form 10-q - aepinc.comform 10-q! quarterly report ... commission file number 0-14450 ... doc # 1...

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

! QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended January 31, 2005

OR

"

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-14450

AEP Industries Inc.(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction ofincorporation or organization)

22-1916107 (I.R.S. Employer Identification No.)

125 Phillips Avenue

South Hackensack, New Jersey (Address of principal executive offices)

07606

(Zip Code)

(201) 641-6600

(Registrant's telephone number, including area code)

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for thepast 90 days. Yes ! No "

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). Yes " No !

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicabledate.

Class of Common Stock Shares Outstanding at March 4, 2005

$

.01 Par Value

8,520,222


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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AEP INDUSTRIES INC.CONSOLIDATED BALANCE SHEETS

(Unaudited)(in thousands, except share amounts)

January 31,2005

October 31,2004

ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,183 $ 9,557 Accounts receivable, less allowance for doubtful accounts of $5,962 and $5,836 in2005 and 2004, respectively

97,538 101,879

Inventories, net 93,847 80,192 Deferred income taxes 5,216 5,013 Other current assets 11,645 9,092 Assets held for sale 7,226 7,092 Assets of discontinued operations 19,763 22,285 Total current assets 238,418 235,110 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciationand amortization of $253,141 in 2005 and $245,139 in 2004

174,120 172,287

GOODWILL 29,348 29,693 DEFERRED INCOME TAXES 3,273 4,116 OTHER ASSETS 10,621 10,917 Total assets $ 455,780 $ 452,123

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Bank borrowings, including current portion of long-term debt $ 26,837 $ 27,772 Accounts payable 58,816 65,345 Accrued expenses 36,996 49,313 Liabilities of discontinued operations 18,633 19,011 Total current liabilities 141,282 161,441 LONG-TERM DEBT 254,647 230,994 DEFERRED TAX LIABILITY 2,341 2,210 OTHER LONG-TERM LIABILITIES 10,495 9,119 Total liabilities 408,765 403,764 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock $1.00 par value; 1,000,000 shares authorized; none issued — — Common stock $.01 par value; 30,000,000 shares authorized; 10,624,178 and10,592,125 shares issued in 2005 and 2004, respectively

106 106

Additional paid-in capital 98,193 97,899 Treasury stock at cost, 2,187,275 shares in 2005 and 2004 (48,585) (48,585)Retained earnings 4,714 11,211 Accumulated other comprehensive loss (7,413) (12,272) Total shareholders' equity 47,015 48,359 Total liabilities and shareholders' equity $ 455,780 $ 452,123

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

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AEP INDUSTRIES INC.CONSOLIDATED STATEMENTS OF OPERATIONSAND OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)(in thousands, except per share data)

For the Three Months EndedJanuary 31,

2005 2004 NET SALES $ 217,389 $ 177,742 COST OF SALES 184,464 147,031 Gross profit 32,925 30,711 OPERATING EXPENSES Delivery 8,791 8,058 Selling 9,332 9,398 General and administrative 8,315 6,412 Total operating expenses 26,438 23,868 OTHER OPERATING INCOME (EXPENSE) Gain (loss) on sales equipment, net 142 (3) Operating income from continuing operations 6,629 6,840 OTHER INCOME (EXPENSE): Interest expense (6,694) (6,349) Other, net (275) 95 (6,969) (6,254) Income (loss) from continuing operations before provision for income taxes (340) 586 PROVISION FOR INCOME TAXES 1,080 1,329 Loss from continuing operations (1,420) (743) DISCONTINUED OPERATIONS: Pre-tax loss from operations (339) (270) Loss from disposition (4,719) 0 Income tax provision (benefit) 19 (207) Loss from discontinued operations (5,077) (63) Net loss $ (6,497) $ (806) EARNINGS (LOSS) PER COMMON SHARE—BASIC AND DILUTED Loss from continuing operations $ (0.17) $ (0.09) Loss from discontinued operations $ (0.60) $ (0.01) Total net loss per common share $ (0.77) $ (0.10)


2005 2004 Consolidated Statements of Other Comprehensive Income (Loss): Net loss $ (6,497) $ (806) Other comprehensive income:

Write-off of accumulated foreign currency translation adjustmentsrelated to discontinued operations 2,511 —

Foreign currency translation adjustments 2,286 5,861 Unrealized gain on cash flow hedges 62 270 Comprehensive (loss) income $ (1,638) $ 5,325

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

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AEP INDUSTRIES INC.CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)(in thousands)

For the Three MonthsEnded January 31,

2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Loss from continuing operations $ (1,420) $ (743)Adjustments to reconcile loss from continuing operations to net cash provided byoperating activities: Depreciation and amortization 7,519 7,695 Amortization of debt fees 326 326 ESOP expense 550 442 Change in LIFO Reserve 8,103 140 (Gain) loss on sale of equipment (142) 3 Provision for losses on accounts receivable and inventories 638 267 Change in deferred income taxes 108 385 Changes in operating assets and liabilities, net of acquisition of businesses: Decrease in accounts receivable 5,132 13,547 Increase in inventories (21,179) (6,566) Increase in other current assets (2,386) (1,597) (Increase) decrease in other assets (368) 1,269 Decrease in accounts payable (7,174) (15,077) Decrease in accrued expenses (12,247) (12,011) Increase (decrease) in other long-term liabilities 168 (1,320) Net cash used in operating activities (22,372) (13,240) CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures (5,931) (1,256)Proceeds from sales of equipment 259 71 Proceeds from sales of net assets held for sale — 1,609 Net cash (used in) provided by investing activities (5,672) 424 CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings of credit facility 23,504 15,084 Repayments of Pennsylvania Industrial Loans (90) (88) Net borrowings (repayments) of foreign bank borrowings (1,712) 2,915 Payments for capital leases (649) (161) Decrease in restricted cash related to capital lease agreement 407 — Proceeds from issuance of common stock 294 291 Net cash provided by financing activities 21,754 18,041 NET CASH PROVIDED BY/ (USED IN) DISCONTINUED OPERATIONS

316

(1,584

)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

(400

)

(1,964

)

Net (decrease) increase in cash (6,374) 1,677 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

9,557

3,784

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,183 $ 5,461 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for interest $ 11,137 $ 10,918 Cash paid during the period for income taxes $ 1,168 $ 1,448 Capital expenditures related to capital lease $ 2,469 $ —

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

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Summary of Significant Accounting Policies

The consolidated financial information included herein has been prepared by the Company without audit, for filing withthe U.S. Securities and Exchange Commission pursuant to the rules and regulations of the Commission.

The consolidated financial statements include the accounts of AEP Industries Inc. and its majority-owned subsidiaries.All significant intercompany transactions and balances have been eliminated in consolidation. In management's opinion, alladjustments necessary for the fair presentation of the consolidated financial position as of January 31, 2005, the results ofoperations for the three months ended January 31, 2005 and 2004, and cash flows for the three months ended January 31,2005 and 2004, have been made. The results of operations for the three months ended January 31, 2005, are not necessarilyindicative of the results to be expected for the full year.

Certain prior period amounts related to the discontinued operations of the Company's Spanish, Termofilm (Italy) andFrench businesses (see Note 11) have been reclassified to conform to the current period's presentation.

Certain information and footnote disclosures normally included in consolidated financial statements prepared inaccordance with accounting principles generally accepted in the United States of America have been omitted. Theseconsolidated financial statements should be read in conjunction with the consolidated financial statements and notes theretoincluded in the Company's Annual Report on Form 10-K for the year ended October 31, 2004, filed with the U.S. Securitiesand Exchange Commission on January 31, 2005.

(2) Earnings Per Share (EPS)

Basic earnings per share ("EPS") are calculated by dividing income (loss) by the weighted average number of shares ofcommon stock outstanding during the period. The number of shares used in such computation for the three months endedJanuary 31, 2005 and 2004, was 8,412,488 and 8,189,206, respectively. Diluted EPS is calculated by dividing income (loss)by the weighted average number of common shares outstanding, adjusted to reflect potentially dilutive securities (options)using the treasury stock method. Because of the losses from continuing operations for the three months ended January 31,2005 and 2004, the assumed net exercise of stock options in those periods was excluded, as the effect would have beenanti-dilutive. At January 31, 2005 and 2004, the Company had 546,455 and 559,987 stock options outstanding, respectively,that could potentially dilute basic earnings per share in future periods that have income from continuing operations.

(3) Inventories

Inventories are stated at the lower of cost (last-in, first-out method for domestic operations and first-in, first-out methodfor foreign operations and for supplies) or market, include material, labor and manufacturing overhead costs, less vendorrebates, and are comprised of the following:

January 31,2005

October 31,2004

(in thousands)

Raw materials $ 28,576 $ 22,201Finished goods 65,829 58,435Supplies 2,215 2,146 96,620 82,782Less: Inventory reserve 2,773 2,590 Inventories, net $ 93,847 $ 80,192

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The last-in, first-out (LIFO) method was used for determining the cost of approximately 57% and 50% of totalinventories at January 31, 2005 and October 31, 2004, respectively. Inventories would have been increased by $18.8 millionand $10.7 million at January 31, 2005 and October 31, 2004, respectively, if the first-in first-out (FIFO) method had beenused exclusively. Because of the Company's continuous manufacturing process, there is no significant work in process at anypoint in time.

(4) Other Income (Expense)

For the three months ended January 31, 2005 and 2004, other income (expense), net in the consolidated statements ofoperations consists of the following:

For the three monthsended January 31,

Income (expense) 2005 2004

(in thousands)

Foreign currency exchange losses $ (318) $ (10)Interest income 62 25 Other miscellaneous (19) 80 Total $ (275) $ 95

(5) Segment and Geographic Information

The Company's operations are conducted within one business segment, the production, manufacture and distribution ofplastic packaging products, primarily for the food/beverage, industrial and agricultural markets. The Company operates inthree geographical regions, North America, Europe and Asia/Pacific.

Information about the Company's operations (excluding the discontinued operations of the Spanish, French andTermofilm subsidiaries—See Note 11 for further information) by geographical area, with United States and Canada statedseparately, for the three months ended January 31, 2005 and 2004, respectively, is as follows:

North America

For the three months ended January 31, 2005 United States Canada Europe

Asia/Pacific Total

(in thousands)

Sales—external customers $ 135,221 $ 11,457 $ 34,910 $ 35,801 $ 217,389Intersegment sales 4,898 1,187 — — 6,085Operating income (loss) from continuingoperations 6,009 1,740 (544) (576) 6,629

North America For the three months ended January 31, 2004 United States Canada Europe

Asia/Pacific Total

(in thousands)

Sales—external customers $ 104,573 $ 10,027 $ 29,222 $ 33,920 $ 177,742Intersegment sales 3,737 768 31 — 4,536Operating income (loss) from continuingoperations 4,865 1,821 (984) 1,138 6,840

Operating income includes all costs and expenses directly related to the geographical area.

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(6) Derivative Instruments

The Company operates internationally, giving rise to exposure to market risks from fluctuations in interest rates andforeign exchange rates. To effectively manage these risks, the Company enters into foreign currency forward contracts andinterest rate swaps. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company enters into foreign exchange forward contracts to minimize the risks associated with foreign currencyfluctuations on asset or liabilities denominated in other than the functional currency of the Company or its subsidiaries. Theseforeign exchange forward contracts are not accounted for as hedges in accordance with SFAS No. 133, "Accounting forDerivative Investments and Hedging Activities"; therefore any changes in fair value of these contracts are recorded in otherincome (expense), net in the consolidated statements of operations. These foreign exchange forward contracts are recorded inthe consolidated balance sheets at fair value.

The Company records all of its cash flow hedges in accordance with SFAS No. 133, "Accounting for DerivativeInstruments and Hedging Activities" and as amended by SFAS No. 138 and SFAS No. 149. For a derivative designated andqualifying as a cash flow hedge of anticipated foreign currency denominated transactions or interest on debt instruments, theeffective portions of changes in the fair value of the derivative are recorded in accumulated comprehensive income (loss) inshareholders' equity and are recognized in net income (loss) when the hedged item affects operations. If the transaction beinghedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss on the associated financial instrument isrecorded immediately in operations. For the three months period ended January 31, 2005 and 2004, the changes in the net fairvalue of derivative financial instruments designated as cash flow hedges by the Company was a gain of $62,000 and$270,000, respectively, which is included in accumulated other comprehensive income (loss).

(7) Shareholders' Equity

The Company does not recognize compensation expense relating to employee stock options because options are onlygranted with an exercise price at least equal to the fair value of the Company's common stock on the effective date of thegrant. If the Company had elected to recognize compensation expense using a fair value approach and, therefore, determinedthe compensation based

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on the value as determined by the Black-Scholes option pricing model, the pro forma net loss and loss per share would havebeen as follows:


2005 2004

(in thousands)

Net loss, as reported $ (6,497) $ (806)Add: Stock-based employee compensation expense included in net loss — — Deduct: Total stock-based employee compensation determined under fair valuebased method for all awards, net of tax effects (167) (169) Pro forma net loss $ (6,664) $ (975) Earnings per share: Basic loss per share, as reported $ (0.77) $ (0.10) Basic loss per share, pro forma $ (0.79) $ (0.12) Diluted loss per share, as reported $ (0.77) $ (0.10) Diluted loss per share, pro forma $ (0.79) $ (0.12)

The fair value of each option was estimated on the date of grant using the following weighted average assumptions:


2005 2004 Risk-free interest rates 4.22% 4.24%Expected life in years 7.5 7.5 cted volatility 65.63% 67.56%Dividend rate 0% 0%

The Company's 1995 Stock Option Plan expired on December 31, 2004. The Company's Board of Directors adopted theAEP Industries Inc. 2005 Stock Option Plan ("2005 Option Plan") and the Company's shareholders approved the 2005 OptionPlan at its annual shareholders meeting held on April 13, 2004. The 2005 Option Plan became effective January 1, 2005 andwill expire on December 31, 2014. The 2005 Option Plan provides for the granting of incentive stock options ("ISOs") whichmay be exercised over a period of ten years and the issuance of Stock Appreciation Rights (SARs), restricted stock,performance shares and nonqualified stock options, including fixed annual grants, to non-employee directors. Under the 2005Option Plan, outside directors receive a fixed annual grant of 1,000 options at the time of the annual meeting of shareholders.The Company has reserved 1,000,000 shares of the Company's common stock for issuance under the 2005 Option Plan.These shares of common stock may be made available from authorized but unissued common stock, from treasury shares orfrom shares purchased on the open market. The Company issued 2,000 options under this plan as of January 31, 2005.

The Company's 1995 Employee Stock Purchase Plan ("1995 Purchase Plan") provides for an aggregate of 300,000shares of common stock which have been made available for purchase by eligible employees of the Company, includingdirectors and officers, through payroll deductions over successive six-month offering periods. The purchase price of thecommon stock under the 1995 Purchase Plan is

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85% of the lower of the last sales price per share of common stock in the over-the-counter market on either the first or lasttrading day of each six-month offering period. During the three months ended January 31, 2005 and 2004, 31,925 and 45,859shares, respectively were purchased by employees pursuant to the 1995 Purchase Plan. The 1995 Purchase Plan expires onJune 30, 2005.

The Company's Board of Directors adopted the AEP Industries Inc. 2005 Employee Stock Purchase Plan ("2005Purchase Plan") and the Company's shareholders approved the 2005 Purchase Plan at its annual shareholders meeting held onApril 13, 2004. The 2005 Purchase Plan will become effective July 1, 2005 and will expire on June 30, 2015. The Companyhas reserved a maximum of 250,000 shares of the Company's common stock which will be made available for purchase byeligible employees, including employee directors and officers under the 2005 Purchase Plan. The 2005 Purchase Plan willoperate in the same manner as the 1995 Purchase Plan, as outlined above.

(8) Pension

The Company has defined benefit plans at selected foreign locations. For most salaried employees, benefits under theseplans generally are based on compensation and credited service. For most hourly employees, benefits under these plans arebased on specified amounts per year of credited service, as defined. The Company funds these plans in amounts actuariallydetermined or in accordance with the funding requirements of local law and regulations.

The components of net periodic benefit costs for the foreign defined benefit pension plans are as follows:


2005 2004

(in thousands)

Service cost $ 467 414 Interest cost 307 285 Expected return on plan assets (307) (246)Employee contributions (137) (132)Amortization of prior service cost 14 13 Amortization of net actuarial loss (gain) (7) 5 Net periodic benefit cost $ 337 $ 339

Employer Contributions

As of January 31, 2005, the Company contributed approximately $0.1 million to its foreign defined benefit pensionplans. Presently, the Company anticipates contributing an additional $1.4 million to fund its foreign defined benefit pensionplans in fiscal 2005 for a total of $1.5 million.

(9) Income Taxes

Income taxes are accounted for using the asset and liability method. Such approach results in the recognition of deferredtax assets and liabilities for the expected future tax consequences of temporary differences between the book carryingamounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets and isrecorded when management estimates that it is more likely than not that the asset will not be realized.

The provision for income taxes for the three months ended January 31, 2005, was $1.1 million on the loss fromcontinuing operations before the provision for income taxes of $0.3 million. The provision

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excludes approximately $1.1 million of tax benefits for the three months ended January 31, 2005, for foreign entities with netlosses for which the Company has determined that it is more likely than not that the tax benefit will not be fully realized.

The provision for income taxes for the three months ended January 31, 2004, was $1.3 million on income fromcontinuing operations before the provision for income taxes of $0.6 million. The provision excludes approximately$0.6 million of tax benefits for the three months ended January 31, 2004, for foreign entities with net losses for which theCompany has determined that it is more likely than not that the tax benefit will not be fully realized.

The American Jobs Creation Act ("the Act") was signed into effect on October 22, 2004. The Act includes a provisionwhich encourages companies to reinvest foreign earnings in the U.S. by temporarily making certain dividends received by aU.S. corporation from controlled foreign corporations eligible for an 85% dividends-received deduction. The Company mayelect to take this special one-time deduction for dividends received during the year ending October 31, 2005. The Company isstill in the process of evaluating the effects of the repatriation provision. The related range of income tax effects of suchrepatriation cannot be reasonably estimated at the time of issuance of these financial statements. There have been no amountsrecognized under the repatriation provision to date and, accordingly, there has been no effect on income tax expense (orbenefit) included in these financial statements.

(10) Liquidation of Fabbrica Italiana Articoli Plastici SpA

On September 22, 2003, the Board of Directors of the Company's Italian holding company voted to voluntarily liquidateits Italian operating company, Fabbrica Italiana Articoli Plastici SpA ("FIAP"), because of its continued losses.

FIAP manufactured flexible packaging, primarily thin PCV film for twist wrapping and general over wrap. TheCompany does not believe the activities of FIAP represent a separate major line or component of its business or separate classof customers as production and sale of similar products are done in other AEP European facilities. The Company's otherfacilities continue to produce products for and supply some of FIAP's customers. As a result, the Company has not recordedthe losses associated with the shut down as a discontinued operation and has included the losses in operating expenses in itsconsolidated statement of operations.

During the fourth quarter of fiscal 2003, the Company recorded a pre-tax loss of $13.3 million related to the shutdown ofFIAP based on its best estimates in establishing asset impairments, allowances and asset write downs and reserves needed asa result of the voluntary liquidation of FIAP. The following is a summary of the reserves still remaining at January 31, 2005,and included in accrued expenses in the consolidated balance sheets:

Balance atOctober 31, 2004 Payments

ForeignExchange

Balance atJanuary 31, 2005

(amounts in thousands)

Reserve for non-compete agreements $ 116 $ (28) $ (1) $ 87Reserve for other costs 314 — 6 320 Total Reserves $ 430 $ (28) $ 5 $ 407

The Company has three non-compete agreements outstanding at January 31, 2005. The last payment is expected to bemade on September 30, 2006, in accordance with the agreements.

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Other costs relate to litigation claims made against the Company and represent the Company's best estimate ofsettlement costs.

The following information summarizes the results of operations of FIAP, excluding the above charges, included in theconsolidated statements of operations:

For the three monthsended January 31, 2005

For the three monthsended January 31, 2004

(in thousands)

Net sales $ — $ 1,970 Gross profit — 26 (Loss) from operations (334) (362)Net loss $ (333) $ (273)

The liquidation of FIAP was considered substantially completed at October 31, 2004, except for the sale of the land andbuilding. The Company does, however, expect to incur additional expenses in fiscal 2005. These expenses relate to thesalaries of contracted people who will assist in the dismantling and shipping of the machinery, security costs, liquidator costs,legal fees, accounting fees and any additional costs that may arise. The Company estimates at January 31, 2005, these costs tobe approximately $0.2 million for the remainder of fiscal year 2005.

Net assets held for sale include machinery, land and buildings for the FIAP location. Fair value is based on estimatedproceeds from the sale of the machinery and facility utilizing recent buy offers and data obtained from commercial real estatebroker less cost to sell. No book gains or losses are expected on these sales. Sale of the FIAP land and building is expected tobe completed during fiscal 2005.

At the completion of the sale of the FIAP land and building the Company, in accordance with SFAS No. 52, "ForeignCurrency Translation," expects to charge operations for the accumulated translation adjustment component of FIAP's equity.At January 31, 2005, the FIAP accumulated translation loss included in accumulated other comprehensive loss wasapproximately $9.8 million.

(11) Discontinued Operations

In order to concentrate on the Company's core business, reduce costs and improve the quality of our earnings, theCompany's management committed to a plan during the first quarter of fiscal 2005 to divest its French and Termofilmsubsidiaries, each a component of the Company's European operations. The French subsidiary manufactures a range ofproducts in PVC stretch film and the Termofilm subsidiary manufactures polyolefins shrink films.

On February 10, 2005, the Company completed the disposition of the French operations. An investor group took overthe French operations and assumed all of the associated liabilities of the French subsidiary (other than intercompanyliabilities), including third-party bank borrowings. In addition, the Company expects the sale of Termofilm to be completed ina management-buyout arrangement during the second quarter of fiscal 2005 for approximately $2.1 million.

In July 2004, the Company's management approved a plan to dispose of its Spanish subsidiary, a component of theCompany's European segment, because of its continued losses. The Spanish subsidiary manufactured a range of products inPVC stretch film, primarily for the automatic and manual wrapping of fresh food and for catering film use. The Companyactively commenced marketing the sale of its Spanish subsidiary to interested parties in July 2004. After failed attempts tosell the Spanish operations, management placed the operation in liquidation in September 2004. On September 30, 2004, theSpanish subsidiary ceased operations. As a result, during the fourth quarter of

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2004, the Company recorded a liability for employee termination costs based on negotiations with Spanish unions of$3.3 million in which $2.9 million was paid by January 31, 2005, with the remaining $0.4 expected to be paid during thesecond quarter of fiscal 2005. A liability for estimated lease termination costs of $0.9 million had also been recorded inliabilities of discontinued operations in the consolidated balance sheets. Agreement with the lessor has been reached and theliability is $0.7 million. The additional $0.2 million has been utilized to reduce other assets to realizable value based on otherdevelopments during the quarter ended January 31, 2005.

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the disposal ofthese subsidiaries are being accounted for as discontinued operations and, accordingly, their assets and liabilities have beensegregated from continuing operations in the accompanying consolidated balance sheets, and its operating results aresegregated and reported as discontinued operations in the accompanying consolidated statements of operations. The estimatedloss on disposition includes an impairment loss to reduce the carrying value to fair value, less costs to dispose, for the Frenchand Termofilm subsidiaries of approximately $1.8 million and $0.4 million, respectively, based on estimated proceeds and isincluded in the liabilities of discontinued operations in the consolidated balance sheets.

At January 31, 2005, the accumulated foreign currency translation losses for the French and Termofilm subsidiaries of$2.1 million and $0.2 million, respectively, have been charged to loss from disposition. In accordance with SFAS No. 52,"Foreign Currency Translation", these amounts were previously carried as a reduction of consolidated shareholders' equityand, an equal and offsetting amount was reported in accumulated other comprehensive loss. The Spanish discontinuedoperations foreign currency translation losses of $0.2 million for the quarter ended January 31, 2005 have been charged toloss from disposition.

Condensed financial information related to the discontinued operations is as follows:

For the three months ended January 31, 2005

Spain France Termofilm Total

(in thousands)

Net sales $ 132 $ 7,227 $ 1,144 $ 8,503 Gross profit (loss) (110) 1,247 380 1,517 (Loss) income from operations (132) (240) 14 (358)Net loss (348) (4,116) (613) (5,077)

For the three months ended January 31, 2004


(in thousands)

Net sales $ 3,843 $ 6,330 $ 979 $ 11,152 Gross profit 541 1,009 345 1,895 (Loss) income from operations (127) — 64 (63)Net loss (income) (127) — 64 (63)

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Asset and liabilities to be disposed of are comprised of the following at January 31, 2005:


(in thousands)

Assets: Cash $ 3,829 $ 283 $ 207 $ 4,319Accounts receivable 249 4,608 1,844 6,701Inventories 156 2,827 814 3,797Machinery and equipment 1,000 1,431 231 2,662Other assets 244 1,491 549 2,284 Total Assets $ 5,478 $ 10,640 $ 3,645 $ 19,763 Liabilities:

Bank borrowings $ 0 $ 3,754 $ 0 $ 3,754Accounts payable 3,957 3,140 664 7,761Accrued expenses 2,330 3,139 1,649 7,118 Total Liabilities $ 6,287 $ 10,033 $ 2,313 $ 18,633

(12) Commitments and Contingencies

Claims and Lawsuits:

The Company and its subsidiaries are subject to claims and lawsuits which arise in the ordinary course of business. Onthe basis of information presently available and advice received from counsel representing the Company and its subsidiaries,it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits against theCompany will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

Contingencies:

In fiscal 2001, the European Commission served the Company's Netherlands subsidiary with a notice to produce variousdocuments and other evidence relating to its investigation of a possible violation of European Competition Law by thesubsidiary. The Company has cooperated with the European Commission in its investigation. The Company's last writtencommunication with the European Commission was in January 2002. At this time, no litigation is pending against theCompany involving this matter, and the Company is not in a position to evaluate the outcome of this investigation. However,there can be no assurance that in the event that the European Commission serves a Statement of Objections instituting aproceeding against the Company's Netherlands subsidiary which results in a fine being assessed, that the amount of the finewould not be material.

In February 2004, the Company's New Zealand subsidiary was served with two summonses and complaints applicable toa business acquired by the subsidiary on November 2, 2001, and immediately transferred to a joint venture company, RapakAsia Pacific Limited, in which the subsidiary held a 50.1% interest, which interest was sold in May 2003. The complaintsallege approximately $9.0 million

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in damages for defective products manufactured both before and after November 2, 2001. The Company has referred thismatter to the insurance carriers that it believes are responsible to defend and indemnify its New Zealand subsidiary for thealleged liability. The insurance carriers have agreed to defend the claims subject to reservations of rights. The Company alsobelieves it may be entitled to indemnification under various agreements. Based on developments to date, the Companybelieves that the outcome of this matter will not have a material adverse effect on its results of operations, financial positionor liquidity.

(13) Subsequent Events

On February 10, 2005, the Company signed an amendment to the existing senior secured credit facility entered into withWachovia Bank, National Association, as successor by merger to Congress Financial Corporation and certain other lendersincreasing the Company's maximum borrowings under the existing senior secured credit facility from $85.0 million to$100.0 million. In addition, on February 25, 2005, the Company further amended and obtained consent under the senior creditfacility to permit the tender offer and consent solicitation for the Company's Senior Subordinated Notes and increased theannual permitted amount for certain repayments of indebtedness and repurchases of securities of the Company and for certaininvestments from $25.0 million to $50.0 million.

On February 10, 2005, the Company completed the sale of the French operations to an investor group in considerationfor their assumption of all of the associated liabilities of the French subsidiary (other than intercompany liabilities), includingthird-party bank borrowings.

On February 4, 2005, Borden Holdings LLC sold substantially all of the Company's common stock owned by it to agroup of affiliated purchasers, led by Third Point LLC ("Third Point"). Prior to this sale, Borden owned approximately 25.8%of the Company's common stock. In connection with this sale, the Company entered into an agreement with Third Point andJ. Brendan Barba, the Company's Chairman, President and Chief Executive Officer, concerning certain governance and othermatters affecting Third Point, Mr. Barba and the Company. Among other things, the agreement requires the Company andMr. Barba to take all actions under their control to cause, depending on the percentage of stock ownership of the Company byThird Point and its affiliated purchasers, up to two persons designated by Third Point to be appointed and elected to theCompany's Board of Directors following delivery of a notice to the Company and to Mr. Barba exercising such right todesignate. In addition, the agreement provides the Third Point affiliated purchasers with certain registration rights in respectof their stock in the Company that are substantially similar to the registration rights held by Borden.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our primary business is the manufacturing and marketing of plastic films for use in the packaging, transportation,beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agricultural and textile industries. Ourprincipal manufacturing operations are located in the United States, Canada, the Netherlands and Belgium. We may either sellthe film or further process it by metallizing, printing, laminating, slitting or converting it. Our processing technologies enableus to create a variety of value-added products according to the specifications of our customers. We have additionalmanufacturing operations in Australia and New Zealand, all of which we are in the process of marketing.

Resin costs, depending on the product line, average between 55% and 74% of the cost of goods sold. Since resin costsfluctuate, selling prices are generally determined as a "spread" over resin costs, usually expressed as cents per pound.Accordingly, costs and profits are most often expressed in cents per pound, and, with certain exceptions, the historicalincreases and decreases in resin costs have been reflected over a period of time in the sales prices of the products on apenny-for-penny basis. Assuming a constant volume of sales, an increase in resin costs should, therefore, result in increasedsales revenues but lower gross profit as a percentage of sales or gross profit margin, while a decrease in resin costs shouldresult in lower sales revenues with higher gross profit margins, and thus in both cases with no impact on gross profit. Resinpricing increased 19.6% during fiscal 2004 in North America and at a much higher rate in our European and Asia/Pacificregions. In North America, we were able to pass through these resin increases in fiscal 2004; however resin increases in theEuropean and Asia/Pacific markets were not all passed through in fiscal 2004 due to customer resistance and to thecompetitive market place. During the first quarter of fiscal 2005, we had a 14.8% increase in per pound resin costs in NorthAmerica and we anticipate future price increases in resin worldwide for the balance of fiscal 2005. There can be no assurancethat we will be able to pass on resin price increases on a penny-for-penny basis in the future.

Results of Continuing Operations

Three Months Ended January 31, 2005, as Compared to Three Months Ended January 31, 2004

Net Sales and Gross Profit

Net sales for the three months ended January 31, 2005, increased by $39.7 million, or 22.3%, to $217.4 million from$177.7 million for the three months ended January 31, 2004. The increase in net sales included $5.3 million of positiveimpact of foreign exchange, $20.3 million from increased per unit selling prices and $14.1 million from the increased salesvolume. Net sales in North America increased $32.1 million to $146.7 million in the first quarter of fiscal 2005 from$114.6 million in the same period in the prior fiscal year. The increase was primarily due to a 9.8% increase in sales volumealong with a 27.3% increase in per unit average selling prices. The first quarter of 2005 also included $0.8 million of positiveimpact of foreign exchange relating to our Canadian operations. The increase in average selling prices is attributable to higherraw material costs, primarily resin, which we were able to pass through to our customers in the current period. Net sales inEurope increased $5.7 million to $34.9 million for the three months ended January 31, 2005, from $29.2 million for the threemonths ended January 31, 2004. This increase for the period was a result of the positive impact of foreign exchange of$2.6 million combined with a 12.5% increase in per unit selling prices offset by a 1.6% decrease in sales volume. In spite ofcontinuing general economic pressures of the region and the competitive marketplace, European operations were able to passthrough to its customers current resin price increases which increase the per unit selling prices. Net sales in Asia /Pacificincreased $1.9 million to $35.8 million for the three months ended January 31, 2005, from $33.9 million for the same periodin the prior year. This increase was due to the positive impact of foreign exchange of $1.9 million, which

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increased average selling prices. Sales volume was the same for the three months ended January 31, 2005 and 2004.

Gross profit for the three months ended January 31, 2005, was $32.9 million compared to $30.7 million for the threemonths ended January 31, 2004. This increase of $2.2 million in gross profit was primarily a result of increased sales volume,primarily in North America in addition to the positive impact of foreign exchange of $0.7 million for the first fiscal quarter of2005. Gross profit in North America increased $2.9 million, or 12.6%, to $26.1 million for the quarter ended January 31,2005, which was primarily due to the 9.8% increase in sales volume, which increased gross profit by $2.3 million, in additionto $0.2 million of positive impact of foreign exchange. Gross profit in Europe increased $0.7 million, or 23.6% to$3.6 million for the three months ended January 31, 2005, from $2.9 million for the three months ended January 31, 2004.This increase includes the positive effect of foreign exchange of $0.3 million for the first quarter of fiscal 2005 and increasesin per unit selling prices which resulted from being able to pass through to its customers current period resin price increases.Asia/Pacific gross profit for the three months ended January 31, 2005, decreased to $3.2 million from $4.6 million for the likeperiod in the prior fiscal year. This decrease includes the positive effect of foreign exchange of $0.2 million offset by a $1.6decline due to a decrease in average per unit selling prices which resulted from the competitive market and a change inproduct mix to lower gross margin products.

Operating Expenses

Operating expenses for the three months ended January 31, 2005 increased $2.6 million or 10.8% to $26.4 million fromthe comparable period in the prior fiscal year. The operating expenses increased $0.6 million as a result of negative impact offoreign exchange. Delivery expenses for the first quarter of fiscal 2005 were $8.8 million versus $8.1 million in the prioryear. After giving effect to the negative foreign exchange impact of $0.1 million, delivery expenses increased by $0.6 millionfrom the prior year as a result of the 9.8% increase in North America sales in the first quarter of fiscal 2005. Selling expensesdecreased by $0.1 million to $9.3 million from $9.4 million in the same period in the prior fiscal year. This decrease can beprimarily attributed to net reductions in other selling expenses of $0.3 million, which were primarily offset by the negativeimpact of foreign exchange of $0.2 million. General and administrative expenses for the three months ended January 31,2005, increased by $1.9 million or 29.7% to $8.3 million from $6.4 million in the same period in the prior fiscal year. Thisincrease was primarily due to legal and advisory expenses and costs related to compliance with the Sarbanes-Oxley Act of2002 which increased general and administrative expenses by $1.1 million and the negative impact of foreign exchange of$0.3 million for the first quarter of fiscal 2005 as compared to the comparable prior period.

Other Operating Income (Expense)

Other operating income (expense) for the three months ended January 31, 2005, amounted to $142,000 in income versus$3,000 in expense the same period of the prior fiscal year, which were the result of net gains (losses) on sales of equipmentduring the for the first quarter of each of the fiscal years.

Interest Expense

Interest expense for the three months ended January 31, 2005, was $6.7 million compared to $6.3 for the three monthsended January 31, 2004. This increase in interest expense of $0.4 million includes $0.1 million of negative impact of foreignexchange and $0.3 million increase interest expense, which was a result of higher average debt outstanding in addition toslightly higher interest rates for the three months ended January 31, 2005 as compared to the same period in the prior fiscalyear.

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Other Income (Expense)

Other income (expense) for the three months ended January 31, 2005, amounted to a $275,000 in expense, an increase of$370,000 in expense from $95,000 in income in the comparable prior year period. During the current period, we recognized$318,000 of foreign currency transaction losses versus losses of $10,000 during the same period in the prior fiscal year due tothe number of our hedge contracts settled in each period and unrealized losses on foreign currency denominated payables andreceivables. Interest income for the first quarter of fiscal 2005 amounted to $62,000 up from $25,000 in the prior year period.Other miscellaneous expense amounted to $19,000 for the current fiscal quarter versus income of $80,000 in the prior fiscalperiod.

Provision for Income Taxes

The provision for income taxes for the three months ended January 31, 2005, was $1.1 million on the loss before theprovision for income taxes of $0.3 million. The current provision for income taxes for the three months ended January 31,2005, excludes approximately $1.1 million of tax benefits for the three months ended January 31, 2005, for foreign entitieswith net losses for which management has determined that it is more likely than not that the tax benefit will not be fullyrealized. The provision for income taxes for the three months ended January 31, 2004, was $1.3 million on the income beforethe provision for income taxes of $0.6 million. The provision for incomes taxes reflects the provision for entities havingtaxable income and excludes benefits for those foreign entities with net losses in which we have determined that it is morelikely than not that the current tax benefit will not be fully utilized.

Discontinued Operations

In order to concentrate on our core business, reduce costs and improve the quality of our earnings, our managementcommitted to a plan during the first quarter of fiscal 2005 to divest our French and Termofilm subsidiaries, each a componentof our European operations. The French subsidiary manufactures a range of products in PVC stretch film and the Termofilmsubsidiary manufactures polyolefins shrink films.

On February 10, 2005, we completed the disposal of the French operations. An investor group took over the operationsand assumed all of the associated liabilities of the French subsidiary (other than intercompany liabilities), includingthird-party bank borrowings. In addition, we expect the sale of the Termofilm subsidiary to be completed in amanagement-buyout arrangement during the second quarter in fiscal 2005 for approximately $2.1 million.

Additionally, in July 2004, our management approved a plan to dispose of its Spanish subsidiary, a component of the ourEuropean operations, because of its continued losses. The Spanish subsidiary manufactured a range of products in PVCstretch film, primarily for the automatic and manual wrapping of fresh food and for catering film use. We activelycommenced marketing the sale of the Spanish subsidiary to interested parties in July 2004. After failed attempts to sell theSpanish operations, management placed the operation in liquidation in September 2004 and began a process to sell theSpanish assets and settle its liabilities. On September 30, 2004, the Spanish subsidiary ceased operations.

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the disposal ofthe Spanish, French and Termofilm subsidiaries are being accounted for as discontinued operations. The loss fromdiscontinued operations for the three months ended January 31, 2005, of $5.1 million includes net losses of the Spanishsubsidiary of $132,000, net losses of the French subsidiary of $240,000 and net income of the Termofilm subsidiary of$14,000. The loss from discontinued operations also includes a loss from disposition of $4.7 million that includes a write offof current period's translation adjustments of $0.2 million for our Spanish subsidiary and the write off of

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accumulated translation adjustments of $2.1 million and $0.2 million for the French and Termofilm subsidiaries, respectively.The loss on disposition also includes an impairment loss to reduce the carrying value to fair value, less costs to dispose, forthe French and Termofilm subsidiaries of $1.8 million and $0.4 million, respectively, based on estimated proceeds. The lossfrom discontinued operations for the three months ended January 31, 2004, was $0.1 million and represents the aggregate netlosses of the Spanish, French and Termofilm subsidiaries.

Liquidity and Capital Resources

We have historically financed our operations through cash flow generated from operations and borrowings by us and oursubsidiaries under various credit facilities. Our principal uses of cash have been to fund working capital, including operatingexpenses, debt service and capital expenditures.

Our working capital amounted to $97.1 million at January 31, 2005, compared to $73.7 million at October 31, 2004.This $23.4 million increase in working capital was primarily the result of an increase in raw material costs (prime resin) andsales volume in North America that increased our investment in inventories during the period by $13.1 million, combinedwith a decrease in accrued expenses that were accrued at October 31, 2004 and subsequently paid during the current quarter.The decrease of $2.1 in the net assets of the discontinued operations includes a reserve of $2.2 million for the anticipated losson the disposition of the Termofilm and French subsidiaries. The remaining increases and decreases in components of our networking capital reflect the normal operating activity for the period. The increase in working capital was funded throughadditional borrowings under our senior credit facility.

On November 20, 2001, we entered into a Loan and Security Agreement with Congress Financial Corporation which hasbeen succeeded by merger by Wachovia Bank Association as initial lender thereunder and as agent for the financialinstitutions that would from time to time be lenders thereunder. Under this agreement the Lenders provided a maximum creditfacility of $85 million, including a letter of credit facility of up to $20 million. The senior credit facility had an initialthree-year term with an option held by us to extend prior to the end of year three for an additional year and, if so extended, atthe end of year four for an additional year, in each case subject to the satisfaction of certain conditions, including the paymentof an extension fee of 0.25% of the maximum amount of borrowings under the senior credit facility. The term of the seniorcredit facility has been extended to November 19, 2005, and may be extended to November 19, 2006. We expect to refinancethe senior credit facility at that time. However, any extension of the maturity of the senior credit facility is subject to certainconditions and, under certain circumstances, the lenders under the senior credit facility may elect to not permit us to renewthe senior credit facility.

Amounts available for borrowing are based upon the sum of eligible accounts receivable and inventories, determined ona monthly basis, and the aggregate value of eligible buildings and equipment. The senior credit facility is secured bymortgages and liens on our domestic assets and on 66% of our equity ownership in certain foreign subsidiaries. Theagreement contains customary bank covenants, including limitations on the incurrence of debt, the disposition of assets, themaking of restricted payments and the payment of cash dividends. At any time Excess Availability, as defined by the seniorcredit facility, is less than $20.0 million, a minimum EBITDA covenant becomes applicable and a springing lock-boxbecomes activated; at any time Excess Availability is less than $10.0 million, we also become subject to further restrictions,including limitations on inter-company funding. When the springing lock-box is activated, all remittances received fromcustomers in the United States automatically repay the balance outstanding under the senior credit facility. The automaticrepayments through the lock-box remain in place until Excess Availability exceeds $20.0 million for 30 consecutive days.During the period in which the lock-box is activated, all debt outstanding under the senior credit facility is classified as acurrent liability, which may materially affect our working capital ratio. During the first quarter of fiscal 2005 the ExcessAvailability under our senior credit facility ranged from $33.2 million to $64.0 million. Our Excess Availability under thisfacility was $39.4 million at

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January 31, 2005. We currently project that our Excess Availability under this facility will exceed $20.0 million throughOctober 31, 2005, at a minimum, based upon budgeted financial statements and budgeted cash requirements. Interest ratesunder the senior credit facility range from, in the case of loans based on the prime rate, the prime rate plus 025% to 1.00% or,in the case of loans based on LIBOR, LIBOR plus 2.25% to 3.00%, in each case depending on (i) Excess Availability and(ii) our leverage. We are obligated to pay an unused line fee on the excess of the maximum credit facility amount over theaverage daily usage of the senior credit facility at a rate equal to 0.375% or 0.5%, depending upon (i) Excess Availability and(ii) our leverage. As of January 31, 2005, there was $45.6 million outstanding at a weighted average interest rate of 5.02%under this senior credit facility.

On February 10, 2005, we entered into an amendment to the senior credit facility increasing our maximum borrowingsunder the existing senior credit facility from $85.0 million to $100.0 million. In addition, on February 25, 2005, we furtheramended and obtained consent under the senior credit facility to permit the tender offer and consent solicitation for our SeniorSubordinated Notes described below and increased the annual permitted amount for certain repayments of indebtedness andrepurchases of our securities and for certain investments from $25.0 million to $50.0 million.

In November 1997, we completed an offering of $200.0 million in aggregate principal amount of 9.875% SeniorSubordinated Notes due November 15, 2007. The issue price was 99.224% resulting in an effective yield of 10%. The Notescontain certain customary representations, warranties, covenants and conditions such as, but not limited to, cash flow ratioand certain restrictions on, but not limited to, dividends, consolidations and certain asset sales and additional indebtedness.We were in compliance with all of there covenants at January 31, 2005. On February 17, 2005, we commenced an offer topurchase for cash all of the outstanding $200.0 million aggregate principal amount of the notes and we solicited consents toeliminate substantially all of the restrictive covenants. As of March 4, 2005, we had received the requisite consents. This offerto purchase is contingent upon the closing of the new senior notes described below.

On February 28, 2005, we announced our intention to sell approximately $175.0 million in aggregate principal amountof senior notes. On March 10, 2005, we entered into a purchase agreement with Merrill Lynch & Co. and Deutsche Bank forthe sale of $175.0 million aggregate principal amount of 7.875% Senior Notes due 2013. The transaction is expected to closeMarch 18, 2005.

We maintain various credit facilities at our foreign subsidiaries. At January 31, 2005, the aggregate amount outstandingunder such facilities was $33.8 million, all of which is secured by various assets of the foreign subsidiaries, and which mayinclude accounts receivable, inventories, property and machinery, equipment and real estate. The carrying amount of thecollateral at January 31, 2005, was $130.9 million. There was $8.1 million additional availability under these facilities atJanuary 31, 2005. We guarantee certain of the debt of our foreign subsidiaries through corporate guarantees aggregatingapproximately $8.9 million at January 31, 2005. There are no existing events of default that would require us to satisfy theseguarantees. Borrowings under these facilities are used to support operations at such subsidiaries and are generally serviced bylocal cash flow from operations.

Our cash and cash equivalents were $3.2 million at January 31, 2005, as compared to $9.6 million at October 31, 2004.Net cash used in operating activities from continuing operations during the three months ended January 31, 2005, was$22.4 million, primarily comprised of a loss from continuing operations of $1.4 million adjusted for non-cash operatingcharges for depreciation and amortization of $7.5 million and an increase in our LIFO reserve of $8.1 million. In addition tothese positive adjustments, we had a decrease in accounts receivable of $5.1 million. These were offset by increases ininventories of $21.2 million, in other current assets of $2.4 million and a reduction in accounts payable and accrued expensesof $7.2 million and $12.2 million, respectively. In each period, the net changes in other operating assets and liabilities reflectnormal operating activity.

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Net cash used in investing activities during the three months ended January 31, 2005, was $5.7 million, resultingprimarily from investments in capital expenditures of $5.9 million. This was offset by proceeds from the sale of equipment of$0.2 million.

Net cash provided by financing activities during the three months ended January 31, 2005, was $21.8 million, reflectingnet borrowings of $21.7 million under available credit facilities, including foreign bank borrowings, and proceeds from stockissuances of $0.3 million, offset by net cash payments of $0.2 for capitalized leases.

Net cash provided by our discontinued operations during the three months ended January 31, 2005, was $0.3 million,resulting primarily from cash used in the close down of our Spanish subsidiary offset by cash provided by the normaloperating cash flows for the French and Termofilm subsidiaries.

Our aggregate commitments under our senior credit facility, Senior Subordinated Notes, foreign borrowings, capitalleases and noncancelable operating lease agreements as of January 31, 2005, are as follows:

For the fiscal years ending October 31, Borrowings

CapitalLeases

OperatingLeases

TotalCommitment

(in thousands)

2005 balance of year $ 26,747 $ 1,296 $ 6,785 $ 34,8282006 2,897 1,729 7,488 12,1142007(1) 48,545 1,729 5,296 55,5702008(2) 200,358 808 3,026 204,1922009 786 67 1,828 2,681Thereafter 2,151 0 6,809 8,960

(1) We expect to refinance our revolving credit facility, which expires in November 2005 with an option held by us toextend the expiration date to November 2006. The senior credit facility is expected to be refinanced at that time.

(2) We expect to refinance our Senior Subordinated Notes, which mature in November 2007 in March 2005.

We expect to use approximately $225,000 of cash for the shutdown of FIAP for the remainder of fiscal 2005 andapproximately $375,000 of cash for operating costs such as salaries, utilities and professional fees in Spain for the remainderof fiscal 2005.

We know of no current or pending demands or commitments that will materially affect liquidity, however we have$8.9 million in approved capital project spending that is scheduled to be incurred in fiscal 2005.

We have approximately $3.3 million of unfunded pension benefit obligations at October 31, 2004, for foreign locations.We expect to contribute a total of approximately $1.5 million related to these foreign defined benefit plans during fiscal 2005.

In November 2004, we exercised our early purchase option in the Netherlands to purchase certain operating leases formachinery under a new three-year capital lease of which the principal payments aggregates $2.5 million over its term.

We believe that our cash on hand at January 31, 2005, and our cash flow from operations, assuming no material adversechange and the closing of the Senior Notes offering on March 18, 2005, combined with the availability of funds under oursenior credit facility and credit lines available to our foreign subsidiaries for local currency borrowings will be sufficient tomeet our working capital, capital expenditure and debt service requirements for the foreseeable future. At January 31, 2005,we had an

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aggregate of approximately $47.4 million available under our credit facilities, before the $15.0 million increase in ourrevolving credit facility in February 2005.

Effects of Inflation

Inflation is not expected to have significant impact on our business.

Contingencies

In fiscal 2001, the European Commission served our Netherlands subsidiary with a notice to produce various documentsand other evidence relating to its investigation of a possible violation of European Competition Law by the subsidiary. Wehave cooperated with the European Commission in its investigation. Our last written communication with the EuropeanCommission was in January 2002. At this time, no litigation is pending against us or our subsidiary involving this matter, andwe are not in a position to evaluate the outcome of this investigation. However, there can be no assurance that in the eventthat the European Commission serves a Statement of Objections instituting a proceeding against our Netherlands subsidiarywhich results in a fine being assessed, that the amount of the fine would not be material.

In February 2004, our New Zealand subsidiary was served with two summonses and complaints applicable to a businessacquired by the subsidiary on November 2, 2001, and immediately transferred to a joint venture company, Rapak Asia PacificLimited, in which the subsidiary then held a 50.1% interest, which interest was sold in May 2003. The complaints allegeapproximately $9.0 million in damages for defective products manufactured both before and after November 2, 2001. Wehave referred these complaints to the insurance carriers that we believe are responsible to defend and indemnify our NewZealand subsidiary for the alleged liability. Two of the insurance carriers have agreed to defend the actions subject toreservations of rights. We also believe we may be entitled to indemnification under various agreements. Based ondevelopments to date, we believe that the outcome of these actions will not have a material adverse effect on our results ofoperations, financial position or liquidity.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidatedfinancial statements, which have been prepared in accordance with accounting principles generally accepted in the UnitedStates of America. The preparation of these consolidated financial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amount of revenues and expenses during the reporting period. On anon-going basis, management evaluates its estimates and judgments, including those related to customer incentives, productreturns, doubtful accounts, inventories, investments, intangible assets, assets held for sale, assets of discontinued operations,income taxes, financing operations, retirement benefits, and contingencies and litigation. Management bases its estimates andjudgments on historical experience and various other factors that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.Management believes the following critical accounting policies affect its more significant judgments and estimates used inpreparation of our consolidated financial statements.

• Revenue recognition, including customer returns, rebates, promotions and other incentive programs

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• Estimating valuation allowances and accrued liabilities, specifically the allowance for doubtful accounts, reservesfor obsolete or potentially obsolete inventories, LIFO inventory valuations, litigation accruals and pensionobligations

• Accounting for income taxes, estimating the realizability of deferred tax assets and evaluating income taxcontingencies

• Derivative instruments—cash flow hedges

• Valuation of stock options

• Impairment of long-lived assets, including goodwill

• Estimating the costs to shutdown divested entities, the loss from discontinued operations and loss on sale ofdiscontinued operations

We recognize sales and cost of sales at the time the product is shipped to the customer and record estimated reductionsto revenue for customer rebates, returns, promotions or other incentive programs. Customer rebate programs are based uponannual rebate agreements based upon predetermined sales volume requirements and accrued at each customer's agreed rebatepercentage.

Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age, applyinghistorical trend rates of write offs to the average accounts receivable balances over the last 60 months. When it is deemedprobable that a customer account is uncollectible, that balance is added to the calculated reserve. Actual results could differfrom these estimates under different assumptions and may be affected by changes in the general economic conditions.

Management reviews our physical inventories at each business unit to determine the obsolescence of the products onhand. When it determines that we have obsolete inventory, our North America operations scrap these inventory items and ourinternational operations establish the appropriate reserves for these items. We maintain our United States inventory on theLIFO method of inventory valuation, except for supplies. The LIFO inventory is reviewed quarterly for net realizable valueand adjusted accordingly.

Management's current estimated ranges of liabilities related to pending litigation are based on input from legal counseland management's best estimate of future costs. Final resolution of the litigation contingencies could result in amountsdifferent from current accruals and, therefore, have an impact on our consolidated financial results in a future reportingperiod. We are involved in routine litigation in the normal course of our business and based on facts currently available, webelieve such matters will not have a material adverse impact on our results of operations, financial position or liquidity.

We sponsor defined benefit plans for certain foreign employees. We account for defined benefit pension plans inaccordance with U.S. GAAP, which requires the amount recognized in financial statements to be determined on an actuarialbasis. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover anddiscount rates. A change in these assumptions could cause actual results to differ from those reported. A reduction of 50 basispoints in the long-term rate of return and a reduction of 50 basis points in the discount rate would have increased definedbenefit pension expense by $440,000 in fiscal 2004.

Management accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFASNo. 109"). Under SFAS No. 109, an asset and liability approach is required. Such approach results in the recognition ofdeferred tax assets and liabilities for the expected future tax consequences of temporary differences between the bookcarrying amounts and the tax basis of assets and liabilities. As part of the process of preparing our consolidated financialstatements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process

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involves estimating actual current tax expense together with assessing temporary differences resulting from differingtreatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which areincluded in our consolidated balance sheet.

The realizability of our deferred tax assets is primarily dependent on the future taxable income of the entity to which thedeferred tax asset relates. Management assesses the likelihood that such deferred tax assets will be recovered from futuretaxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established.Should the future taxable income of such entities be materially different from management's estimates, an additionalvaluation allowance may be necessary in future periods. Such amounts, if necessary, could be material to our results ofoperations and financial position, as they were in fiscal 2004 and 2003. Management provided additional valuationallowances during fiscal 2004 of $8.2 million for certain foreign operations because management determined that it is morelikely than not that the related tax benefit will not be fully utilized.

We operate internationally, giving rise to exposure to market risks from fluctuations in interest rates and foreignexchange rates. To effectively manage these risks, we enter into foreign currency forward contracts and interest rate swaps.We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivativefinancial instrument activities. We do not hold or issue derivative financial instruments for trading purposes. We record all ofour cash flow hedges in accordance with FASB Statement No. 133, "Accounting for Derivative Instruments and HedgingActivities" and as amended by SFAS 138 and SFAS 149. For a derivative designated and qualifying as a cash flow hedge ofanticipated foreign currency denominated transactions, the effective portions of changes in the fair value of the derivative arerecorded in accumulated comprehensive income (loss) in shareholders' equity and are recognized in net income (loss) whenthe hedged item affects operations. At the inception of the hedge the derivative is designated as a cash flow hedge andappropriate documentation is prepared. On an on-going basis, we assess hedge effectiveness for all cash flow designatedhedges in order to determine that each derivative continues to be effective. If the transaction being hedged fails to occur, or ifa portion of any derivative is ineffective, changes in the fair value of the derivative are recorded immediately in operations.

In October 1996, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statementencourages but does not require companies to account for employee stock compensation awards based on their estimate fairvalue at the date of the grant with the resulting cost charges to operations. We have elected to continue to account foremployee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Boards OpinionNo. 25, "Accounting for Stock Issued to Employees", and related interpretations.

We have used our best estimates in establishing the asset impairment charges, provisions, writedowns and reservesrecorded as a result of the voluntary liquidation of FIAP. We estimated the net realizable value of FIAP's accounts receivablebased on an analysis of collections made through January 31, 2005, as well as regarding the collectibility of the remainingcustomer balances for which payment has not yet been received. Inventories were reviewed at January 31, 2005 and it wasdetermined that no additional reserves were necessary. The write-downs, provisions and reserves relating to the liquidation ofFIAP were based upon our best estimates given the information available. Actual realizable values or payments to be mademay be different from such estimates, and such differences will be recognized as incurred or as better information is received.

Assets held for sale include machinery, land and buildings for the FIAP location. We record assets held for sale inaccordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") atthe lower of carrying value or fair value less cost to sell. Fair value is based on estimated proceeds from the sale of the facilityand equipment utilizing recent buy offers and data obtained from commercial real estate broker. Our estimate as to fair valueis regularly

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reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility'sacceptable sale price.

In July 2004, we approved a plan to dispose of our Spanish subsidiary, a component of our European segment, becauseof its continued losses. The Spanish subsidiary manufactured a range of products in PVC stretch film, primarily for theautomatic and manual wrapping of fresh food and for catering film use. On July 26, 2004, we placed our Spanish subsidiaryin a Suspension of Payments status under Spanish law. After failed attempts to sell the Spanish operation, management placedthe operation into liquidation on September 30, 2004 and is in the process of selling the assets and settling the liabilities of thesubsidiary. In accordance with SFAS No. 144, the disposal of the Spanish subsidiary has been accounted for as a discontinuedoperation and, accordingly, its assets and liabilities have been segregated from continuing operations in the accompanyingconsolidated balance sheets, and its operating results are segregated and reported as discontinued operations in theaccompanying consolidated statements of operations. The pre-tax loss from discontinued operations includes a charge foremployee termination benefits which were determined based on a negotiated plan with the local Spanish union. The resultsalso include a charge for lease termination costs related to the building and are based on negotiations with the landlord. Theestimated losses on disposal includes the write-down of machinery and equipment to fair value, less costs to sell, based onrecent buy offers and write off of accumulated translation adjustments. The write-downs, provisions and reserves relating tothe liquidation of the Spanish operation were based upon our best estimates given the information available. Actual realizablevalues or payments to be made may be different from such estimates, and such differences will be recognized as incurred oras better information is received.

Our management committed to a plan during the first quarter of fiscal 2005 to divest our French and Termofilmsubsidiaries, each a component of our European operations and in accordance with SFAS No. 144 have also reflected thesesubsidiaries as discontinued operations. On February 10, 2005, we disposed of the French operations to an investor group inconsideration for their assumption of all of the associated liabilities of the French subsidiary (other than intercompanyliabilities), including third-party bank borrowings. In addition, we expect the sale of Termofilm to be completed in amanagement-buyout arrangement during the second quarter in fiscal 2005 for approximately $2.1 million. We estimated theimpairment loss based on estimated proceeds. Actual realizable values may be different from such estimates, and suchdifferences will be recognized as incurred or as better information is received.

As required by SFAS No. 142, we perform an annual assessment as to whether there was an indication that goodwill isimpaired. We performed our annual impairment analysis under SFAS 142 on September 30, 2004 based on a comparison ofour market capitalization to our book value at that date. We also performed a supplemental estimate of the fair value of ourcompany using comparable industry multiples of cash flows compared to our book value. Our policy is that impairment ofgoodwill will have occurred if the market capitalization of our company were to remain below book value for a period ofmore than six months or the estimated value of our company based on cash flow multiples is below book value. Should thecarrying value of our company exceed its fair value for other than a temporary period of time, the amount of any resultinggoodwill impairment may be material to our financial position and results of operations. We concluded that goodwill was notimpaired at September 30, 2004. We plan to perform our impairment test at September 30 in each fiscal year. We also reviewour financial position quarterly for other triggering events as described in SFAS No. 142.

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and the Results of Operations and other sections of thisreport contain "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995.Such forward-looking statements, which reflect our current views of future events and financial performance, involve certainrisks and uncertainties. The terms

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"anticipates," "plans," "estimates," "expects," "believes," "may," "intends" and similar expressions as they relate to us orfuture or conditional verbs such as "will," "should," "would," "may" and "could" are intended to identify suchforward-looking statements. We wish to caution readers that the assumptions which form the basis for forward-lookingstatements with respect to, or that may impact earnings or liquidity for, the year ending October 31, 2005, include manyfactors that are beyond our ability to control or estimate precisely. These risks and uncertainties include, but are not limitedto, availability of raw materials, our strategy to sell or dispose of certain of our non-North American operations, ability topass raw material price increases to customers in a timely fashion, the potential of technological changes that would adverselyaffect the need for our products, exchange rate fluctuations, price fluctuations which could adversely impact our inventory,and changes in United States or international economic or political conditions, such as inflation or fluctuations in interest orforeign exchange rates. Parties are cautioned not to rely on any such forward-looking statements or judgments in this sectionand in other parts of this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adverselyaffect our results of operations and financial condition. We seek to minimize these risks through operating and financingactivities and, when deemed appropriate, through the use of derivative financial instruments. We do not purchase, hold or sellderivative financial instruments for trading purposes.

Interest Rates

We may use interest rate swaps, collars and options to manage its exposure to fluctuations in interest rates. AtJanuary 31, 2005, there was one interest rate swap outstanding in connection with the $3.2 million bank debt of ourNetherlands subsidiary. We were not a party to any interest rate collars or options January 31, 2005.

The fair value of our fixed interest rate debt varies with changes in interest rates. Generally, the fair value of fixed ratedebt will increase as interest rates fall and decrease as interest rates rise. At January 31, 2005, the carrying value of ourcompany's total debt was $281.5 million of which approximately $202.0 million was fixed rate debt. As of January 31, 2005,the estimated fair value of our fixed rate debt, which includes the cost of replacing our fixed rate debt with borrowings atcurrent market rates, was approximately $207.0 million.

Foreign Exchange

We enter into derivative financial instruments (principally foreign exchange forward contracts against the Euro,Canadian dollar, Australian dollar and New Zealand dollar) primarily to hedge intercompany transactions and trade sales andforecasted purchases. Foreign currency forward contracts reduce our exposure to the risk that the eventual cash inflows andoutflows, resulting from these intercompany and third party trade transactions denominated in a currency other than thefunctional currency, will be adversely affected by changes in exchange rates.

We had a total of 30 foreign exchange forward contracts outstanding at January 31, 2005 with a total notional contractamount of $27.1 million, all of which have maturities of less than one year. At January 31, 2005, the net fair value of foreignexchange forward contracts were gains of $0.2 million, which is included in accrued expenses in the consolidated balancesheets and changes in the valuation of such forwards is recognized each period in other, net in the consolidated statements ofoperations.

We also had a total of 8 cash flow hedge contracts outstanding at January 31, 2005, with a total notional contract amountof $0.9 million, all of which have maturities of less than six months. The net

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fair value of derivative financial instruments designated as cash flow hedges was a gain of $62,000 at January 31, 2005,which is included in accumulated other comprehensive income.

Our foreign subsidiaries had third party outstanding debt of approximately $33.8 million on January 31, 2005. Such debtis generally denominated in the functional currency of the borrowing subsidiary. We believe that this enables us to bettermatch operating cash flows with debt service requirements and to better match foreign currency-denominated assets andliabilities, thereby reducing our need to enter into foreign exchange forward contracts.

Commodities

We use commodity raw materials, primarily resin, and energy products in conjunction with our manufacturing process.Generally, we acquire such components at market prices and do not use financial instruments to hedge commodity prices. Asa result, we are exposed to market risks related to changes in commodity prices in connection with these components.

Risk Factors

You should carefully consider the risks and uncertainties we describe both in this Report and in our Annual Report onForm 10-K for the fiscal year ended October 31 2004, before deciding to invest in, or retain, shares of our common stock.These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently knowabout or that we currently believe are immaterial, or that we have not predicted, may also harm our business operations oradversely affect us. If any of these risks or uncertainties actually occurs, our business, financial condition, operating results orliquidity could be materially harmed.

Item 4. Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed byus in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission'srules and forms, and that information is accumulated and communicated to our management, including our principalexecutive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriateto allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our CertifyingOfficers, the effectiveness of our disclosure controls and procedures as of January 31, 2005 (the "Evaluation Date"), pursuantto Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that as ofJanuary 31, 2005, our disclosure controls and procedures were effective.

There were no significant changes in our internal controls over financial reporting that occurred during our most recentlycompleted fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls overfinancial reporting subsequent to the Evaluation Date.

In response to recent legislation and regulations, we have begun a process of reviewing our internal control structure andour disclosure controls and procedures. Although we believe our pre-existing disclosure controls and procedures wereadequate to enable us to comply with our disclosure obligations, as a result of such review, we are implementing minorchanges, from time to time, primarily to formalize and document procedures already in place.

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PART II—OTHER INFORMATION

Item 5. Legal Proceedings

Reference is made to matter described in Note 12 to our financial statements appearing in Part I of this Report, whichdescription is incorporated by reference.

In addition, we are involved in routine litigation in the normal course of its business. The proceedings are not expectedto have a material adverse impact on our results of operations, financial position or liquidity.

Item 6. Exhibits

Exhibit # Description

10.1 2005 Management Incentive Plan of the Registrant*10.2 Agreement dated as of February 4, 2005 among the Registrant, the Purchasers

identified therein and J. Brendan Barba, incorporated by reference to Exhibit 99.1to the Registrant's Current Report on Form 8-K dated February 4, 2005

10.3 Amendment No. 1 to Loan and Security Agreement, dated December 9, 2001,among the Registrant, Congress Financial Corporation, as Agent, and the financialinstitutions party thereto*

10.4 Amendment No. 2 to Loan and Security Agreement, dated July 10, 2002, amongthe Registrant, Congress Financial Corporation, as Agent, and the financialinstitutions party thereto*

10.5 Amendment No. 3 to Loan and Security Agreement, dated October 16, 2002,among the Registrant, Congress Financial Corporation, as Agent, and the financialinstitutions party thereto*

10.6 Amendment No. 4 to Loan and Security Agreement, dated February 3, 2005,among the Registrant, Congress Financial Corporation, as Agent, and the financialinstitutions party thereto*

10.7 Consent and Amendment No. 5 to Loan and Security Agreement, dated February25, 2005, among the Registrant, Wachovia Bank, National Association, assuccessor by merger to Congress Financial Corporation, as Agent, and thefinancial institutions party thereto*

10.8 Purchase Agreement dated as of March 10, 2005, between the Registrant and theinitial purchasers named therein, incorporated by reference to Exhibit 10.2 to theRegistrant's Current Report on Form 8-K dated March 10, 2005

11 Computation of weighted average number of shares outstanding*31.1 Certification of the Chief Executive Officer filed pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002*31.2 Certification of the Chief Financial Officer filed pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002*32.1 Certification of the Chief Executive Officer furnished pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002*32.2 Certification of the Chief Financial Officer furnished pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

AEP INDUSTRIES INC. Dated: March 17, 2005

By:

/s/ J. BRENDAN BARBA

J. Brendan BarbaChairman of the Board,President and Principal Executive Officer

Dated: March 17, 2005

By:

/s/ PAUL M. FEENEY

Paul M. FeeneyExecutive Vice President, FinancePrincipal Financial Officer and Director

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QuickLinksPART I—FINANCIAL INFORMATIONAEP INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share amounts)AEP INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVEINCOME (LOSS) (Unaudited) (in thousands, except per share data)AEP INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)AEP INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)PART II—OTHER INFORMATIONSIGNATURES


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Prepared by Merrill Corporation at www.edgaradvantage.com (v.162)Printed: 17-Mar-2005;15:40:04Created: Mar 17 01:45 2005

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Exhibit 10.1

INDUSTRIES INC.

2005 MANAGEMENT INCENTIVE PLAN

FOR

SUBSIDIARY COMPANIES AND LINES OF

BUSINESS


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AEP INDUSTRIES INC.

2005 MANAGEMENT INCENTIVE PLAN

PLAN OVERVIEW Each participant will have a target incentive opportunity, stated as a percentage of salary. Awards at, above, or below targetcan be earned based on financial performance, using the following approach:

• Realization of “MIP Earnings” from operations will determine the participant’s award. This award canrange down to zero and up to 200% of the individual’s target award. “MIP Earnings” will be defined aseither:

(a) Budgeted earnings before interest and taxes, depreciation and amortization (EBITDA).

- OR -

(b) An amount of EBITDA agreed and appropriately documented between the participant and either the

CEO or the CFO of the company to be earned by the business unit.

DETERMINING PRELIMINARY INCENTIVE AWARDS BASED ON EBITDA The basis for determining awards will be “MIP Earnings” as described above. This measure of earnings reflects business unitperformance and excludes financing and tax considerations. The following procedures will be followed in measuring “MIP Earnings”:

• Negative “MIP Earnings” budgets will be treated on an absolute basis (i.e., if the budget is to lose $100,then losing $90 would be treated as a 10% improvement).

• Special situations, such as a provision for the sale or closing of a piece of land, a plant or business, may be

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• “MIP Earnings” will be calculated in the Business units primary currency. In cases where “currency

exchange rates” have an impact on Business unit profits, the exchange rate used to calculate the budget willbe used in order to eliminate and effect of currency exchange variations.

• Accounting policy changes dictated by U.S. Securities and Exchange Commission (SEC), the U.S.

Financial Accounting Standards Board (FASB) or the Chief Financial Officer of AEP Industries Inc. • Inter-unit management fees shall be included in “MIP Earnings”. • Inter-unit royalty fees shall be excluded from “MIP Earnings”.

The relationship between incentive awards relative to actual target and “MIP Earnings” as shown in the following exhibit willbe used:

PAY PERFORMANCE RELATIONSHIP2005 ANNUAL INCENTIVE PLAN

Percent ofTarget AwardEarned

Percent of “MIP Earnings” Achieved

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The target award is paid for meeting budgeted “MIP Earnings”.

• No award is paid for achieving less than 80% of budgeted “MIP Earnings”. • 50% of the target award is paid for achieving 80% of budgeted “MIP Earnings”. • Maximum award of 200% of target is paid for achieving 120% of budgeted “MIP Earnings”. • Increased or decreased award percentages are used for “MIP Earnings” results between 80% and 100%, and

between 100% and 120%, based on the above graph.

As an example of how the MIP award determination would work, assume that a participant has a salary of $70,000, and anannual bonus target of 20%. His business unit has an “MIP Earnings” budget above $2.5 million, and the actual “MIPEarnings” is 110% of budget:

Salary $ 70,000

Annual Incentive Target 20%, or $14,000

MIP Earnings as a % of Budget 110%% Award Earned 150%Award $ 21,000

ADJUSTING PRELIMINARY AWARDS BASED ON CRITICAL MEASUREMENT In the past, you may have experienced an MIP program that had a separate incentive component resulting from subjective orcritical measurements such as:

• Market Share• Number or type of customers• Quality• Customer satisfaction• New product introductions• Sale of assets at an attractive price• Health and safety improvements• New sales/promotion tracking system• New financial control system• Improved distribution system

In 2005 AEP is taking the view that everyone in the company should be motivated to perform in the best interests of thecompany. It is assumed that people in an MIP are the most committed of all,

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therefore a separate, and subjective encouragement to perform one’s job well is an insult to those who are, in fact, our bestperformers. Management does, however, reserve the right to reduce an award to any individual within a business unit whoseactivities during the period has been counterproductive to the efforts of the business unit or who has not, for other reasons,added to the profit making goals of this plan. If you have any questions concerning this incentive program, contact your manager or your Human Resources Manager.

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AEP INDUSTRIES INC. 2005 MANAGEMENT INCENTIVE PLAN ADMINISTRATIVE GUIDELINES

1. Base Salary for Bonus Calculations. October 31, 2005 Annual Base Salary will be used to calculate the incentive. 2. Eligibility. To be eligible to receive an incentive award under the program, you must be an active associate as of the endof the measurement period (i.e., October 31, 2005). The only exceptions to this rule are detailed below under item number 5. 3. Pro-Rata Eligibility. Where incentives are to be paid for partial periods, the incentive will be calculated on a pro-ratabasis. Eligibility for pro-rata payments is detailed in items number 4, 5, and 6 below. Pro-rata calculations will be done oncompleted quarters only. 4. New Hires, Transfers or Promotions During the Incentive Period. For New Hires or participants added to the Plan in the first through third quarters, the bonus will be calculated on a pro-ratedbasis from the date of hire, but only in completed quarters. Fourth quarter New Hires will not be eligible for an award. For Promotions and Transfers, the bonus will be pro-rated from the date of promotion or transfer in whole quarters. Thispro-ration will apply to both changes in target incentive percentage and to changes in goals. For all pro-rations under this item, effective dates as of the first through the fifteenth of the first month in the quarter willcount the full quarter. Effective dates after the sixteenth day of the first month will not include that quarter in the pro-rationcalculation. 5. Termination During the Incentive Period. If it is a Voluntary Termination, no bonus will be earned. If it is an Involuntary Termination due to unsatisfactory performance or cause, no bonus will be earned. Note: Achievingbusiness results at the expense of violations of laws, regulations or business ethics or allowing any individuals to behave inthis manner will be considered cause for termination. If it is an Involuntary Termination due to job elimination or reorganization, the bonus will be paid on a pro-rated basis as ofthe termination date. Terminations prior to the fifteenth of the last month in the quarter will disqualify the termination quarterin the pro-rata calculation. Terminations effective on the sixteenth through the last day of the last month of the quarter willinclude the termination quarter in the pro-rata calculation. Payments will be made at the same time as they are made toparticipants who continue to work for the Company through the end of the year.

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6. Death or Disability During the Incentive Period. The incentive earned as of the date of death will be paid, on a pro-rated basis, to the estate of the participant at the same timepayments are made to associates who continue to work for the Company through the end of the year. Disabilities of 30 days or less will not have an impact on the participant’s ability to continue to be eligible for an incentive. If a disability lasts more than 30 days, then the incentive will be earned only in quarters in which the participant works morethan 60 days. 7. Adding Participants to the Plan. New participants will be added to this program during the year as recommended by theappropriate Vice President/Group Manager and with the approval of the CEO and/or CFO of AEP Industries Inc. The criteriafor participation will be based on both similar job classification as the list of current participants in this program and aresponsibility level commensurate with the participant’s ability to influence goal outcomes. Approval will be required forboth the addition of a participant to the program and the proposed participant’s target incentive level. 8. Timing of Payments. Bonus awards will be paid in local currency as quickly after the end of 2005 as possible. Financialresults will need to be finalized as appropriate by the AEP Industries Inc. Vice President, Controller and the independentauditors before bonuses can be calculated and paid. 9. Financial Adjustments. Actual financial results as reported on a GAAP basis will be utilized for incentive awardcalculation with the following exceptions:

• Special situations, such as a provision for the sale of assets, the closing of a plant or business or other extraordinarytransactions which are not a part of normal operations, may be proposed for inclusion/exclusion if the proposal ispresented when the charge is taken or when the budgets are presented. Inclusions/Exclusions will need to beapproved in writing by the CEO and/or CFO of AEP Industries Inc.

• Accounting policy changes dictated by the U.S. Securities and Exchange Commission (SEC), the U.S. Financial

Accounting Standards Board (FASB) or AEP Industries Inc. Chief Financial Officer may be proposed for exclusionif the proposal is presented when the change is made. Inclusions/Exclusions will need to be approved by AEPIndustries Inc. Chief Financial Officer and/or the Chief Executive Officer.

• If earnings were achieved in ways that are considered undesirable (such as reducing budgeted advertising

expenditures where this would hurt the business), an adjustment may be made at the discretion of the Chief FinancialOfficer or the Chief Executive Officer of AEP Industries Inc.

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10. All Plan Payments Subject to Discretion. Notwithstanding the attainment of financial results, all awards under the Planare subject to the approval of the Chief Financial Officer and the Chief Executive Officer of AEP Industries Inc.

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Exhibit 10.3

AMENDMENT NO. 1 TOLOAN AND SECURITY AGREEMENT

AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (“Amendment No. 1”) dated as of

December 9, 2001 by and among the financial institutions from time to time parties to the Loan Agreement (as hereinafterdefined) as lenders (each individually, a “Lender” and collectively, “Lenders”) and Congress Financial Corporation, aDelaware corporation, in its capacity as agent for Lenders (in such capacity, “Agent”).

W I T N E S S E T H

WHEREAS, Agent, Lenders and AEP Industries Inc. (“Borrower”) have entered into financing arrangementspursuant to which Agent and Lenders have made and may make loans and advances and provide other financialaccommodations to Borrower as set forth in the Loan and Security Agreement, dated November 20, 2001, by and amongAgent, Lenders and Borrower (as the same now exists and may hereafter be further amended, modified, supplemented,extended, renewed, restated or replaced, the “Loan Agreement”) and the agreements, documents and instruments at any timeexecuted and/or delivered in connection therewith or related thereto (collectively, together with the Loan Agreement, the“Financing Agreements”);

WHEREAS, Agent and Lenders want to amend certain provisions in Section 12 of the Loan Agreement; WHEREAS, pursuant to Section 11.3 of the Loan Agreement, amendments with respect to any provision of

Section 12 of the Loan Agreement do not require the agreement of Borrower; NOW, THEREFORE, in consideration of the mutual conditions and agreements and covenants set forth herein, and

for other good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the parties heretoagree as follows:

Section 1. Definitions. For purposes of this Amendment, all terms used herein, including but not

limited to, those terms used and/or defined herein or in the recitals hereto shall have the respective meanings assigned theretoin the Loan Agreement as amended by this Amendment No. 1 to Loan and Security Agreement.

Section 2. Amendments to Loan Agreement

2.1 Additional Loans. The reference to the figure “$15,000,000” in Section 12.8(c) of the Loan Agreement is

hereby deleted and replaced with the following: “$8,500,000”. 2.2 Encumbrances. The reference to the figure “$15,000,000” in Section 12.11(a)(ii) of the Loan Agreement is

hereby deleted and replaced with the following: “$8,500,000”.




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Section 3. Provisions of General Application

3.1 Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to the

Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specificallyratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between theterms of this Amendment No. 1 and the other Financing Agreements, the terms of this Amendment No. 1 shall control. TheLoan Agreement and this Amendment No. 1 shall be read and construed as one agreement.

3.2 Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by

and interpreted and determined in accordance with the laws of the State of New York, but excluding any principles ofconflicts of law or other rule of law that would result in the application of the law of any jurisdiction other than the laws ofthe State of New York.

3.3 Binding Effect. This Amendment No. 1 shall be binding upon and inure to the benefit of each of the parties

hereto and their respective successors and assigns. 3.4 Counterparts. This Amendment No. 1 may be executed in any number of counterparts, but all of such

counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not benecessary to produce or account for more than one counterpart thereof signed by each of the parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered

by their authorized officers as of the date and year first above written.

CONGRESS FINANCIAL CORPORTION,as Agent and as Lender

BY:

Title:

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Exhibit 10.4


AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (“Amendment No. 2”) dated as of July 10,

2002 by and among AEP Industries, Inc. (“Borrower”), the financial institutions from time to time parties to the LoanAgreement (as hereinafter defined) as lenders (each individually, a “Lender” and collectively, “Lenders”) and CongressFinancial Corporation, a Delaware corporation, in its capacity as agent for Lenders (in such capacity, “Agent”).

WITNESSETH

WHEREAS, Agent, Lenders and Borrower have entered into financing arrangements pursuant to which Agent and

Lenders have made and may make loans and advances and provide other financial accommodations to Borrower as set forthin the Loan and Security Agreement, dated November 20, 2001, by and among Agent, Lenders and Borrower, as amended byAmendment No. 1 to Loan and Security Agreement dated December 9, 2001 (as the same now exists and may hereafter befurther amended, modified, supplemented, extended, renewed, restated or replaced, the “Loan Agreement”) and theagreements, documents and instruments at any time executed and/or delivered in connection therewith or related thereto(collectively, together with the Loan Agreement, the “Financing Agreements”);

WHEREAS, Borrower has requested that Agent make available to Borrower Letter of Credit Accommodations in

the form of banker’s acceptances of up to $5,000,000 at any one time outstanding and Agent is willing to do so to the extentand subject to terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual conditions and agreements and covenants set forth herein, and


Section 1. Definitions. 1.1 Defined Terms. For purposes of this Amendment, all terms used herein, including but not limited to, those terms

used and/or defined herein or in the recitals hereto shall have the respective meanings assigned thereto in the Loan Agreementas amended by this Amendment No. 2 to Loan and Security Agreement.

1.2 Amendments to Definitions. All references to the term “Letter of Credit Accommodations” in the Loan

Agreement and the other Financing Agreements and each such reference is hereby amended to mean, collectively, letters ofcredit and banker’s acceptances issued with respect to drafts presented under letters of credit for the purchase of merchandise,and merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Agent or any Lenderfor the account of Borrower or any Obligor or (b) with respect to which Agent or Lenders have agreed to indemnify the issueror guaranteed to the issuer the performance by Borrower or any Obligor of its obligations to such issuer, sometimes being




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referred to in the Loan Agreement or such other Financing Agreements individually as a “Letter of Credit Accommodation”.The term “banker’s acceptance” as used herein shall refer to a time draft that is an order written by the beneficiary of a letterof credit as the drawer of the time draft instructing the issuer of the letter of credit as the drawee to pay the amount specifiedin the time draft that has been accepted by a bank.

Section 2. Amendments to Loan Agreement. 2.1 Letter of Credit Accommodation Fees. Section 2.2(b) of the Loan Agreement is hereby deleted in its entirety and

replaced with the following: “(b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter ofCredit Accommodations, Borrower shall pay to Agent, for the benefit of Lenders, (i) a letter of credit fee at a rateequal to two (2%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations,other than banker’s acceptances, for the immediately preceding month (or part thereof), (ii) an acceptance fee at arate equal to two and one half (2 1/2%) percent per annum on the daily outstanding balance of Letter of CreditAccommodations consisting of banker’s acceptances for the immediately preceding month (or part thereof), in eachcase, payable in arrears as of the first day of each succeeding month, except that Agent may, and upon the writtendirection of Required Lenders shall, require Borrower to pay to Agent for the ratable benefit of Lenders such letterof credit fee under clause (i), at a rate equal to four (4%) percent per annum, and such acceptance fee under clause(ii), at a rate equal to five and one half (5 1/2%) percent per annum in each case on the applicable daily outstandingbalance for: (A) the period from and after the date of termination hereof until Agent and Lenders have received fulland final payment of all Obligations (notwithstanding entry of a judgment against Borrower) and (B) the period fromand after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing asdetermined by Agent in good faith. Such letter of credit fees and acceptance fees shall be calculated on the basis of athree hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fees shallsurvive the termination of this Agreement”. 2.2 Letter of Credit Accommodation Fees. Section 2.2(e) of the Loan Agreement is hereby amended by adding the

following to the end thereto: “, provided, that, the amount of all outstanding Letter of Credit Accommodations consisting of banker’s acceptancesand all other commitments and obligations made or incurred in connection therewith shall not at any time exceed$5,000,000.” Section 3. Provisions of General Application 3.1 Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to the

Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specificallyratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between theterms of this

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Amendment No. 2 and the other Financing Agreements, the terms of this Amendment No. 2 shall control. The LoanAgreement and this Amendment No. 2 shall be read and construed as one agreement.

3.2 Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and

interpreted and determined in accordance with the laws of the State of New York, but excluding any principles of conflicts oflaw or other rule of law that would result in the application of the law of any jurisdiction other than the laws of the State ofNew York.

3.3 Binding Effect. This Amendment No. 2 shall be binding upon and inure to the benefit of each of the parties

hereto and their respective successors and assigns. 3.4 Counterparts. This Amendment No. 2 may be executed in any number of counterparts, but all of such

counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not benecessary to produce or account for more than one counterpart thereof signed by each of the parties hereto.



CONGRESS FINANCIAL CORPORATION, as Agent andas Lender

By:

Title:

AEP INDUSTRIES, INC.

By:

Title:

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Exhibit 10.5


AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT (“Amendment No. 3 “) dated as of October 16,

2002 by and among AEP Industries, Inc. (“Borrower”), the parties from time to time to the Loan Agreement (as hereinafterdefined) as lenders (each individually, a “Lender” and collectively, “Lenders”) and Congress Financial Corporation, aDelaware corporation, in its capacity as agent for Lenders (in such capacity, “Agent”).

WITNESSETH

WHEREAS, Agent, Lenders and Borrower have entered into financing arrangements pursuant to which Agent andLenders have made and may make loans and advances and provide other financial accommodations to Borrower as set forthin the Loan and Security Agreement, dated November 20, 2001, by and among Agent, Lenders and Borrower, as amended byAmendment No. 1 to Loan and Security Agreement, dated December 9, 2001 and Amendment No. 2, dated July 10, 2002 (asamended hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated orreplaced, the “Loan Agreement”) and the agreements, documents and instruments at any time executed and/or delivered inconnection therewith or related thereto (collectively, together with the Loan Agreement, the “Financing Agreements”); and

WHEREAS, Borrower has advised Agent and Lenders that Borrower intends to, among other things, (i) purchase all

of the issued and outstanding shares of capital stock of FIAP Germany (as hereinafter defined) from AEP Italy (as hereinafterdefined), (ii) cancel certain indebtedness of FIAP Germany owing to Borrower, (iii) dissolve and liquidate FIAP Germany,(iv) purchase all of the issued and outstanding shares of capital stock of AEP Italy from AEP Belgium (as hereinafterdefined), (v) merge AEP Italy with and into FIAP Italy (as hereinafter defined) and (v) cause AEP Belgium to repay certainindebtedness of AEP Belgium to Borrower with the proceeds received by AEP Belgium from the sale of the capital stock ofAEP Italy to Borrower; and

WHEREAS, Borrower has requested that Agent and Lenders to consent to such transactions to the extent such

consent is required and Agent and Lenders are willing to consent to such transactions subject to the terms and conditions setforth herein.






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1. Definitions.

(a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following termsshall have the respective meanings given to them below, and the Loan Agreement and the other Financing Agreements shallbe deemed and are hereby amended to include, in addition and not in limitation, each of the following definitions:

(i) “AEP Belgium” shall mean AEP Belgium S.A., a company incorporated under the laws of

Belgium, and its successors and assigns.

(ii) “AEP Italy” shall mean AEP Italia SpA, a company incorporated under the laws of Italy, andits successors and assigns.

(iii) “AEP Italy Purchase Agreement” shall mean the Share Sale and Purchase Agreement, dated as

of October 1, 2002, between AEP Belgium, as seller and Borrower, as buyer, as the same now exists or may hereafter beamended, modified, supplemented, extended, renewed, restated or replaced.

(iv) “FIAP Germany” shall mean FIAP Deutschland GmbH, a company incorporated under the

laws of Germany, and its successors and assigns.

(v) “FIAP Germany Purchase Agreement” shall mean the Purchase Agreement, dated March 1,2002, between AEP Italy, as seller and Borrower, as buyer, as the same now exists or may hereafter be amended, modified,supplemented, extended, renewed, restated or replaced.

(vi) “FIAP Italy” shall mean FIAP SpA, a company organized under the laws of Italy, and its

successors and assigns.

(b) Interpretation. For purposes of this Amendment, all terms used herein, including but not limited to,those terms used and/or defined herein or in the recitals hereto shall have the respective meanings assigned thereto in theLoan Agreement as amended by this Amendment No. 3.

2. FIAP Germany.

(a) Subject to the terms and conditions contained herein, notwithstanding anything to the contrary containedin the Loan Agreement, including without limitation, Sections 9.7(b) or 9.10(g) thereof, Agent and Lenders hereby consent tothe purchase by Borrower of all of the issued and outstanding shares of Capital Stock of FIAP Germany from AEP Italypursuant to the terms of the FIAP Germany Purchase Agreement as in effect on the date hereof, provided, that, (i) suchpurchase and sale shall be on the terms and conditions set forth in the FIAP Germany Purchase Agreement as in effect on thedate hereof, (ii) Agent shall have received a true, correct and complete copy of the FIAP Germany Purchase Agreement andall agreements, documents and instruments related thereto, (iii) the only consideration payable by Borrower for the purchaseof such share shall be one Euro, (iv) Borrower shall not incur or assume or otherwise become

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liable for any Indebtedness or other obligations as a result of the purchase of such shares, (v) all of the conditions set forth inSection 9.10(g) of the Loan Agreement with respect to such purchase by Borrower shall be satisfied, other than the conditionsset forth in Section 9.10(g)(vii), but subject to Section 2(b) of this Amendment No. 3 below, and (vi) such purchase and saleshall be effective on or before October 31, 2002.

(b) Notwithstanding anything to the contrary contained in Section 9.10(g) of the Loan Agreement, Agent

and Lenders shall not require that the conditions set forth in Section 9.10(g)(vii) of the Loan Agreement be satisfied withrespect to the purchase by Borrower of the shares of the Capital Stock of FIAP Germany from AEP Italy as consented toabove, provided, that, (i) FIAP Germany has been dissolved and liquidated by no later than January 31, 2003 and (ii) Agentshall have received evidence of such dissolution and liquidation in form and substance satisfactory to Agent on or before suchdate. In the event that FIAP Germany has not been dissolved and liquidated by such date, then at any time thereafter promptlyupon Agent’s request, Borrower shall execute and deliver, or cause to be executed and delivered, to Agent the agreements,documents and instruments contemplated by Section 9.10(g)(vii) of the Loan Agreement, together with such otheragreements, documents and instruments as Agent may request in connection therewith.

(c) As of October 16, 2002, the Indebtedness of FIAP Germany to Borrower is approximately $2,397,840.

Borrower intends to cancel such Indebtedness prior to January 1, 2003. Borrower hereby confirms and represents to Agentand Lenders that the conditions set forth in Section 9.10(h) of the Loan Agreement are and shall be satisfied in connectionwith the cancellation by Borrower of such Indebtedness on or about such date.

3. AEP Italy.

(a) Subject to the terms and conditions contained in this Amendment No. 3, notwithstanding anything to thecontrary contained in the Loan Agreement, including without limitation, Sections 9.7(b), 9.10(b) or 9.12 thereof, Agent andLenders hereby consent to the purchase by Borrower of all of the issued and outstanding shares of Capital Stock of AEP Italyfrom AEP Belgium pursuant to the terms of the AEP Italy Purchase Agreement as in effect on the date hereof, provided, that,(i) such purchase and sale shall be on the terms and conditions set forth in the AEP Italy Purchase Agreement as in effect onthe date hereof, (ii) Agent shall have received a true, correct and complete copy of the AEP Italy Purchase Agreement and allagreements, documents and instruments related thereto, (iii) the only consideration payable by Borrower for the purchase ofsuch shares shall be approximately Euros 1,400,000, (iv) Borrower shall not incur or assume or otherwise become liable forany Indebtedness or other obligations as a result of the purchase of such shares, (v) such purchase and sale shall be effectiveon or before January 1, 2003, (vi) all of the consideration paid by Borrower pursuant to the AEP Italy Purchase Agreement orotherwise in connection with the purchase of such shares shall be used by AEP Belgium to make a payment in cash or otherimmediately available funds to Borrower in the full amount thereof substantially contemporaneously with the payment ofsuch purchase price by Borrower to AEP Belgium, which funds received by Borrower shall be applied to certain existingIndebtedness of AEP Belgium to Borrower, and (vii) all of the conditions set forth in Section 9.10(g) with respect to suchpurchase by Borrower shall be satisfied, other than the

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requirements set forth in Section 9.10(g)(vii), which shall be satisfied by no later than March 30, 2003.

(b) Borrower shall give written notice to Agent that AEP Italy and FIAP Italy have merged within ten (10)

days of the effective date of such merger. Borrower hereby confirms and represents that each of the conditions to such mergerto be satisfied under Section 9.7(a)(ii) of the Loan Agreement have been or will be satisfied as of the date of such merger.

4. Representations and Warranties. Borrower represents and warrants with and to Agent and Lenders as follows,

which representations and warranties shall survive the execution and delivery hereof, the truth and accuracy of, or compliancewith each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuingcondition of the making of any Loans by Agent (or Agent on behalf of Lenders) to Borrower:

(a) The execution and delivery of the FIAP Germany Purchase Agreement and the AEP Italy Purchase

Agreement, and the consummation of the transactions contemplated therein or any of the other transactions otherwiseconsented to by Agent and Lenders pursuant to this Amendment No. 3, or otherwise referred to herein, do not and will notviolate any law or regulation or any order, writ, injunction or decree of any court or other Governmental Authority in anyrespect or do not and will not result in the breach of, or constitute a default in any respect under, any material indenture,mortgage, deed of trust, agreement or instrument to which Borrower is a party or may be bound, or result in the creation orimposition of, require or give rise to the obligation to grant, any lien, charge or encumbrance upon any of the property ofBorrower.

(b) Borrower has obtained all consents, waivers or approvals of any Persons required in connection with the

transactions consented to by Agent and Lenders pursuant to this Amendment No. 3, or otherwise referred to herein, and suchconsents, waivers or approvals are and shall be in full force and effect.

(c) As of the date hereof and after giving effect to the consents provided for herein, no Default or Event of

Default exists or has occurred and is continuing.

(d) This Amendment No. 3 and each other agreement or instrument to be executed and delivered byBorrower in connection herewith have been duly authorized, executed and delivered by all necessary action on the part ofBorrower and the agreements and obligations of Borrower contained herein constitute legal, valid and binding obligations ofBorrower enforceable against Borrower in accordance with their respective terms.

(e) As of the date hereof FIAP Germany is inactive and does not engage in any business or commercial

activity and FIAP Germany does not and will not hold any assets or properties. 4




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5. Conditions Precedent. The effectiveness of the consents contained herein shall only be effective upon the

satisfaction of each of the following conditions precedent in a manner satisfactory to Agent:

(a) Agent shall have received an executed original or executed original counterparts of this Amendment No.3 (as the case may be), duly authorized, executed and delivered by Borrower;

(b) Agent shall have received such approvals of the Lenders to the terms of this Amendment No. 3 as may

be required in the determination of Agent under the terms of the Loan Agreement;

(c) Agent shall have received, in form and substance satisfactory to Agent, the AEP Italy PurchaseAgreement duly authorized, executed and delivered by the parties thereto;

(d) Agent shall have received, in form and substance satisfactory to Agent, the FIAP Germany Purchase

Agreement duly authorized, executed and delivered by the parties thereto.

6. Provisions of General Application.

(a) Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to theFinancing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specificallyratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between theterms of this Amendment No. 3 and the other Financing Agreements, the terms of this Amendment No. 3 shall control. TheLoan Agreement and this Amendment No. 3 shall be read and construed as one agreement. Any acknowledgment or consentcontained herein shall not be construed to constitute a consent to any other or further action by Borrower or any Subsidiary ofBorrower or to entitle Borrower or any Subsidiary of Borrower to any other consent.

(b) Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by

and interpreted and determined in accordance with the laws of the State of New York, but excluding any principles ofconflicts of law or other rule of law that would result in the application of the law of any jurisdiction other than the laws ofthe State of New York.

(c) Binding Effect. This Amendment No. 3 shall be binding upon and inure to the benefit of each of the

parties hereto and their respective successors and assigns.

(d) Counterparts. This Amendment No. 3 may be executed in any number of counterparts, but all of suchcounterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 3, it shall notbe necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of anexecuted counterpart of this Amendments No. 3 by telefacsimile shall have the same force and effect as delivery of anoriginal manually executed counterpart of this Amendment No. 3. Any party delivering any executed counterpart of thisAmendment NO. 3 by telefacsimile shall

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also deliver an original manually executed counterpart, but the failure to do so shall not affect the validity, enforceability andbinding effect of this Amendment No. 3 as to such party or any other party.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed and deliveredby their authorized officers as of the date and year first above written.

CONGRESS FINANCIAL CORPORATION,as Agent and as Lender

By:

Title:


By:

Title:

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Exhibit 10.6


AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT (“Amendment No. 4”) dated February 3, 2005

by and among AEP Industries, Inc. (“Borrower”), the parties from time to time to the Loan Agreement (as hereinafterdefined) as lenders (each individually, a “Lender” and collectively, “Lenders”) and Congress Financial Corporation, aDelaware corporation, in its capacity as agent for Lenders (in such capacity, “Agent”).

W I T N E S S E T H

WHEREAS, Agent, Lenders and Borrower have entered into financing arrangements pursuant to which Agent and

Lenders have made and may make loans and advances and provide other financial accommodations to Borrower as set forthin the Loan and Security Agreement, dated November 20, 2001, by and among Agent, Lenders and Borrower, as amended byAmendment No. 1 to Loan and Security Agreement, dated December 9, 2001, Amendment No. 2, dated July 10, 2002 andAmendment No. 3, dated October 16, 2002 (as amended hereby and as the same may hereafter be further amended, modified,supplemented, extended, renewed, restated or replaced, the “Loan Agreement”) and the agreements, documents andinstruments at any time executed and/or delivered in connection therewith or related thereto (collectively, together with theLoan Agreement, the “Financing Agreements”); and

WHEREAS, Borrower has requested that Agent and Lenders agree to (a) increase the amount of Permitted

Transactions under the Loan Agreement, and (b) increase advances from Agent to Borrower based on Real Property andEquipment under the Loan Agreement;



1. Definitions.

(a) Additional Definitions. The Loan Agreement is hereby amended to include, in addition and not inlimitation, the term “Amendment No. 4” which shall mean Amendment No. 4 to Loan and Security Agreement by and amongBorrower, Agent and Lenders, as it now exists or may hereafter be amended, modified, supplemented, extended, renewed,restated or replaced.

(b) Amendments to Definitions.

(i) The definition of “Equipment Availability” set forth in Section 1.34 of the Loan Agreement is herebyamended by deleting such Section in its entirety and replacing it with the following:




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“1.34 ‘Equipment Availability’ shall mean, at any time,

$14,281,700 as reduced effective as of the first day of each monthcommencing March 1, 2005 by an amount equal to $238,028.33.”

(ii) The definition of “Maximum Credit” set forth in Section 1.69 of the Loan Agreement is hereby

amended by deleting “$85,000,000” in such section and replacing it with “$100,000,000”. (iii) The definition of “Real Property Availability” set forth in Section 1.89 of the Loan Agreement is

hereby amended by deleting such Section in its entirety and replacing it with the following:

“1.89 ‘Real Property Availability’ shall mean $11,814,000as reduced effective as of the first day of each month commencingMarch 1, 2005 by an amount equal to $164,083.33.”

(c) Interpretation. For purposes of this Amendment No. 4, all terms used herein, including but not limited to,

those terms used and/or defined herein or in the recitals hereto shall have the respective meanings assigned thereto in theLoan Agreement as amended by this Amendment No. 4.

2. Permitted Transactions. Each reference to the figure “$25,000,000” in each of Sections 9.9(e)(v), 9.9(f)(v),

9.10(g)(iii) and 9.11(c)(iv) of the Loan Agreement is hereby deleted and replaced with the following: “$50,000,000”. 3. New Equipment Loans.

(a) Borrower hereby confirms and agrees that as of the date of this Amendment No. 4, the aggregate principalamount outstanding for Loans made in respect of the New Equipment Availability is $1,194,000 (the “Existing NewEquipment Loans”). Upon the effective date of this Amendment No. 4, the Existing New Equipment Loans shall hereby bedeemed to be included among and replaced by the Loans made pursuant to the Equipment Availability.

(b) The amendment and restatement of the New Equipment Loans as set forth in clause (a) of this section shall

not, in any manner, be construed to constitute payment of, or impair, limit, cancel or extinguish, or constitute a novation inrespect of, any of the Obligations evidenced by or arising under the Financing Agreements, and the liens and securityinterests securing the Obligations shall not in any manner be impaired, limited, terminated, waived or released.

4. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrower to Agent under

the Loan Agreement and the other Financing Agreements, Borrower shall pay to Agent, for the account of Lenders, anamendment fee in the amount of $50,000 which shall be fully earned, due and payable as of the date hereof and which may becharged directly to any loan account of Borrower maintained by Agent.


which representations and warranties shall survive the execution and 2




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delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties andcovenants in the other Financing Agreements, being a continuing condition of the making of any Loans by Agent (or Agenton behalf of Lenders) to Borrower:

(a) As of the date hereof and after giving effect to the consents provided for herein, no Default or Event of

Default exists or has occurred and is continuing. (b) This Amendment No. 4 and each other agreement or instrument to be executed and delivered by Borrower in

connection herewith have been duly authorized, executed and delivered by all necessary action on the part of Borrower andthe agreements and obligations of Borrower contained herein constitute legal, valid and binding obligations of Borrowerenforceable against Borrower in accordance with their respective terms.

6. Conditions Precedent. The effectiveness of the consents contained herein shall only be effective upon the

satisfaction of each of the following conditions precedent in a manner satisfactory to Agent:

(a) Agent shall have received an executed original or executed original counterparts of this Amendment No. 4(as the case may be), duly authorized, executed and delivered by Borrower;

(b) Agent shall have received such approvals of the Lenders to the terms of this Amendment No. 4 as may be

required in the determination of Agent under the terms of the Loan Agreement; and (c) Agent shall have received a true and correct copy of any consent, waiver or approval to or of this

Amendment No. 4 which Borrower is required to obtain from any other Person, and such consent, waiver or approval shall bein form and substance satisfactory to Agent.

7. Provisions of General Application.

(a) Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to theFinancing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specificallyratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between theterms of this Amendment No. 4 and the other Financing Agreements, the terms of this Amendment No. 4 shall control. TheLoan Agreement and this Amendment No. 4 shall be read and construed as one agreement. Any acknowledgment or consentcontained herein shall not be construed to constitute a consent to any other or further action by Borrower or any Subsidiary ofBorrower or to entitle Borrower or any Subsidiary of Borrower to any other consent. The parties confirm and agree thatAmendment No. 3 to Loan and Security Agreement shall be dated and effective as of October 16, 2002.

(b) Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and

interpreted and determined in accordance with the laws of the State of New York, but excluding any principles of conflicts oflaw or other rule of law that

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would result in the application of the law of any jurisdiction other than the laws of the State of New York.

(c) Binding Effect. This Amendment No. 4 shall be binding upon and inure to the benefit of each of the parties

hereto and their respective successors and assigns. (d) Counterparts. This Amendment No. 4 may be executed in any number of counterparts, but all of such

counterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 4, it shall notbe necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of anexecuted counterpart of this Amendments No. 4 by telefacsimile shall have the same force and effect as delivery of anoriginal manually executed counterpart of this Amendment No. 4. Any party delivering any executed counterpart of thisAmendment No. 4 by telefacsimile shall also deliver an original manually executed counterpart, but the failure to do so shallnot affect the validity, enforceability and binding effect of this Amendment No. 4 as to such party or any other party.

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CONGRESS FINANCIAL CORPORATION,

as Agent and as Lender

By:

Title:


By:

Title:

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Exhibit 10.7

CONSENT AND AMENDMENT NO. 5 TOLOAN AND SECURITY AGREEMENT

THIS CONSENT AND AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT (this “Amendment

No. 5”), dated as of February 25, 2005, among AEP Industries Inc., a Delaware corporation (the “Borrower”), the financialinstitutions from time to time parties to the Loan Agreement (as herein after defined), as lenders (each individually, a“Lender” and collectively, the “Lenders”), signatories hereto and Wachovia Bank, National Association, as successor bymerger to Congress Financial Corporation, a Delaware corporation, in its capacity as agent for the Lenders (in such capacity,the “Agent”).

W I T N E S S E T H:

WHEREAS, Agent, Lenders and Borrower have entered into financing arrangements pursuant to which Agent andLenders have made and may make loans and advances and provide other financial accommodations to Borrower as set forthin the Loan and Security Agreement, dated November 20, 2001, by and among Agent, Lenders and Borrower, as amended byAmendment No. 1 to Loan and Security Agreement, dated December 9, 2001, Amendment No. 2 to Loan and SecurityAgreement, dated July 10, 2002, Amendment No. 3 to Loan and Security Agreement, dated October 16, 2002 andAmendment No. 4 to Loan and Security Agreement, dated February 3, 2005 (as amended and modified hereby and as thesame may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the “LoanAgreement”, and, together with the agreements, documents and instruments at any time executed and/or delivered inconnection therewith or related thereto, the “Financing Agreements”);

WHEREAS, Borrower issued its 9.875% Senior Subordinated Notes due 2007 (the “Senior Subordinated Notes”) in

an aggregate principal amount of $200,000,000 pursuant to that certain Indenture, dated as of November 19, 1997, betweenBorrower, as issuer, and The Bank of New York, as trustee (the “Senior Subordinated Indenture”);

WHEREAS, Borrower has made an offer (the “Tender Offer”) to purchase for cash any and all of its outstanding

Senior Subordinated Notes and has solicited the holders of the Senior Subordinated Notes to consent to certain amendmentsand modifications of the Senior Subordinated Notes and the Senior Subordinated Indenture (the “Consent Solicitation”), ineach case, upon the terms and conditions described in an Offer to Purchase and Consent Solicitation Statement included asExhibit A hereto (the “Offer Document”);

WHEREAS, Borrower intends to finance the Tender Offer with (i) proceeds from the issuance of its Senior Notes

(the “New Senior Notes”) in an aggregate principal amount of up to $175,000,000 (the “Senior Note Offering”) onsubstantially the terms and conditions set forth in the Description of Notes included as Exhibit B hereto and (ii) borrowings ofup to $42,500,000 pursuant to additional loans under the Loan Agreement; and

WHEREAS, Borrower has requested that, to the extent such consent is required, Agent and the Required Lenders

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the Tender Offer, the amendments and modifications to the Senior Subordinated Notes and the Senior Subordinated Indentureas set forth in the Offer Document and the issuance of the New Senior Notes, and that Agent and Lenders agree to amend theLoan Agreement in connection therewith, and Agent and the Required Lenders have agreed, subject to the terms andconditions set forth herein, to provide such consent and amendments as more specifically set forth herein;


for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties heretoagree as follows:

1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall

have the respective meanings given to them below, and the Loan Agreement and the other Financing Agreements shall bedeemed and are hereby amended to include, in addition and not in limitation, each of the following definitions:

(i) “Amendment No. 5” shall mean Consent and Amendment No. 5 to Loan and Security Agreement, dated as

of February 25, 2005, by and among Borrower, Agent and Lenders, as amended, supplemented or otherwise modified. (ii) “Australasian Sale” shall mean the sale of all or any substantial portion of the assets of AEP Industries

(Australia) Pty Limited, AEP Industries (NZ) Limited or any of their respective subsidiaries (collectively, the “AustralasianSubsidiaries”) or of any of the capital stock of the Australasian Subsidiaries, including and together with the merger orconsolidation of any Australasian Subsidiary with any other Person that is not an Affiliate (including any other ForeignSubsidiary of Borrower). Nothing contained herein shall be deemed to affect the limitations on any sale by a ForeignSubsidiary set forth in Section 9.7(b)(vi) of the Loan Agreement.

(iii) “New Senior Note Description of Notes” shall mean the Description of Notes with respect to the New

Senior Notes included as Exhibit B hereto. (iv) “New Senior Notes” shall mean, collectively, the Senior Notes issued by Borrower in the original

aggregate principal amount of $175,000,000, issued pursuant to the Indenture to be executed and delivered in connectiontherewith, the terms of which are described in the New Senior Note Description of Notes, as the same may hereafter beamended, modified, supplemented, extended, renewed, restated or replaced.

(v) “Tender Offer” shall mean the offer to purchase for cash any and all of the outstanding Senior Subordinated

Notes by Borrower and the solicitation of the holders of the Senior Subordinated Notes to consent to certain amendments andmodifications of the Senior Subordinated Notes and the Senior Subordinated Indenture, in each case, upon the terms andconditions described in an Offer to Purchase and Consent Solicitation Statement included as Exhibit A hereto.

(b) Interpretation. For purposes of this Amendment No. 5, all terms used herein, including but not limited to, those

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have the respective meanings assigned thereto in the Loan Agreement as amended by this Amendment No. 5.

2. Consents. On the terms and subject to the conditions set forth herein, Agent and Lenders hereby: (a) notwithstanding anything to the contrary in Sections 9.9(l) and 9.9(f) of the Loan Agreement or any other

provision of the Financing Agreements, consent to the Indebtedness of Borrower evidenced by or arising under the NewSenior Notes, provided that: (i) the New Senior Notes are issued, and Borrower shall have received the proceeds from suchissuance (or used such proceeds as provided for herein) no later than April 30, 2005 and (ii)such Indebtedness shall satisfy theconditions set forth in Section 9.9(o) of the Loan Agreement as provided herein;

(b) consent to the amendments and modifications to the Senior Subordinated Notes and Senior Subordinated

Indenture described in the Offer Document; provided, that, the Tender Offer shall be completed on or before April 30, 2005;and

(c) consent to the purchase of the Senior Subordinated Notes pursuant to the Tender Offer as set forth in the Offer

Document with the proceeds from the issuance of the New Senior Notes, the proceeds of up to $42,500,000 of the Loans,which purchase shall be on or about the date of the issuance of the New Senior Notes and without reduction of the amount ofpayments otherwise permitted in respect of Permitted Transactions under the terms of the Loan Agreement; provided, that,such purchase shall be complete on or before April 30, 2005.

3. Indebtedness. (a) Section 9.9(f)(v) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor:

“(v) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwisedeposit or invest any sums for such purposes, except that Borrower may redeem, retire, defease, purchase orotherwise acquire such Indebtedness with respect to the Senior Subordinated Notes not otherwise consented topursuant to Amendment No. 5; provided, that, (A) Borrower shall give Agent prior written notice of the issuance ofany notice of redemption, retirement, defeasance, purchase or other acquisition of such Indebtedness to be sent to theholders of the Senior Subordinated Notes prior to the issuance of such notice, together with a copy thereof, andwritten notice of any such purchase, redemption, retirement, defeasance or other acquisition by Borrower, (B) as ofthe date of the issuance of any such notice of purchase, redemption, retirement, defeasance or other acquisition byBorrower and after giving effect thereto, no Default or Event of Default shall exist or have occurred and becontinuing, (C) as of the date of as of the date of the issuance of any such notice of purchase, redemption, retirement,defeasance or other acquisition by Borrower, Excess Availability shall be not less than $20,000,000, (D) suchpurchase, redemption, retirement, defeasance or other acquisition by Borrower shall not be deemed to reduce theamount permitted for Permitted Transactions under the Loan Agreement and (E) all payments in respect of any suchpurchase, redemption, retirement, defeasance or other acquisition by Borrower

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pursuant to any such notice shall be made within forty-five (45) days of the issuance of any such notice with respectthereto and made on or before June 30, 2005;”

(b) Section 9.9(l) is hereby amended to add after the reference to “Section 9.9(n)” therein the following: “ and

Section 9.9(o)”. (c) Section 9.9 of the Loan Agreement is hereby amended to add a new Section 9.9(o) at the end thereof as follows:

“(o) Indebtedness of Borrower evidenced by or arising under the New Senior Notes, provided, that:

(i) the aggregate amount of such Indebtedness shall not exceed $175,000,000 less the aggregateamount of all repayments, repurchases or redemptions, whether optional or mandatory, in respect thereof, plusinterest thereon at the rate provided for in the New Senior Notes,

(ii) Borrower shall not, directly or indirectly, make any payments in respect of such Indebtedness,

except that Borrower may make (A) regularly scheduled payments of interest and fees, if any, in respect of suchIndebtedness when due in accordance with the terms of the New Senior Notes which interest shall be at a rate notgreater than nine and one-quarter (9 1/4%) percent per annum (subject to increase by an additional two (2%) percentafter a default under such New Senior Notes) and interest on such Indebtedness shall be payable no more frequentlythan semi-annually, and (B) payments of principal in respect of such Indebtedness to the extent permitted underSection 9.9(o)(vi) below and (C) payments of principal and interest with proceeds of Refinancing Indebtedness withrespect thereto permitted under Section 9.9(l) hereof,

(iii) such Indebtedness shall be unsecured, the final stated maturity thereof shall not be prior to

December 31, 2011 and the other terms and conditions thereof shall be substantially similar to those set forth in theNew Senior Note Description of Notes,

(iv) the proceeds of such Indebtedness, net of discounts and commissions and other expenses

incurred by Borrower in connection with the Tender Offer and the issuance of the New Senior Notes and relatedtransactions, shall be used to purchase or redeem the Senior Subordinated Notes (together with accrued interestthereon) for aggregate consideration (which may include the payment of premium, a consent fee or a combination ofthe foregoing) not exceeding $1025 per each $1000 principal amount of Senior Subordinated Notes (the Agent andLenders hereby consenting to the payment of such consideration) and the initial purchasers’ discounts andcommissions with respect to the New Senior Notes shall not exceed 2.875% of the aggregate principal amountthereof,

(v) Borrower shall not, directly or indirectly, amend, modify, alter or change in any material

respect any terms of such Indebtedness or any of the New Senior Notes or the indenture or other related agreements,documents and instruments with respect thereto, except that Borrower may, after prior written notice to Agent,amend,

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modify, alter or change the terms thereof so as to extend the maturity thereof or defer the timing of any payments inrespect thereof, or to forgive or cancel any portion of such Indebtedness other than pursuant to payments thereof, orto reduce the interest rate or any fees in connection therewith,

(vi) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or

otherwise deposit or invest any sums for such purpose, except that Borrower may redeem, retire, defease, purchaseor otherwise acquire such Indebtedness, either (A) with proceeds of Refinancing Indebtedness with respect thereto tothe extent permitted under Section 9.9(l) hereof, or (B) otherwise with funds of Borrower, provided, that, as of thedate of any such redemption, retirement, defeasance, purchase or other acquisition or any payment in respect thereof(other than pursuant to Refinancing Indebtedness) and after giving effect thereto, if there are any Loans or Letter ofCredit Accommodations outstanding as of such date after giving effect to any such payment, (1) as of the date of anysuch payment and after giving effect thereto, Excess Availability shall be not less than $20,000,000, (2) as of thedate of any such payment and after giving effect thereto, the aggregate amount of all payments in respect ofPermitted Transactions shall not exceed $50,000,000 in any fiscal year and (3) as of the date of any such paymentand after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing; exceptfurther that, Borrower may redeem, retire, defease, purchase or otherwise acquire such Indebtedness in connectionwith the receipt of Australasian Proceeds (as defined below) in an aggregate amount not to exceed $25,000,000(together with the payment of any applicable premium thereon up to one (1%) percent of the principal thereof andaccrued interest thereon), provided, that, (1) Borrower shall give Agent prior written notice of the issuance of anynotice of redemption, retirement, defeasance, purchase or other acquisition of such Indebtedness to be sent to theholders of the New Senior Notes prior to the issuance of such notice, together with a copy thereof, and written noticeof any such purchase, redemption, retirement, defeasance or other acquisition by Borrower, (2) as of the date of theissuance of any such notice of purchase, redemption, retirement, defeasance or other acquisition by Borrower andafter giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (3) as ofthe date of the issuance of any such notice of purchase, redemption, retirement, defeasance or other acquisition byBorrower, Excess Availability shall be not less than $20,000,000, (4) such purchase, redemption, retirement,defeasance or other acquisition by Borrower shall not be deemed to reduce the amount permitted for PermittedTransactions hereunder, (5) all payments in respect of such purchase, redemption, retirement, defeasance or otheracquisition by Borrower shall only be made within forty-five (45) days of the issuance of the notice thereof to theholders of the New Senior Notes and within ninety (90) days after the date of the receipt by Borrower or any of itssubsidiaries of Net Proceeds from an Australasian Sale (“Australasian Proceeds”), shall not exceed the amount ofsuch Net Proceeds so received and shall be made by Borrower and to the extent that a subsidiary of Borrower hasreceived such Net Proceeds, such subsidiary shall have transferred such proceeds to Borrower prior to the paymentby Borrower, (6) any Australasian Proceeds that have not been used for such a purchase, redemption, retirement,defeasance or other acquisition within ninety (90) days after the receipt thereof by Borrower or any of itssubsidiaries shall be applied to the Obligations in accordance with Section 9.7(b)(vi)(D) hereof, and

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(7) nothing contained this clause (vi) shall be deemed to affect the limitations on any sale by a Foreign Subsidiaryset forth in Section 9.7(b)(vi) of the Loan Agreement,

(vii) Agent shall have received true, correct and complete copies of any indenture or other

agreement providing for any of the terms of such Indebtedness promptly upon the execution thereof, (viii) Borrower shall furnish to Agent all written notices or demands in connection with such

Indebtedness either received by Borrower or on its behalf, promptly after the receipt thereof, or sent by Borrower oron its behalf, concurrently with the sending thereof, as the case may be;”


which representations and warranties shall survive the execution and delivery hereof, the truth and accuracy of, or compliancewith each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuingcondition of the making of any Loans by Agent (or Agent on behalf of Lenders) to Borrower:

(a) As of the date hereof, no Default or Event of Default exists or has occurred and is continuing. (b) This Amendment No. 5 and each other agreement or instrument to be executed and delivered by Borrower in

connection herewith have been duly authorized, executed and delivered by all necessary action on the part of Borrower andthe agreements and obligations of Borrower herein constitute legal, valid and binding obligations of Borrower enforceableagainst Borrower in accordance with their respective terms, subject as to enforcement to bankruptcy, fraudulent conveyance,insolvency, reorganization, moratorium and laws of general applicability to or affecting enforcement of creditors’ rightsgenerally or to general principles of equity.

5. Conditions Precedent. This Amendment No. 5 shall become effective on the date (the “Consent Effective Date”)

on which Agent receives counterparts hereof executed on behalf of Borrower and the Required Lenders. 6. Provisions of General Application. (a) Effect of this Amendment No. 5. Except as modified pursuant hereto, no other changes or modifications to the

Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specificallyratified, restated and confirmed by all parties hereto as of the Consent Effective Date. To the extent of conflict between theterms of this Amendment No. 5 and the other Financing Agreements, the terms of this Amendment No. 5 shall control. TheLoan Agreement and this Amendment No. 5 shall be read and construed as one agreement. Any acknowledgement orconsent contained herein shall not be construed to constitute a consent to any other or further action by Borrower or anySubsidiary of Borrower or to entitle Borrower or any Subsidiary of Borrower to any other consent.

(b) Governing Law. The rights and obligations hereunder of each of the arties hereto shall be governed by and

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New York, but excluding any principles of conflicts of law or other rule of law that would result in the application of the lawof any jurisdiction other than the laws of the State of New York.

(c) Binding Effect. This Amendment No. 5 shall be binding upon and inure to the benefit of each of the parties

hereto and their respective successors and assigns. (d) Counterparts. This Amendment No. 5 may be executed in any number of counterparts, but all of such

counterparts shall together constitute but one and the same agreement. In making proof of this Amendment No. 5, it shall notbe necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of anexecuted counterpart of this Amendment No. 5 by telefacsimile or other electronic means shall have the same force and effectas delivery of an original manually executed counterpart of this Consent and Agreement. Any party delivering any executedcounterpart of this Amendment No. 5 by telefacsimile or other electronic means shall also deliver an original manuallyexecuted counterpart, but the failure to do so shall not affect the validity, enforceability and binding effect of this AmendmentNo. 5 as to such party or any other party.

(e) Further Assurances. Each party hereto agrees that, if reasonably requested by any other party hereto, it will

enter into such further amendments or modifications to the Loan Agreement or the other Financing Agreements to effectuatethe purposes of this Amendment No. 5.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be executed by their respective

officers thereunto duly authorized as of the day and year first above written.

AEP INDUSTRIES INC.

By:

Name:

Title:

WACHOVIA BANK, NATIONALASSOCIATION, as Agent and as Lender

By:

Name:

Title:




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Exhibit 11

AEP INDUSTRIES INC.COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

For the Periods Ended January 31, 2005 and 2004


Shares ofCommon

Stock

Number ofDays

Outstanding

Days inPeriod

WeightedAverage

Number ofShares

Outstanding

2005

November 1-October 31 8,404,850 8,404,850

Shares Issued:

January 10, 2005 31,925 22 92 7,634

January 29, 2005 128 3 92 4

Total Weighted Average Shares 8,436,903 8,412,488

2004

November 1-October 31 8,176,744 8,176,744

Shares Issued:

January 7, 2004 45,859 25 92 12,462

Total Weighted Average Shares 8,222,603 8,189,206




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Exhibit 31.1

CHIEF EXECUTIVE OFFICER’S 302 CERTIFICATION I, J. Brendan Barba, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of AEP Industries Inc. (the “Company”) for the threemonths ended January 31, 2005;

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

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly

report, fairly present in all material respects the financial condition, results of operations and cash flows ofthe Company as of, and for, the periods presented in this quarterly report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company, andwe have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to theCompany, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report is being prepared;

(b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in

this report our conclusions about the effectiveness of the disclosure controls and procedures, as ofthe end of the period covered by this quarterly report based on such evaluation; and

(c) Disclosed in this report any change in the Company’s internal control over financial reporting that

occurred during the Company’s most recent fiscal quarter that materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of

internal control over financial reporting, to the Company’s auditors and the audit committee of theCompany’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the Company’s ability torecord, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a

significant role in the Company’s internal control over financial reporting. Date: March 17, 2005 /s/ J. BRENDAN BARBA

J. Brendan BarbaChief Executive Officer




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Exhibit 31.2

CHIEF FINANCIAL OFFICER’S 302 CERTIFICATION I, Paul M. Feeney, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of AEP Industries Inc. (the “Company”) for the threemonths ended January 31, 2005;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or

omit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this quarterlyreport;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly

report, fairly present in all material respects the financial condition, results of operations and cash flows ofthe Company as of, and for, the periods presented in this quarterly report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure

controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company, andwe have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to theCompany, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this quarterly report is being prepared;

(b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in

this report our conclusions about the effectiveness of the disclosure controls and procedures, as ofthe end of the period covered by this quarterly report based on such evaluation; and

(c) Disclosed in this report any change in the Company’s internal control over financial reporting that

occurred during the Company’s most recent fiscal quarter that materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of

internal control over financial reporting, to the Company’s auditors and the audit committee of theCompany’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the Company’s ability torecord, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a

significant role in the Company’s internal control over financial reporting. Date: March 17, 2005 /s/ PAUL M. FEENEY

Paul M. FeeneyChief Financial Officer




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Exhibit 32.1

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AEP Industries Inc. (the “Company”) on Form 10-Q for the three months

ended January 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J.Brendan Barba, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 17, 2005 /s/ J. BRENDAN BARBA

J. Brendan BarbaChief Executive Officer




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Exhibit 32.2

CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of AEP Industries Inc. (the “Company”) on Form 10-Q for the three months

ended January 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul M.Feeney, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of theSarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 17, 2005 /s/ PAUL M. FEENEY

Paul M. FeeneyChief Financial Officer




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form 10-q - aepinc.comform 10-q! quarterly report ... commission file number 0-14450 ... doc # 1...

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