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EXECUTION COPY


APPLIED EXTRUSION TECHNOLOGIES, INC.


CREDIT AGREEMENT


Dated as of April 7, 1994


and Amended and Restated as of


January 29, 1998


$70,000,000


THE CHASE MANHATTAN BANK
as Administrative Agent


LASALLE BUSINESS CREDIT, INC.
as Co-Agent


CHASE SECURITIES INC.
as Arranger 2


TABLE OF CONTENTS


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Section 1. Definitions and Accounting Matters.


1.01 Certain Defined Terms ................................................. 1 1.02 Accounting Terms and Determinations ................................... 20 1.03 Types of Loans ........................................................ 21


Section 2. Working Capital Commitments


2.01 Loans ................................................................. 21 2.02 Letters of Credit ..................................................... 21 2.03 Reductions of Working Capital Commitments ............................. 24 2.04 Fees .................................................................. 25 2.05 Lending Offices ....................................................... 26 2.06 Several Obligations ................................................... 26 2.07 Notes ................................................................. 26 2.08 Use of Proceeds ....................................................... 26


Section 3. Borrowings, Conversions and Prepayments


3.01 Borrowings ............................................................ 26 3.02 Prepayments and Conversions ........................................... 26


Section 4. Payments of Principal and Interest


4.01 Repayment of Loans .................................................... 29 4.02 Interest .............................................................. 29


Section 5. Payments; Pro Rata Treatment; Computations; Etc


5.01 Payments .............................................................. 31 5.02 Pro Rata Treatment .................................................... 31 5.03 Computations .......................................................... 32 5.04 Minimum and Maximum Amounts; Types .................................... 32 5.05 Certain Notices ....................................................... 32 5.06 Non-Receipt of Funds by the Administrative Agent ...................... 33 5.07 Sharing of Payments, Etc. ............................................. 34 5.08 Taxes ................................................................. 35 3


PAGE
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Section 6. Yield Protection and Illegality


6.01 Additional Costs ...................................................... 37 6.02 Limitation on Types of Loans .......................................... 38 6.03 Illegality ............................................................ 39 6.04 Substitute Base Rate Loans ............................................ 39 6.05 Compensation .......................................................... 40 6.06 Additional Costs in Respect of Letters of Credit ...................... 40 6.07 Capital Adequacy ...................................................... 41


Section 7. Conditions Precedent to all Loans and Letters of Credit


7.01 Loans and Letters of Credit ........................................... 41


Section 8. Representations and Warranties


8.01 Corporate Existence ................................................... 42 8.02 Information ........................................................... 42 8.03 Litigation ............................................................ 43 8.04 No Breach ............................................................. 43 8.05 Corporate Action ...................................................... 43 8.06 Approvals ............................................................. 44 8.07 Regulations U and X ................................................... 44 8.08 ERISA ................................................................. 44 8.09 Taxes ................................................................. 44 8.10 Subsidiaries; Agreements .............................................. 44 8.11 Investment Company Act ................................................ 45 8.12 Public Utility Holding Company Act .................................... 45 8.13 Ownership and Use of Properties ....................................... 45 8.14 Environmental Matters ................................................. 45 8.15 Year 2000 Issue ....................................................... 49


Section 9. Covenants


9.01 Information ........................................................... 49 9.02 Taxes and Claims ...................................................... 54 9.03 Insurance ............................................................. 54 9.04 Maintenance of Existence; Conduct of Business ......................... 55 9.05 Maintenance of and Access to Properties ............................... 55 9.06 Compliance with Applicable Laws ....................................... 56 9.07 Litigation ............................................................ 56


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PAGE
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9.08 Indebtedness .......................................................... 56 9.09 Net Worth ............................................................. 56 9.10 Interest Coverage Ratio ............................................... 57 9.11 Leverage Ratio ........................................................ 57 9.12 Mergers, Asset Dispositions, Acquisitions, Etc ........................ 58 9.13 Liens ................................................................. 59 9.14 Investments ........................................................... 60 9.15 Restricted Payments ................................................... 60 9.16 Transactions with Affiliates .......................................... 60 9.17 Lines of Businesses ................................................... 61 9.18 Capital Expenditures .................................................. 61 9.19 Modification of Other Agreements ...................................... 62 9.20 Bank Accounts ......................................................... 62 9.21 Environmental Matters ................................................. 62 9.22 Senior Notes .......................................................... 63 9.23 Certain Obligations Respecting Guaranties and Collateral .............. 63


Section 10. Defaults


10.01 Events of Default .................................................... 64 10.02 Collateral Account ................................................... 68


Section 11. The Administrative Agent


11.01 Appointment, Powers and Immunities ................................... 68 11.02 Reliance by Administrative Agent ..................................... 69 11.03 Defaults ............................................................. 69 11.04 Rights as a Lender ................................................... 70 11.05 Indemnification ...................................................... 70 11.06 Non-Reliance on Administrative Agent and Other Lenders ............... 70 11.07 Failure to Act ....................................................... 71 11.08 Resignation or Removal of Administrative Agent ....................... 71 11.09 Collateral Sub-Agents ................................................ 72


Section 12. Miscellaneous


12.01 Waiver ............................................................... 72 12.02 Notices .............................................................. 72 12.03 Expenses, Etc. ....................................................... 72 12.04 Indemnification ...................................................... 73 12.05 Amendments, Etc ...................................................... 73


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12.06 Successors and Assigns ............................................... 74 12.07 Confidentiality ...................................................... 75 12.08 Survival ............................................................. 76 12.09 Captions ............................................................. 76 12.10 Counterparts; Integration ............................................ 76 12.11 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL ....................................................... 76


Section 13. Conditions Precedent to Effectiveness


13.01 Effectiveness ........................................................ 77


Schedules SCHEDULE I - Assigned Agreements SCHEDULE II - Security Documents SCHEDULE III - [intentionally deleted] SCHEDULE IV - Special Account Debtors SCHEDULE V - Investments SCHEDULE VI - Agreements; Liens SCHEDULE VII - Environmental Matters SCHEDULE VIII - Insurance


Exhibits


EXHIBIT A - [intentionally deleted] EXHIBIT B - Form of Working Capital Note EXHIBIT C - Form of Borrowing Base Certificate EXHIBIT D - Forms of Opinions of Counsel to the Company EXHIBIT E - Form of Opinion of Special Counsel to the Administrative Agent EXHIBIT F - Form of Company Security Agreement EXHIBIT G - Form of Company Pledge Agreement EXHIBIT H - Form of Subsidiary Guaranty EXHIBIT I - Form of Guarantor Acknowledgment 6


CREDIT AGREEMENT


AGREEMENT dated as of April 7, 1994 and amended and restated as of January 29, 1998 among: APPLIED EXTRUSION TECHNOLOGIES, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (together with its successors, the "Company"); each of the lenders which is or which may from time to time become a signatory hereto (individually, together with its successors, a "Lender" and, collectively, together with their respective successors, the "Lenders"); and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent").


WHEREAS, the Company is a party to a Credit Agreement (as heretofore amended, the "Original Agreement") dated as of April 7, 1994, together with each of the Lenders and The Chase Manhattan Bank, as administrative agent for the Lenders;


WHEREAS, the parties hereto desire to further amend the Original Agreement to provide for aggregate working capital commitments of $70,000,000 by combining and increasing the amount of working capital commitments and term commitments available under the Original Agreement, and to make certain additional changes; and


WHEREAS, in order to set forth in one document, for the convenience of the parties, the text of the Original Agreement as heretofore amended and as amended by the amendments to be made upon the effectiveness hereof, the Original Agreement as heretofore amended will, upon satisfaction of the conditions set forth in Section 13.01 hereof, be amended and restated to read in full as set forth herein;


The parties hereto agree as follows:


Section 1. Definitions and Accounting Matters.


1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa):


"Acquisition Documents" shall mean the Purchase Agreement, including the exhibits and schedules thereto, and all agreements, documents and 7


instruments executed and delivered pursuant to or in connection with any of the foregoing.


"Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person and, if such Person is an individual, any member of the immediate family (including parents, siblings, spouse, children, stepchildren, nephews, nieces and grandchildren) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person which owns directly or indirectly more than 5% of the securities having ordinary voting power for the election of directors or other governing body of a corporation or more than 5% of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.


"Amended Agreement" shall mean this Credit Agreement dated as of April 7, 1994 and amended and restated as of January 29, 1998 among the Company, the Lenders and the Administrative Agent.


"Applicable Lending Office" shall mean, for each Lender and for each Type of Loan or Letter of Credit, the Lending Office of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan or Letter of Credit below its name on the signature pages hereof or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such Type or such Letters of Credit are to be made and/or issued and maintained.


"Applicable Margin" shall mean, with respect to any Loan, the following percentages (calculated as a function of the Type of such Loan):


(a) for Base Rate Loans: 1-1/4% per annum


(b) for Eurodollar Loans: 2-1/2% per annum


"Appraisers" shall mean Kostner Industries, L.R. Denton & Co. and Cushman & Wakefield of Pennsylvania, Inc., or one or more other independent property appraisers acceptable to the Administrative Agent from time to time.


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"Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (as any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders.


"Assigned Agreements" shall mean, collectively, the agreements listed on Schedule I hereto, as each such agreement shall, subject to Section 9.19 hereof, be modified and supplemented and in effect from time to time.


"Available PP&E Amount" shall mean, as at any date of determination thereof, the sum of (x) 25% of Eligible Machinery and Equipment plus (y) 25% of Eligible Real Property, in each case determined as provided in the respective definition thereof.


"Bankruptcy Code" shall mean the United States Bankruptcy Code, as now or hereafter in effect, or any successor statute.


"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.


"Base Rate" shall mean, with respect to any Base Rate Loan for any day, the rate per annum equal to the higher as of such day of (i) the Federal Funds Rate plus 1/2 of 1%, (ii) the Prime Rate or (iii) the Base CD Rate plus 1%. Any change in the Base Rate due to a change in the Federal Funds Rate, the Prime Rate or the Base CD Rate shall be effective from and including the effective date of such change in the Federal Funds Rate, the Prime Rate or the Base Rate, respectively.


"Base Rate Loans" shall mean Loans which bear interest at a rate based upon the Base Rate.


"Basic Documents" shall mean the Financing Documents, the Assigned Agreements, the Indenture, the Senior Notes and any other agreement governing


"Borrowing Base" shall mean, as at any date, the amount of the Borrowing Base as of the date of the Borrowing Base Certificate then most recently delivered


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pursuant to Section 9.01(c) (the "Borrowing Base Date"), determined by calculating the sum of (i) 85% of the aggregate amount of Eligible Receivables at the Borrowing Base Date plus (ii) 50% of the aggregate amount of Eligible Inventory at the Borrowing Base Date plus (iii) the Available PP&E Amount as at the Borrowing Base Date; provided that (x) the amount determined pursuant to clause (ii) shall at no time exceed 50% of the Borrowing Base and (y) the amount determined pursuant to clause (iii) shall at no time exceed 40% of the Borrowing Base.


"Borrowing Base Certificate" shall mean a certificate, duly executed by a Senior Officer, appropriately completed and in substantially the form of Exhibit C hereto.


"Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in New York City and, if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, conversion or Interest Period, which is also a day on which dealings in Dollar deposits are carried out in the London interbank market.


"Capital Expenditures" shall mean expenditures in respect of fixed or capital assets by the Company or any of its Subsidiaries, including the capital portion of lease payments made in respect of Capital Lease Obligations, but excluding (i) expenditures for the restoration or replacement of fixed assets to the extent financed by the proceeds of any Property/Business Interruption Insurance Policy and (ii) expenditures to the extent financed with proceeds from the disposition of assets made pursuant to and in accordance with Section 9.12(ii).


"Capital Lease Obligations" shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13).


"Cash Flow" shall mean, for any period, (i) the sum (without duplication), determined on a consolidated basis for the Company and its Subsidiaries, of (x) operating profit of the Company and its Subsidiaries (calculated before provision for income taxes, interest expense, extraordinary and non-recurring items and


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income attributable to equity in affiliates) for such period plus (y) depreciation, amortization and other non-cash items (to the extent deducted in determining operating profit) for such period minus (ii) proceeds received during such period (to the extent included in determining operating profit) of any Property Insurance Policy.


"CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder.


"Chase" shall mean The Chase Manhattan Bank and its successors.


"Closing Date" shall mean the date of the initial Loans under the Original Agreement.


"Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute.


"Collateral Monitor" shall mean LaSalle Business Credit, Inc., in its capacity as collateral monitor for the Lenders, and its successors in such capacity (including any successor designated by the Majority Lenders).


"Controlled Group" shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company, are treated as a single employer under Section 414 of the Code.


"Current Assets" shall mean at any date the current assets (excluding cash and cash equivalents and prepaid expenses) of the Company and its Subsidiaries determined on a consolidated basis as of such date.


"Current Liabilities" shall mean at any date the consolidated current liabilities (excluding the current portion of long-term Indebtedness) of the Company and its Subsidiaries plus the current liabilities of any Person (other than the Company or one of its Subsidiaries) which are Guaranteed by the Company or one of its Subsidiaries, all determined on a consolidated basis as of such date.


"Default" shall mean an Event of Default or an event which with notice or lapse of time or both would, unless cured or waived, become an Event of Default.


"Dollars" and "$" shall mean lawful money of the United States of America.


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"Effective Date" has the meaning specified in Section 13.01.


"Eligible Inventory" shall mean, as at any date of determination thereof, the value (determined at the lower of cost or market on an average cost basis) of all Inventory owned by (and in the possession or under the control of) the Company or any Subsidiary Guarantor and located in a jurisdiction in the United States of America or Canada as to which appropriate Uniform Commercial Code financing statements (or, in the case of Inventory located in Canada, comparable filings) have been filed naming the Company or such Subsidiary Guarantor, as the case may be, as "debtor" and the Administrative Agent as "secured party"; provided that Eligible Inventory shall not include any of the following: (a) catalogs and other promotional materials of any kind; (b) work in process; (c) any returned items not eligible for resale; (d) any damaged, defective or recalled items not eligible for resale; (e) prototypes or salesmen's samples; (g) any items of Inventory which have been consigned to the Company or a Subsidiary Guarantor or as to which a Person claims a Lien other than a Permitted Lien (as defined in the Security Documents); (h) any items of Inventory which have been consigned by the Company or a Subsidiary Guarantor to a consignee; (i) packing and shipping materials; (j) Inventory located on premises leased by the Company or a Subsidiary Guarantor from a landlord from which the Administrative Agent did not receive a landlord's waiver on terms satisfactory to the Collateral Monitor within 90 days after the Closing Date, or with respect to which the Company or such Subsidiary Guarantor has not entered into arrangements reasonably satisfactory to the Collateral Monitor to evidence payment of amounts owed to the landlord (provided that the amount of Eligible Inventory with respect to which such arrangements not involving a waiver have been made shall not exceed $5,000,000); and (k) Inventory which in the reasonable judgment of the Majority Lenders is considered to be not merchantable.


"Eligible Machinery and Equipment" shall mean, as at any date of determination thereof, the orderly in-place liquidation value (as most recently determined by the Appraiser pursuant to Section 7.01(r) or 9.01(e)(ii) of the Original Agreement or Section 9.01(e)(ii)) or, if more recent, the cost (as determined by the Company pursuant to Section 13.01(h) of all machinery and equipment owned by (and in the possession of) the Company or any Subsidiary Guarantor and located in a jurisdiction in the United States of America or Quebec as to which appropriate Uniform Commercial Code financing statements (or, in the case of machinery or equipment located in Quebec, comparable filings in Quebec) have been filed naming the Company or such Subsidiary Guarantor, as the case may be, as "debtor" and the Administrative Agent a "secured party"; provided that Eligible Machinery and Equipment shall not include any of the following: (a) any items of machinery and equipment as to which any Person claims a Lien other than a Permitted Lien (as defined in the Security Documents);


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(b) any items of machinery and equipment which are damaged or defective; and (c) machinery and equipment located on premises leased by the Company or a Subsidiary Guarantor from a landlord from which the Administrative Agent has not received a landlord's waiver on terms satisfactory to the Collateral Monitor.


"Eligible Real Property" shall mean, as at any date of determination thereof, the fair market value (as most recently determined by the Appraisers pursuant to Section 7.01(r) or 9.01 (e)(ii) of the Original Agreement or Section 9.01(e)(ii)) of all real property owned by (and in the possession of) the Company or any Subsidiary Guarantor and located in a jurisdiction in the United States of America or Quebec as to which surveys and title reports acceptable to the Majority Lenders have been received and appropriate mortgages (or, in the case of real property located in Quebec, deeds of hypothecation) have been filed and recorded naming the Company or such Subsidiary Guarantor, as the case may be, as "mortgagor" (or, in the case of real property located in Quebec, "grantor") and the Administrative Agent as "mortgagee" (or, in the case of real property located in Quebec, "creditor").


"Eligible Receivables" shall mean, as at any date of determination thereof, the aggregate of all Receivables at said date due to the Company or a Subsidiary Guarantor other than the following (determined without duplication):


(a) all Receivables which, at the date of the original issuance of
the respective invoice therefor, were payable more than 60 days after such
date,


(b) any Receivable due from an account debtor whose principal place
of business is located outside the United States of America or Canada,


(c) any Receivable due from (i) an Affiliate of the Company or (ii)
an account debtor which is the subject of bankruptcy, insolvency or
similar proceedings or which the Majority Lenders (through the
Administrative Agent) have notified the Company does not have a
satisfactory credit standing (as determined in the sole discretion of the
Majority Lenders),


(d) any Receivable which remains unpaid for more than 60 days after
the date set forth for payment in the invoice originally issued therefor,


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(e) all Receivables due from any account debtor if more than 50% of
the
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