cards and related plans to individuals for household, family,
   or other personal expenditures that have been securitized and sold (with servicing retained)      2742             2,971  M.5
</TABLE>
<PAGE>

Optional Narrative Statement Concerning the Amounts                    FFIEC 031
 Reported in the Reports of Condition and Income                       RC-31
    at close of business on March 31, 2001
                                                                          41

Wells Fargo Bank Minnesota, N.A.          Minneapolis            MN
--------------------------------          -----------            --
      Legal Title of Bank                    City              State

The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the Reports of Condition and Income. This
optional statement will be made available to the public, along with the publicly
available data in the Reports of Condition and Income, in response to any
request for individual bank report data. However, the information reported in
Schedule RC-T, items 12 through 23 and Memorandum item 4, is regarded as
confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT
THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE
NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE
AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER
INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a
statement may check the "No comment" box below and should make no entries of any
kind in the space provided for the narrative statement; I.e., DO NOT enter in
this space such phrases as "No statement," "Not applicable," "N/A," "No
comment," and "None."

The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement must
not exceed 750 characters, including punctuation, indentation, and standard
spacing between words and sentences. If any submission should exceed 750
characters, as defined, it will be truncated at 750 characters with no notice to
the submitting bank and the truncated statement will appear as the bank's
statement both on agency computerized records and in computer-file releases to
the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall taken by the submitting
bank to ensure the statement's accuracy. The statement must be signed, in the
space provided below, senior officer of the bank who thereby attests to its
acuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Incom, the existing narrative
statement will be deleted from the files, and from disclosure; the bank, at its
option, may replace a statement, under signature, appropriate to the amended
data.

The optional narrative statement will appear in agency records and in release to
the public exactly as submitted (or amended as described in the preceding
paragraph) by the management the bank (except for the trucnation of the
statements exceeding 750-character limit described above.) THE STATEMENT WILL BE
EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR
RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL
SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION
CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE
OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK.

X = NO COMMENT Y = COMMENT                                          6979    X
BANK MANAGEMENT STATEMENT (please type or print clearly):
       TEXT ( 70 characters per line )
  6980
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------
      --------------------------------------------------------------





      --------------------------------------------------------------
      Signature of Executive Officer of Bank       Date of Signature
<PAGE>

                    THIS PAGE IS TO BE COMPLETED BY ALL BANKS
Transmitted to EDS as 0129923 on 04/30/01 at 18:33:45 CST
--------------------------------------------------------------------------------

                                                                         42

                        NAME AND ADDRESS OF BANK

                        Wells Fargo Bank Minnesota, N.A.
                        Sixth  Street and  Marquette
                        Avenue Minneapolis, MN 55479

                           OMB No. For OCC: 1557-0081
                        OMB No. For FDIC: 3064-0052
                     OMB No. For Federal Reserve: 7100-0036
                           Expiration Date: 3/31/2002

                                 SPECIAL REPORT
                         (Dollar Amounts in Thousands)

   CLOSE OF BUSINESS DATE                         FDIC Certificate Number
--------------------------------------------------------------------------------
3/31/2001                                                   5208
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
--------------------------------------------------------------------------------

The following information is required by Public Laws 90-44 and 102-242, but does
not constitute a part of the Report of Condition. With each Report of Condition,
these Laws require all banks to furnish a report of all loans or other
extensions of credit to their excutive officers made since the date of the
previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of
credit were made during the period, insert "none" against subitem (a). (Excluded
the first $15,000 of indebtedness of each executive officer under bank credit
card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal
Regulations
(Federal Reserve Board Regulation 0) for the devinitions of `exedutive officer"
and "extension of credit," respectively. Exclude loans and other extensions of
credit to directors and principal shareholders who are not executive officers.


<TABLE>
<CAPTION>

                                                                                                      RCFC
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>    <C>      <C>       <C>     <C>
a. Number of loans made to executive officers since the previous Call Report date                     3561           0  a
b. Total dollar amount of above loans (in thousands of dollars)                                       3562           0  b
c. Range of interest charged on above loans                                                  From               To
   (example: 9-3/4% = 9.75)                                                           7701     0.00%  7702        0.00% c
</TABLE>





--------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT
    /s/                    VICE PRESIDENT

DATE (Month, Day, Year)
        4/24/01
--------------------------------------------------------------------------------
FDIC 8040/53 (3-01)
</TEXT>
</DOCUMENT>
</SUBMISSION>
