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<DESCRIPTION>FORM 424(B)(3)
<TEXT>
<PAGE>

                                              Filed pursuant to Rule 424(b)(3)
                                              Registration No. 333-65294
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, November 14, 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     withdrawn will be exchanged

  -- Tenders of outstanding notes may be withdrawn any time prior to 5:00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

  -- 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 16 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 October 12, 2001
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   4
Risk Factors.............................................................  16
Use of Proceeds..........................................................  23
The Exchange Offer.......................................................  23
Capitalization...........................................................  30
Selected Financial Information...........................................  31
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  33
Industry.................................................................  39
Business.................................................................  41
Management...............................................................  50
Security Ownership of Certain Beneficial Owners and Management...........  52
Description of the Exchange Notes........................................  54
United States Federal Tax Considerations.................................  83
Plan of Distribution.....................................................  87
Legal Matters............................................................  88
Experts..................................................................  88
Where You Can Find Information...........................................  88
Incorporation of Certain Information by Reference........................  89
Index to Consolidated Financial Statements of Applied Extrusion
 Technologies, Inc. and Schedule......................................... 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 certain assets of QPF, L.L.C. ("QPF");

    .  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," and "Business."
These forward-looking statements are subject to a number of risks and
uncertainties, including, without limitation, those identified under "Risk
<PAGE>

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. 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 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

      All trademarks or trade names referred to in this prospectus are the
property of their respective owners.

                                       3
<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 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 certain
assets from QPF, 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. 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.

                               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 the 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

                                       4
<PAGE>

future growth and profitability. For the nine months ended June 30, 2001, we
generated net sales of $208.1 million and EBITDA of $30.6 million. For the
twelve months ended June 30, 2001, we generated net sales of $237.9 million and
EBITDA of $34.3 million. After giving effect to the acquisition of the assets
of QPF and the offering of the outstanding notes and the application of net
proceeds as if they had occurred on June 30, 2000, adjusted net sales and
adjusted EBITDA for the twelve months ended June 30, 2001 would have been
$314.1 million and $64.0 million, respectively.

      Our OPP films product line is classified into four categories -- labels,
packaging, overwrap and industrial. Our labels are used on soft drink
containers for Coca-Cola(R) and Pepsi-Cola(R). Our packaging applications are
used for food products produced by Frito-Lay(R), Nabisco(R), Kellogg's(R) and
Hershey(R) Foods. Our overwrap products are used by companies such as Sony(R),
Lipton(R) and R.J. Reynolds(R) Tobacco Company.

      Our competitive strengths that allow us to compete successfully in the
OPP films market and increase our sales and profitability include a substantial
industry presence, a leadership role in technology and product development,
highly efficient production facilities, a diverse product line and customer
base and an experienced management team. Our substantial industry presence is
enhanced by our superior product development capabilities that allow us to work
with our customers in developing the innovative, higher-margin labeling,
packaging and overwrap products and applications that they require. With more
than 80 product groups sold to over 600 customers, we believe that we have the
broadest product lines and customers bases of any North American OPP films
producer. In addition, we believe 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.

      Our business strategy is to maintian a leadership position in the OPP
films industry and to maximize profitability. Elements of our strategy include
continuing to:

    .  take advantage of tightening capacity utilization within the North
       American OPP films industry;

    .  focus on developing innovative products to take advantage of the
       industry trend to substitute cost competitive OPP films for
       traditional labeling and packaging materials;

    .  increase our high-end product mix; and

    .  maximize operating efficiencies and reduce costs.

Recent Developments

      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. This note
was repaid on July 30, 2001.

      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 has dropped 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.

                                       5
<PAGE>


    .  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.

      On September 28, 2001, we entered into an agreement to sell our
speciality nets and nonwovens business to DelStar Technologies, Inc., a
Delaware corporation. This transaction closed on October 5, 2001, with an
effective date of September 30, 2001.

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.

                                       6
<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
                                 other available exemption under the Securities
                                 Act; and

                              .  you are not an "affiliate" of ours.

                                       7
<PAGE>


                              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, November 14, 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 deemed to have
                              waived the right to receive any payment of
                              interest on such outstanding notes accrued from
                              June 19, 2001 to the date

                                       8
<PAGE>

                              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 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.

                                       9
<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.

                                       10
<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.

Guarantees..................  Our only domestic subsidiary will guarantee the
                              notes on a senior basis. Future domestic
                              subsidiaries will also be required to guarantee
                              the notes.

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 June 30, 2001, after giving effect to the
                              offering of the outstanding notes and our use of
                              the net proceeds and related transactions:

                              .  we had outstanding $13.2 million of senior
                                 indebtedness (excluding the notes), $12.9
                                 million of which was secured senior
                                 indebtedness;

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

                                       11
<PAGE>


                              .  our subsidiaries that are not guarantors 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.

                                       12
<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 issue date of the outstanding notes,
                                 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.

                                       13
<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 nine month periods ended June 30, 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 nine months ended June 30, 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>
                                                                 Nine Months
                          Fiscal Year Ended September 30,      Ended June 30,
                          ----------------------------------  ------------------
                             1998        1999        2000       2000      2001
                          ----------  ----------  ----------  --------  --------
<S>                       <C>         <C>         <C>         <C>       <C>
Statement of Operations
 Data(a):
Net sales...............  $  245,334  $  237,042  $  268,375  $202,596  $208,127
Cost of sales...........     195,174     188,601     215,256   156,631   164,346
                          ----------  ----------  ----------  --------  --------
Gross profit............      50,160      48,441      53,119    45,965    43,781
Operating expenses:
Selling, general and
 administrative
 expenses...............      23,754      26,550      27,152    20,492    21,142
Restructuring and
 impairment charges(b)..      21,506         --          --        --        --
Research and
 development............       7,326       7,123       6,759     5,173     4,758
Share incentive
 plan(c)................         --          --          --        --        861
QPF acquisition costs...         --          --          --        --      2,548
Start up costs(d).......       1,539         --          --        --        --
Operating profit
 (loss).................      (3,965)     14,768      19,208    20,300    14,472
Interest expense, net...      15,868      18,909      21,096    15,641    17,672
                          ----------  ----------  ----------  --------  --------
Income (loss) before
 change in accounting or
 extraordinary
 items(e)...............     (12,050)     (4,669)     (1,209)    2,982    (2,048)
                          ----------  ----------  ----------  --------  --------
Net income (loss) ......  $  (12,902) $   (4,669) $   (1,209) $  2,982  $ (4,025)
                          ==========  ==========  ==========  ========  ========
Operating and Other
 Financial Data:
Gross margin............        20.4%       20.4%       19.8%     22.7%     21.0%
EBITDA(f)...............  $   39,253  $   37,157  $   39,286  $ 35,316  $ 30,600
Net cash provided by
 (used in) operations...     (10,364)     10,554      (6,920)  (15,810)   (2,365)
Net cash provided by
 (used in) investing
 activities.............      25,629      (6,157)    (22,096)  (14,263)  (31,146)
Net cash provided by
 (used in) financing
 activities.............     (13,798)     (2,221)     27,707    27,341    58,097
Depreciation and
 amortization...........      17,773      19,484      21,025    15,728    17,010
Capital expenditures....      45,496      36,097      22,096    14,263    16,146
Balance Sheet Data (end
 of period):
Working capital(g)......  $   33,471  $   27,918  $   43,419  $ 51,188  $ 71,332
Total assets............     370,726     375,050     389,250   390,772   446,990
Total long-term debt....     185,500     182,500     209,500   207,500   277,359
Stockholders' equity....     100,437      99,041      99,913   104,182    96,385
</TABLE>
                                                   (footnotes on following page)

                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Earnings    Earnings
                                                                                Net      (Loss)     (Loss)
                                Net     Gross     Gross   Operating Operating Income   Per Share- Per Share-
     Quarter Ended             Sales  Profit(*) Margin(*) Profit(*) Margin(*) (Loss)     Basic     Diluted
     -------------            ------- --------- --------- --------- --------- -------  ---------- ----------
     <S>                      <C>     <C>       <C>       <C>       <C>       <C>      <C>        <C>
     September 30, 2000...... $65,779  $ 9,554    14.5%    $1,308      2.0%   $(4,191)   $(.35)     $(.35)
     December 31, 2000.......  62,724   11,378    18.1      2,543      4.1     (2,695)    (.23)      (.23)
     March 31, 2001..........  72,989   15,097    20.7      6,454      8.8        633      .05        .05
     June 30, 2001...........  72,414   17,306    23.9      8,884     12.3     (1,963)    (.16)      (.15)
</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 in December 2000; excludes $2,548 of QPF transaction
          costs in June 2001.

(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.

                                       15
<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 limit the flexibility of our
business operations 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 June 30,
2001, after giving effect to the offering of the outstanding notes and our use
of the proceeds, we had $288.2 million of consolidated outstanding debt, all of
which was senior debt (including the notes). Our total consolidated debt as a
percentage of capitalization was 69.9 percent. Our annual debt service payment
obligation for outstanding debt is approximately $30 million. We and our
subsidiaries may be able to incur substantial additional indebtedness in the
future, 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 may not be able to obtain additional funds or sell
assets sufficient to satisfy our debt service requirements on terms
satisfactory to us or at all, and we may not be able to refinance our bank
credit facility prior to its scheduled maturity in 2003 allowing for future
borrowings in an amount sufficient to enable us to pay our indebtedness,
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

                                       16
<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.

If we became insolvent, were liquidated, or if payment under our bank credit
facility were accelerated, our bank lenders would have a claim on our assets
before you.

      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 October 1, 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, 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 you. 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 you may not receive
payments on the exchange notes you hold. 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."

The likelihood that you would receive payments on the exchange notes could be
jeopardized 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 June 30, 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. If the results of operations and assets of any such non-guarantor
subsidiary are a significant percentage of our consolidated financial position,
we may not have sufficient funds to make any payments on the exchange notes you
hold.

We may not have sufficient funds or may not be contractually permitted under
the terms of our outstanding indebtedness to repurchase the exchange notes upon
a change of control as required by the indenture.

      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."


                                       17
<PAGE>

Federal and state fraudulent transfer laws permit a court to void the
guarantees, and if that occurs, you may not receive any payment from the
guarantor 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. If this occurs, you may not
receive any payment on the exchange notes from 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. A
court may apply different standards in making such determinations and may not
agree with our conclusions in this regard. As such, a court may find that the
guarantor of the exchange notes is insolvent and may void any payment by the
guarantor pursuant to the guarantee. If this occurs, you may not receive
payment on the exchange notes from the guarantor.

There is currently no trading market for the outstanding notes or the exchange
notes and if an active trading market for the exchange notes does not develop,
your ability to transfer the notes will be limited.

      There is currently no trading market for the outstanding notes or the
exchange notes. In the absence of an active trading market, it may be difficult
for you to resell the notes quickly or on favorable terms. 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 exchange 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.

                                       18
<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 outstanding notes only if that sale is registered
   pursuant to the Securities Act or if an exemption from registration is
   available;

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

 .  a holder of the outstanding notes who wants to sell or otherwise dispose of
   all or any part of its outstanding 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 our customers may not continue to
purchase our products.

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

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

Industry overcapacity has negatively affected our profitability, and could
continue to negatively affect our profitability.

      Production capacity in the OPP films industry increased over 35 percent
from 1995 to 1999 causing capacity utilization levels to decline from
approximately 95 percent to the 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, which could result in lower sale prices. In
addition, if demand does not grow at the historical level and capacity outgrows
demand, industry overcapacity could harm our business and our debt service
capabilities.


                                       19
<PAGE>

Price increases and shortages in the supply of polypropylene raw materials
could decrease our profitability.

      Polypropylene, which is a petroleum derivative, is the basic raw material
used in the manufacture of most of our products. The price of polypropylene is
a function of, among other things, manufacturing capacity, demand and the price
of petrochemical raw materials, including crude oil and natural gas liquids.
Historically, the price of polypropylene has fluctuated, 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 condition, results of operation or cash flows.

We may not be able to protect our intellectual property against competitors,
maintain its value or continue to develop innovative proprietary technology.

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

      Our continued success will depend to a large extent upon our ability to
maintain a superior 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 may not
be able to accomplish this and technological developments by our competitors
may place some of our products at a competitive disadvantage in the future.

The loss of a key customer could decrease our profitability.

      Approximately 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 may not beable to maintain these relationships or
continue to supply our customers at current levels. Unless replaced, the loss
of a significant converter or end-user of our OPP films products could
materially adversely affect our results of operations and cash flows and
ability to service our debt.

                                       20
<PAGE>

The seasonal fluctutation of our operating results or an unforeseen revenue
shortfall may cause the market value of the exchange notes to fluctuate.

      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 second and third fiscal
quarters. In addition, we plan our operating expenses, many of which are
relatively fixed in the short term, on the basis that our revenues will
continue to grow. A revenue shortfall, however, could arise from any number of
factors including, but not limited to, lower than expected demand, price
pressures, supply constraints, delays in the availability of new products,
transit interruptions, overall economic conditions or natural disasters. Even a
relatively small revenue shortfall may cause a period's results to fall below
expectations. Such a failure to meet expectations may cause the market value of
the exchange notes to decline.

Our business is subject to substantial health and environmental remediation and
compliance costs and any costs that result from future liabilities or
obligations may reduce the resources we can dedicate to attempting to
successfully implement our business strategy.

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

We may not be able to successfully integrate current and future acquisitions.
This may interrupt our current business and impair our ability to grow.

      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
profitability and results of operations if any of the above adverse effects
were to occur. Further, the benefits that we anticipate from these acquisitions
may not develop.

                                       21
<PAGE>

Labor disruptions at our unionized and non-unionized facilities could increase
our manufacturing costs, causing our profitability to decline.

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

Our operations outside of the United States are subject to additional currency
exchange, political, investment and other risks that may decrease
profitability.

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

                                       22
<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, including the payment in full of the
approximately $6.7 million QPF inventory note on July 30, 2001.

      As of October 1, 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 October 1, 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 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
the 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

                                       23
<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

                                       24
<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 October 10, 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 November 14, 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 outstanding 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

                                       25
<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 an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the outstanding notes tendered pursuant thereto are tendered (i) by a

                                       26
<PAGE>

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 outstanding 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, and also must be accompanied by
opinions of counsel, certifications and other information required by us.
Signatures on the outstanding notes or bond powers must be guaranteed by an
Eligible Institution.

      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 outstanding 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 exchange 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
exchange 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;

                                       27
<PAGE>

          (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 or hand
    delivery) setting forth the name and address of the holder of the
    outstanding notes, the certificate number or numbers of such outstanding
    notes and the principal amount of outstanding 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 or, in the case of outstanding notes transferred by book-entry transfer,
the name and number of the account at DTC to be credited), (iii) be signed by
the Depositor in the same manner as the original signature on the letter of
transmittal, including any 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 "--Procedure 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 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 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,

                                       28
<PAGE>

(ii) extend the exchange offer and retain all outstanding notes that have been
tendered prior to the expiration of 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.

                                       29
<PAGE>

                                 CAPITALIZATION

      The following table sets forth our capitalization in thousands of dollars
as of June 30, 2001.

      Our capitalization reflects the issuance of an inventory note to QPF, in
the amount of approximately $6.7 million for the QPF inventory we acquired.
This note was repaid on July 30, 2001. The table should be read in conjunction
with our financial statements and related notes included elsewhere in this
prospectus.

<TABLE>
<S>                                                                    <C>
Cash.................................................................. $ 27,863
                                                                       --------
Long-term debt, including current maturities:
  Inventory note......................................................    6,744
  Bank credit facility(a) ............................................      --
  Industrial revenue bonds............................................    6,500
  10 3/4% senior notes due 2011.......................................  270,859
                                                                       --------
  Total long-term debt................................................  284,103
Stockholders' equity:
  Common stock, $.01 par value: authorized, 30,000 shares;
   issued, 12,780 shares at June 30, 2001.............................      128
  Additional paid-in capital..........................................  101,468
  Retained earnings...................................................       35
  Cumulative translation adjustment...................................   (2,664)
                                                                       --------
                                                                         98,967
  Treasury stock, at cost.............................................   (2,582)
                                                                       --------
  Total stockholders' equity..........................................   96,385
                                                                       --------
  Total capitalization................................................ $408,351
                                                                       ========
</TABLE>
--------
  (a) At June 30, 2001, we had $67.6 million of availability under our bank
      credit facility, subject to borrowing base requirements, after taking
      into account outstanding letters of credit. At June 30, 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.

                                       30
<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 and balance sheet data for each of the fiscal
years in the five-year period ended September 30, 2000 have been derived from
our audited financial statements. The statement of operations data and balance
sheet data for the nine-month periods ended June 30, 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 nine-month period ended June 30, 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>
                                                                          Nine Months Ended
                                    Year Ended September 30,                  June 30,
                          ----------------------------------------------  -----------------
                            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  $202,596 $208,127
Cost of sales...........   181,899  205,037  195,174   188,601   215,256   156,631  164,346
                          -------- -------- --------  --------  --------  -------- --------
Gross profit............    52,591   57,234   50,160    48,441    53,119    45,965   43,781
Operating expenses:
 Selling, general and
  administrative........    20,144   23,819   23,754    26,550    27,152    20,492   21,142
 Restructuring and
  impairment
  charges(b)............       --     4,500   21,506       --        --        --       --
 Research and
  development...........     7,414    8,221    7,326     7,123     6,759     5,173    4,758
 Share incentive
  plan(c)...............       --       --       --        --        --        --       861
 Start-up costs(d)......       --       --     1,539       --        --        --       --
 QPF acquisition costs..       --       --       --        --        --        --     2,548
                          -------- -------- --------  --------  --------  -------- --------
Operating profit
 (loss).................    25,033   20,694   (3,965)   14,768    19,208    20,300   14,472
Non-operating expenses:
 Interest expense, net..    13,927   16,868   15,868    18,909    21,096    15,641   17,672
 Acquisitions costs and
  other(e)..............       --     1,500      250     3,641       --        --       --
                          -------- -------- --------  --------  --------  -------- --------
Income (loss) before
 income taxes and change
 in accounting or
 extraordinary item.....    11,106    2,326  (20,083)   (7,782)   (1,888)    4,659   (3,200)
Income tax expense
 (benefit)..............     4,442      930   (8,033)   (3,113)     (679)    1,677   (1,152)
                          -------- -------- --------  --------  --------  -------- --------
Income (loss) before
 change in accounting or
 extraordinary item.....     6,664    1,396  (12,050)   (4,669)   (1,209)    2,982   (2,048)
Change in
 accounting(d)..........       --       --      (852)      --        --        --       --
Extraordinary item......       --       --       --        --        --        --    (1,977)
                          -------- -------- --------  --------  --------  -------- --------
Net income (loss).......  $  6,664 $  1,396 $(12,902) $ (4,669) $ (1,209) $  2,982 $ (4,025)
                          ======== ======== ========  ========  ========  ======== ========
Earnings (loss) per
 common share:
Basic:
 Before change in
  accounting or
  extraordinary item....  $    .66 $    .14 $  (1.11) $   (.41) $   (.10) $    .26 $   (.17)
 Change in accounting or
  extraordinary item....       --       --      (.07)      --        --        --      (.16)
                          -------- -------- --------  --------  --------  -------- --------
 Net income (loss)......  $    .66 $    .14 $  (1.18) $   (.41) $   (.10) $    .26 $   (.33)
                          ======== ======== ========  ========  ========  ======== ========
Diluted:
 Before change in
  accounting or
  extraordinary item....  $    .63 $    .13  $ (1.11) $   (.41) $   (.10) $    .25 $   (.17)
 Change in accounting or
  extraordinary item....       --       --      (.07)      --        --        --      (.16)
                          -------- -------- --------  --------  --------  -------- --------
 Net income (loss)......  $    .63 $    .13 $  (1.18) $   (.41) $   (.10) $    .25 $   (.33)
                          ======== ======== ========  ========  ========  ======== ========
Balance Sheet Data:
Working capital(f)......  $ 35,911 $ 33,600 $ 33,471  $ 27,918  $ 43,419  $ 51,888 $ 71,332
Total assets............   331,704  376,493  370,726   375,050   389,250   390,772  446,990
Current portion of long-
 term debt..............       --     4,000      --        --        --        --       --
Long-term debt, less
 current portion........   165,500  196,500  185,500   182,500   209,500   207,500  277,359
Stockholders' equity....   108,335  112,183  100,437    99,041    99,913   104,182   96,385
Other Financial Data:
Depreciation and
 amortization expense...  $ 13,991 $ 17,248 $ 17,773  $ 19,484  $ 21,025  $ 15,728 $ 17,010
Capital expenditures....    51,573   54,963   45,496    36,097    22,096    14,263   16,146
Ratio of earnings to
 fixed charges(g).......      1.3x     1.2x      .9x       .6x       .9x      1.7x     1.5x
</TABLE>

                                                   (footnotes on following page)

                                       31
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Earnings    Earnings
                                                                                Net      (Loss)     (Loss)
                                Net     Gross     Gross   Operating Operating Income   Per Share- Per Share-
     Quarter Ended             Sales  Profit(*) Margin(*) Profit(*) Margin(*) (Loss)     Basic     Diluted
     -------------            ------- --------- --------- --------- --------- -------  ---------- ----------
     <S>                      <C>     <C>       <C>       <C>       <C>       <C>      <C>        <C>
     September 30, 2000...... $65,779  $ 9,554    14.5%    $1,308      2.0%   $(4,191)   $(.35)     $(.35)
     December 31, 2000.......  62,724   11,378    18.1      2,543      4.1     (2,695)    (.23)      (.23)
     March 31, 2001..........  72,989   15,097    20.7      6,454      8.8        633      .05        .05
     June 30, 2001...........  72,414   17,306    23.9      8,884     12.3     (1,963)    (.16)      (.15)
</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 in December 2001; excludes $2,548 of QPF transaction
          costs in June 2001.

(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 and $2,912 for the fiscal years ended September 30, 1998, 1999, and
    2000.


                                       32
<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 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. We have a leading position in substantially all of the major
high-end OPP films end-use product categories in North America. We offer one of
the most extensive product lines in the OPP films industry ranging from high-
margin, specialized label and high barrier films to basic heat sealable lower
barrier films.

Results of Operations

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

<TABLE>
<CAPTION>
                                                   Three
                                                  Months
                              Years Ended       Ended June      Nine Months
                             September 30,          30,       Ended June 30,
                           -------------------  ------------  -----------------
                           1998   1999   2000   2001   2000   2001   2000
                           -----  -----  -----  -----  -----  -----  -----
<S>                        <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Sales....................  100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............   79.6   79.6   80.2   76.1   80.6   79.0   77.3
Gross profit.............   20.4   20.4   19.8   23.9   19.4   21.0   22.7
Selling, general and
 administrative..........    9.7   11.2   10.1    9.6    9.5   10.2   10.1
Research and
 development.............    3.0    3.0    2.5    2.1    2.4    2.3    2.6
Operating profit (loss)..   (1.6)   6.2    7.2   12.3    7.5    8.6   10.0
Interest expense, net....    6.5    8.0    7.9    8.7    7.4    8.5    7.7
Net income (loss)........   (5.3)  (2.0)  (0.5)   2.3    0.0   (0.2)   1.5
</TABLE>

The Quarter and Nine Months Ended June 30, 2001 Compared with the Quarter and
Nine Months Ended June 30, 2000

      We reported sales for the third quarter of $72,414 compared with $73,700
in the same quarter of 2000, a decrease of $1,286, as we shifted sales away
from lower-value films and began to transition production capacity to fulfill
sales to QPF customers. Sales for the first nine months of 2001 increased 2.7
percent to $208,127 in comparison to $202,596 for the first nine months of 2000
primarily due to higher average selling prices as a result of improved sales
mix and slightly higher price levels. Sales outside the United States were 16.4
percent and 18.8 percent of sales for the nine months ended June 30, 2001 and
2000, respectively, and generated operating profit of 2.9 percent and 6.8
percent of total operating profit in those same periods.

      Gross profit in the third quarter of fiscal 2001 was $17,306, or 23.9
percent of sales, compared with 19.4 percent of sales in the third quarter of
fiscal 2000, due to lower raw material costs, as well as continued improvements
in sales mix and manufacturing efficiencies. This quarter continues a trend of
improving earnings.

                                       33
<PAGE>

<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    2,453      4.1
     March 31, 2001(**)......................  15,097  20.7    6,454      8.8
     June 30, 2001(***)......................  17,306  23.9    8,884     12.3
</TABLE>
    --------
      (*)  Excludes $2,400 of costs associated with a temporary shutdown of
           certain manufacturing plants in September 2000.
     (**)  Excludes $861 of non-cash charges related to the share incentive
           plan for non-executive employees in December 2000.
    (***)  Excludes $2,548 of QPF transaction costs in June 2001.

      For the nine months ended June 30, 2001, gross profit was $43,781, or
21.0 percent of sales, compared with $45,965, or 22.7 percent of sales, in the
same period of fiscal 2000. The decline in gross profit in fiscal 2001 was due
to the spike in raw material costs experienced late in fiscal 2000 and which
carried over into early fiscal 2001 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 existed in the OPP films industry. Capacity
utilization is expected to continue to strengthen and reach levels in the next
twelve months to support significant increases in profitability throughout the
industry.

      Raw material costs were declining and are expected to have declined
further by the end of fiscal 2001. Margin expansion is expected to continue due
to the further declines predicted for resin costs, ongoing improvement in sales
mix, and further tightening of industry capacity utilization driven by
continuing demand growth for OPP films.

      Total operating expenses of $8,422 for the third fiscal quarter of 2001,
which exclude $2,548 of QPF acquisition costs, were reduced slightly from
$8,808 in the same quarter of fiscal 2000. For the nine months ended June 30,
2001, operating expenses increased slightly to $26,761, excluding the
aforementioned QPF acquisition costs, as compared to $25,665 for the nine
months ended June 30, 2000 due primarily to the non-cash charge recorded in the
first quarter of fiscal 2001 related to the share incentive plan for non-
executive employees.

      Net interest expense for the third quarter of fiscal 2001 of $6,315 was
$854 higher than interest expense in the third quarter of fiscal 2000 due
primarily to higher interest on the outstanding notes.

      Income tax as a percent of income before income taxes was 36 percent for
the three and nine months ended June 30, 2001 and June 30, 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

                                       34
<PAGE>

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.

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

                                       35
<PAGE>

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.

Liquidity and Capital Resources

      We maintain a credit agreement with a group of lenders whereby we have a
$80,000 revolving credit facility with a final maturity of January 29, 2003.
The bank credit facility is secured by all of our assets. It includes covenants
which 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
transactions of this type. During the third quarter of fiscal 2001, we paid all
amounts outstanding on our bank credit facility in connection with the issuance
of outstanding notes. We also have $6,500 of revenue bonds outstanding which
are due November 4, 2004 and which are secured by a letter of credit issued
under the bank credit facility.

      On June 19, 2001, we issued the outstanding notes. The outstanding notes
are unsecured senior obligations of AET. The issue price of each outstanding
note was $984.94 per $1,000 principal amount at maturity, and each outstanding
note carries a yield to maturity of 11 percent. 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 the 11 1/2 percent senior notes due
2002, $9.0 million was used to fund the portion of the purchase price of the
acquisition of the assets of QPF, $74.1 million was used to repay existing
indebtedness and interest due under the bank credit facility, and the remainder
is being held for general corporate purposes.

      In conjunction with the redemption of the 11 1/2 percent senior notes due
2002, we recorded a loss on the early extinguishment of debt of $1,977, or $.15
per share, net of taxes.

      Operating activities for the nine months ended June 30, 2001 used $2,365,
which was the result of net income before depreciation and amortization and
other non-cash expenditures of $9,632, offset by an increase in working capital
of $11,998. The net working capital increase was primarily the result of
decreases in accounts payable and accrued expenses of $9,006, an increase in
inventory of $4,513, and decreases in prepaid expenses and other current assets
and accounts receivable of $6,026 and $1,478, respectively. During the quarter,
payments against restructuring reserves, representing payments on an operating
lease, reduced such accounts by $829 to a balance of $8,508 at June 30, 2001.

      EBITDA for the nine months ended June 30, 2001 and June 30, 2000 was
$30,600 and $35,316 respectively, and EBITDA for the twelve months ended June
30, 2001 was $34,271. EBITDA for the years ended September 30, 2000, 1999 and
1998 was $39,286, $37,157 and $39,253, respectively.

      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,

                                       36
<PAGE>

comprised of rent expense, less deferred gain recognized over the term of the
lease. We believe 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 generally accepted accounting principles 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.

      On June 19, 2001, we purchased certain assets of QPF. The acquired assets
principally represented equipment, intellectual property and intangible assets.
We also purchased the 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 Companies, Inc., QPF's
parent company.

      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 has dropped 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.

      After giving 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 June 30, 2000, our adjusted EBITDA for the twelve month
period ended June 30, 2001, would have been $63,980. This adjusted EBITDA
represents our historical EBITDA adjusted to reflect the retention of QPF's
customer base and 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 the assets of QPF, such as a
reduction in our raw material costs due to our increased purchasing volume and
the elimination of duplicative QPF manufacturing labor costs, production costs,
selling, general and administrative costs, and research and development costs.
These adjustments are based upon available information and various assumptions
that we believe are reasonable.

New Accounting Pronouncements

      In June of 2001, the FASB issued SFAS No. 141 and 142. Those statements
are discussed in Note 6 to our condensed consolidated financial statements.

                                       37
<PAGE>

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 June 30, 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. We
maintain a revolving credit facility which bears interest at LIBOR plus 2.75%
or Prime plus 1.25%. Average borrowings under this facility were approximately
$47,375 for the year ended September 30, 2000 and $58,611 for the nine month
period ended June 30, 2001. Had market rates increased 10% from the average
rate used for each of these periods, net earnings would have been negatively
impacted by approximately $497 and $454 for the year ended September 30, 2000
and the nine months ended June 30, 2001, respectively.

      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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<PAGE>

                                    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 many traditional forms of rigid packaging
to be replaced with film-based, flexible packaging that is lighter, lower in
cost and has enhanced performance characteristics, such as oxygen and moisture
barriers, printability and durability. In addition, flexible packaging is often
recyclable.

      According to the Flexible Packaging Association, the size of the North
American flexible packaging industry was estimated at $19.0 billion in 2000, of
which the specialty films segment accounted for approximately $3.7 billion of
shipments. 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

                                       39
<PAGE>

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 $0.35 per pound in our third fiscal quarter of 2001 and are
expected to have declined an additional $0.04 per pound by the end of fiscal
2001.

                                       40
<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 nine months ended June
30, 2001, we generated net sales of $208.1 million and EBITDA of $30.6 million.
For the twelve months ended June 30, 2001, we generated net sales of $237.9
million and EBITDA of $34.3 million. After giving effect to the acquisition of
the assets of QPF and the offering of the outstanding notes and the application
of net proceeds as if they had occurred on June 30, 2000, adjusted net sales
and adjusted EBITDA for the twelve months ended June 30, 2001 would have been
$314.1 million and $64.0 million, respectively.

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.

                                       41
<PAGE>

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, taking into account 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

                                       42
<PAGE>

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 EBITDA by $2.7
million. This spread has ranged over the last five years from a high in fiscal
1995 of $0.93 per pound to a low in fiscal 2000 of $0.68 per pound. This spread
has been improving and was $0.77 per pound by the end of our third 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

                                       43
<PAGE>

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.

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

                                       44
<PAGE>

       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.

      Prior to October 1, 2001, we developed, manufactured and sold 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 were used in the industrial filtration market for air and
liquids. We manufactured the initial filtration membranes, support material
and filtration media for these filters. On September 28, 2001, we entered into
an agreement to sell our specialty nets and nonwovens business to DelStar
Technologies, Inc., a Delaware corporation. This transaction closed on October
5, 2001, with an effective date of September 30, 2001.

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.

                                      45
<PAGE>

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.

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.

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.

                                       46
<PAGE>

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.

      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 $0.35 per
pound in our third fiscal quarter of 2001 and are expected to have decreased an
additional $0.04 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.

                                       47
<PAGE>

      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 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 1,000 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
prior to the sale of our specialty nets and nonwovens business:

<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.

      On September 28, 2001, we entered into an agreement to sell our
speciality nets and nonwovens business to DelStar Technologies, Inc., a
Delaware corporation.This transaction closed on October 5, 2001, with an
effective date of September 30, 2001. In connection with this transaction, we
sold our Middletown, Delaware facility and amended our bank credit facility
accordingly.

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

                                       48
<PAGE>

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.

                                       49
<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        December 1992
                             Officer 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      February 1994
                             Chief Operating Officer(3)
 Mark S. Abrahams.......  50 Vice President and General        December 1993-
                             Manager, Specialty Nets &         October 2001
                             Nonwovens Division
 Anthony J. Allott......  37 Senior Vice President and Chief   July 1994
                             Financial Officer(4)
</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 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., one of the world's leading orthopedic trauma companies.

      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.

      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.


                                       50
<PAGE>

      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 served as our Vice President and General
Manager of Specialty Nets and Nonwovens from December 1993 to October 2001.
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.


                                       51
<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 of July 2, 2001 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

                                       52
<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 (11).

                                      53
<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 16 Wall Street, 4th Floor,
Window #42, New York, New York 10015. (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, or if any holder of the Outstanding Notes
(other than

                                       54
<PAGE>

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)

                                       55
<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

                                       56
<PAGE>

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 June 30, 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 $288.2 million, 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 June 30, 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 $281.5
million (all of which would have been guarantees under the Bank Credit
Agreement and the Notes). In addition, on June 30, 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

                                       57
<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

                                       58
<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

                                       59
<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)


                                      60
<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

                                       61
<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


                                       62
<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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<PAGE>

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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<PAGE>

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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<PAGE>

    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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<PAGE>

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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<PAGE>

          (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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    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,


                                       75
<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,


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<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

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<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;


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<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.


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<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).


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<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

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<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


                                       82
<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.

                                       83
<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

                                       84
<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:

                                       85
<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

                                       86
<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. 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.


                                       87
<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 consolidated financial statements and the related consolidated
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 report, 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.

                      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 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

                                       88
<PAGE>

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, May 2, 2001 and August 13, 2001 and our
current reports on Form 8-K dated May 9, 2001, July 3, 2001, as amended on
July 19, 2001, and October 10, 2001, as amended on October 10, 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.

                                      89
<PAGE>

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

<TABLE>
<S>                                                                         <C>
Three and Nine Months Ended June 30, 2001 (Unaudited):
Condensed Consolidated Balance Sheets, June 30, 2001 (unaudited) and
 September 30, 2000.......................................................   F-2
Condensed Consolidated Statements of Operations for the Three Months Ended
 June 30, 2001
 and 2000 (unaudited).....................................................   F-3
Condensed Consolidated Statements of Operations for the Nine Months Ended
 June 30, 2001
 and 2000 (unaudited).....................................................   F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
 June 30, 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-8

Consolidated Balance Sheets, September 30, 2000 and 1999..................   F-9

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

Consolidated Statements of Stockholders' Equity for the Years Ended
 September 30, 2000, 1999
 and 1998.................................................................  F-11

Consolidated Statements of Cash Flows for the Years Ended September 30,
 2000, 1999 and 1998......................................................  F-12

Notes to Consolidated Financial Statements................................  F-13

Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts for the Years Ended
 September 30, 2000, 1999
 and 1998.................................................................  F-25
</TABLE>



                                      F-1
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                       June 30,
                                                         2001     September 30,
                                                      (unaudited)     2000
                                                      ----------- -------------
<S>                                                   <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................   $ 27,863     $  3,265
  Accounts receivable, net of allowance for doubtful
   accounts of $2,136 at
   June 30, 2001 and $1,856 at September 30, 2000,
   respectively.....................................     44,336       43,131
  Inventory ........................................     43,457       43,059
  Prepaid expenses and other assets.................     10,450        9,013
                                                       --------     --------
    Total current assets ...........................    126,106       98,468
Property, plant and equipment, net .................    285,245      280,300
Intangibles and deferred finance charges, net ......     22,865        2,372
Other assets .......................................     12,774        8,110
                                                       --------     --------
                                                       $446,990     $389,250
                                                       ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable .................................   $ 17,917     $ 17,862
  Accrued expenses and other current liabilities ...     28,663       27,216
  Note payable......................................      6,744          --
  Accrued interest..................................      1,450        9,971
                                                       --------     --------
    Total current liabilities ......................     54,774       55,049
Long-term debt .....................................    277,359      209,500
Long-term liabilities and other credits.............     18,472       24,788
Commitments and contingencies.......................

Stockholders' equity:
Preferred stock, $.01 par value; authorized, 1,000
 shares, of which 300 are designated Junior
 Preferred Stock; no stock outstanding..............        --           --
Common stock, $.01 par value; 30,000 shares
 authorized; 12,780 and 12,019 shares issued at June
 30, 2001 and September 30, 2000, respectively......        128          120
Additional paid-in capital .........................    101,468      100,266
Retained earnings ..................................         35        4,060
Accumulated comprehensive loss......................     (2,664)      (2,277)
                                                       --------     --------
                                                         98,967      102,169
Treasury stock, at cost, and other, 256 and 248
 shares at June 30, 2001 and September 30, 2000,
 respectively.......................................     (2,582)      (2,256)
                                                       --------     --------
    Total stockholders' equity .....................     96,385       99,913
                                                       --------     --------
                                                      $446,990      $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 June 30, 2001 and 2000 (Unaudited)
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                              2001     2000
                                                             -------  -------
<S>                                                          <C>      <C>
Sales ...................................................... $72,414  $73,700
Cost of sales ..............................................  55,108   59,398
                                                             -------  -------
Gross profit ...............................................  17,306   14,302
Operating expenses:
  Selling, general and administrative ......................   6,925    7,029
  Research and development .................................   1,497    1,779
  QPF acquisition costs.....................................   2,548      --
                                                             -------  -------
    Total operating expenses ...............................  10,970    8,808
                                                             -------  -------
Operating profit............................................   6,336    5,494
Non-operating expenses:
  Interest expense, net ....................................   6,315    5,461
                                                             -------  -------
Income before income taxes..................................      21       33
Income tax expense .........................................       7       12
                                                             -------  -------
Income before extraordinary item............................ $    14  $    21
                                                             -------  -------
Extraordinary loss on early extinguishment of debt, net of
 taxes of $1,112............................................  (1,977)     --
                                                             -------  -------
Net income (loss)........................................... $(1,963) $    21
                                                             =======  =======
Earnings per common share before extraordinary item:
  Basic and diluted......................................... $  0.00  $  0.00
Earnings (loss) per common share:
  Basic..................................................... $  (.16) $  0.00
  Diluted...................................................    (.16)    0.00
Average common shares outstanding:
  Basic.....................................................  12,597   11,786
  Diluted...................................................  12,851   11,938

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS

                   Three Months Ended June 30, 2001 and 2000
                           (Unaudited) (In thousands)

<CAPTION>
<S>                                                          <C>      <C>
Net income (loss)........................................... $(1,963) $    21
Exchange rate changes ......................................     805     (478)
                                                             -------  -------
Comprehensive income (loss)................................. $(1,158) $  (457)
                                                             =======  =======
</TABLE>

           See notes to condensed consolidated financial statements.

                                      F-3
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

              Nine Months Ended June 30, 2001 and 2000 (Unaudited)
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
Sales.....................................................  $208,127  $202,596
Cost of sales.............................................   164,346   156,631
                                                            --------  --------
Gross profit..............................................    43,781    45,965
Operating expenses:
  Selling, general and administrative.....................    21,142    20,492
  Research and development................................     4,758     5,173
  Share incentive plan....................................       861       --
  QPF acquisition costs...................................     2,548       --
                                                            --------  --------
    Total operating expenses..............................    29,309    25,665
                                                            --------  --------
Operating profit..........................................    14,472    20,300
Non-operating expenses:
  Interest expense, net...................................    17,672    15,641
                                                            --------  --------
Income (loss) before income taxes.........................    (3,200)    4,659
Income tax expense (benefit)..............................    (1,152)    1,677
                                                            --------  --------
Income (loss) before extraordinary item...................  $ (2,048) $  2,982
                                                            --------  --------
Extraordinary loss on early extinguishment of debt, net of
 taxes of $1,112..........................................    (1,977)      --
                                                            --------  --------
Net income (loss).........................................  $ (4,025) $  2,982
                                                            ========  ========
Earnings (loss) per common share before extraordinary
 item:
  Basic...................................................  $   (.17) $    .26
  Diluted.................................................      (.17)      .25
Earnings (loss) per common share:
  Basic...................................................  $   (.33) $    .26
  Diluted ................................................      (.33)      .25
Average common shares outstanding:
  Basic...................................................    12,360    11,658
  Diluted ................................................    12,564    11,982

                       CONDENSED CONSOLIDATED STATEMENTS
                          OF COMPREHENSIVE OPERATIONS

                    Nine Months Ended June 30, 2001 and 2000
                           (Unaudited) (In thousands)

Net income (loss).........................................  $ (4,025) $  2,982
Exchange rate changes.....................................      (387)     (325)
                                                            --------  --------
Comprehensive income (loss)...............................  $ (4,412) $  2,657
                                                            ========  ========
</TABLE>


           See notes to condensed consolidated financial statements.

                                      F-4
<PAGE>

                      APPLIED EXTRUSION TECHNOLOGIES, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                    Nine Months Ended June 30, 2001 and 2000
                           (Unaudited) (In thousands)

<TABLE>
<CAPTION>
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
OPERATING ACTIVITIES:
 Net income (loss)......................................... $ (4,025) $  2,982
 Adjustments to reconcile net income (loss) to net
  cash used in operating activities
  net of acquisition of QPF:
  Provision for doubtful accounts..........................      273       319
  Depreciation and amortization............................   17,010    15,728
  Deferred taxes and other credits.........................   (6,138)  (10,364)
  Stock issued for share incentive plan....................      861       --
  Write-off of deferred debt issuance costs included in
   extraordinary loss on early
  extinguishment of debt...................................    1,651       --
  Changes in assets and liabilities which used cash:
   Prepaid expenses and other current assets...............   (6,026)   (1,276)
   Accounts payable and accrued expenses...................   (9,006)   (4,656)
   Accounts receivable and inventory.......................    3,035   (18,543)
                                                            --------  --------
      Net cash used in operating activities................   (2,365)  (15,810)

INVESTING ACTIVITIES:
 Additions to property, plant and equipment................  (16,146)  (14,263)
 Acquisition of QPF assets.................................  (15,000)      --
                                                            --------  --------
    Net cash used in investing activities..................  (31,146)  (14,263)

FINANCING ACTIVITIES:
 Proceeds from issuance of bonds, net of discount..........  270,859       --
 Redemption of $150,000 senior notes....................... (150,000)      --
 Borrowings (repayments) under line of credit agreement,
  net......................................................  (53,000)   25,000
 Debt issuance costs.......................................   (9,786)      --
 Proceeds from issuance of stock, net......................       24     2,341
                                                            --------  --------
      Net cash provided by financing activities............   58,097    27,341
 Effect of exchange rate changes on cash...................       12      (325)
                                                            --------  --------
 Increase (decrease) in cash and cash equivalents, net.....   24,598    (3,057)
 Cash and cash equivalents, beginning......................    3,265     5,323
                                                            --------  --------
 Cash and cash equivalents, ending......................... $ 27,863  $  2,266
                                                            ========  ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Interest, including capitalized interest of $1,932 and
   $1,801, respectively.................................... $ 28,883  $ 20,191
  Income taxes.............................................      170       174
</TABLE>

           See notes to condensed consolidated financial statements.

                                      F-5
<PAGE>

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

                   Three Months Ended June 30, 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 June 30, 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. LONG-TERM DEBT

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

      In conjunction with the redemption of the 2002 Notes, the Company
recorded a loss on the early extinguishment of debt of $1,977, or $0.15 per
share, net of taxes. This amount is comprised of unamortized debt issuance
costs and interest incurred during the 30-day call period.

      In conjunction with the issuance of Senior Notes, the Credit Facility was
reduced from $96,000 of availability to $80,000. The Company amended the Credit
Facility on June 15, 2001 to modify interest coverage and leverage covenants to
facilitate the new Senior Notes. As of June 30, 2001, there were $12,435 in
letters of credit outstanding on the Credit Facility.

3. 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 June 30, 2001 and September 30, 2000:

<TABLE>
<CAPTION>
                                                                June   September
                                                                2001     2000
                                                               ------- ---------
     <S>                                                       <C>     <C>
     Raw materials............................................ $ 7,847  $ 9,336
     Finished goods...........................................  35,610   33,723
                                                               -------  -------
     Total.................................................... $43,457  $43,059
                                                               =======  =======
</TABLE>

                                      F-6
<PAGE>

4. 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.

5. ACQUISITION OF CERTAIN ASSETS OF QPF, L.L.C.

      On June 30, 2001 the Company completed its acquisition of certain assets
of QPF, L.L.C. ("QPF"), the OPP films business of Hood Companies. Assets
acquired include machinery and equipment, intellectual property, intangibles,
and inventory of the business. The purchase price for the QPF assets was
$21,744, of which $15,000 was paid in cash using some of the proceeds from the
Company's recent bond offering, and the remainder was paid with an inventory
note. In conjunction with the QPF acquisition, the Company incurred certain
costs that were written off as an operating expense during the quarter.

      The Company is presently undertaking, but has not yet completed, an
allocation of the purchase price, but anticipates that approximately $13,744
will be allocated to intangible assets. These intangible assets are anticipated
to be amortized over their useful life in conformity with current accounting
policies. The initial allocation of assets acquired and liabilities assumed
were as follows:

<TABLE>
     <S>                                                                <C>
     Inventory......................................................... $ 5,000
     Property, plant and equipment.....................................   5,000
     Intangibles.......................................................  13,744
     Accrued expenses..................................................  (2,000)
                                                                        -------
                                                                        $21,744
                                                                        =======
</TABLE>

6. RECENTLY ISSUED ACCOUNTING STANDARDS

      The Financial Accounting Standards Board has approved for issuance
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". Both
statements are scheduled to be published in July 2001. SFAS No. 141 will
require that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and that the use of the pooling-of-
interest method is no longer allowed. SFAS No. 142 requires that upon adoption,
amortization of goodwill will cease and instead, the carrying value of goodwill
will be evaluated for impairment on an annual basis. Identifiable intangible
assets will continue to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. The Company is
evaluating the impact of the adoption of these standards and has not yet
determined the effect of adoption on its financial position and results of
operations.

                                      F-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<PAGE>

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

      You should rely only upon the information contained in this prospectus.
We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate as of the date on
the front cover of this prospectus only. Our business, financial condition,
results of operations and prospects may have changed since that date.

                                  $275,000,000

                                 Exchange Offer


++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                                   [LOGO][                                    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                      Applied Extrusion Technologies, Inc.

                     10 3/4% Series B Senior Notes due 2011


                                October 12, 2001

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

</TEXT>
</DOCUMENT>
</SUBMISSION>
