AEARO CORP, S-1, 1996-06-03

AEARO CORP
S-1, 1996-06-03
MISCELLANEOUS MANUFACTURING INDUSTRIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

AEARO CORPORATION
(FORMERLY CABOT SAFETY HOLDINGS CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<TABLE>
<S> <C> <C>
DELAWARE 3999 13-384050
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

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

AEARO CORPORATION
ONE WASHINGTON MALL--8TH FLOOR
BOSTON, MA 02108-2610
(617) 371-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)

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

JOHN D. CURTIN, JR.
CHIEF EXECUTIVE OFFICER
AEARO CORPORATION
ONE WASHINGTON MALL--8TH FLOOR
BOSTON, MA 02108-2610
(617) 371-4200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

Copies to:

<TABLE>
<S> <C>
RICHARD E. FLOOR, P.C. DAVID C. CHAPIN, ESQ.
ETTORE A. SANTUCCI, P.C. ROPES & GRAY
GOODWIN, PROCTER & HOAR LLP ONE INTERNATIONAL PLACE
EXCHANGE PLACE BOSTON, MA 02110
BOSTON, MA 02109 (617) 951-7000
(617) 570-1000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value.......................... $94,875,000 $32,716
- ----------------------------------------------------------------------------------------------------------
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</TABLE>

(1) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
<TABLE>

AEARO CORPORATION

CROSS REFERENCE SHEET
<CAPTION>

ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS
---------------------- ---------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover of Prospectus....... Outside Front Page of Registration Statement
and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary, Risk Factors, Selected
Unaudited Pro Forma Financial Data and
Selected Historical Consolidated Financial
Data
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page of Prospectus and
Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside Front Cover Page of Prospectus and
Underwriting
9. Description of Securities to be
Registered.............................. Outside Front Cover Page of Prospectus,
Prospectus Summary and Description of Capital
Stock
10. Interest of Named Experts and
Counsel................................. Not Applicable
11. Information With Respect to the
Registrant.............................. Prospectus Summary, Risk Factors,
Capitalization, Selected Unaudited Pro Forma
Financial Data, Selected Historical
Consolidated Financial Data, Management's
Discussion and Analysis of Financial Condition
and Results of Operations, Business,
Management, Certain Relationships and Related
Transactions, Principal Stockholders,
Description of Capital Stock, Shares Eligible
for Future Sale and Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JUNE 3, 1996

5,500,000 SHARES
[LOGO]
AEARO CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------

All of the 5,500,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ and $ . For factors
considered in determining the initial public offering price, see "Underwriting".

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

The Company intends to apply for listing of the Common Stock on the New
York Stock Exchange under the symbol "AER".
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
</TABLE>

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting estimated expenses of $ payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 825,000 shares at the initial public offering price per share,
less the underwriting discount, solely to cover over-allotments. If such
option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting".
---------------------

The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996 against payment therefor in immediately available funds.

GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
---------------------

The date of this Prospectus is , 1996.
<PAGE> 4

[ART WORK]

E-A-R(R), AOSAFETY(R), EASTERN(TM), PELTOR(R), AEROLITE(TM), AEROSITE()@,
HAZARDMASTER(R), OMNISTAR(TM), AOTUFFMASTER(R), AO 5-STAR(R), AO 7-STAR(R),
CABOFLEX(R), CABOT DX(TM), CENTURION(R), CLASSIC(TM), COMFORT EYES(TM),
CONFETTI(R), CONFOR(TM), DIALOG(TM), EAR(R) CAPS, EUROLITE(R), EXPRESS(R),
E-Z-FIT(TM), FECTOIDS(TM), FLEXISTAR(R), HAZARD MASTER(TM), LASERMASTER(TM),
ISOLOSS(R) LS, MALIBU(R), NASSAU(R) PLUS, OMNISTAR(R), SCANNERS(TM),
SEE-PRO(TM), SUPER-SOFT(TM), TAPERFIT(R), TOURGUARD(R), TRACERS(TM), TUFCOTE(R),
ULTRAFIT(R), ULTRA-TECH(TM) AND ALL OF THE COMPANY'S OTHER LOGOS AND PRODUCT
NAMES ARE THE PROPERTY OF THE COMPANY.
------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 5

(INSIDE FRONT COVER)

AEARO CORPORATION...

A GLOBAL MANUFACTURER OF A BROAD RANGE OF NAME-BRAND PERSONAL PROTECTION
EQUIPMENT...

(four-color photo of a broad selection of our products; CSC safety, Peltor and
S/C.)

Aearo Corporation is one of the world's leading manufacturers and marketers of
a broad range of personal protection equipment and energy-absorbing polymers.

The Company's personal protection products, which are marketed under the brand
names AOSafety, E-A-R, Peltor and Eastern are available through a worldwide
network of consumer and industrial distribution channels. These products are
sold in 85 different countries and are used by industrial workers, healthcare
providers, construction workers, the military and consumers throughout the
world.

The Company's unique energy-absorbing resins, which are marketed under the
E-A-R Specialty Composites brand, are custom designed and formulated for a wide
variety of OEM applications in the communications, transportation, medical, and
recreational markets.

(TWO-PAGE FOLD-OUT)

...SOLD THROUGH MULTIPLE DISTRIBUTION CHANNELS TO A WIDE VARIETY OF END-USERS
WORLDWIDE.

(Channel of distribution diagram.)

One of Aearo Corporation's primary strengths is its multiplicity of distribution
channels in its safety product business. The Company's broad range of personal
protection equipment is available through industrial and safety distributors;
home centers, hardware stores, drug stores, and sporting good stores; healthcare
distributors; farm supply outlets; catalogs; and a worldwide network of
international distributors. The Company believes no other competitor has such a
broad and diverse distribution system for its products.

(Application photos: Applications should show a variety of industrial,
consumer, construction, and agricultural applications with people wearing
combinations of hearing protection, eyewear, face shields, head protection,
respiratory protection, prescription eyewear)

<PAGE> 6
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, unless the
context otherwise requires, references to "Aearo" or the "Company" mean Aearo
Corporation together with its wholly-owned subsidiary, Aearo Inc. (the
"Subsidiary"), and all other direct and indirect subsidiaries and the businesses
of the Company's predecessors, but only to the extent that such businesses were
the subject of the Formation Acquisition (as defined in this Prospectus). Unless
otherwise indicated (i) references to financial or operating results of the
Company occurring in any fiscal year are to the twelve months ended on September
30 of such indicated fiscal year, and (ii) the information in this Prospectus
assumes no exercise of the over-allotment option granted to the Underwriters and
gives effect to an 80 for 1 stock split effected on June , 1996. In May 1996,
Cabot Safety Holdings Corporation changed its name to Aearo Corporation.

THE COMPANY

The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the personal protection equipment ("PPE")
market worldwide through its safety products operating unit ("Safety Products"),
which manufactures and sells hearing protection devices, prescription and
non-prescription safety eyewear, face shields, reusable and disposable
respirators, hard hats and first aid kits in more than 85 countries under its
well-known brand names: AOSafety, E-A-R, Eastern and Peltor. Personal protection
equipment encompasses all articles of equipment and clothing worn for the
purpose of protecting against bodily injury, including safety eyewear and
goggles, ear muffs and ear plugs, respirators, hard hats, gloves, safety
clothing and safety shoes. With the acquisition of Peltor AB of Sweden, the
Company is a global leader in the industrial market for specialty communications
ear muffs. Safety Products accounted for approximately 84% of the Company's net
sales in fiscal 1995. The Company attributes its leading market positions to:

- Strong, well-recognized brand names

- A reputation for providing innovative, quality products

- Intensive coverage of multiple distribution channels targeting a wide
array of end-users

- One of the industry's broadest product offerings

- A commitment to providing the highest level of customer service

Through its specialty composites operating unit ("Specialty Composites"),
the Company manufactures a wide array of energy-absorbing materials which are
incorporated into other manufacturers' products to control noise, vibration and
shock. Specific product applications for such materials include noise-reducing
and vibration-dampening matting used in the lining of transportation equipment
such as heavy truck cabs, shock protection parts for electronic devices such as
computer disk drives, and durable energy-absorbent and cushioning foams used in
footwear. Specialty Composites also produces specially formulated foam used in
the manufacture of Safety Products' polyvinylchloride ("PVC") ear plugs.
Specialty Composites accounted for approximately 16% of the Company's net sales
in fiscal 1995.

A 1996 industry study estimates the size of the U.S. segment of the PPE
market in which the Company competes (which excludes safety clothing, gloves and
shoes) was approximately $1.0 billion in 1995. Management estimates annual sales
outside the United States for the segment of the PPE market in which the Company
competes were in excess of $1.0 billion in 1995. Historically, a large number of
relatively small, independent manufacturers with limited product lines served
the PPE market and the industry remains highly fragmented.
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3
<PAGE> 7

Management believes the primary factors driving the growth of the PPE
market are:

- Increased employer safety awareness. Management believes that employers
are increasingly aware of the rising cost of insurance, the costs and
liabilities relating to worker injury and the savings in insurance costs
and workers' compensation payouts that can be achieved through consistent
use of effective PPE

- Continued regulatory enforcement and compliance. Increases in regulatory
enforcement and compliance programs through various government agencies
(e.g., OSHA, MSHA and NIOSH) could result in significant growth in demand
for PPE

- Increased user acceptance. Through improvements in comfort, performance
and styling, management believes employees will be more likely to use
safety products regularly, thereby increasing regulatory compliance and
reducing risk of injury

- Market expansion opportunities. Management believes significant growth
opportunities exist in retail home centers and mass merchandisers which
offer a variety of PPE for the consumer/Do-It-Yourself ("DIY") market,
and the catalog supply, healthcare and international markets

OPERATING STRATEGY

The Company's goal is to become the leading safety products company in the
world. The Company's strategy to achieve this goal has three components:

- Increase market share and profitability through innovative new product
development

- Increase unit sales through focused sales and marketing programs to
penetrate existing and newly developing distribution channels

- Grow through strategic acquisitions worldwide

INNOVATIVE NEW PRODUCT DEVELOPMENT. The Company believes that an
innovative and disciplined new product development effort is critical to its
success. The Company's strategy is to increase market share and profitability by
focusing on both select, high-impact new products and enhancements to existing
products to leverage its strong distribution network and well-recognized brand
names. Acceptance of safety products by users, which increases regulatory
compliance and reduces the risk of injury, is driven in large part by design
improvements, which increase comfort, performance and styling. The Company's
product managers work closely with research and development personnel to develop
comfortable, high performance and stylish safety products, often incorporating
proprietary materials and designs.

FOCUSED SALES AND MARKETING PROGRAMS TO PENETRATE EXISTING AND NEWLY
DEVELOPING DISTRIBUTION CHANNELS. The Company believes that its strength in
managing multiple distribution channels gives it a strategic advantage over more
narrowly focused competitors. The Company intends to continue to maximize
penetration of existing distribution channels and to develop new channels. In
existing distribution channels, the Company has developed and pursued several
focused marketing programs, such as the Dialog distributor relations program,
aimed at creating a mutually profitable relationship between the Company and a
select group of distributors, and the Sales Specialist program, whereby the
Company's trained sales representatives call directly on end-users on behalf of
its Dialog distributors. The Company has targeted the growing catalog and
telemarketing segment of the U.S. distributor market since its emergence. The
Company has also implemented its Dispensing Manager Program in which it uses its
own employee opticians to dispense prescription eyewear instead of depending on
local contract opticians. The Company has aggressively pursued newly developing
distribution channels such as consumer/DIY, healthcare and international.

STRATEGIC ACQUISITIONS WORLDWIDE. The Company believes that the current
structure of the global PPE market is likely to present numerous strategic
acquisition opportunities. The Company

4
<PAGE> 8
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will continue to focus on opportunities that offer one or more of the following
three strategic advantages:

- Extension of existing product categories

- New product categories

- Distribution strength

RECENT ACQUISITIONS

On May 30, 1996, the Company acquired Peltor AB and its subsidiaries
("Peltor") for approximately $86.0 million (the "Peltor Acquisition"). Peltor is
the world's leading manufacturer of ear muff hearing protection devices and
markets its products worldwide through safety and industrial distributors in the
industrial, government, military and recreational markets. Peltor's headquarters
and principal manufacturing facilities are based in Varnamo, Sweden, and Peltor
has sales offices in Scandinavia, Germany, France, England and the United
States. The Peltor Acquisition significantly broadens the Company's line of ear
muff hearing protection devices and adds specialty muffs capable of two-way
radio frequency communications and other high-end applications to the Company's
product offerings. Management believes that the Peltor Acquisition further
establishes the Company as the worldwide leader in all types of hearing
protection and a leader in the speciality communications ear muff market. The
Company financed the Peltor Acquisition with bank borrowings. See "Acquisition
of Peltor."

On January 3, 1996 the Company acquired all of the outstanding capital
stock of Eastern Safety Equipment Co., Inc. ("Eastern") for approximately $7.8
million (the "Eastern Acquisition"). The Eastern Acquisition substantially
increased the Company's market position in the consumer/DIY market by adding
Eastern's strength with home centers and mass merchandisers to the Company's
established position with hardware wholesalers and purchasing cooperatives. The
Eastern Acquisition also added first aid kits as a new product category for the
Company.

OWNERSHIP

In July 1995, Vestar Equity Partners, L.P. (together with certain related
persons, "Vestar"), Cabot Corporation ("Cabot") and management effected through
the Company the acquisition of substantially all of the assets and certain
liabilities of Cabot CSC Corporation ("Old Cabot Safety Corporation"), a
wholly-owned subsidiary of Cabot, and certain of its affiliates (the "Formation
Acquisition") for $206.1 million. To finance the Formation Acquisition, the
Company incurred $47.5 million of senior secured debt, sold $100 million of
12 1/2% senior subordinated notes due 2005 (the "Subordinated Notes"), issued to
Vestar and Cabot an aggregate of $45 million of 12 1/2% redeemable preferred
stock (the "Redeemable Preferred Stock"), and issued to Vestar, Cabot and
certain members of management and key employees of the Company (collectively the
"Management Investors") an aggregate of 8,000,000 shares of Common Stock. Cabot
and Vestar have agreed, effective upon the consummation of this offering, to
exchange $25.3 million of Redeemable Preferred Stock, including $2.8 million of
accrued dividends since July 1995, for 1,807,142 shares of Common Stock (based
on an exchange price equal to the initial public offering price of the Common
Stock) (the "Exchange Transaction"). See "Certain Relationships and Related
Transactions -- Formation Acquisition." After giving effect to this offering and
the use of proceeds therefrom (the "Offering") and the Exchange Transaction,
Vestar, Cabot and the Management Investors will own approximately 28.1%, 28.1%
and 7.8%, respectively, of the outstanding Common Stock. See "Use of Proceeds."
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5
<PAGE> 9
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<TABLE>
THE OFFERING
<CAPTION>
<S> <C>
Common Stock offered.............................................. 5,500,000 shares
Common Stock to be outstanding after the Offering(1).............. 15,307,142 shares
Proposed New York Stock Exchange Symbol........................... AER
<FN>

- ---------------
(1) Includes an aggregate of 1,807,142 shares to be issued in the Exchange
Transaction. Excludes an aggregate of shares of Common Stock reserved for
issuance pursuant to the Company's Executive Stock Option Plan and 1996 Stock
Option and Grant Plan (collectively, the "Stock Option Plans"). See "Management
-- Stock Option Plans."
</TABLE>

USE OF PROCEEDS

The net proceeds from the Offering, estimated to be approximately $70.3
million, will be used as follows: (i) approximately $39.4 million will be used
to redeem up to $35.0 million principal amount of Subordinated Notes at a
redemption price equal to 112.5% of principal, plus accrued interest; (ii)
approximately $25.3 million will be used to retire outstanding shares of
Redeemable Preferred Stock, including accrued dividends since July 1995; and
(iii) the balance will be used to reduce bank debt. See "Use of Proceeds."

RISK FACTORS

Prospective purchasers of the Shares should consider carefully the matters
set forth under the caption "Risk Factors," as well as the other information set
forth in this Prospectus.

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6
<PAGE> 10
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<TABLE>
SUMMARY FINANCIAL INFORMATION

SUMMARY HISTORICAL FINANCIAL DATA. The summary historical financial data
below present consolidated financial data of the Company's predecessor for
periods prior to the Formation Acquisition. See "Certain Relationships and
Related Transactions." Because of such transaction, certain aspects of the
consolidated results of operations for periods prior to July 12, 1995 are not
comparable with those for subsequent periods. The results of operations for the
six months ended March 31, 1996 include the results of Eastern after January 3,
1996, the date on which Eastern was acquired by the Company. The following
summary historical financial data of the Company should be read in conjunction
with "Selected Historical Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the financial
statements of the Company, including notes thereto, the unaudited pro forma
financial information for the Company and related notes thereto and other
financial information appearing elsewhere in this Prospectus.

PREDECESSOR COMPANY
--------------------------------------------------------------- -----------------------
FISCAL YEAR ENDED SIX MONTHS PERIOD PERIOD SIX MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED
------------------------------------- MARCH 31, JULY 11, SEPT. 30, MARCH 31,
1991(1) 1992 1993 1994 1995 1995 1995 1996
------- ------ ------ ------ ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $166.5 $168.2 $169.6 $178.3 $ 97.7 $154.7 $ 47.9 $112.7
Gross profit.................... 80.1 79.8 73.0 78.8 42.5 67.0 18.6(2) 50.4
Operating income................ 25.7 27.3 19.6 18.8 9.9 13.5(3) 4.0 13.5
Interest expense, net........... 9.9 5.9 4.8 5.8 3.6 5.7 4.1 9.1
Income (loss) from continuing
operations.................... 10.6 12.6 9.4 8.0 4.0 4.8 (0.6) 2.5
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................... $181.2 $168.0 $163.4 $171.2 $181.7 $177.5 $218.3 $226.2
Total debt...................... 106.6 92.1 82.4 76.9 82.3 78.4 152.3 156.1
Stockholders' equity............ 35.0 46.2 51.0 35.2 39.4 40.1 32.0 34.3
OTHER DATA:
Depreciation.................... $ 5.4 $ 5.7 $ 6.1 $ 6.1 $ 3.5 $ 4.9 $ 1.3 $ 4.1
Amortization.................... 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Capital expenditures............ 6.9 5.1 9.0 4.5 5.3 10.4 2.7 4.0
<FN>

- ---------------
(1) The results of operations for fiscal 1991 exclude the results of Rastronics, which were presented as discontinued operations
in the 1991 financial statements.

(2) Includes a $3.6 million charge related to allocation of purchase price to finished goods inventory.

(3) Includes a $1.1 million charge related to the termination of the Old Cabot Safety Corporation stock option plan and a $0.8
million charge related to aprovision for potential value-added tax penalties by the Company's French subsidiary. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Legal Matters."
</TABLE>
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7
<PAGE> 11

SUMMARY PRO FORMA FINANCIAL DATA. The following table sets forth summary
pro forma financial data of the Company as of and for the year ended September
30, 1995 and the six months ended March 31, 1995 and March 31, 1996. The pro
forma financial data give effect to the Offering, the Exchange Transaction, the
Formation Acquisition, the Eastern Acquisition and the Peltor Acquisition and
related transactions as if they had occurred on October 1, 1994 for purposes of
the pro forma consolidated income statement data and as of March 31, 1996 for
purposes of the pro forma consolidated balance sheet data. The unaudited pro
forma financial information presented does not purport to represent what the
consolidated results of operations or financial condition of the Company would
actually have been if the transactions reflected therein had in fact occurred on
the assumed dates or to project the future consolidated results of operations or
financial condition of the Company. The Company's pro forma results of
operations for the six months ended March 31, 1996 do not include extraordinary
charges in connection with the Offering and related transactions, including
approximately $2.7 million net of tax of premium payable upon redemption of
Subordinated Notes, the non-cash write-off of approximately $1.25 million net of
tax of related debt issuance costs and a $0.8 million charge, net of tax, in
connection with the termination of the Company's management advisory agreement
with Vestar and Cabot, which the Company expects to record in the fourth quarter
of fiscal 1996. See "Risk Factors -- Nonrecurring Charges in Connection with the
Offering." The following summary unaudited pro forma financial data of the
Company should be read in conjunction with "Selected Unaudited Pro Forma
Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial information for the Company and related notes
thereto and other financial information appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR MARCH 31,
ENDED ----------------------------
SEPTEMBER 30, 1995 1995 1996
------------------ ----------- -----------
(DOLLARS IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................................ $256.9 $125.2 $138.4
Gross profit............................................................. 111.1 52.4 62.2
Operating income......................................................... 26.2 10.5 16.3
Interest expense, net.................................................... 21.9 10.8 10.6
Net income (loss)........................................................ 1.5 (1.0) 3.0
Net income (loss) per share(1)........................................... $ .10 $ (.07) $ .20
Weighted average number of common shares outstanding(1).................. 15,307,142 15,307,142 15,307,142
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................................. $323.6
Total debt(2)............................................................ 206.5
Redeemable preferred stock(3)............................................ --
Common stockholders' equity.............................................. 75.3
OTHER DATA:
Depreciation............................................................. $10.2 $5.8 $5.0
Amortization............................................................. 8.5 4.3 4.2
Capital expenditures..................................................... 15.6 6.5 5.2
</TABLE>

- ---------------
(1) Computed using the weighted average number of shares of Common Stock and
common stock equivalents outstanding during the period. Pro forma net income
per share reflect the issuance of the 5,500,000 shares of Common Stock in
the Offering and the application of the estimated net proceeds therefrom and
the Exchange Transaction. See "Use of Proceeds."

(2) Adjusted to reflect the application of the estimated net proceeds from the
Offering. See "Use of Proceeds" and "Capitalization."

(3) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and Exchange Transaction. See "The Offering"
and "Use of Proceeds."

8
<PAGE> 12

RISK FACTORS

The following risk factors should be carefully considered in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.

RISKS ASSOCIATED WITH INDEBTEDNESS

The Company is significantly leveraged, resulting in indebtedness being
substantial in relation to stockholders' equity. Such leverage could have
important consequences to the Company, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest; (iii) certain of
the Company's borrowings are and will continue to be at variable rates of
interest, which exposes the Company to the risk of higher interest rates; (iv)
the Company may be substantially more leveraged than certain of its competitors,
which may place it at a competitive disadvantage; and (v) the Company's
substantial degree of leverage may hinder its ability to adjust rapidly to
changing market conditions and could make it more vulnerable in the event of a
downturn in general economic conditions or its business.

The Company's ability to repay or refinance its indebtedness and comply
with the covenants contained in the Company's senior secured credit facilities
provided by Bankers Trust Company, as Administrative Agent, (the "Senior Bank
Facilities") and the Subordinated Notes will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. There can be no assurance that the Company's operating results, cash
flow and capital resources will be sufficient for payment of its indebtedness in
the future. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
planned expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. The Senior Bank Facilities and the
Subordinated Notes contain a number of significant covenants that, among other
things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into investments or
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, under the Senior Bank Facilities the
Company is required to comply with specified financial ratios and tests,
including minimum fixed charge coverage, minimum interest coverage and maximum
leverage ratios. The breach of any of such covenants or restrictions could
result in a default under the Senior Bank Facilities and/or the Subordinated
Notes, which may lead to such indebtedness becoming immediately due and payable,
and the lenders' commitments to make further extensions of credit under the
Senior Bank Facilities being terminated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

UNCERTAINTIES OF ACQUISITION STRATEGY

The Company has pursued and intends to continue to pursue acquisitions as
an important component of its strategy. The Peltor Acquisition involves the
incurrence of significant additional debt and significant amortization expense
in future periods related to goodwill and other intangible assets. No assurance
can be given that in the future other suitable acquisition candidates can be
acquired on acceptable terms or that future acquisitions, if completed, will be
successful. Future acquisitions by the Company could result in the incurrence of
additional debt, the potentially dilutive issuance of equity securities and the
incurrence of contingent liabilities and amortization expenses related to
goodwill and other intangible assets, which could materially adversely affect
the Company's business, operating results and financial condition. The success
of any completed acquisition, including the Peltor Acquisition, will depend on
the Company's ability to integrate effectively the acquired businesses into the
Company. The process of integrating acquired businesses may involve

9
<PAGE> 13

numerous risks, including difficulties in the assimilation of operations and
products, the diversion of management's attention from other business concerns,
risks of entering markets in which the Company has limited or no direct prior
experience and the potential loss of key employees of the acquired businesses.
See "Business -- Operating Strategy" and "Acquisition of Peltor."

HIGH LEVEL OF COMPETITION IN ISSUER'S MARKETS; IMPORTANCE OF PRODUCT INNOVATION

The PPE market is highly competitive. The Company believes that
participants in the PPE market compete primarily on the basis of product
characteristics (such as design, style, and functional performance), product
quality, service, brand name recognition and, to a lesser extent, price. Some of
the Company's competitors have greater financial and other resources than the
Company, and the Company's cash flows from operations could be adversely
affected by competitors' new product innovations and pricing changes made by the
Company in response to competition from existing or new competitors. The level
of competition in the markets in which the Company operates can have a
substantial detrimental effect on the prices that the Company can charge for its
products and, consequently, can adversely impact the Company's revenues and
profitability. The Company's future results will depend in part on continued
enhancement of its existing products and introduction of new products. New
product designs can be unsuccessful, and successful product designs can be
displaced by product designs subsequently introduced or imitated by competitors.
As a result of these and other factors, there can be no assurance that the
Company will successfully maintain its market position. See
"Business -- Competition."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company operates manufacturing, distribution and sales facilities in
eight foreign countries and sells its products in more than 85 countries.
Approximately 29.6% of the Company's fiscal 1995 net sales were made in foreign
countries, and such percentage is expected to increase as a result of the Peltor
Acquisition. As a result, the Company is subject to risks associated with
operating in foreign countries, including fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
dollars or remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and other
payments on foreign subsidiaries, hyperinflation in certain foreign countries
and imposition or increase of investment and other restrictions by foreign
governments. Although such risks have not had a material adverse effect on the
Company, no assurance can be given that such risks will not have a material
adverse effect on the business, results of operations and financial condition of
the Company in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."

PRODUCT LIABILITY EXPOSURE

The Company faces an inherent business risk of exposure to product
liability claims arising from the potential failure of its products to prevent
the types of personal injury or death against which PPE is intended to protect.
Although the Company has not experienced any material uninsured losses due to
product liability claims, there can be no assurance that it will not experience
such losses in the future. Also, in the event any of the Company's products
prove to be defective, the Company may be required to recall or redesign such
product. The Company maintains insurance against product liability claims (with
the exception of certain asbestosis and silicosis cases, for which coverage is
not commercially available), but there can be no assurance that such insurance
coverage will continue to be available on terms acceptable to the Company or
that such coverage will be adequate for liabilities actually incurred. A
successful claim brought against the Company in excess of available insurance
coverage, or any claim or product recall that results in significant expense or
adverse publicity against the Company, may have a material adverse effect on the
Company's business, operating results and financial condition.

10
<PAGE> 14

RELIANCE ON SINGLE SOURCES OF SUPPLY AND AVAILABILITY OF POLYCARBONATE RESIN

The Company uses single sources for the supply of several raw materials,
including General Electric Plastics, a division of General Electric Company, for
polycarbonate resin, the primary raw material used in the production of the
Company's non-prescription optical lenses. The loss of any such single source,
any disruption in such source's business or failure by it to meet the Company's
needs on a timely basis could cause shortages in raw materials and could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that precautions taken by the
Company will be adequate or that alternative sources of supply can be located or
developed in a timely manner. At this time, demand for polycarbonate resin on a
worldwide basis is straining the industry's production capacity. If worldwide
demand continues to exceed the available supply, the Company's ability to obtain
required quantities of this product could be adversely affected, which could
adversely affect the Company's business, operating results and financial
condition. See "Business -- Raw Materials and Suppliers."

EFFECTIVE CONTROL BY PRINCIPAL STOCKHOLDERS

After the Offering, Cabot, Vestar and the Management Investors
(collectively, the "Principal Stockholders") will own, directly or indirectly,
28.1%, 28.1% and 7.8%, respectively, of the then outstanding Common Stock.
Pursuant to a stockholders' agreement entered into in connection with the
Formation Acquisition (the "Stockholders' Agreement"), the Principal
Stockholders have agreed to vote all of the capital stock owned by them so as to
elect a Board of Directors of the Company consisting of up to five designees of
Vestar (two of such designees to be unaffiliated with Vestar), two designees of
Cabot and two designees of the Management Investors. By reason of their
ownership of Common Stock and the Stockholders' Agreement, the Principal
Stockholders will have the ability to control the outcome of certain fundamental
corporate transactions requiring stockholder approval, including mergers and
sales of assets, and will have the ability to elect all of the members of the
Company's Board of Directors. Subsequent to the Offering, the Principal
Stockholders may dispose of shares publicly or privately, including sales of
significant blocks, in accordance with various restrictions. To the extent such
dispositions occur, they will reduce the level of such influence and may cause
the rights of the Principal Stockholders under the Stockholders' Agreement to
terminate. See "Certain Relationships and Related Transactions" and "Shares
Eligible for Future Sale."

MATERIAL BENEFIT TO INSIDERS

In connection with the Formation Acquisition, Vestar and Cabot invested
$45 million in Redeemable Preferred Stock. In connection with the Offering, the
Company will redeem approximately $25.3 million of Redeemable Preferred Stock
(including approximately $2.8 million of accrued dividends since July 1995)
using a portion of the proceeds from the Offering. Vestar and Cabot have
agreed, effective upon the consummation of the Offering, to exchange the
remaining $25.3 million of Redeemable Preferred Stock outstanding for
approximately 1,807,142 shares of Common Stock (based on an exchange price
equal to the initial public offering price of the Common Stock in the
Offering). See "Certain Relationships and Related Transactions -- The Formation
Acquisition."

UNPREDICTABILITY OF PATENT PROTECTION AND OTHER INTELLECTUAL PROPERTY

The Company's success depends, in part, on its ability to obtain and
enforce patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties. While the Company has been issued
patents and has registered trademarks with respect to many of its products,
there can be no assurance that others will not independently develop similar or
superior products or technologies, duplicate any of the Company's designs,
trademarks, processes or other intellectual property or design around any
processes or designs on which the Company has or may obtain patents or trademark
protection. In addition, it is possible that third parties may have or

11
<PAGE> 15

acquire licenses for other technology or designs that the Company may use or
desire to use, so that the Company may need to acquire licenses to, or to
contest the validity of, such patents or trademarks of third parties. There can
be no assurance that any such license would be made available to the Company on
acceptable terms, if at all, or that the Company would prevail in any such
contest. In addition to patent and trademark protection, the Company also relies
on trade secrets and proprietary know-how that it seeks to protect. There can be
no assurance that the Company will be successful in protecting such trade
secrets or know-how against unauthorized use by others or disclosure by persons
who have access to them, such as employees of the Company. See
"Business -- Patents and Trademarks."

DEPENDENCE ON KEY PERSONNEL

The operations of the Company depend significantly upon the efforts of
certain members of senior management, particularly John D. Curtin, Jr., Chairman
of the Board of Directors and Chief Executive Officer, and Albert F. Young, Jr.,
President. The extended loss of the services of these or other officers could
have a material adverse effect upon the Company's business, results of
operations and financial condition. See "Management."

ADVERSE EFFECT OF ECONOMIC AND REGULATORY CONDITIONS ON SALES

The primary end-users of the Company's products are industrial workers in
the United States and abroad, and decreases in general employment levels,
particularly in the United States, may have an adverse effect on the Company's
sales. The Company's sales may also be adversely affected by changes in safety
regulations covering industrial workers in the United States and abroad and in
the level of enforcement of such regulations. Changes in regulations could
reduce the utility of certain products manufactured by the Company, requiring
the Company to re-engineer such products and creating opportunities for its
competitors. See "Business -- Government Regulation."

RISKS ASSOCIATED WITH ENVIRONMENTAL MATTERS

The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes.
While the Company believes that it is currently in material compliance with
those laws and regulations, there can be no assurance that the Company will not
incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or the enforcement thereof). Such
costs could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Environmental Matters."

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS

Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Amended and Restated By-laws, certain sections of the
Delaware General Corporation Law, and the ability of the Board of Directors to
issue shares of preferred stock and to establish the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their own best
interests). These provisions and the ability of the Board to issue preferred
stock without further action by stockholders could delay or frustrate the
removal of incumbent Directors or the assumption of control by stockholders,
even if such removal or assumption of control would be beneficial to
stockholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial
to the interests of stockholders. Such provisions include, among other things, a
classified Board of Directors serving staggered three-year terms, the
elimination of stockholder voting by consent, the removal of Directors only for
cause, the vesting of exclusive

12
<PAGE> 16

authority in the Board of Directors to determine the size of the Board and
(subject to certain limited exceptions) to fill vacancies thereon, the vesting
of exclusive authority in the Board of Directors (except as otherwise required
by law) to call special meetings of stockholders, and certain advance notice
requirements for stockholder proposals and nominations for election to the Board
of Directors. The Company will be subject to Section 203 of the Delaware General
Corporation Law which, in general, imposes restrictions upon certain acquirors
(including their affiliates and associates) of 15% or more of the Company's
Common Stock. See "Description of Capital Stock -- Certain Provisions of Second
Amended and Restated Certificate of Incorporation and Amended and Restated
By-laws" and "-- Statutory Business Combination Provisions."

POTENTIAL ADVERSE EFFECTS ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. In
addition to the 5,500,000 shares of Common Stock offered hereby, 9,807,142
shares of the Common Stock expected to be owned by current stockholders of the
Company will be eligible for sale in the public market beginning in July 1997
pursuant to Rule 144 ("Rule 144") under the Securities Act of 1933, as amended
(the "Securities Act"). The Securities and Exchange Commission is currently
contemplating amendments to Rule 144 which, if enacted, would permit the
Company's current stockholders to sell their shares of Common Stock as early as
July 1996. Such holders have agreed, however, not to sell or otherwise dispose
of any of their shares of Common Stock for 180 days after the closing of the
Offering without the consent of the representatives of the Underwriters. If such
stockholders should sell or otherwise dispose of a substantial amount of shares
of Common Stock in the public market, the prevailing market price for the Common
Stock could be adversely affected. See "Shares Eligible for Future Sale."

NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICES

Prior to the Offering, there has been no public market for the Common
Stock. The public offering price will be determined through negotiations among
the Company, Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation, and may not be indicative of the market price for the Common Stock
after the Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price of the Common Stock.
There can be no assurance that any active public market for the Common Stock
will develop or be sustained after the Offering, or that the market price of the
Common Stock will not decline below the initial public offering price. The
trading price of the Common Stock may be volatile and may fluctuate based upon a
number of factors, including business performance, news announcements or changes
in general market conditions. See "Underwriting."

ADVERSE EFFECTS OF DILUTION

Purchasers of the Common Stock will experience immediate and substantial
dilution in the pro forma tangible book value per share of Common Stock from the
public offering price. See "Dilution."

NONRECURRING CHARGES IN CONNECTION WITH THE OFFERING

The Company expects to incur an extraordinary charge in the fourth quarter
of fiscal 1996 in connection with the consummation of the Offering, including
approximately $1.3 million net of tax in connection with the non-cash write-off
of previously capitalized debt issuance costs and $2.7 million net of tax of
cash expense for redemption premium in connection with the redemption of a
portion of the Subordinated Notes. The Company also expects to incur a charge of
approximately $0.8 million, net of tax, in connection with the termination of
its management advisory agreement with Vestar and Cabot. These charges are not
reflected in the pro forma financial information for the year ended September
30, 1995 or the six months ended March 31, 1996 included in this Prospectus. The
market price of the Common Stock could be negatively impacted when the Company
reports these charges. See "Selected Unaudited Pro Forma Financial Data."

13
<PAGE> 17

THE COMPANY

The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the PPE market worldwide through its Safety
Products operating unit, which manufactures and sells hearing protection
devices, prescription and non-prescription safety eyewear, face shields,
reusable and disposable respirators, hard hats and first aid kits in more than
85 countries under its well-known brand names: AOSafety, E-A-R, Eastern and
Peltor. With the Peltor Acquisition, the Company is a global leader in the
specialty communications ear muff market. Through its Specialty Composites
operating unit, the Company also manufacturers a wide array of energy-absorbing
specialty composite materials. Such materials are incorporated into other
manufacturers' products to control noise, vibration and shock.

Cabot started its E-A-R (Energy Absorbing Resins) Division (the "E-A-R
Division") and introduced its first foam ear plug in 1972. In 1989 Cabot
acquired Specialty Composites and integrated it into its E-A-R Division,
increasing its casting and engineering capabilities. In 1990 Cabot acquired the
AOSafety Division, a leader in the manufacture and marketing of safety eyewear,
from American Optical Corporation and merged it with the E-A-R Division into Old
Cabot Safety Corporation. In July 1995, Vestar, Cabot and the Management
Investors effected through the Company the acquisition of substantially all of
the assets and certain liabilities of Old Cabot Safety Corporation and certain
of its affiliates from Cabot. On May 29, 1996, Cabot Safety Holdings Corporation
changed its name to Aearo Corporation and the Subsidiary subsequently changed
its name from Cabot Safety Corporation to Aearo Inc.

The Company's principal executive offices are located at One Washington
Mall -- 8th Floor, Boston, Massachusetts 02108-2610, and its telephone number is
(617) 371-4200.

USE OF PROCEEDS

The estimated net proceeds to the Company from the Offering (based on an
assumed initial public offering price of $14.00 per share, the mid-point of the
range set forth on the cover page of this Prospectus, and after deducting
underwriting discounts and estimated offering expenses) will be approximately
$70.3 million ($80.1 million if the Underwriters' over-allotment option is
exercised in full). Such net proceeds will be used as follows: (i) approximately
$39.4 million will be used to redeem $35.0 million principal amount of the
Subordinated Notes at a redemption price equal to 112.5% of principal, plus
accrued and unpaid interest; (ii) approximately $25.3 million will be used to
retire outstanding shares of Redeemable Preferred Stock, including accrued
dividends since July 1995; and (iii) the balance will be used to reduce
borrowings under the Senior Bank Facilities. See "Certain Relationships and
Related Transactions -- The Formation Acquisition" and "Risk
Factors -- Nonrecurring Charges in Connection with the Offering."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock
and is largely restricted from doing so under its financing agreements. The
Company intends to continue this policy for the foreseeable future and retain
earnings for repayment of indebtedness and investment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors of the Company and will be dependent on the Company's results
of operations, financial condition, contractual restrictions (including
restrictions in the indenture governing the Subordinated Notes and the Senior
Bank Facilities), legal restrictions and other factors deemed to be relevant by
the Board. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

14
<PAGE> 18

DILUTION

<TABLE>
The pro forma (adjusted for the Peltor Acquisition) tangible net deficit
(excluding net deferred financing costs and other intangible assets) of the
Company at March 31, 1996 was $(137.6) million, or $(17.20) per share of
outstanding Common Stock. After giving effect to the Offering and the Exchange
Transaction, deducting estimated underwriting discounts, giving effect to the
transactions referred to under "Use of Proceeds" and applying the net proceeds
therefrom, the pro forma tangible net deficit at March 31, 1996 would have been
$(94.5) million or $(6.17) per share of outstanding Common Stock. This
represents an immediate dilution in net tangible book value of $20.17 per share
to new investors purchasing shares in the Offering. The following table
illustrates the per share dilution:
<CAPTION>

<S> <C> <C>
Assumed initial public offering price per share of Common
Stock......................................................... $14.00
------
Pro forma tangible net deficit per share before the
Offering(1)................................................... $(17.20)
-------
Pro forma tangible net deficit per share after the
Offering(2)................................................... $ (6.17)
-------
Dilution per share to investors in the Offering(3).............. $20.17
======
<FN>

- ---------------
(1) Pro forma tangible net deficit per share of Common Stock is determined by
dividing the Company's tangible net deficit (total assets excluding net
deferred financing costs and other intangible assets less total liabilities)
by the number of shares of Common Stock outstanding.

(2) Adjusted to reflect the Peltor Acquisition.

(3) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price per share.
</TABLE>

<TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1996,
the differences between the number of shares purchased from the Company, the
total consideration paid and the average price per share paid by the existing
holders of Common Stock (including shares to be issued in the Exchange
Transaction) and by the investors purchasing shares of Common Stock in the
Offering (based on an assumed initial public offering price of $14.00 per share,
the mid-point of the range set forth on the cover page of this Prospectus):
<CAPTION>

SHARES HELD TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 9,807,142 64.1% $ 45,300,000 37.0% $ 4.62
New investors................ 5,500,000 35.9 77,000,000 63.0 $14.00
---------- ----- ------------ ----- ------
Total...................... 15,307,142 100.0% $122,300,000 100.0%
========== ===== ============ =====
</TABLE>

The foregoing tables assume no exercise of the Underwriters' over-allotment
option. See "Underwriting" for information concerning the Underwriters'
over-allotment option.

15
<PAGE> 19

CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of March 31, 1996 and as adjusted to give effect to (i) the sale of 5,500,000
shares of Common Stock in the Offering and the application of the net proceeds
as set forth under "Use of Proceeds," (ii) the exchange of approximately $25.3
of Redeemable Preferred Stock, including shares issued since July 1995 as
payment in kind of accrued dividends, for 1,807,142 shares of Common Stock in
the Exchange Transaction and (iii) the Peltor Acquisition and the financing
thereof. See "Certain Relationships and Related Transactions -- The Formation
Acquisition," "Use of Proceeds" and "Acquisition of Peltor." This table should
be read in conjunction with the "Selected Unaudited Pro Forma Financial Data,"
"Selected Historical Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and the financial statements of the Company, including the
notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt.................................... $ 7.0 $ 7.0
====== ======
Long-term debt(1):
Revolving credit facility.......................................... $ 10.6 $ 1.0
Term loans......................................................... 34.0 127.5
Other.............................................................. 4.5 6.0
Subordinated notes................................................. 100.0 65.0
------ ------
Total long-term debt............................................ 149.1 199.5
------ ------
Stockholders' equity:
Redeemable preferred stock, $.01 par value, 200,000 shares
authorized and 45,000 shares issued and outstanding; none issued
and outstanding as adjusted..................................... 0.0 --
Preferred stock, $.01 par value, shares authorized and
none issued and outstanding(2).................................. --
Common stock, $.01 par value, 50,000,000 shares authorized;
8,000,000 shares issued and outstanding; 15,307,142 shares
issued and outstanding as adjusted(2)(3)........................ 0.0 0.0
Additional paid-in capital......................................... 32.6 78.3
Retained earnings(4)............................................... 1.9 (2.9)
Foreign currency translation adjustment............................ (0.2) (0.2)
------ ------
Total stockholders' equity...................................... 34.3 75.2
------ ------
Total capitalization................................................. $183.4 $ 274.7
====== ======
<FN>
- ---------------
(1) See Note 8 of Notes to Financial Statements for additional information
relating to long-term debt.

(2) Reflects the Second Amended and Restated Certificate of Incorporation of the
Company, which increases the authorized Common Stock to 50,000,000 shares
and authorizes the issuance of undesignated preferred stock. See
"Description of Capital Stock."

(3) Excludes (i) shares of Common Stock issuable upon exercise of
outstanding options granted pursuant to the Stock Option Plans at a weighted
average exercise price of $ per share and (ii) shares of Common
Stock available for future grants under the Stock Option Plans. See
"Management -- Stock Option Plans."

(4) As adjusted, retained earnings reflects an extraordinary charge of $4.0
million, net of tax benefits, which the Company expects to record in the
fourth quarter of fiscal 1996 when the debt is paid, consisting of: (i) an
estimated redemption premium of $4.4 million ($2.7 million, net of tax
benefits) to be incurred in connection with the redemption of a portion of
the Subordinated Notes and (ii) a write-off of debt issuance costs of $2.2
million ($1.3 million, net of tax benefits). The Company also expects to
record a $1.25 million charge ($0.8 million net of tax) in connection with
the termination of its management advisory agreement with Vestar and Cabot
in the same quarter.
</TABLE>

16
<PAGE> 20

SELECTED UNAUDITED PRO FORMA FINANCIAL DATA

The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Consolidated Financial Statements" and the
financial statements of the Company, notes thereto and other financial
information contained elsewhere in this Prospectus. The unaudited pro forma
financial data of the Company for the fiscal year ended September 30, 1995 and
the six months ended March 31, 1995 and March 31, 1996 were derived from the
Company's historical financial statements included elsewhere in this Prospectus,
adjusted to give effect to the estimated effects of the Offering, the Exchange
Transaction, the Formation Acquisition, the Eastern Acquisition, the Peltor
Acquisition and related transactions as if they had occurred on October 1, 1994
for purposes of the pro forma consolidated income statement data and as of March
31, 1996 for purposes of the pro forma consolidated balance sheet data. The
Formation Acquisition, the Eastern Acquisition and the Peltor Acquisition are
referred to collectively as the "Acquisitions." The unaudited pro forma
financial data are provided for informational purposes only and are not
necessarily indicative of the financial position or operating results that would
have occurred had the Offering, Exchange Transaction and Acquisitions been
consummated on the dates, or at the beginning of the period, for which the
consummation of the Offering, Exchange Transaction and Acquisitions is being
given effect, nor is it necessarily indicative of future operating results or
financial position. The Company's pro forma results of operations for the six
months ended March 31, 1996 do not include extraordinary charges in connection
with the Offering and related transactions, including approximately $2.7 million
net of tax of premium payable upon redemption of Subordinated Notes, the
non-cash write-off of approximately $1.3 million net of tax of related debt
issuance costs and a $0.8 million charge, net of tax, in connection with the
termination of the Company's management advisory agreement with Vestar and
Cabot, which the Company expects to record in the fourth quarter of fiscal 1996.
See "Use of Proceeds" and "Risk Factors -- Nonrecurring Charges in Connection
with the Offering."

The unaudited pro forma financial data have been prepared using the
purchase method of accounting, whereby the total cost of the Acquisitions was
allocated to the tangible and intangible assets acquired and liabilities assumed
based upon their respective fair values at the effective date of the
Acquisitions. Such allocations will be based on studies and valuations which
have not yet been completed. Accordingly, the allocations reflected in the
unaudited pro forma financial data are preliminary and subject to revision.

17
<PAGE> 21

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,
SEPTEMBER 30, -------------------------
1995 1995 1996
----------------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Net sales............................................. $ 256.9 $ 125.2 $ 138.4
Cost of Sales(2)...................................... 145.8 72.8 76.2
---------- ---------- ----------
Gross profit........................................ 111.1 52.4 62.2
Selling and administrative(3)......................... 73.4 35.8 40.5
Research and technical service........................ 3.1 1.7 1.7
Amortization expense(4)............................... 8.6 4.3 4.2
Other charges (income), net........................... (0.2) 0.1 (0.5)
---------- ---------- ----------
Operating income........................................ 26.2 10.5 16.3
Interest expense, net(5).............................. 21.9 10.8 10.6
---------- ---------- ----------
Income (loss) before income taxes....................... 4.3 (0.3) 5.7
Provision for income taxes(6)......................... 2.8 0.7 2.7
---------- ---------- ----------
Net income (loss)................................... $ 1.5 $ (1.0) $ 3.0
========== ========== ==========
Net income (loss) per share(7)........................ $ .10 $ (.07) $ .20
========== ========== ==========
Weighted average number of common shares
outstanding(7)...................................... 15,307,142 15,307,142 15,307,142
BALANCE SHEET DATA (AT END OF PERIOD)(1)(8):
Total assets.......................................... $ 323.6
Total debt............................................ 206.5
Redeemable preferred stock(9)......................... --
Common stockholders' equity........................... 75.3
OTHER DATA:
Depreciation.......................................... $ 10.2 $ 5.8 $ 5.0
Amortization.......................................... 8.5 4.3 4.2
Capital expenditures.................................. 15.6 6.5 5.2
</TABLE>

- ---------------
(1) Gives effect to the Acquisitions, the Offering and related transactions and
the Exchange Transaction. Pro forma income statement data do not reflect the
effect of an extraordinary charge to be recorded related to the early
retirement of certain debt which will be recorded in the period in which the
debt is repaid. See "Unaudited Pro Forma Consolidated Financial Statements."

(2) Includes adjustments to reflect increases in depreciation resulting from the
preliminary purchase price allocation related to the Acquisitions. The year
ended September 30, 1995 reflects the elimination of a nonrecurring increase
in cost of sales resulting from the preliminary price allocation which
increased the estimated fair value of finished goods inventories with
respect to the Formation Acquisition.

(3) Includes an estimate of the increased costs to be incurred by the Company on
a stand-alone basis as a result of the Formation Acquisition offset by the
elimination of non-recurring charges related to taxes and penalties
resulting from delinquency in the remittance of value-added tax payments to
the French government and termination of the Old Cabot Safety Corporation
stock option plan.

(4) Includes adjustments resulting from increases in intangible assets and cost
in excess of the fair value of net assets acquired related to the
Acquisitions.

(5) Includes adjustments to reflect increases in interest expense on
indebtedness incurred in connection with the Acquisitions offset by interest
related to the Subordinated Notes to be redeemed in connection with the
Offering and the elimination of amortization on related deferred financing
costs to be written-off.

(6) The primary difference between the provisions calculated at statutory rates
and the effective rates is attributable to nondeductible goodwill associated
with the Peltor Acquisition.

(7) Computed using the weighted average number of shares of Common Stock and
common stock equivalents outstanding during the period. Pro forma net income
per share reflects the issuance of 5,500,000 shares of Common Stock in the
Offering, the Exchange Transaction and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds."

(8) Adjusted to reflect the application of the estimated net proceeds from the
Offering. See "Use of Proceeds" and "Capitalization."

(9) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and Exchange Transaction. See "Use of Proceeds"
and "Certain Relationships and Related Transactions -- The Formation
Acquisition."

18
<PAGE> 22

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical consolidated financial
data of the Company for, and at the end of, each of the five fiscal years ended
September 30, 1995 and the six-month periods ended March 31, 1995 and 1996. The
selected historical financial data for each of the four fiscal years ended
September 30, 1994 were derived from the combined financial statements of Old
Cabot Safety Corporation, which have been audited by Coopers & Lybrand L.L.P.,
independent auditors. The income statement data for the periods ended July 11,
1995 and September 30, 1995 are derived from the consolidated financial
statements of the Company, which have been audited by Arthur Andersen LLP,
independent auditors. The balance sheet data for July 11, 1995 are unaudited
but, in the opinion of management, include all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the balance
sheet data at such date. The selected historical financial data for the six
months ended March 31, 1995 and March 31, 1996 are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial data for such
periods. The results for the six months ended March 31, 1996 are not necessarily
indicative of the results for the full fiscal year. The selected historical
consolidated financial data below present consolidated financial data of the
Company's predecessor for periods prior to the Formation Acquisition. See
"Certain Relationships and Related Transactions." Because of such transaction,
certain aspects of the consolidated results of operations for periods prior to
July 12, 1995 are not comparable with those for subsequent periods.
Consequently, net income per share data are presented only for the fiscal year
ended September 30, 1995 and the six months ended March 31, 1996. The results of
operations for the six months ended March 31, 1996 include the results of
Eastern after January 3, 1996, the date on which Eastern was acquired by the
Company. The following table should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of the Company, including notes thereto,
the unaudited pro forma consolidated financial statements for the Company and
related notes thereto and other financial information appearing elsewhere in
this Prospectus.

19
<PAGE> 23

PREDECESSOR COMPANY
---------------------------------------------------------- --------------------------
FISCAL YEAR ENDED SIX MONTHS PERIOD PERIOD SIX MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED
---------------------------------- MARCH 31, JULY 11, SEPT. 30, MARCH 31,
1991(1) 1992 1993 1994 1995 1995 1995 1996
------- ------ ------ ------ ---------- -------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $166.5 $168.2 $169.6 $178.3 $ 97.7 $154.7 $ 47.9 $ 112.7
Cost of sales................ 86.4 88.5 96.7 99.5 55.2 87.7 29.3(2) 62.3
------ ------ ------ ------ ------ ------- ----------- -----------
Gross profit............... 80.1 79.8 73.0 78.8 42.5 67.0 18.6 50.4
Selling and administrative... 45.7 44.9 45.3 51.7 28.2 47.1(3) 13.1 33.4
Research and technical
services................... 1.9 2.1 2.3 2.7 1.6 2.3 0.6 1.6
Amortization expense......... 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Other charges (income),
net........................ 0.4 (0.5) 0.1 (0.0) 0.0 (0.2) 0.1 (0.0)
------ ------ ------ ------ ------ ------- ----------- -----------
Operating income........... 25.7 27.3 19.6 18.8 9.9 13.5 4.0 13.4
Interest expense, net........ 9.9 5.9 4.8 5.8 3.6 5.7 4.1 9.1
------ ------ ------ ------ ------ ------- ----------- -----------
Income (loss) before income
taxes, discontinued
operations, and
cumulative effect of
accounting charges....... 15.8 21.4 14.8 13.0 6.3 7.8 (0.1) 4.3
Provision for income taxes... 5.2 8.8 5.7 5.0 2.3 3.0 0.5 1.9
------ ------ ------ ------ ------ ------- ----------- -----------
Income (loss) from
continuing operations.... 10.6 12.6 9.1 8.0 4.0 4.8 (0.6) 2.4
Cumulative effect of
accounting change.......... -- -- 0.3 -- -- -- -- --
------ ------ ------ ------ ------ ------- ----------- -----------
Net income (loss).......... $ 10.6 $ 12.6 $ 9.4 $ 8.0 $ 4.0 $ 4.8 $ (0.6) $ 2.4
====== ====== ====== ====== ====== ======= =========== ===========
SUPPLEMENTAL PRO FORMA:
Net income per share(4)...... $ .00 $ .26
=========== ===========
Weighted average number
of common shares
outstanding................ 15,307,142 15,307,142
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets................. $181.2 $168.0 $163.4 $171.2 $181.7 $177.5 $ 218.3 $ 226.2
Total debt................... 106.6 92.1 82.4 76.9 82.3 78.4 152.3 156.1
Stockholders' equity......... 35.0 46.2 51.0 35.2 39.4 40.1 32.0 34.3
OTHER DATA:
Depreciation................. $ 5.4 $ 5.7 $ 6.1 $ 6.1 $ 3.5 $ 4.9 $ 1.3 $ 4.1
Amortization................. 6.4 6.0 5.7 5.6 2.8 4.3 0.8 2.0
Capital expenditures......... 6.9 5.1 9.0 4.5 5.3 10.4 2.7 4.0
<FN>

- ---------------
(1) The results of operations for 1991 exclude the results of Rastronics, which were presented as discontinued operations
in the 1991 financial statements.

(2) Includes a $3.6 million charge related to allocation of purchase price to finished goods inventory.

(3) Includes a $1.1 million charge related to the termination of the Old Cabot Safety Corporation stock option plan and a
$0.8 million charge related to a provision for potential value-added tax penalties by the Company's French
subsidiary. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business
-- Legal Matters."

(4) The supplemental pro forma earnings per share reflect the impact of the Offering, the Exchange Transaction and
the use of the proceeds of the Offering. See "Summary -- The Offering" and "Use of Proceeds." Historical earnings per
share is not presented, as these amounts would not be meaningful after the changes in capital structure resulting from
the Offering and the Exchange Transaction.

</TABLE>

20
<PAGE> 24

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

The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Data," and the financial statements of the
Company, including notes thereto, appearing elsewhere in this Prospectus. In
particular, the following discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in "Risk Factors"
beginning on page 9 of this Prospectus.

GENERAL

Prior to the Formation Acquisition in July 1995, Old Cabot Safety
Corporation was a wholly-owned subsidiary of Cabot. In 1990, Cabot combined into
Old Cabot Safety Corporation the operations of its E-A-R Division with the
operations of the AOSafety Division, which Cabot acquired from American Optical
Corporation at such time. The combined financial statements of the Company
include the results of Old Cabot Safety Corporation and certain of its
affiliates whose operations are partially or exclusively related to the business
of the Company.

The Company's current senior management team was installed in mid-1994 to
address operational issues that had adversely affected the Company's sales and
profitability. Management focused on four primary areas: (i) strengthening
relationships with distributors and product end-users, (ii) increasing the
Company's participation in projected high-growth markets, such as the
consumer/DIY and catalog supply markets and the emerging international markets
of Latin America and the Pacific Rim, (iii) expanding product innovation and
development efforts and (iv) pursuing acquisitions. Management believes that the
Company's performance in fiscal 1995 and the first six months of fiscal 1996
reflects the benefits of these initiatives, as well as the associated increased
investment in sales and marketing and information systems.

The operational issues addressed by management after 1994 included a
decline in profitability in fiscal 1993 and the early part of fiscal 1994
following the combination of the E-A-R Division and the AOSafety Division. While
the combination resulted in a larger company with broader product offerings,
giving E-A-R distributors access to AOSafety products, and vice versa, it
resulted in some long-standing relationships among the Company, distributors and
end-users being undermined. In addition, as part of the combination the Company
reduced its sales force while expanding the product line, which resulted in
decreased distribution focus and support of the Company's products by
distributors. During the late 1980s the Company had also suffered from a
prolonged lack of investment in product innovation and development. Because
end-users are relatively slow to switch products or brands, the combined effect
of the deteriorating distributor relations and the lack of new products did not
adversely affect financial results in fiscal 1991 and 1992. However, the
combined effect of such problems, coinciding with the introduction of new
products by competitors, began to result in some loss of market share in fiscal
1992. In an effort to retain market share, the Company began to offer price
promotions and reduced the prices of several products. While this aided
financial performance in fiscal 1992, it largely did so at the expense of fiscal
1993 results by pulling business forward. The reduction in pricing, however, did
not stem the market share erosion, as many end-users are more interested in
product performance and increased safety compliance than they are in discounted
prices. Operating profit in fiscal 1993 and the first half of fiscal 1994 was
also negatively affected by the costs of consolidating the prescription eyewear
manufacturing facilities from six locations to two and consolidating the
Company's other manufacturing facilities at its Southbridge, Massachusetts
location.

21
<PAGE> 25

RESULTS OF OPERATIONS

<TABLE>
The following table sets forth the major components of the Company's combined statements
of income expressed as a percentage of net sales.
<CAPTION>

SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales:
Safety Products....................... 84.8% 84.0% 83.8% 83.9% 82.1%
Specialty Composites.................. 15.2 16.0 16.2 16.1 17.9
----- ----- ----- ----- -----
Total net sales.................... 100.0 100.0 100.0 100.0 100.0
Cost of sales........................... 57.0 55.8 56.0(1) 56.5 55.3
----- ----- ----- ----- -----
Gross profit.......................... 43.0 44.2 44.0(1) 43.5 44.7
Selling and administrative.............. 26.7 29.0 28.8(2) 28.9 29.6
Research and technical service.......... 1.3 1.5 1.4 1.6 1.4
Amortization expense.................... 3.4 3.1 2.6 2.9 1.8
Other charges (income), net............. 0.0 (0.0) (0.1) 0.0 0.0
----- ----- ----- ----- -----
Operating income...................... 11.6% 10.6% 11.3%(1)(2) 10.2% 11.9%
===== ===== ===== ===== =====
<FN>

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

(1) Excludes $3.6 million charged to cost of sales as a result of purchase price allocated to
acquired inventory.

(2) Excludes $1.1 million charged to selling and administrative expense for the termination of
the Old Cabot Safety Corporation stock option plan and $0.8 million charged to selling and
administrative expense attributable to penalties incurred by the Company's French subsidiary.
See "Business--Legal Proceedings."

</TABLE>

The Company's business is slightly seasonal. Traditionally, net sales
during the first fiscal quarter (October 1 - December 31) are slightly lower
than the other quarters. This is generally attributable to stock reductions by
distributors and plant shutdowns by end-users towards the end of each calendar
year.

OVERVIEW

The consolidated financial statements of the Company for the periods prior
to July 12, 1995 have been prepared on the historical cost basis. The
consolidated balance sheets of the Company at September 30, 1995 and March 31,
1996 reflect allocation of the purchase price to the assets acquired and thus
are not comparable with the historical balance sheets presented for prior
periods. Operating results subsequent to the Formation Acquisition are
comparable to prior periods, with the exception of cost of sales (due to the
$3.6 million charge in the period ended September 30, 1995 related to the
allocation of purchase price to inventory), depreciation expense, and
amortization of intangible assets. The net impact of changes in depreciation and
amortization on operating income for the six months ended March 31, 1996 and the
period ended September 30, 1995 was a reduction of $0.1 million and $0.5
million, respectively.

SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995

NET SALES. Net sales in the six months ended March 31, 1996 increased
15.4% to $112.7 million from $97.7 million in the six months ended March 31,
1995. The increase in net sales was due to increased sales by both Safety
Products and Specialty Composites. Safety Products' net sales in the six months
ended March 31, 1996 increased 12.9% to $92.5 million from $82.0 million in the
six months ended March 31, 1995. This increase was primarily the result of (i)
the acquisition of Eastern which contributed $3.3 million in revenue, (ii) an
increase in hearing product sales due to the continued success of the Company's
Express product and better pricing and (iii) increased

22
<PAGE> 26

pricing of eye & face and respiratory products. Growth at Safety Products was
also aided by continued growth in sales to the Far East and Latin America, as
well as growth in new areas such as healthcare distributors. Specialty
Composites' net sales in the six months ended March 31, 1996 increased 28.5% to
$20.2 million from $15.7 million in the six months ended March 31, 1995. This
increase was primarily the result of a $2.3 million shipment to a supplier of
Sea Wolf submarines, as well as to increased demand for the Company's products
by precision equipment manufacturers and healthcare product manufacturers.

GROSS PROFITS. Gross profits in the six months ended March 31, 1996
increased 18.5% to $50.4 million from $42.5 million in the six months ended
March 31, 1995. This increase was due to a combination of increased volumes and
higher prices, which more than offset material cost increases that occurred in
earlier periods. Gross profit as a percentage of net sales in the six months
ended March 31, 1996 was 44.7% as compared to 43.5% in the six months ended
March 31, 1995. Such percentage increased as the benefit of higher volumes and
prices more than offset the inclusion of Eastern's sales which are at lower
margins.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in the six months ended March 31, 1996 increased 18.3% to $33.4 million from
$28.2 million in the six months ended March 31, 1995. This increase was the
result of increases in the company's sales force which primarily occurred
throughout fiscal 1995, higher incentive costs, and increases in administrative
expenses resulting from the Formation Acquisition. Selling and administrative
expenses as a percentage of sales in the six months ended March 31, 1996
increased to 29.6% of sales as compared to 28.9% of sales in the six months
ended March 31, 1995. This was primarily a result of the higher incentive and
administrative costs.

RESEARCH AND TECHNICAL SERVICE EXPENSES. Research and technical service
expenses in the six months ended March 31, 1996 were essentially flat at $1.6
million. While the Company has increased the product development effort towards
new products, this has been partially funded by decreased work on process and
production engineering.

AMORTIZATION EXPENSE. Amortization expense decreased by 30.2% to $2.0
million as the increase in amortization resulting from the allocation of the
purchase price to intangibles was more than offset by the absence of
amortization of a non-compete with the former owner of the AOSafety Division due
to its expiration in May 1995.

OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in the six months ended March 31, 1996 increased 35.9% to $13.5
million from $9.9 million in the six months ended March 31, 1995.

INTEREST EXPENSE, NET. Interest expense, net, is not comparable with prior
periods as a result of the financing related to the Formation Acquisition.
Interest expense for the successor company for the six months ended March 31,
1996 was $9.1 million, reflecting the increased levels of debt.

NET INCOME. The significant improvement in operating results was more than
offset by higher interest expense resulting in net income for the six months
ended March 31, 1996 decreasing 38.3% to $2.5 million from $4.0 million in the
six months ended March 31, 1995.

FISCAL 1995 COMPARED TO FISCAL 1994

NET SALES. Net sales in the year ended September 30, 1995 increased 13.6%
to $202.6 million from $178.3 million in the year ended September 30, 1994. The
increase in net sales was due to increased sales by both Safety Products and
Specialty Composites. Safety Products' net sales in the year ended September 30,
1995 increased 13.4% to $169.7 million from $149.7 million in the year ended
September 30, 1994. This increase was primarily a result of (i) increased volume
in its eye and face segment due to strong demand for the Company's Nassau Plus
eyewear which was introduced in May 1994, (ii) increased volume in the hearing
segment largely due to increased European sales as a result of improving
economies and the announced Common European (CE)

23
<PAGE> 27

market standards and (iii) increased sales of prescription safety eyewear due to
an increase in realized prices from the sale of premium frames and lenses
partially due to the recently initiated Dispensing Manager program, pursuant to
which the Company employs (rather than independently contracting for) eyecare
professionals. Management believes the enhanced sales and marketing efforts
which commenced in the second half of fiscal 1994 contributed to these
increases, which were achieved despite the loss of the Company's only
significant private label personal protection customer in March 1994. Specialty
Composites' net sales in the year ended September 30, 1995 increased 15.3% to
$32.9 million from $28.6 million in the year ended September 30, 1994. This
increase was primarily the result of increased demand for the Company's products
by transportation and precision equipment manufacturers.

GROSS PROFIT. Excluding the $3.6 million negative effect of purchase
accounting, gross profit in the year ended September 30, 1995 increased 13.3% to
$89.2 million from $78.8 million in the year ended September 30, 1994. This
increase was primarily the result of increased volumes of both Safety Products
and Specialty Composites' sales. Gross profit as a percentage of net sales in
the year ended September 30, 1995 was 44.0% as compared to 44.2% in the year
ended September 30, 1994. Such percentage was essentially flat because increased
margins at Safety Products were partially offset by higher proportionate sales
growth at Specialty Composites, which has lower gross profit margins than Safety
Products, as well as the loss of the margin contribution from the private label
personal protection customer mentioned above.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in the year ended September 30, 1995 increased 16.7% to $60.3 million from $51.7
million in the year ended September 30, 1994. This increase was primarily the
result of an approximately 10.0% increase in the Company's sales force, as well
as increased distribution costs resulting from greater shipments and the costs
of occupying a new U.S. distribution center and higher administrative costs
resulting from the Formation Acquisition. In addition, the Company incurred a
$1.1 million charge related to the termination of the Old Cabot Safety
Corporation stock option plan, as well as a $0.8 million charge relating to a
provision for tax penalties by the Company's French subsidiary (see
"Business -- Legal Proceedings"). Excluding these charges, selling and
administrative expenses as a percentage of net sales in the year ended September
30, 1995 would have declined to 28.8% as compared to 29.0% in the year ended
September 30, 1994. This was primarily the result of the increase in net sales
from the Company's enhanced sales and marketing efforts which commenced in
fiscal 1994. These efforts include the Sales Specialist program which targets
end-users of the Company's products, as well as the Dispensing Manager program,
which provides improved service and fulfillment to the Company's prescription
eyewear customers.

RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in the year ended September 30, 1995 increased 3.3% to $2.8 million
from $2.7 million in the year ended September 30, 1994. This increase was
primarily the result of increased respiratory product development efforts, as
well as increased training development work with end-users, including the
reinstatement of hearing clinics.

OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in the year ended September 30, 1995 decreased 7.2% to $17.5
million from $18.8 million in the year ended September 30, 1994. Excluding a
$1.1 million payment related to the termination of the Old Cabot Safety
Corporation stock option plan and a $0.8 million charge relating to a provision
for tax penalties by the Company's French subsidiary (see "Business -- Legal
Proceedings") and a $3.6 million charge related to the allocation of purchase
price to inventory, operating income would have been $23.0 million, a 22.2%
increase.

INTEREST EXPENSE, NET. Interest expense, net, is not comparable with prior
periods as a result of the financing related to the Formation Acquisition.
Interest expense for the Company after the Formation Acquisition was $4.1
million, reflecting the increased levels of debt.

24
<PAGE> 28

NET INCOME. Primarily as a result of the factors discussed above, net
income in the year ended September 30, 1995 decreased 47.5% to $4.2 million from
$8.0 million in the year ended September 30, 1994. Excluding a $1.1 million
payment related to the termination of the Old Cabot Safety Corporation stock
option plan and a $0.8 million charge relating to a provision for tax penalties
by the Company's French subsidiary (see "Business -- Legal Proceedings") and a
$3.6 million charge related to the allocation of purchase price to inventory,
net income would have been $7.8 million, a 2.2% decrease.

FISCAL 1994 COMPARED TO FISCAL 1993

NET SALES. Net sales in fiscal 1994 increased 5.1% to $178.3 million from
$169.6 million in fiscal 1993. The increase in net sales was due to increased
sales by both Safety Products and Specialty Composites. Safety Products' net
sales in fiscal 1994 increased 4.0% to $149.7 million from $143.9 million in
fiscal 1993. This increase was primarily the result of increased volume in the
eye and face segment due to strong demand for the Company's Nassau Plus eyewear
following its introduction in May of 1994. This increase was partially offset by
the loss of the Company's only significant private label customer in the
Company's hearing segment in March 1994. Specialty Composites' net sales in
fiscal 1994 increased 11.3% to $28.6 million from $25.7 million in fiscal 1993.
This increase was primarily the result of increased demand from transportation
manufacturers and was partially offset by a decline in demand from a
defense-related manufacturer.

GROSS PROFIT. Gross profit in fiscal 1994 increased 8.0% to $78.8 million
from $73.0 million in fiscal 1993. This increase was primarily the result of
increased gross profit contribution in Safety Products' eye and face segment as
a result of new products and higher sales volumes. Gross profit as a percentage
of net sales in fiscal 1994 increased to 44.2% from 43.0% in fiscal 1993. This
increase was primarily the result of the higher margins in the prescription
eyewear segment in the second half of the fiscal year as a result of the
benefits of the consolidation of the Company's prescription eyewear
manufacturing facilities, which was completed in the first quarter of fiscal
1994 and resulted in additional costs of sales of approximately $1.5 million in
fiscal 1994. The percentage increase was achieved despite the lost margin
contribution from the private label customer mentioned previously.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in fiscal 1994 increased 13.9% to $51.7 million from $45.3 million in fiscal
1993. This increase was primarily the result of (i) increased expenses
associated with increased volumes, (ii) new sales and marketing initiatives
including the Sales Specialist and Dispensing Manager programs and (iii)
severance and relocation costs related to several changes in senior management
positions of the Company. Selling and administrative expenses as a percentage of
net sales in fiscal 1994 increased to 29.0% from 26.7% in fiscal 1993. This
increase was primarily the result of the increased expenses in connection with
new sales and marketing initiatives described above which did not lead to
increased sales until the latter part of fiscal 1995 and the six months ended
March 31, 1996.

RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in fiscal 1994 increased 20.0% to $2.7 million from $2.3 million in
fiscal 1993. This increase was primarily the result of increased product
development and end-user technical services and training programs.

OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in fiscal 1994 decreased 3.9% to $18.8 million from $19.6
million in fiscal 1993.

INTEREST EXPENSE, NET. Interest expense, net, in fiscal 1994 increased
22.0% to $5.8 million from $4.8 million in fiscal 1993. This increase was
primarily the result of higher borrowings to finance the payment of a $25.0
million dividend to Cabot in December 1993.

25
<PAGE> 29

NET INCOME. Primarily as a result of the factors discussed above, net
income in fiscal 1994 decreased 15.2% to $8.0 million from $9.4 million in
fiscal 1993. Net income in fiscal 1993 reflects a $0.3 million addition due to a
cumulative effect of accounting changes.

FISCAL 1993 COMPARED TO FISCAL 1992

NET SALES. Net sales in fiscal 1993 increased 0.8% to $169.6 million from
$168.2 million in fiscal 1992. This increase in net sales was primarily due to
an increase in Specialty Composites' sales, which was largely offset by a
decrease in Safety Products' sales. Safety Products net sales in fiscal 1993
decreased 3.4% to $143.9 million from $149.0 million in fiscal 1992. This
decrease was primarily the result of lower demand and reduced prices of the
Company's eye and face products due to a shift in demand from the Company's
Aerosite style product to higher-priced, higher-featured "blade-shaped" lens
products of a competitor. The decrease was also the result of lower sales of
hearing protection products due to the effect of a promotion in late fiscal
1992, increased price competition and the negative impact of currency rates in
Europe. Specialty Composites' net sales in fiscal 1993 increased 33.9% to $25.7
million from $19.2 million in fiscal 1992. This increase was primarily the
result of increased sales to a defense-related manufacturer, as well as
manufacturers of health-care and footwear products. These sales represented the
initial sales of the Company's thin sheet urethane foams to new health-care and
footwear manufacturing customers.

GROSS PROFIT. Gross profit in fiscal 1993 decreased 8.5% to $73.0 million
from $79.8 million in fiscal 1992. Gross profit as a percentage of net sales in
fiscal 1993 decreased to 43.0% from 47.4% in fiscal 1992. These decreases were
primarily the result of (i) decreased volumes and prices of Safety Products'
non-prescription eyewear due to the loss of sales to a new product of a
competitor as mentioned above, (ii) decreased volumes of hearing protection
products partially due to earlier promotions and (iii) higher material and
conversion costs resulting from safety prescription eyewear lab consolidations
which were in progress at such time. See "-- General."

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
in fiscal 1993 increased 0.9% to $45.3 million from $44.9 million in fiscal
1992. This increase was primarily the result of small increases in marketing
expenditures. As a percentage of net sales, selling and administrative expenses
were essentially flat at 26.7% in fiscal 1993 compared to fiscal 1992.

RESEARCH AND TECHNICAL SERVICES EXPENSES. Research and technical services
expenses in fiscal 1993 increased 10.2% to $2.3 million from $2.1 million in
fiscal 1992. This increase was primarily the result of increased product
development.

OPERATING INCOME. Primarily as a result of the factors discussed above,
operating income in fiscal 1993 decreased 28.2% to $19.6 million from $27.3
million in fiscal 1992.

INTEREST EXPENSE, NET. Interest expense, net, in fiscal 1993 decreased
19.3% to $4.8 million from $5.9 million in fiscal 1992. This decrease was
primarily the result of lower interest rates and lower average debt balances
resulting from the repayment of long term debt.

NET INCOME. Primarily as a result of the factors discussed above, net
income in fiscal 1993 decreased 25.2% to $9.4 million from $12.6 million in
fiscal 1992. Net income in fiscal 1993 reflects a $0.3 million addition due to a
cumulative effect of accounting changes.

EFFECTS OF CHANGES IN EXCHANGE RATES

In general, the Company's results of operations are affected by changes in
exchange rates. Subject to market conditions, the Company prices its products in
Europe and in Canada in local currency. While many of the Company's selling and
distribution costs are also denominated in these currencies, a large portion of
the product costs are dollar denominated. As a result, a decline in the value of
the dollar relative to these other currencies can have a favorable effect on the
profitability of the Company and an increase in the value of the dollar relative
to these other currencies can have a negative effect on the profitability of the
Company. During fiscal 1993 and fiscal 1994 the dollar

26
<PAGE> 30

increased in value relative to most of the European currencies, as well as the
Canadian dollar. The Company estimates that this had the effect of decreasing
operating profit by $1.9 million in fiscal 1993 and $0.5 million in fiscal 1994.
In the year ended September 30, 1995, the dollar decreased in value relative to
most of the European currencies, but increased in value relative to the Canadian
dollar. The Company estimated that these changes had the effect of increasing
operating profit by $0.9 million in the year ended September 30, 1995. As a
result of the Peltor Acquisition, the Company's future results of operations
will be affected by changes in exchange rates relative to the Swedish Krona. A
decline in the value of the Krona relative to other currencies could have a
positive effect on the Company's results of operations, and an increase in the
value of the Krona relative to other currencies could have a negative effect on
the Company's result of operations.

EFFECTS OF INFLATION

In recent years, inflation has been modest and has not had a material
impact upon the results of the Company's operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of funds have consisted primarily of operating cash
flow and debt financing. The Company's uses of those funds consist principally
of debt service and capital expenditures.

The required amortization payments under the Senior Bank Facilities are:
$2.0 million for the balance of fiscal 1996, $8.2 million in fiscal 1997, $10.6
million in fiscal 1998, $13.0 million in fiscal 1999, $16.0 million in fiscal
2000, $20.7 million in fiscal 2001, $34.4 million in fiscal 2002 and $35.25
million in fiscal 2003. Other than upon a change of control or as a result of
certain asset sales, or in the event that certain excess funds exist at the end
of a fiscal year, the Company will not be required to make any principal
payments in respect of the Subordinated Notes until maturity. The Company will
also be required to make interest payments with respect to both the Senior Bank
Facilities and the Subordinated Notes. The Company typically makes capital
expenditures related primarily to the maintenance and improvement of
manufacturing facilities. The Company spent $13.2 million for the year ended
September 30, 1995 and $4.0 million for the six months ended March 31, 1996, as
compared to $4.5 million for the year ended September 30, 1994 and $5.3 million
for the six months ended March 31, 1995. Included in capital expenditures for
the year ended September 30, 1995 and the six months ended March 31, 1996 are
$3.6 million and $1.2 million, respectively, spent on the casting line under
construction at the Company's Newark, Delaware facility and $4.1 million and
$1.8 million, respectively, spent on management information systems. In fiscal
1992 and 1993, capital expenditures were $5.1 million and $9.0 million,
respectively.

The Company's capital spending is of a relatively short duration, with the
complete commitment process involving less than one year. Exceptions to this
circumstance are the Company's casting line at its Newark, Delaware facility,
with respect to which an additional approximately $0.4 million is scheduled to
be spent during the balance of Company's 1996 fiscal year, and the worldwide
information system with respect to which an additional $0.5 million to $0.75
million is anticipated to be spent during the same period.

The Company's principal sources of cash to fund these capital requirements
are net cash provided by operating activities. The Company's net cash provided
by operating activities for the year ended September 30, 1995 and the six months
ended March 31, 1996 totaled $24.9 million and $1.1 million, respectively, as
compared to $17.9 million and $7.5 million, respectively, for the year ended
September 30, 1994 for the six months ended March 31, 1995. The increase for
fiscal 1995 was due to a reduction in inventories of $5.1 million (of which $3.6
million was due to the purchase accounting effect), as compared to an increase
in inventories of $3.6 million in 1994. The decrease for the six months ended
March 31, 1996 was primarily due to the semi-annual interest payment on the
Subordinated Notes. In fiscal 1992, 1993 and 1994, the Company's net cash
provided by

27
<PAGE> 31

operating activities totaled $22.6 million, $25.8 million, and $17.9 million,
respectively. The decrease in net cash provided by operating activities in
fiscal 1994 was primarily caused by a $4.1 million increase in non-cash working
capital in fiscal 1994, as compared to a $1.6 million decrease in non-cash
working capital in fiscal 1993.

Net cash used by investing activities (excluding the Formation Acquisition)
for the year ended September 30, 1995 and the six months ended March 31, 1996
was $16.2 million and $7.7 million, respectively, as compared to $4.5 million
and $5.3 million, respectively, for the year ended September 30, 1994 and for
the six months ended March 31, 1995, principally due to the higher levels of
capital spending, including amounts related to the new casting line at the
Newark, Delaware facility, the installation of a new worldwide information
system and an escrow deposit for the Eastern Acquisition. In fiscal 1992, 1993
and 1994, net cash used by investing activities was $5.0 million, $8.9 million
and $4.5 million, respectively. Spending was higher during fiscal 1993
principally due to the consolidation of the Company's prescription eyewear
facilities from four locations into two locations. Net cash provided by
financing activities (excluding the Formation Acquisition) for the year ended
September 30, 1995 and the six months ended March 31, 1996 was $5.2 million and
$4.4 million, respectively, as compared to net cash used of $13.6 million and
$1.6 million, respectively, for the year ended September 30, 1994 and for the
six months ended March 31, 1995. The decrease of cash used by financing
activities is primarily due to higher levels of capital spending. In fiscal
1992, 1993 and 1994, net cash used by financing activities was $25.2 million,
$15.8 million and $13.6 million, respectively. The decrease of cash used by
financing activities in 1993 was due to higher levels of capital spending, while
the decrease in 1994 was due to lower levels of cash from operating activities.

The Company has a substantial amount of indebtedness. The Company relies on
internally generated funds and, to the extent necessary, on borrowings under the
revolving credit facility available under the Senior Bank Facilities, which
provides for borrowings up to $25.0 million, subject to certain customary
drawing conditions, to meet its liquidity needs. In January 1996, the Company
borrowed $6.8 million under the Senior Bank Facilities to finance in part the
$7.8 million Eastern Acquisition purchase price. In May 1996, the Company
amended the Senior Bank Facilities to provide for an additional $86.0 million of
term loans to finance the Peltor Acquisition. The Company anticipates that
operating cash flow will be adequate to meet its debt service and capital
expenditure requirements in the long term, although there can be no assurances
that existing levels of sales and profitability, and therefore cash flow, will
be maintained in the future. While softness in certain European economies may
impede the Company's growth there, the outlook for most other operations remains
positive. Levels of sales and profitability will be impacted by continued new
product development, worldwide economic conditions, and competitive pressures.
In addition, the Company may make other acquisitions in the future and would
rely on internally generated funds and, to the extent necessary, on borrowings
under such revolving credit facility or from other sources to finance such
acquisitions. The Company's ability to borrow is limited by covenants in the
Senior Bank Facilities and the Subordinated Notes.

28
<PAGE> 32

BUSINESS

GENERAL

The Company is one of the leaders in the hearing, eye, face, head and
respiratory protection segments of the PPE market worldwide through its Safety
Products operating unit, which manufactures and sells hearing protection
devices, prescription and non-prescription safety eyewear, face shields,
reusable and disposable respirators, hard hats and first aid kits in more than
85 countries under its well-known brand names: AOSafety, E-A-R, Eastern and
Peltor. Personal protection equipment encompasses all articles of equipment and
clothing worn for the purpose of protecting against bodily injury, including
safety eyewear and goggles, ear muffs and ear plugs, respirators, hard hats,
gloves, safety clothing and safety shoes. With the Peltor Acquisition, the
Company is a global leader in the industrial market for specialty communications
ear muffs. Safety Products accounted for approximately 84% of the Company's net
sales in fiscal 1995. The Company attributes its leading market positions to:

- Strong, well-recognized brand names

- A reputation for providing innovative, quality products

- Intensive coverage of multiple distribution channels targeting a wide
array of end-users

- One of the industry's broadest product offerings

- A commitment to providing the highest level of customer service

Through its Specialty Composites operating unit, the Company manufactures a
wide array of energy-absorbing materials which are incorporated into other
manufacturers' products to control noise, vibration and shock. Specific product
applications for such materials include noise-reducing and vibration-dampening
matting used in the lining of transportation equipment such as heavy truck cabs,
shock protection parts for electronic devices such as computer disk drives, and
durable energy-absorbent and cushioning foams used in footwear. Specialty
Composites also produces specially formulated foam used in the manufacturing of
Safety Products' PVC ear plugs. Specialty Composites accounted for approximately
16% of the Company's net sales in fiscal 1995.

OPERATING STRATEGY

The Company's goal is to become the leading safety products company in the
world. The Company's strategy to achieve this goal has three components:

- Increase market share and profitability through innovative new product
development

- Increase unit sales through focused sales and marketing programs to
penetrate existing and newly developing distribution channels

- Grow through strategic acquisitions worldwide

INNOVATIVE NEW PRODUCT DEVELOPMENT. The Company believes that an
innovative and disciplined new product development effort is critical to its
success. The Company's strategy is to increase market share and profitability by
focusing on both high-impact new products and enhancements to existing products
which will enable it to leverage its strong distribution network and well-
recognized brand names. New product research and design, development and
tooling, pricing, training, logistics, marketing and customer service on a
global basis are integrated in a disciplined product management system to
maximize the impact of new product introductions. Increased acceptance of safety
products by users, which increases regulatory compliance and reduces the risk of
injury, is driven in large part by design improvements, which increase comfort,
performance and styling. The Company's product managers work closely with
research and development personnel to develop comfortable, high performance and
stylish safety products, often incorporating proprietary materials or designs.
The Company has dedicated product managers leading each of the

29
<PAGE> 33

Company's main product categories. Each product manager is teamed with a
technical director who provides engineering and design support.

<TABLE>
The following chart describes certain of the products recently introduced by Safety Products as
a result of its research and development efforts.
<CAPTION>

- ----------------------------------------------------------------------------------------------------
MODEL DESCRIPTION FEATURES INTRODUCTION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AOSAFETY
Fectoids High-style Unilens Wrap- - Proprietary optical design with wrap- May 1996
around Eyewear around lens
- Lightweight
- Adjustable temples
- Angle of inclination adjustment
- Dx Anti-fog coating
- ----------------------------------------------------------------------------------------------------
Scanners Low-cost, Coated Eyewear - DX Anti-fog coating May 1996
- ----------------------------------------------------------------------------------------------------
See-Pro High-style Unilens Eyewear - Attractive appearance April 1996
- Dx Anti-fog coating
- Wide selection of colors
- Lightweight
- ----------------------------------------------------------------------------------------------------
Arc Block High-style Eyewear for - Adjustable temples April 1996
Visual Protection Against - Replaceable lens
Electrical Arcs - Wide selection of colors
- ----------------------------------------------------------------------------------------------------
Comfort Eyes Computer Prescription - Special prescription to ease eye April 1996
Eyewear strain caused by frequent computer
use
- Wide selection of stylish frames
- ----------------------------------------------------------------------------------------------------
Hard hats Traditional Style, Bump - Six-point rachet April 1996
Caps, and Full-brim - Wide variety of new colors
- Custom imprinting
- ----------------------------------------------------------------------------------------------------
Nassau Plus High-style Unilens Eyewear - Adjustable temples May 1994
- Interchangable lenses
- Dx Anti-fog coating
- Wide selection of colors
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
E-A-R
Ultra-Tech Flat Attenuation Molded Ear - Patented design April 1996
Plug - Flat attenuation for enhanced hearing
- ----------------------------------------------------------------------------------------------------
Super-Soft Polyurethane Ear Plug - Specially formulated soft ear plug March 1996
- ----------------------------------------------------------------------------------------------------
Express Pod-type Ear Plugs - Patented design May 1994
- Stem design for sanitary insertion
- Corded and uncorded
- Stylish colors
- ----------------------------------------------------------------------------------------------------
</TABLE>

30
<PAGE> 34

<TABLE>

FOCUSED SALES AND MARKETING PROGRAMS TO PENETRATE EXISTING AND NEWLY
DEVELOPING CHANNELS. The Company believes that its strength in managing multiple
distribution channels gives it a strategic advantage over more narrowly focused
competitors. The Company intends to continue to maximize penetration of existing
distribution channels and develop new channels. The Company covers its served
markets with eight different "channel-specific" sales forces:

<S> <C>
- U.S. Industrial Distribution - Europe
- U.S. Industrial Direct - Canada
- Consumer - Export
- Healthcare - National Accounts
</TABLE>

In existing distribution channels, the Company has developed and pursued
several focused marketing programs. In the U.S. Industrial Distribution channel,
the Company introduced its Dialog distributor relations program aimed at
creating a meaningful, mutually profitable relationship between the Company and
a select group of distributors. Also in the U.S. Industrial Distribution
channel, the Company introduced its Sales Specialist program, whereby the
Company now has 16 trained sales representatives calling directly on end-users
on behalf of its Dialog distributors. The Company has targeted the growing
catalog and telemarketing segment of the U.S. distributor market. The Company
has also implemented its Dispensing Manager program in which it uses its own
employee opticians to dispense prescription eyewear instead of depending on
local contract opticians. The Company has also aggressively pursued new, growing
markets such as consumer/DIY, healthcare and international.

STRATEGIC ACQUISITIONS WORLDWIDE. The Company believes that the current
structure of the global PPE market is likely to present numerous strategic
acquisition opportunities. The Company will continue to focus on opportunities
that offer one or more of the following three strategic advantages:

- EXTENSION OF EXISTING PRODUCT CATEGORIES. This is illustrated by the
Peltor Acquisition, which strengthened the Company's position in the ear
muff hearing protection category

- NEW PRODUCT CATEGORIES. This is illustrated by the Peltor Acquisition
and the Eastern Acquisition, which added specialty communications ear
muffs and first aid kits, respectively, to the Company's product line

- DISTRIBUTION STRENGTH. This is illustrated by the Eastern Acquisition,
which provided the Company a leading position in the growing consumer/DIY
market, and by the Peltor Acquisition, which strengthened the Company's
distribution network in Europe

PERSONAL PROTECTION EQUIPMENT MARKET

A 1996 study prepared by Frost & Sullivan (the "Frost & Sullivan Report")
estimates the size of the U.S. segment of the PPE market in which the Company
competes (which excludes safety clothing, gloves and shoes) was approximately
$1.0 billion in 1995. Management estimates annual sales outside the United
States for the segment of the PPE market in which the Company competes were in
excess of $1.0 billion in 1995. Historically, a large number of relatively
small, independent manufacturers with limited product lines served the PPE
market, and the industry remains highly fragmented. Management believes that
manufacturers offering a wide range of products having a high degree of market
acceptance and strong brand names, such as the Company, benefit from several
competitive advantages, including (i) economies of scale in manufacturing, sales
and distribution, (ii) greater appeal to large industrial distributors and
national retailers seeking to rationalize their sources of supply and (iii) an
extensive distribution network for introducing new product categories and
product enhancements.

31
<PAGE> 35

Management believes the primary factors driving the growth of the PPE
market are:

- Increased employer safety awareness. Management believes that
employers are increasingly aware of the rising cost of insurance,
costs and liabilities relating to worker injury and the savings in
insurance costs and workers' compensation payouts that can be
achieved through consistent use of effective PPE

- Continued regulatory enforcement and compliance. Extensive
government regulations are promulgated by agencies such as the
Occupational Health and Safety Administration ("OSHA"), the Mine
Safety and Health Administration ("MSHA") and the National Institute
of Occupational Safety and Health ("NIOSH") mandating the use of PPE
for certain job classifications and work environments. Increases in
regulatory enforcement and compliance programs could result in
significant growth in demand for PPE

- Increased user acceptance. Improvements in comfort, performance and
styling increase acceptance of personal safety products by users.
Management believes that industrial purchasers are inclined to
select functional PPE designed for greater comfort, performance and
styling, because employees and others are more likely to use such
products regularly, thereby increasing regulatory compliance and
reducing the risk of injury. User-friendly and stylish personal
safety products are particularly important in the consumer/DIY and
healthcare markets

- Market expansion opportunities. PPE is increasingly offered outside
the traditional U.S. industrial distributor market. Retail home
centers and mass merchandisers are offering a greater variety of PPE
for the consumer/DIY market. The catalog supply, healthcare and
other new markets continue to show growth potential. As
manufacturing employment and safety awareness grow outside the
United States and Europe, international demand for PPE could
increase

SAFETY PRODUCTS OPERATING UNIT

The Company operates through two separate operating units: Safety Products
and Specialty Composites. Within Safety Products, the Company classifies its
products in five main categories: hearing protection; safety prescription
eyewear; eye, face and head protection; first aid kits; and respiratory
protection.

HEARING PROTECTION. According to the Frost & Sullivan Report, which
predated the Peltor Acquisition, the Company is the largest producer of hearing
protection devices in the United States. Management believes that the Company is
the largest producer of hearing protection devices in the world. The Company's
hearing protection products primarily consist of disposable ear plugs, reusable
ear plugs and ear muffs.

The Company has been a leader in hearing conservation research and
development since 1972, when it first introduced the PVC disposable ear plug.
Today, this product is known as the "Classic" and its color yellow is a
registered trademark of the Company in the United States and Canada. This
product is designed to be "rolled down" or compressed before being inserted into
the ear, and, as a result of its unique time delay characteristics, the plug
slowly expands (or "recovers") to fill the ear canal and provide the desired
protection. The chemistries and processes utilized by the Company in the
manufacture of its PVC foam ear plugs are trade secrets of the Company, and
management believes that the Company is one of only three manufacturers
worldwide that produce PVC foam ear plugs with acceptable recovery
characteristics. The Company's PVC ear plugs are available corded and uncorded
and in a variety of packaging options. The Company also produces private label
versions of the PVC plug for many of the international airlines for inclusion in
their amenity kits. The Company also manufactures a full line of polyurethane
ear plugs, including E-Z-Fit and TaperFit products. These products serve the
same disposable ear plug category, but the PVC ear plugs have historically led
the market.

32
<PAGE> 36

In the reusable ear plug segment of the market, the Company offers its
patented UltraFit product line, which the Company believes is the leading
product in this category. Recently, the Company introduced the E-A-R Express, a
patented product, which features a polyurethane pod and a short plastic stem to
facilitate easy, sanitary insertion of the plug in the ear, particularly in
"dirty" environments. The Company also recently introduced the Super-Soft
polyurethane ear plug, which the Company believes is the softest ear plug in the
industry; and, the Ultra-Tech ear plug which provides flat attenuation of sound
(noise reduction without distortion) and is an ideal product for users with
pre-existing, noise-induced hearing loss.

The Company sells a full range of ear muffs, and with the Peltor
Acquisition, the Company's line of ear muffs has been greatly expanded and will
also include the new category of communications ear muffs. The Company also
offers auditory systems products, which are sold to audiologists and are used in
the testing of hearing.

<TABLE>
The following chart describes the Company's hearing protection products:
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------
DISPOSABLE
EARPLUGS REUSABLE EARPLUGS POD PLUGS SEMI-AURALS EAR MUFFS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MODELS Classic UltraFit Express Pod EAR Caps Hearing protection:
TaperFit Tracers (metal Plugs Caboflex E-A-R models 820,
E-Z-Fit detectable) 1720, 1000, 3000
Super-Soft Ultra-Tech Peltor Models H9 and
(flat attenuation) H10, E-A-R9000 for
flat attenuation
Communications:
Peltor Models
- ------------------------------------------------------------------------------------------------------------------------
FEATURES Ease of use Patented design Patented For intermittent Ease of use
Ease of Excellent worker design use Ultra 9000 for impact
program acceptance Ease of Easy storage noise and
administration Patented triple insertion around neck communications
Excellent flange Stem design for
worker Fits all ear canal sanitary
acceptance sizes insertion
Low price Very economical
- ------------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial "Dirty" Airlines Industrial
Consumer Consumer industrial Industrial Consumer
Military Military environments Government
Food Military Sports enthusiasts
Food
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

SAFETY PRESCRIPTION EYEWEAR. According to the Frost & Sullivan Report, the
Company is the largest supplier of safety prescription eyewear ("SRx") in the
United States. The Company's SRx products are designed to protect the eyes from
the typical hazards encountered in the industrial work environment. The Company
purchases component parts (lenses and the majority of its frames) from various
suppliers, grinds and shapes the lenses to the employee's prescription, and then
assembles the glasses using the employee's choice of frame. The Company recently
introduced a new line of prescription eyewear under the name Comfort Eyes, which
is specially designed for workers who use computer terminals. With Comfort Eyes,
the worker's prescription is altered from the traditional prescription to
enhance focusing on computer screens. This is an ideal product for wearers of
bi-focals, and it significantly increases the potential market for the Company's
prescription eyewear products.

EYE, FACE AND HEAD PROTECTION. According to the Frost & Sullivan Report,
the Company is the second largest producer of non-prescription safety eyewear in
the United States. Non-prescription eye and face protection is used in work
environments where a number of hazards present a danger to eyes, including dust,
flying particles, metal fragments, chemicals, extreme glare and radiation. The
Company offers a large number of task-specific non-prescription safety eyewear
products. The three basic categories of non-prescription eye and face protection
are non-prescription safety (or "plano") eyewear, goggles and faceshields.

33
<PAGE> 37

- Plano (non-prescription) Eyewear. Plano eyewear accounts for the
majority of the Company's sales in this category and includes a wide
range of products from disposable visitor safety spectacles to several
lines of fashionable, reusable safety eyewear available in different
colors and with a variety of application specific lenses, frames and
sideshields. The Company's new line of high-style eyewear, Fectoids,
features a proprietary optical design. The Company has found that worker
acceptance, as opposed to cost, is often critical to its ability to
successfully market its plano eyewear. As a result, a number of its plano
product lines incorporate fashionable styling with comfort-enhancing
features in order to increase user acceptance. In addition, the lenses of
the Company's plano eyewear are generally made of impact resistant and
UV-protective clear or tinted polycarbonate. Certain lenses are available
with the Company's DX anti-fog lens coating. Although other competitors
offer anti-fog lens coatings, the Company believes its proprietary DX
coating is superior because of its combination of anti-fog, anti-scratch
and anti-static properties. The Company's safety eyewear frames range
from basic models, to wire-framed models, to the highly-styled "blade"
models with a wrap-around field of view. The Company's highly-styled and
lightweight Nassau Plus model also features adjustable temples to
customize the fit. In addition to Nassau Plus, the Company has several
well-known lines of plano eyewear, including Aerosite, Malibu and
Tourguard III/IV. In 1996, the Company introduced its AOSafety Scanners
coated eyewear, which the Company believes is one of the best price-value
offerings in its product category, and its AOSafety See-Pro high-style
eyewear, an attractive, lightweight, low-cost alternative to current
offerings.

- Goggles. The Company manufactures and sells a broad line of goggles,
which are typically preferred over plano eyewear in work environments
where a higher degree of impact protection is required, where increased
protection against dust, mist or chemical splash is needed and/or for use
in welding operations. To meet these requirements, the Company
manufactures a variety of vented and non-vented goggles with varying
fields of view. The Company has also developed a line of specialty
goggles and spectacles with special lens coatings and pigmentation for
healthcare professionals and industrial technicians who use lasers in a
variety of applications; these goggles will be marketed in the near
future under the brand name LaserMaster.

- Faceshields. Faceshields are designed to protect against heat, splash
and flying particles and are often worn in conjunction with other
protective equipment, such as plano eyewear and respirators. The Company
markets its faceshields under the AOTuffmaster and AO Hazardmaster brand
names.

- Hard Hats. The Company manufactures and sells a broad line of hard hats
and recently introduced a complete new line of hard hats. This new
offering includes "bump" caps, full-brim hats and traditional hard hats,
all with four- or six-point suspension, ratchet adjustment, a wide
selection of colors and custom imprinting.

34
<PAGE> 38

<TABLE>
The following chart describes the Company's eye, face and head protection equipment:
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------
VISITORS 2-LENS SINGLE LENS
SPECTACLES SPECTACLES SPECTACLES GOGGLES FACESHIELDS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MODELS TourGuard III Aerosite Fectoids Centurion AOTuffMaster
TourGuard III Aerolite Nassau Plus Goggle AOTuffMaster (cap
Small Eurolite Malibu 710B Goggle mounted)
TourGuard IV F9800 Confetti 700A + 701A Hazard Master
F9900 See-Pro Goggles Hazard Master (cap
Scanners 488 Welders Goggle mounted)
- ------------------------------------------------------------------------------------------------------------------------
FEATURES Meet ANSI Z87.1 Classic Sports styling Full range of Wide variety of
requirements "Aviator" Very light goggles for all headgear
2 sizes styling weight applications Wide variety of
Excellent optics Excellent Proprietary "DX" Optional antifog windows,
Excellent low worker antifog coating including
priced value acceptance coating Dust or polycarbonate,
Patented hinge Fectoids optics chemical versions aluminized, etc.
system
Durable
Economical
- ------------------------------------------------------------------------------------------------------------------------
APPLICATIONS Impact Protection Impact Impact Impact or Chemical Impact or Chemical
Protection Protection Protection Protection
- ------------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial Industrial Industrial Industrial
Consumer Consumer Consumer Consumer Consumer
Military Military Military Military Military
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

FIRST AID KITS. The Eastern Acquisition added first aid kits as a new
product category for the Company. First aid kits are for general use or for
industrial or commercial uses. Currently, most of the Company's sales are to the
consumer/DIY market with limited distribution in the industrial market. The
Company plans to broaden the range of products in this category and aggressively
pursue the larger industrial market with kits designed for specific work
environments.

RESPIRATORY PROTECTION. Respiratory protection products are used to
protect against the harmful effects of atmospheric contamination and pollution
caused by dust, gases, fumes, sprays and other contaminants. The market for
respiratory protection products is segmented into two types: supplied air and
air-purifying. Supplied air respirators are further segmented into two types:
self-contained breathing apparatuses ("SCBA") and respirators supplied from a
remote source of air through a hose ("air line"). The Company competes in the
air-purifying and air line supplied segments of the respiratory protection
market. The Company manufactures and sells a broad line of respiratory
protection products consisting of disposable dust and mist masks,
cartridge-equipped quarter-, half- and full-face respirators, powered
air-purifying respirators (whereby a battery pumps air through cartridges), and
"escape" respirators (a single-use respirator for emergencies). Although the
Company does not currently hold a significant position in the respirator market,
the Company believes that significant opportunities for growth exist, including
further penetration of the growing consumer/DIY market and leveraging its
leadership positions in the hearing and eye protection product categories to
realize growth in the industrial market.

35
<PAGE> 39

The following chart describes the Company's respiratory protection product
line:

<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
DISPOSABLE HALF MASK FULL FACEPIECE ESCAPE AIR LINE
RESPIRATORS RESPIRATORS RESPIRATORS RESPIRATORS RESPIRATORS
- ------------------------------------------------------------------------------------------------------------------
MODELS R1010 AO 5-Star AO 7-Star Escape Artist AO 7-Star
R1050 FlexiStar AO Omnistar X-IT AO Omnistar
R1085
- ------------------------------------------------------------------------------------------------------------------
FEATURES Disposable Replaceable Replaceable Low-profile Rubber or
Very lightweight cartridges cartridges Lightweight silicone
Very economical 3 sizes of Rubber or silicone Easy-to-use Facepieces
facepieces Facepieces Low-cost Available with
Rubber or silicone Broadest selection escape bottle
facepieces of cartridges
Broadest selection
of cartridges
- ------------------------------------------------------------------------------------------------------------------
APPLICATIONS Dusty and misty Dusty and misty Dusty and misty Emergency Dusty and misty
environments environments environments protection environments
Gases and vapors Gases and vapors against Gases and
environments environments acid gas, vapors
Welding Welding dust and environments
mist, or Welding
ammonia,
methylamine
dust or mist
- ------------------------------------------------------------------------------------------------------------------
MARKETS Industrial Industrial Industrial Industrial Industrial
Consumer Consumer Consumer Military Consumer
Military Military Military Military
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

SPECIALTY COMPOSITES OPERATING UNIT

The Company's Specialty Composites operating unit manufactures a wide array
of impact-resistant, shock-absorbing and energy-absorbing materials for a
variety of noise, vibration and shock control applications using a wide range of
technologies, manufacturing processes and applications know-how. Specialty
Composites also produces the specially formulated foam used in the manufacture
of Safety Products' PVC ear plugs. The principal strengths of Specialty
Composites are its specialized polyurethane chemistry, its thin-sheet casting
capability, its composite technologies and its applications engineering. These
strengths allow the Company to manufacture in a single process, high value-added
materials and components with multiple chemistries and substrates using casting,
extrusion and molding processes.

In January 1995, the Company began construction of a new proprietary,
thin-sheet foam casting line, which will permit the casting of both sheet and
composite materials, including facings and substrates, in a single pass through
the line. The decision to invest in the new casting line is part of the
Company's plan to make Specialty Composites the low-cost manufacturer of
thin-sheet foams incorporating specialty chemistries and unique combinations of
materials. Management believes that the new casting line will provide Specialty
Composites with the technology and capability to manufacture efficiently a wide
variety of products designed for high value added applications, such as damping
and barrier composites for the transportation industry and thin-sheet castings
for the footwear market.

Specialty Composites' products fall into three broad categories: barriers
and absorbers for noise control; damping and isolation products for vibration
and shock control; and energy control products for shock and comfort management.
The Company's products include: Isoloss LS polyurethane high density cellular
foams, which are manufactured by three production lines in a variety of
thicknesses, widths, colors and densities for mechanical vibration reduction,
noise and shock control and high resilience cushioning and sealing applications;
the Confor heavily damped viscoelastic foam for ergonomic cushioning
applications; the Tufcote polyurethane and PVC thin sheet foams for acoustical,
absorption and noise control applications; and the Isodamp PVC foams for
mechanical vibration reduction and noise and shock control.

36
<PAGE> 40

<TABLE>
The following chart describes the principal Specialty Composites products:
<CAPTION>

- ---------------------------------------------------------------------------------------------------------------------
PRODUCT GROUP BRAND PRODUCT FUNCTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barriers and Absorbers Tufcote Acoustical absorption and Transportation (e.g., heavy
noise control truck, automotive, marine,
aircraft); Original
equipment manufacturers
- ---------------------------------------------------------------------------------------------------------------------
Damping and Isolation Isodamp and Isoloss Mechanical vibration Original equipment
LS reduction; noise and manufacturers;
shock control Transportation
- ---------------------------------------------------------------------------------------------------------------------
Energy Control Confor and Isoloss LS Ergonomic cushioning and Healthcare; Transportation
sealing
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

Specialty Composite's products are sold into four market segments:
transportation; health-related; footwear; and other original equipment
manufacturers ("OEM") in industries such as electronics and communications.

Transportation Segment. Specialty Composites' products are incorporated
into heavy trucks, automobiles, yachts, aircraft, buses, leisure vehicles and
defense, farm and construction equipment in order to control noise, vibration
and shock. For example, the Company supplies durable acoustical foams and
barriers that control sound and help meet noise standards for Class VI-VII heavy
trucks. The Company also provides complete noise and vibration control packages
for high-end yachts in order to contain engine room noise and to soundproof
passenger quarters. Specialty Composites applications also exist with respect to
executive and commuter aircraft, where relatively thin, lightweight,
multi-function composites efficiently control sound and vibration.

Health-Related Segment. Applications for the energy-absorbing
characteristics of Specialty Composites' products, particularly its line of
temperature-reactive foams, have been growing in the health-related segment.
Such materials enhance physical protection and improve comfort in many devices
including leg braces, orthotic devices, surgical pillows, wheelchair cushions,
bicycle helmets, keyboard wrist supports and occupational seating.

Footwear Segment. Specialty Composites supplies a durable and highly
shock-absorbent polyurethane foam, which is incorporated into insoles for
high-wear cushioning applications, such as athletic shoes, dress shoes, military
boots and work boots. Specialty Composites also offers an energy-absorbent
material to help protect against skeletal shock in military boots, work boots
and orthotic insoles.

OEM Segment. The Company produces an extensive assortment of polyurethane
and PVC die-cut and molded parts for vibration isolation and damping and for
shock protection and noise control in a wide range of other products, including
precision equipment and industrial machinery, computer disk drives, pagers,
industrial compressors and generator sets.

SALES AND MARKETING

The Company divides it sales force into two principal categories: Safety
Products and Specialty Composites.

SAFETY PRODUCTS OPERATING UNIT. Within Safety Products, sales are divided
into eight channels: U.S. Industrial Distribution; U.S. Industrial Direct;
Consumer/DIY; Healthcare; Europe; Canada; Export; and National Accounts. Each of
these channels has its own sales force and its own distinct sales strategies. In
addition, through the recent Peltor Acquisition, the Company has significantly
expanded its sales coverage, including a dedicated effort to serve the specialty
communications ear muff market. See "Acquisition of Peltor."

U.S. Industrial Distribution. This is the largest sales channel for safety
products and includes approximately 150 Dialog industrial distributors and
approximately 120 industrial dealers. Participation in the Dialog program
requires minimum purchase levels and support across the full product

37
<PAGE> 41

line, in return for rebates based on growth and volume and preferred treatment
regarding shipping terms, new products, field sales support, and cooperative
advertising. The Company also offers Dialog distributors financial incentives
for establishing electronic order entry/invoicing with the Company, for
developing a Company-specific training program for distributor sales personnel,
for full-product line support and for engaging in annual business planning with
the Company. The Dialog program has been very successful in establishing
meaningful and mutually profitable relationships with a select group of
distributors. Traditionally, the Company's distributors have been specialized
industrial safety distributors, but increasingly, larger full-supply industrial
distributors have begun distributing safety products. The Company's breadth of
offerings is particularly appealing to these larger distributors.

The Company also has sales specialists calling directly on end users on
behalf of its key Dialog distributors. In addition to enhancing relationships
with distributors, this approach allows the Company to gain additional market
insight while building brand name awareness.

U.S. Industrial Direct. Approximately 90% of the Company's safety
prescription eyewear is sold directly to more than 40,000 industrial companies,
including a majority of the industrial companies in the Fortune 500. The
remainder of the Company's SRx products are sold through the industrial
distribution channel. In most states, current laws require that prescription
eyewear be dispensed to the user by a licensed optical professional,
traditionally a local optician. As an alternative to this approach, in 1994 the
Company introduced its Dispensing Manager program, whereby the Company employs
its own opticians to dispense prescription safety eyewear. The Company pays
these Dispensing Managers a commission for sales of more profitable options. In
accounts where the Company uses Dispensing Managers, sales of these more
profitable items have increased substantially. Management believes that none of
its competitors offers a comparable program.

Consumer/DIY. Management believes that the Company is the leading supplier
of safety products to the consumer/DIY market and is the primary supplier to
such leading retailers as ACE, Home Depot, Lowe's, Sears and TrueValue. The
Company offers both its AOSafety brand of industrial grade products in consumer
packaging and its Eastern brand of consumer grade product in consumer packaging.
The Company serves the broad range of market needs with these two brands, from
the industrial user and professional tradesman to the casual do-it-yourselfer.

Healthcare. The Company has dedicated an experienced national sales
manager and an exclusive arrangement with an independent representative group to
pursue the rapidly growing use of PPE in the healthcare sector and has developed
a specialized line of healthcare products with the goal of building a national
distribution network. Use of the Company's products can assist in compliance by
healthcare professionals with recently introduced OSHA regulations designed to
reduce the risk of diseases associated with blood-borne pathogens and dealing
with splash control.

Europe. The Company has a significant presence in Europe with sales
offices in the U.K., Germany, France, Denmark, Italy and Spain. While the
Company's historical strength in this market has been in hearing protection
devices sold through industrial distributors, the Company has recently been
successful in pursuing sales of safety eyewear and has dedicated a full-time
eyewear product sales manager to lead and train the existing sales organization.
The Company has also dedicated a full-time consumer sales manager to replicate
in Europe the Company's strategy in the U.S. consumer/DIY market. The Company
has launched a European Dialog program and has begun a European Sales Specialist
program.

Canada. In Canada, the Company has a strong position in both stock safety
products and prescription safety eyewear. Just as in the United States,
prescription safety eyewear is sold primarily on a direct basis to industrial
firms, while stock safety products are sold through distributors.

38
<PAGE> 42

Export. The Company exports its products around the world, and this
channel is managed through a sales representative located in each of Singapore
(covering Southeast Asia), Miami (covering Latin America), and Sydney (covering
Australia and New Zealand). The Company has aggressively pursued this market by
increasing sales coverage and recruiting new management.

National Accounts. The Company has two dedicated national accounts sales
managers calling on the U.S. Government and major PPE users such as Ford Motor
Company and General Motors.

SPECIALTY COMPOSITES OPERATING UNIT. The Company relies upon independent
manufacturer representatives and the Company's customer representatives to
identify OEM applications for Specialty Composites' products and technologies.
Once such applications have been identified, the Company's sales and technical
staff work closely with OEMs to provide the customer with a low-cost, integrated
solution for its noise, vibration, shock, cushioning and/or comfort management
problems. A recent example of the Company's ability to provide a low-cost,
integrated solution to an OEM is its successful effort to provide Freightliner
with an interior noise control package for Freightliner's new entry into the
Class VI-VII heavy truck market.

RESEARCH AND DEVELOPMENT.

SAFETY PRODUCTS OPERATING UNIT. The Company believes that its research and
development facilities, personnel and programs are among the best in the PPE
industry. Since its inception in 1972, the former E-A-R Division has been a
leader in the development of technology for understanding and measuring noise
and hearing loss and in developing products to protect against such loss. In
order to test the efficacy of its hearing protection products, the Company owns
and operates the only privately-owned National Voluntary Laboratory
Accreditation Program ("NVLAP") laboratory in the United States accredited for
testing the efficacy of hearing protection products. The Company also operates
sound chambers and testing facilities which measure the performance of its
materials and designs. Similarly, the Company believes that it has been a
pioneer and leader in the development and testing of safety eyewear and
maintains extensive facilities for the design and testing of safety eyewear. The
research and development personnel of the Company include recognized experts in
the safety products industry. The Company's product managers work closely with
research and development personnel to develop high performance safety products,
which often incorporate proprietary materials or designs.

SPECIALTY COMPOSITES OPERATING UNIT. The research and development efforts
of Specialty Composites focus on developing proprietary materials and enhancing
existing products in order to meet customer needs identified by the Company's
sales and technical staff. Products such as the Isoloss LS polyurethane high
density cellular foams and the Confor heavily damped viscoelastic foam are being
introduced in a growing number of applications across all markets served by
Specialty Composites. Innovative applications of Specialty Composites' products
include portable electronic communications devices, damping tiles used in
submarine ballast tanks and a PVC composite utilized as matting in heavy truck
cabs because of the composite's noise-reduction and vibration-dampening
properties.

RAW MATERIALS

The Company consumes a wide variety of raw materials, supplies and
components, including, among others, paper products, chemicals, eyewear frames
and optical lenses. The paper products category includes corrugated paper,
folding cartons and packaging materials. The chemicals category includes plastic
resins such as polycarbonate and propionate, as well as polyols, plasticizers,
substrates, isocyanates and adhesives. The eyewear frames category includes
frames for both plano and SRx products.

The Company has a diversified base of raw material suppliers. The Company
does, however, use single sources for the supply of several raw materials,
including General Electric Plastics, a division of General Electric Company, for
polycarbonate resin, the primary raw material used in the

39
<PAGE> 43

production of the Company's non-prescription optical lenses. The Company has not
experienced any significant delays or shortages in obtaining raw materials in
recent years and believes that alternative supplies of raw materials can be
located on commercially reasonable terms.

MANUFACTURING AND DISTRIBUTION OPERATIONS

The Company maintains a high degree of vertical integration, allowing it to
manufacture over 90% of the products that it sells. The Company's strengths
include the manufacture of foams (casting, molding and fabricating) for
Specialty Composite products (including the foam used in the manufacture of PVC
ear plugs); high speed assembly and packaging of ear plugs; plastic injection
molding, coating and assembly of non-prescription eyewear; and assembly,
grinding, polishing and coating of prescription eyewear. Consistent across all
of the Company's manufacturing operations is an emphasis on producing high
quality products. Currently, eight of the Company's manufacturing facilities
have been awarded ISO 9002 or ISO 9001 certification, indicating that the
Company has achieved and sustained a high degree of quality and consistency with
respect to its products. The Company believes that ISO certification is an
increasingly important selling feature both domestically and internationally,
and certain customers require ISO certification from all their vendors. The
Company expects to work closely with the Peltor management to achieve ISO
certification for Peltor's manufacturing facilities.

The Company is committed to enhancing its margins and minimizing
administrative expenses with no adverse effect on quality and service levels. In
the production process, the Company focuses on containing raw material price
increases; making investments in automation and other equipment to reduce
manufacturing costs, lower scrap levels, and increase efficiencies; and reducing
inventory costs. Recent examples are the move to in-house tipping of cords used
on corded ear plugs, which required an investment of less than $100,000, but is
anticipated to yield future annualized cost savings in excess of $700,000, and
the closure of Eastern's plant in Maspeth, New York, which the Company expects
will eventually generate savings of approximately $1 million per year.
Information technology and re-engineering concepts are also being utilized to
reduce selling and administrative costs. The Company is in the final stages of
converting its worldwide information system to the SAP R/3 software, designed to
provide a totally integrated business system. The Company anticipates that this
development will automate numerous time-consuming procedures and provide a
valuable analysis tool to the Company's employees and management.

SAFETY PRODUCTS OPERATING UNIT. The Indianapolis, Indiana plant is the
largest ear plug manufacturing facility in the world. It fabricates, molds and
packages hundreds of millions of pairs of ear plugs annually, utilizing
automated, high speed assembly and packaging equipment. Because the economies of
scale present in this operation are unique in the hearing protection products
industry, management believes that they offer the Company a competitive
advantage of lower costs within the production process. The plant's high-speed
robotic fabrication, assembly and packaging of ear plugs facilitate cost-saving,
high-volume production and improve cycle time and inventory management.

In 1993, the Company consolidated manufacturing operations from three
separate manufacturing facilities into one at its Southbridge, Massachusetts
facility. The Company also invested over $2 million in industrial robotics and
cellular manufacturing at its Southbridge facility so that plano eyewear
products previously outsourced from southeast Asia could be produced at a lower
cost and with higher quality in the Company's Southbridge plant. In addition,
the Company is now able to differentiate itself from many of its competitors by
advertising and promoting these products as "Made in the USA."

The Company fills virtually all of its domestic and certain of its
international orders, other than SRx, through its state-of-the-art distribution
center located in Indianapolis, Indiana. Opened in January 1995, this new
automated distribution center has efficient bar-coding and scanning capabilities
to assure rapid turn-around time and service levels for customer orders. The
recent creation of the Company's centralized packaging operation in Indianapolis
has allowed the Com-

40
<PAGE> 44

pany to shift substantially all assembly and packaging operations from Eastern's
former plant in Maspeth, New York, which was closed, and to generate significant
savings, as well as inventory reductions.

Over the past three years the Company completed a major program to
consolidate and retool its SRx laboratory operations. The SRx production
operations of six different manufacturing facilities were consolidated into two
U.S. facilities that possess new lens surfacing, edging and grinding machinery
capable of handling glass, plastic and polycarbonate lenses. These two
facilities currently manufacture and distribute over 500,000 pairs of safety
prescription glasses annually.

The Company's international manufacturing operations are located in
Poynton, England, Mississauga, Ontario, Varnamo, Sweden and Montreal, Quebec.
The Poynton facility serves customers in Western Europe, producing and packaging
ear plugs and other hearing and eyewear products. In addition, Poynton has an
SRx laboratory that primarily serves the U.K. market. The Mississauga plant
fabricates prescription eyewear and, together with a small prescription eyewear
laboratory in Montreal, produces SRx products for the Canadian market. The
Varnamo, Sweden plant is the principal Peltor manufacturing location; finished
goods and components are shipped to customers and other Peltor subsidiaries from
this location.

SPECIALTY COMPOSITES OPERATING UNIT. Specialty Composites' products are
manufactured in Indianapolis, Indiana and Newark, Delaware. The Indianapolis
plant, which supplies specially formulated foam for the Company's PVC ear plugs,
manufactures and fabricates sheet and roll PVC and polyurethane materials and
molds polyurethane foams and solids. This facility also houses applications
engineering, research and development, quality assurance and customer service
support. The Newark, Delaware facility manufacturers polyurethane foams and
films and houses the Company's new proprietary, thinsheet foam casting line,
which will permit the casting of both sheet and composite materials, including
facings and substrates, in a single pass through the line. Management believes
that the new casting line will provide Specialty Composites with the technology
and capability to manufacture efficiently a wide variety of products designed
for high value added applications, such as damping and barrier composites. The
new casting line, which is estimated to cost approximately $5.0 million ($4.8
million of which had been spent as of March 31, 1996), is expected to be fully
operational before the end of September 1996. The decision to invest in the new
casting line is part of the Company's plan to make Specialty Composites the low
cost manufacturer of specialty materials.

COMPETITION

The PPE market is fragmented and highly competitive. The Company estimates
that there are 500 manufacturers of PPE (other than safety clothing, gloves and
shoes) in the United States, Europe and Southeast Asia. Participants in the
industry range in size from small, independent, single-product companies with
annual sales of less than $15 million, to a small number of multinational
corporations with annual sales in excess of $100 million. The Company believes
that participants in the PPE market compete primarily on the basis of product
characteristics (such as design, style and functional performance), product
quality, service and brand name recognition and, to a lesser extent, price. From
a positive competitive standpoint, the Company believes it is well situated,
primarily because of its large size and its broad product offerings, to compete
in a fragmented industry. The Company enjoys certain economies of scale which
are not available to smaller competitors. Many of the Company's customers,
particularly in the growing consumer/DIY channel, prefer the type of "one stop
shopping" that the Company can provide. The Company's advanced distribution
center further facilitates timely and accurate deliveries. The specialty
composites industry is highly competitive, and participants compete on the basis
of being able to provide cost-effective solutions to the noise, shock and
vibration problems of OEMs.

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<PAGE> 45

EMPLOYEES

As of May 1, 1996, the Company had 1,383 employees, of whom 849 were
primarily engaged in manufacturing, 346 in sales, marketing and distribution, 31
in research and development and 157 in general and administrative. The Company
believes its employee relations are good. The Company has one facility that
employs union members. This facility, located in Plymouth, Indiana, employs 35
members of the International Union of Electronic, Electrical, Salaried, Maritime
and Furniture Workers (out of a total of 90 employees), and the Company's
relations with these union members are fully satisfactory. The union contract
expires on June 30, 1998.

PATENTS AND TRADEMARKS

The Company owns and has obtained licenses to various domestic and foreign
patents, patent applications and trademarks related to its products, processes
and business. The Company values particularly highly its trademark for the color
yellow for ear plugs in the United States and Canada and places significant
value on its overall patent portfolio. However, no single patent or patent
application is material to the Company. The Company's patents expire at various
times over the next 17 to 20 years.

GOVERNMENT REGULATION

As a manufacturer of safety products, the Company is subject to regulation
by numerous governmental bodies. Principal among the federal regulatory agencies
in the United States are: OSHA, which regulates the usage of all PPE, with the
exception of respirators; the Environmental Protection Agency, which regulates
hearing protection devices; MSHA and NIOSH, both of which certify respirators;
and the Food and Drug Administration, which regulates eye, face and respiratory
protection products for the healthcare industry. These agencies generally
mandate that the Company's products meet standards established by private
groups, such as American National Standards Institute. The Company's products
are also subject to foreign laws and regulations. In particular, they must
comply with the Canadian Standards Association, European Committee for
Normalization and Standards Australia. The Company believes it is in compliance
in all material respects with the regulations and standards of these
governmental bodies, and any failures to comply with such regulations and
standards in the past have not had a material adverse effect on its business.

ENVIRONMENTAL MATTERS

The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous substances and wastes. The Company believes
that it is in substantial compliance with all such laws and regulations.

42
<PAGE> 46

PROPERTIES

<TABLE>
The Company owns and/or leases facilities in the United States, Canada,
Europe, Australia and Singapore. See also "Acquisition of Peltor." The following
table sets forth the location of each, its square footage and the principal
function of each.
<CAPTION>

APPROXIMATE
LOCATION SQUARE FEET FUNCTION
- -------- ----------- --------
<S> <C> <C>
CORPORATE OFFICES
Boston, Massachusetts................ 8,031 Corporate Headquarters

U.S. SAFETY PRODUCTS
Southbridge, Massachusetts........... 295,000 Manufacturing/Administration
Indianapolis, Indiana(1)............. 220,564 Distribution/Customer Service
Indianapolis, Indiana................ 81,540 Packaging/Manufacturing
Boca Raton, Florida.................. (*) Telemarketing
Chickasha, Oklahoma.................. 15,000 Manufacturing/Customer Service
Plymouth, Indiana.................... 10,224 Manufacturing/Customer Service
Fresno, California................... 2,400 Customer Service

INTERNATIONAL SAFETY PRODUCTS
Poynton, England..................... 56,530 Manufacturing/Distribution/
Customer Service
Mississauga, Ontario, Canada......... 28,850 Manufacturing/Customer Service
Hanau, Germany....................... (*) Sales Office/Customer Service
Paris, France........................ 1,894 Sales Office
Montreal, Quebec, Canada............. 1,800 Manufacturing
Barcelona, Spain..................... (*) Sales Office
Milan, Italy......................... (*) Sales Office
Copenhagen, Denmark.................. (*) Sales Office
Sydney, Australia.................... (*) Sales Office
Singapore............................ (*) Sales Office

SPECIALTY COMPOSITES
Indianapolis, Indiana................ 156,000 Manufacturing/Distribution
Newark, Delaware..................... 82,300 Manufacturing/Distribution
<FN>

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

(1) This facility also serves as an international distribution center and
central packaging operation with respect to certain of the Company's
products.

(*) Less than 1,000 square feet.
</TABLE>

The Company believes that its facilities are suitable for its operations
and provide sufficient capacity to meet the Company's requirements for the
foreseeable future. All of the Company's facilities are leased except for the
following facilities owned by the Company: (i) the Safety Products'
manufacturing facility in Indianapolis, (ii) the Specialty Composites'
manufacturing/distribution facility in Indianapolis and (iii) the Specialty
Composites' manufacturing facility in Newark. The Company believes that it will
be able to renew each of its leases upon their respective expiration dates on
commercially reasonable terms. In addition, the Company believes that it would
be able to lease suitable additional or replacement space on commercially
reasonable terms.

LEGAL PROCEEDINGS

Various lawsuits and claims arise against the Company in the ordinary
course of its business. Most of these lawsuits and claims relate to the
Company's safety eyewear and respiratory product lines and primarily involve
accidents and/or exposures occurring after Old Cabot Safety Corpora-

43
<PAGE> 47

tion's acquisition of the AOSafety Division in April 1990. The Company is
contingently liable with respect to numerous lawsuits involving respirators
manufactured by American Optical Corporation prior to the acquisition of the
AOSafety Division in April 1990. These lawsuits typically involve plaintiffs
alleging that they suffer from asbestosis or silicosis, and that such condition
results in part from respirators which were negligently designed or
manufactured. The defendants in these lawsuits are often numerous, and include,
in addition to respirator manufacturers, employers of the plaintiffs and
manufacturers of sand (used in sand blasting) and asbestos. Responsibility for
legal costs, as well as for settlements and judgments, is shared contractually
by the Company, American Optical Corporation and a prior owner of American
Optical Corporation. The Company and Cabot have entered into an arrangement
relating to certain respirator claims asserted after the Formation Acquisition
whereby, so long as the Company pays to Old Cabot Safety Corporation an annual
fee of $400,000, Old Cabot Safety Corporation will retain responsibility and
liability for, and indemnify the Company against, certain legal claims alleged
to arise out of the use of respirators manufactured prior to July 1995. The
Company has the right to discontinue the payment of such annual fee at any time,
in which case the Company will assume responsibility for and indemnify Cabot and
Old Cabot Safety Corporation with respect to such claims. See "Certain
Relationships and Related Transactions--The Formation Acquisition."

In 1995 the Company became aware that its French subsidiary had for a
period of at least one year been delinquent in the remittance of value added tax
payments to the French government. The Company believes that any required tax
payments and attendant penalties will not have a material adverse effect on the
Company's financial condition or results of operations.

44
<PAGE> 48

ACQUISITION OF PELTOR

On May 30, 1996, the Company acquired Peltor for approximately $86.0
million, subject to possible decrease based on changes in Peltor's net worth and
working capital after December 31, 1995. The Company financed the Peltor
Acquisition using additional borrowings under the Senior Bank Facilities.

Peltor was founded in the early 1950s and is the world's leading
manufacturer of ear muff hearing protection devices, including specialty muffs
capable of two-way radio frequency communications. Peltor markets its products
worldwide through safety and industrial distributors to industry, government,
military and recreational markets. Its sales for the year ended December 31,
1995 were approximately $41 million. Peltor is based in Varnamo, Sweden, has
manufacturing facilities in Sweden, Rhode Island and Germany and has sales
offices in Scandinavia, Germany, France, England, and the United States. Mr.
Leif Palmaer, the President of Peltor, and Mr. Leif Anderzon, the Executive Vice
President of Peltor, who have been the principal operating officers of Peltor
since 1981, will continue in the same capacities.

Peltor manufactures, assembles and sells a broad line of ear muffs, hard
caps/visors, noise attenuation headsets and wireless and hardwire communication
headsets. Peltor's products serve a variety of end user markets where protection
from harmful high and low frequency noise is sought or the need for easy
communication in noisy or remote environment exists, such as in the
construction, heavy machinery, airport, forestry, textile and mining industries.
Peltor has recently focused on the high-end communications market, which has
recently grown faster than the market for traditional ear muffs. Peltor's
leadership position in innovation and product quality was attested by the
selection of its ear muff products as the basis for the new, pan-European
standards for ear muff hearing protection.

The acquisition of Peltor significantly broadens the Company's line of ear
muff style hearing protection devices and adds specialty ear muffs capable of
two-way radio frequency communications to the Company's product offerings.
Management believes that the Peltor Acquisition further establishes the Company
as the worldwide leader in all types of hearing protection and will allow the
Company to establish itself as a global leader in the specialty communications
ear muffs market. As the ear muffs market is driven by availability of products
with different applications, weight and configuration, product breadth has
significant advantages, particularly in the high end of the market. The Company
expects that Peltor's products can be easily integrated into the Company's U.S.
marketing, sales and distribution network and that Peltor's European marketing,
sales and distribution network can provide a vehicle for increased sales of the
Company's other product lines. In addition, management believes that the
potential exists for further rationalization of the Company's costs in Europe
through consolidation of duplicative sales offices.

45
<PAGE> 49

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of May 29, 1996.
<CAPTION>

NAME AGE POSITION
---- --- --------
<S> <C> <C>
John D. Curtin, Jr....................... 63 Chairman of the Board of Directors and Chief
Executive Officer

Albert F. Young, Jr...................... 50 President, Chief Operating Officer and Director

Bryan J. Carey........................... 36 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary

James D. Hall............................ 45 Vice President, Product Management

W. Larry Lewis........................... 58 Vice President, Operations

M. Rand Mallitz.......................... 54 Vice President and General Manager, E-A-R
Specialty Composites

Ian Mitchell............................. 52 Vice President, Logistics

Daniel P. O'Connor....................... 51 Vice President, Sales

Mark V.B. Tremallo....................... 39 Vice President, General Counsel and Secretary

Norman W. Alpert*........................ 37 Director

Daniel S. O'Connell...................... 42 Director

Arthur J. Nagle.......................... 57 Director

John W. Priesing......................... 67 Director

Samuel L. Hayes, III..................... 61 Director

Kenyon C. Gilson......................... 52 Director

Margaret J. Hanratty*.................... 48 Director
<FN>

- ---------------
* Member of Audit Committee
</TABLE>

John D. Curtin, Jr. joined Cabot in 1989 as Chief Financial Officer. Mr.
Curtin was named Chief Executive Officer of the Company in April 1994, and
became a director of the Company in July 1995. Prior to joining Cabot he was
President, Chief Executive Officer and Director of Curtin & Co., Inc., a private
investment banking firm. Mr. Curtin is also a director of Augat Inc. and
Imperial Holly Corporation.

Albert F. Young, Jr. joined the Company in July 1994 as President, and
became a director of the Company in July 1995. Prior to joining the Company, he
spent sixteen years with Cooper Industries, Inc., most recently as Vice
President and General Manager of the Cooper Hand Tools Division.

Bryan J. Carey joined the Company as Chief Financial Officer in April 1994
from Cabot where he had been Director of Strategic Planning since August 1992.
Prior to joining Cabot, he was a principal with Chase Capital Partners and its
predecessor.

James D. Hall joined the Company in October 1994 and served as a consultant
to the Company from July 1994 to October 1994. Mr. Hall was previously Executive
Vice President of Uvex Safety L.L.C. from 1993 to July 1994 and Vice
President-Safety of Uvex Winter Optical, Inc. from 1990 to 1993.

W. Larry Lewis joined the Company in September 1995 as Vice President,
Operations. From 1993 until 1995 he was Vice President of Operations of Vanity
Fair Mills, a division of VF

46
<PAGE> 50

Corporation. Prior to that, he was Vice President of Manufacturing Operations of
Rawlings Sporting Goods from 1991 to 1993, and Executive Vice President of
Kleinert's Inc., from 1990 to 1991.

M. Rand Mallitz joined the Company in January 1992 as Vice President and
General Manager, E-A-R Specialty Composites. Previously he was Vice President
and General Manager of the Caulk Cartridge Division of Sunoco Products in 1991,
and prior to that he was President/CEO of Roth Office Products.

Ian Mitchell joined Cabot in 1979 and was a member of the management team
that developed the European operations for the E-A-R Division. In 1990 he became
Managing Director, Cabot Safety Limited (UK) and in 1992 became Vice President,
Logistics for the Company.

Daniel P. O'Connor joined the Company in 1991 and has held the positions of
Vice President, Sales & Distribution; Vice President, Global Sales & Marketing;
and Vice President and General Manager, Prescription Eyewear. Prior to joining
the Company in 1991, he was Vice President of Sales and Marketing, Residential
and Small Businesses Services Division, of Northern Telecom.

Mark V. B. Tremallo joined the Company as General Counsel and Assistant
Secretary in 1991 from Cabot's Law Department where he had worked since 1989. He
became Vice President and Secretary in July 1995.

Norman W. Alpert is a Managing Director of Vestar Capital Partners and was
a founding partner of Vestar at its inception in 1988. Mr. Alpert is Chairman of
the Board of Directors of International AirParts Corporation and a director of
Clark-Schwebel, Inc., Prestone Products Corporation, Remington Products Company,
L.L.C. and Russell-Stanley Corporation, all companies in which Vestar or its
affiliates have a significant equity interest. He became a director of the
Company in July 1995.

Daniel S. O'Connell is the Chief Executive Officer and founding partner of
Vestar Capital Partners. Mr. O'Connell is a director of Anvil Knitwear, Inc.,
Clark-Schwebel, Inc., Pinnacle Automation, Inc., Prestone Products Corporation,
Remington Products Company, L.L.C. and Russell-Stanley Corporation, all
companies in which Vestar or its affiliates have a significant equity interest.
He became a director of the Company in July 1995.

Arthur J. Nagle is a Managing Director of Vestar Capital Partners and was a
founding partner of Vestar at its inception in 1988. Mr. Nagle is a director of
Chart House Enterprises, Inc., Clark-Schwebel, Inc., La Petite Holdings
Corporation, Prestone Products Corporation, Remington Products Company, L.L.C.,
Russell-Stanley Corporation and Super D Drugs, Inc., all companies (other than
Chart House Enterprises, Inc.) in which Vestar or its affiliates have a
significant equity interest. He became a director of the Company in July 1995.

John W. Priesing has served as Chairman, President and Chief Executive
Officer of Russell-Stanley Corporation since 1993. Prior to joining
Russell-Stanley Corporation, he was a private investor. He became a director of
the Company in December 1995.

Samuel L. Hayes, III was elected a director of the Company in May 1996.
Since 1971, he has taught at the Harvard Business School, and he currently holds
the Jacob H. Schiff Chair in Investment Banking. His teaching and research have
focused on the capital markets and corporate financial management. Mr. Hayes is
also a director of Tiffany & Co., Ernst Home Centers, and certain Eaton Vance
mutual funds.

Kenyon C. Gilson has been Vice President of Cabot since 1989. He became a
director of the Company in July 1995.

Margaret J. Hanratty has been Vice President and Treasurer of Cabot since
September 1993, and served previously as Treasurer and Director of Corporate
Development. Prior to joining Cabot in 1990, she served as Vice President,
Mergers and Acquisitions for The First Boston Corporation. She became a director
of the Company in July 1995.

47
<PAGE> 51

Under the Stockholders' Agreement among the Company, Vestar, Cabot, and the
Management Investors, dated July 11, 1995 (the "Stockholders Agreement"),
subject to continued ownership of a certain number of shares of Common Stock,
Vestar has the right to designate five directors, Cabot has the right to
designate two directors, and the Management Investors have the right to
designate two directors. Messrs. Alpert, O'Connell, Nagle, Priesing and Hayes
are the directors designated by Vestar. Mr. Gilson and Ms. Hanratty are the
directors designated by Cabot. Messrs. Curtin and Young are the directors
designated by the Management Investors. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."

The term in office of each director ends when his or her successor has been
elected at the next following annual meeting of stockholders and qualified or
upon his or her removal or resignation.

EXECUTIVE COMPENSATION

The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth certain
information concerning compensation received by the Chief Executive Officer and
the other four most highly-compensated executive officers of the Company for
services rendered to the Company in all capacities (including service as an
officer or director) in fiscal 1995. No stock options or similar awards had been
granted as of the end of fiscal 1995.

<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>

OTHER
FISCAL ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C>
John D. Curtin, Jr. ......................... 1995 $375,000(1) $150,000 $56,024(2)
Chairman of the Board of Directors
and Chief Executive Officer

Albert F. Young, Jr.......................... 1995 $230,004 $ 80,000 $13,758(3)
President, Chief Operating Officer
and Director

Daniel P. O'Connor........................... 1995 $160,483 $ 60,000 $46,332(4)
Vice President, Sales

James D. Hall................................ 1995 $150,000 $ 40,000 $ 7,968(5)
Vice President, Product Management

Bryan J. Carey............................... 1995 $146,387 $ 50,000 $12,323(6)
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
<FN>

- ---------------
(1) Mr. Curtin's compensation for fiscal 1995 represents $78,125 paid by the
Company after July 11, 1995 and $296,875 paid by Cabot Corporation for the
earlier period of the fiscal year and billed to the Company.

(2) Includes $3,125 contributed on behalf of Mr. Curtin to the Company's Cash
Balance Pension Plan and $2,655 contributed to the Company's Supplemental
Executive Retirement Plan. Also includes $50,244 contributed by Cabot
Corporation on behalf of Mr. Curtin to pension plans maintained by Cabot
Corporation.

(3) Includes contributions made on behalf of Mr. Young to the Company's 401(k)
Savings Plan ($2,300); to the Company's Cash Balance Pension Plan ($3,700);
and to the Company's Supplemental Executive Retirement Plan ($7,758).

</TABLE>

48
<PAGE> 52

(4) Includes contributions made on behalf of Mr. O'Connor to the Company's
401(k) Savings Plan ($2,433); to the Company's Cash Balance Pension Plan
($6,582); and to the Company's Supplemental Executive Retirement Plan
($4,704). Also includes relocation allowances in the amount of $32,613.

(5) Includes contributions made on behalf of Mr. Hall to the Company's 401(k)
Savings Plan ($1,232); to the Company's Cash Balance Pension Plan ($3,004);
and to the Company's Supplemental Executive Retirement Plan ($3,732).

(6) Includes contributions made on behalf of Mr. Carey to the Company's 401(k)
Savings Plan ($1,381); and to the Company's Supplemental Executive
Retirement Plan ($4,234).

DIRECTOR COMPENSATION

Directors of the Company (other than Messrs. Priesing and Hayes) serve
without compensation (other than reimbursement of expenses) in connection with
rendering services as such. Messrs. Priesing and Hayes receive $10,000 annually
for their service as Directors and an additional $2,500 per meeting plus
reimbursement of expenses. Upon his election, Mr. Priesing purchased 8,000
shares of Common Stock at a price of $2.50 per share and became a party to the
Stockholders' Agreement and has certain rights and liabilities thereunder.

1996 STOCK OPTION PLANS

Executive Stock Option Plan.

1996 Stock Option and Grant Plan. The 1996 Stock Option and Grant Plan
(the "1996 Stock Plan") was adopted by the Board of Directors on June , 1996
and subsequently approved by the Company's stockholders and will become
effective upon completion of the Offering. The 1996 Stock Plan permits (i) the
grant of options to purchase shares of Common Stock intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Incentive Options"), (ii) the grant of options that do
not so qualify ("Non-Qualified Options"), (iii) the issuance or sale of Common
Stock with or without vesting or other restrictions ("Stock Grants") (iv) the
grant of Common Stock upon the attainment of specified performance goals
("Performance Share Awards") and (v) the grant of the right to receive cash
dividends with the holders of the Common Stock as if the recipient held a
specified number of shares of the Common Stock ("Dividend Equivalent Rights").
These grants may be made to officers and other employees, consultants and key
persons of the Company and its subsidiaries. In addition, independent directors
will automatically be eligible for certain grants under the 1996 Stock Plan, as
described below. The 1996 Stock Plan provides for the issuance of
shares of Common Stock, of which no more than shares may be issued to
independent directors. On and after the date the 1996 Stock Plan becomes subject
to Section 162(m) of the Code, options with respect to no more than
shares of Common Stock may be granted to any one individual in any calendar
year. No options or other grants have been granted under the 1996 Stock Plan.

49
<PAGE> 53

The 1996 Stock Plan is administered by a committee of the Board of
Directors composed of , and (the "Compensation
Committee"). Subject to the provisions of the 1996 Stock Plan, the Compensation
Committee has full power to determine from among the persons eligible for grants
under the 1996 Stock Plan (i) the individuals to whom grants will be granted,
(ii) the combination of grants to participants and (iii) the specific terms of
each grant. Incentive Options may granted only to officers or other employees of
the Company or its subsidiaries, including members of the Board of Directors who
are also employees of the Company or its subsidiaries.

The option exercise price of each option granted under the 1996 Stock Plan
is determined by the Compensation Committee but, in the case of Incentive
Options may not be less than 100% of the fair market value of the underlying
shares on the date of grant. Incentive Options may not be exercisable more than
ten years from the date the option is granted. If any employee of the Company or
any subsidiary owns or is deemed to own at the date of grant shares of stock
representing in excess of 10% of the combined voting power of all classes of
stock of the Company or any subsidiary, the exercise price for options granted
to such employee may not be less than 110% of the fair market value of the
underlying shares on that date and the option may not be exercisable more than
five years from the date the option is granted. No option may be exercised
subsequent to the termination of the optionee's employment or other business
relationship with the Company unless otherwise determined by the Compensation
Committee or provided in the option agreement. At the discretion of the
Compensation Committee, any option may include a "reload" feature, pursuant to
which an optionee exercising an option receives in addition to the number of
shares of Common Stock due on the exercise of such an option an additional
option with an exercise price equal to the fair market value of the Common Stock
on the date such additional option is granted. Upon the exercise of options, the
option exercise price must be paid in full either in cash or, in the sole
discretion of the Compensation Committee, by delivery of shares of Common Stock
already owned by the optionee.

The 1996 Stock Plan also permits Stock Grants, Performance Share Awards and
grants of Dividend Equivalent Rights. Stock Grants and Performance Share Awards
may be made to persons eligible under the 1996 Stock Plan, subject to such
conditions and restrictions as the Compensation Committee may determine. Prior
to the vesting of shares, recipients of Stock Grants generally will have all the
rights of a stockholder with respect to the shares, including voting and
dividend rights, subject only to the conditions and restrictions set forth in
the 1996 Stock Plan or in any award agreement. In the case of the Performance
Share Awards, the issuance of Shares of Common Stock will occur only after the
recipient has satisfied the conditions and restrictions set forth in the 1996
Stock Plan or in any award agreement. The Compensation Committee may also make
Stock Grants to persons eligible under the 1996 Stock Plan in recognition of
past services or other valid consideration, or in lieu of cash compensation. In
addition, the Compensation Committee may grant Dividend Equivalent Rights in
conjunction with any other grant made pursuant to the 1996 Stock Plan or as a
free standing grant. Dividend Equivalent Rights may be paid currently or deemed
to be reinvested in additional shares of Common Stock, which may thereafter
accrue further dividends.

The Compensation Committee may, in its sole discretion, accelerate or
extend the date or dates on which all or any particular award or awards granted
under the 1996 Stock Plan may be exercised or vest. In the event of a merger,
liquidation or sale of substantially all of the assets of the Company, the Board
of Directors has the discretion to accelerate the vesting of options granted
under the 1996 Stock Plan, except the options granted to Independent Directors
as described below automatically accelerate in such circumstances. The 1996
Stock Plan and the grants issued thereunder terminate upon the effectiveness of
any such transaction or event, unless provision is made in connection with such
transaction for the assumption of grants therefore made.

Independent Director Options. The 1996 Stock Plan provides for the
automatic grant of Non-Qualified Options to Independent Directors. Under such
provisions, on the date five business days following each annual meeting of
stockholders of the Company commencing with the meeting to be

50
<PAGE> 54

held in 1997, each Independent Director who is then serving will be granted an
option to purchase shares of Common Stock at a price equal the last
reported sale price per share of Common Stock on the date of grant (or if no
such price is reported on such date, such price on the nearest preceding date on
which such a price is reported). Options granted to Independent Directors under
the foregoing provisions will vest in annual installments over years
commencing with the date of grant and will expire ten years after grant, subject
to earlier termination if the optionee ceases to serve as a director. The
exercisability of these options will be accelerated upon the occurrence of a
merger, liquidation or sale of substantially all of the assets of the Company.

51
<PAGE> 55

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of May 31, 1996 by (i)
each person or entity who is known by the Company to beneficially own 5% or more
of the Company's voting capital stock, (ii) each of the executive officers named
in the Summary Compensation Table, (iii) each of the Company's directors and
(iv) all of the Company's directors and executive officers as a group.

<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
------------------------------ ------------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OF BENEFICIALLY SHARES OF BENEFICIALLY
NAME OF BENEFICIAL OWNER COMMON STOCK OWNED COMMON STOCK OWNED
- -------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Vestar Equity Partners, L.P.(2)....... 3,400,000 42.50% 4,303,571(3) 28.1%
245 Park Avenue
New York, N.Y. 10017
Cabot CSC Corporation(4).............. 3,400,000 42.50% 4,303,571(5) 28.1%
75 State Street, 13th Floor
Boston, MA 02109
John D. Curtin, Jr.................... 396,000 4.95% 396,000 2.6%
Albert F. Young, Jr. ................. 180,000 2.25% 180,000 1.2%
Bryan J. Carey........................ 120,000 1.50% 120,000 *
James D. Hall......................... 84,000 1.05% 84,000 *
Daniel P. O'Connor.................... 84,000 1.05% 84,000 *
Norman W. Alpert(6)................... 3,400,000 42.50% 4,303,571(3) 28.1%
Daniel S. O'Connell(6)................ 3,400,000 42.50% 4,303,571(3) 28.1%
Arthur J. Nagle(6).................... 3,400,000 42.50% 4,303,571(3) 28.1%
Kenyon C. Gilson(7)................... 3,400,000 42.50% 4,303,571(5) 28.1%
Margaret J. Hanratty(7)............... 3,400,000 42.50% 4,303,571(5) 28.1%
John W. Priesing...................... 8,000 * 8,000 *
Samuel L. Hayes, III.................. 0 0 0 0
Directors and executive officers as a
group (16 persons)(8)............... 1,200,000 15.00% 1,200,000 7.9%
</TABLE>

- ---------------
* Less than one percent.

(1) Assumes that the Underwriters' over-allotment option is not exercised.

(2) The general partner of Vestar is Vestar Associates L.P., a limited
partnership whose general partner is Vestar Associates Corporation
("V.A.C."). In such capacity, V.A.C. exercises sole voting and investment
power with respect to all of the shares held of record by Vestar. Messrs.
Alpert, O'Connell and Nagle, who are directors of the Company, are
affiliated with Vestar in the capacities described under
"Management -- Directors and Executive Officers" and are stockholders of
V.A.C. Individually, no stockholder, director or officer of V.A.C. is deemed
to have or share such voting or investment power within the meaning of Rule
13d-3 under the Exchange Act. Accordingly no part of the shares of Common
Stock owned of record by Vestar is beneficially owned by Messrs. Alpert,
O'Connell or Nagle or any other stockholder, director or officer of V.A.C.

(3) Vestar has agreed, effective upon the consummation of this Offering, to
exchange $12.65 million of Redeemable Preferred Stock, including $1.4
million of accrued dividends since July 1995, for 903,571 shares of Common
Stock (based on an exchange price equal to the assumed initial public
offering price of the Common Stock in the Offering).

(4) The board of directors of Old Cabot Safety Corporation controls the voting
and investment of the shares of Common Stock held by Old Cabot Safety
Corporation. Old Cabot Safety Corporation is a wholly-owned subsidiary of
Cabot. Cabot appoints the directors of Old Cabot Safety Corporation and
exercises ultimate voting and investment power with respect to all

52
<PAGE> 56

shares held of record by Old Cabot Safety Corporation. Cabot is a publicly
held company and, accordingly, no single stockholder, director or officer of
Cabot is deemed to have or share such voting or investment power within the
meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of the
shares of Common Stock owned of record by Old Cabot Safety Corporation is
beneficially owned by any stockholder, director or officer of Cabot.

(5) Cabot has agreed, effective upon the consummation of this Offering, to
exchange $12.65 million of Redeemable Preferred Stock, including $1.4
million of accrued dividends since July 1995, for 903,571 shares of Common
Stock (based on an exchange price equal to the initial public offering price
of the Common Stock in the Offering).

(6) Messrs. Alpert, O'Connell and Nagle are affiliated with Vestar in the
capacities described under "Management -- Directors and Executive officers."
Ownership of Common Stock for these individuals includes 3,400,000 shares
(4,303,571 shares after giving effect to the Offering) of Common Stock
included in the above table beneficially owned by Vestar, of which such
persons disclaim beneficial ownership. Each such person's business address
is c/o Vestar Equity Partners, L.P. at the address set forth above.

(7) Mr. Gilson and Ms. Hanratty are affiliated with Cabot, the parent of Old
Cabot Safety Corporation, in the capacities described under "Directors and
Executive Officers." Ownership of Common Stock for these individuals
includes 3,400,000 shares (4,303,571 shares after giving effect to the
Offering) of Common Stock included in the above table beneficially owned by
Old Cabot Safety Corporation, of which such persons disclaim beneficial
ownership. Each such person's business address is c/o Cabot CSC Corporation
at the address set forth above.

(8) Cabot, Vestar, the Management Investors and John W. Priesing have entered
into a Stockholders' Agreement, the terms of which are described more fully
under "Certain Relationships and Related Transactions -- Stockholders'
Agreement." Does not include 80,000 shares of Common Stock held by
Management Investors who are not executive officers.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

THE FORMATION ACQUISITION

The Formation Acquisition was consummated on July 11, 1995, and involved
aggregate consideration of $206.1 million including certain post-closing
adjustments, consisting of (i) the payment to subsidiaries of Cabot of $169.2
million in cash, (ii) the assumption by the Company of approximately $4.8
million in existing indebtedness of Cabot and a subsidiary of Cabot and (iii)
the issuance by the Company of equity, valued at $31.0 million, to a subsidiary
of Cabot. The sources for such consideration and the related fees and expenses
were (1) borrowings of $47.5 million under the Senior Bank Facilities, (2) the
proceeds of the sale of $100 million principal amount of Subordinated Notes, (3)
the above-mentioned assumption of $4.8 million of indebtedness and (4) the
issuance of an aggregate of $45.0 million of Redeemable Preferred Stock and
8,000,000 shares of Common Stock. Vestar invested cash in the amount of $31.0
million in the Company and received $22.5 million of Redeemable Preferred Stock
and 3,400,000 shares of Common Stock. A subsidiary of Cabot received $22.5
million of Redeemable Preferred Stock and 3,400,000 shares of Common Stock in
exchange for assets contributed to the Company. The Management Investors
invested $3.0 million through a combination of cash and promissory notes and
purchased 1,200,000 shares of Common Stock. Dividends on the Redeemable
Preferred Stock accrue, whether or not declared and whether or not funds are
legally available for the payment of such dividends, at an annual rate of 12.5%
compounded daily. At the option of the Company, dividends may be paid in cash or
in additional shares of Redeemable Preferred Stock. Subject to certain
exceptions, shares of Redeemable Preferred Stock are redeemable at any time at
the option of the Company at a redemption price equal to the actual or implied
purchase price thereof plus accrued dividends through the date of redemption.
The Subordinated Notes are unsecured obligations of the Subsidiary, ranking
subordinate in right of payment to all senior indebtedness of the Subsidiary,
are

53
<PAGE> 57

guaranteed on a subordinated basis by Aearo Corporation, mature on July 15, 2005
and bear interest at the rate of 12.5% per annum, payable semi-annually on each
January 15 and July 15. The Subordinated Notes are redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after July 15,
2000, upon not less than 30 nor more than 60 days' notice, at redemption prices
(expressed as percentages of the principal amount thereof) ranging from 106.250%
in the year 2000 to 100% in the year 2004 and thereafter, plus accrued interest
to the date of redemption. At any time on or prior to July 15, 1998, the Company
may, at its option, use the net cash proceeds of one or more equity offerings to
redeem up to $35 million aggregate principal amount of the Subordinated Notes at
a redemption price of 112.5% of the principal amount thereof, plus accrued
interest to the date of redemption; provided that at least $65 million of
Subordinated Notes remain outstanding immediately after each such redemption.

The Company is party to an asset transfer agreement dated as of June 13,
1995 (the "Asset Transfer Agreement") with Cabot and its subsidiaries, Old Cabot
Safety Corporation, Cabot Safety Limited, and Cabot Canada Ltd. Pursuant to the
Asset Transfer Agreement, the following transfers of assets and assumptions of
liabilities occurred on July 11, 1995: (i) certain assets of Old Cabot Safety
Corporation valued at $50.0 million were transferred to Aearo Corporation, and
such assets were immediately contributed by Aearo Corporation to the Subsidiary,
(ii) a newly-formed Delaware subsidiary (the "Delaware Subsidiary") of the
Subsidiary acquired certain intangible assets of Old Cabot Safety Corporation
and the capital stock of certain foreign subsidiaries of Old Cabot Safety
Corporation through which it conducts its business in such jurisdictions, (iii)
a newly-formed United Kingdom subsidiary of the Delaware Subsidiary acquired the
assets and assumed the liabilities of Cabot Safety Limited, (iv) a newly-formed
Canadian subsidiary of the Delaware Subsidiary acquired the assets and assumed
the liabilities of Cabot Canada Ltd. to the extent the same are related to its
safety products business and (v) the Subsidiary acquired the remaining assets
and assumed the remaining liabilities of Old Cabot Safety Corporation that
constitute its Safety Products and Specialty Composites operating units, in each
case subject to certain limited exceptions including, among other things,
certain indebtedness, pending and threatened litigation and pre-closing income
taxes. The Asset Transfer Agreement contained customary representations,
warranties and covenants. Cabot and certain of its subsidiaries, on the one
hand, and the Company on the other, also agreed to indemnify and hold each other
and their affiliates harmless against certain breaches of representations or
covenants and certain other liabilities. The Company has the right to pay an
annual fee of $400,000 to Old Cabot Safety Corporation, and has elected to make
this payment, with the result that Old Cabot Safety Corporation will retain
responsibility and liability for, and indemnify the Company against, certain
legal claims alleged to arise out of the use of respirators manufactured prior
to July 1995. The Company has the right to discontinue the payment of such
annual fee at any time, in which case the Company will assume responsibility for
and indemnify Cabot and Old Cabot Safety Corporation with respect to such
claims.

The Company intends to use the net proceeds from the Offering to redeem
$12.65 million of outstanding Redeemable Preferred Stock from each of Cabot and
Vestar, including $1.4 million of accrued dividends since July 1995, and $35
million principal amount of Subordinated Notes at a redemption price of
approximately $39.4 million, plus accrued and unpaid interest. Each of Cabot and
Vestar have agreed, effective upon the consummation of the Offering, to exchange
the balances of their Redeemable Preferred Stock for shares of Common Stock at
an exchange price equal to the initial public offering price of the Common Stock
in the Offering. See "Use of Proceeds."

STOCKHOLDERS' AGREEMENT

Cabot, Vestar, the Management Investors, Mr. Priesing and Mr. Hayes are
parties to the Stockholders' Agreement entered into in connection with the
Formation Acquisition, which provides for, among other things, the matters
described below.

DRAG-ALONG RIGHTS. Subject to certain limitations, each party is
obligated, in connection with an offer by a third party to Vestar to purchase
all of the outstanding shares of Common Stock, to

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transfer all of its shares of Common Stock to such third party on the terms of
the offer accepted by Vestar.

ELECTION OF DIRECTORS. Subject to certain requirements, each party agreed
to vote all of the Common Stock owned or held of record by such party so as to
elect to the Board of Directors (i) three designees of Vestar, (ii) two
additional designees of Vestar who are not partners, officers or employees of
any of Vestar or its affiliates, (iii) two designees of Cabot and (iv) two
designees of the Management Investors. See "Management -- Directors and
Executive Officers."

OTHER VOTING MATTERS. Each party agreed that so long as the drag-along
rights described above are in effect, such party will vote all of his Common
Stock in favor of adopting and approving the following actions (but only if
adopted and approved by the Board of Directors): (a) any merger or consolidation
involving the Company and (b) any amendment to the Company's Certificate of
Incorporation whereby such amendment does not adversely affect such stockholder
in a manner different from that in which any other stockholder is affected. In
addition, so long as the voting agreements providing for the election of
directors remain in effect, the parties agreed not to vote to approve, ratify or
adopt any amendment to the Bylaws of the Company unless such amendment is
expressly authorized under the Stockholders' Agreement or recommended by the
Board of Directors.

TERMINATION. The Stockholders' Agreement will terminate as to any Common
Stock, subject to certain limitations, on the date such Common Stock is sold in
a public offering or pursuant to Rule 144. The rights of Vestar will terminate
under the Stockholders' Agreement when Vestar and its affiliates own no Common
Stock, common stock equivalents or Redeemable Preferred Stock. The rights of
Cabot under the Stockholders' Agreement will terminate on the earliest date when
Cabot or its affiliates own no Common Stock, common stock equivalents or
Redeemable Preferred Stock.

REGISTRATION RIGHTS. The Stockholders' Agreement also provides for
registration rights with respect to the Common Stock held by the parties. See
"Shares Eligible for Future Sale -- Registration Rights."

OTHER RELATIONSHIPS

TRANSACTION FEE. Upon consummation of the Formation Acquisition, the
Company paid to Vestar an investment banking fee of approximately $2.05 million
plus out of pocket expenses for Vestar's services in structuring the transaction
and providing financial advice in connection therewith. The Company also paid on
Cabot's behalf to Merrill Lynch & Co. an investment banking fee of approximately
$1.1 million plus out of pocket expenses of Cabot of approximately $250,000
incurred in connection with the Formation Acquisition.

MANAGEMENT ADVISORY AGREEMENT. In connection with the Formation
Acquisition, the Company became a party to a Management Advisory Agreement with
Vestar and Cabot (the "Management Advisory Agreement"), pursuant to which the
Company was obligated to pay an annual management fee, to be shared by Cabot and
Vestar, in an aggregate amount with respect to each fiscal year equal to the
greater of (i) $400,000 and (ii) 1.25% of the consolidated net income of the
Company before cash interest, taxes, depreciation and amortization for such
fiscal year to be shared by Cabot and Vestar based on their relative equity
ownership of the Company. Effective upon consummation of the Offering, Cabot,
Vestar and the Company agreed to terminate the Management Advisory Agreement in
consideration of a $1.25 million one time payment to be shared equally by Vestar
and Cabot. Each of Vestar and Cabot received $44,000 pursuant to the Management
Advisory Agreement with respect to fiscal 1995 and $100,000 with respect to the
first six months of fiscal 1996. Messrs. Alpert, O'Connell and Nagle, three of
the directors of the Company, are affiliated with Vestar in the capacities
described under "Management -- Directors and Executive Officers" and,
accordingly, benefit from any payments received by Vestar. Mr. Gilson and Ms.
Hanratty, two of the directors for the Company, are affiliated with Cabot in the
capacities described under "Management -- Directors and Executive Officers" and,
accordingly, benefit indirectly from any payments received by Cabot.

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MANAGEMENT LOANS. The Company has loaned approximately $934,000 to certain
Management Investors, in order to provide such Management Investors with funds
to be applied to a portion of the purchase price of the Common Stock purchased
by such Management Investors in connection with the Formation Acquisition. Such
loans (i) are secured by the Common Stock purchased with the proceeds thereof,
(ii) have a term of between 5 and 10 years, (iii) bear interest at an annual
rate of 7%, and (iv) are subject to mandatory prepayment in the event the
employment of such Management Investor terminates. At March 31, 1996, amounts
outstanding under such loans to Messrs. Young, Carey, O'Connor, Hall, Mallitz,
and Tremallo were $157,500, $100,000, $81,000, $115,000, $97,380 and $64,000,
respectively.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The authorized capital stock of the Company upon completion of the Offering
will consist of 50,000,000 shares of Common Stock, of which 15,307,142 shares
will be issued and outstanding, and shares of undesignated preferred
stock issuable in one or more series by the Board of Directors ("Preferred
Stock"), of which no shares will be issued and outstanding, after giving effect
to the Offering and the Exchange Transaction. See "Use of Proceeds." The
following summary description of the capital stock of the Company is qualified
in its entirety by reference to the Company's Second Amended and Restated
Certificate of Incorporation, as amended (the "Certificate"), and Amended and
Restated By-laws (the "By-laws"), copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.

COMMON STOCK. The holders of the Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders and are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred Stock
with a dividend preference over the Common Stock could adversely affect the
dividend rights of holders of the Common Stock. Holders of the Common Stock are
not entitled to cumulative voting rights. Therefore, the holders of a majority
of the shares voted in the election of directors can elect all of the directors
then standing for election, subject to any voting rights of the holders of any
then outstanding Preferred Stock. The holders of the Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All
outstanding shares of the Common Stock, including the shares offered hereby,
are, or will be upon completion of the Offering, fully paid and non-assessable.

The Certificate and By-laws provide, subject to the rights of the holders
of any Preferred Stock then outstanding, that the number of Directors shall be
fixed by the Board of Directors. The directors, other than those who may be
elected by the holders of any Preferred Stock, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-year
term. Subject to (i) any rights of the holders of any Preferred Stock to elect
directors and to remove any director whom the holders of any Preferred Stock had
the right to elect and (ii) to the right of Vestar, Cabot and the Management
Investors pursuant to the Stockholders' Agreement to nominate directors and to
remove with or without cause any director whom Vestar, Cabot or the Management
Investors, respectively, had the right to nominate, any director of the Company
may be removed from office only with cause and by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of directors.

UNDESIGNATED PREFERRED STOCK. The Board of Directors of the Company is
authorized, without further action of the stockholders, to issue shares of
Preferred Stock in one or more series and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights of
the shares of each series and any qualifications, limitations and restrictions
thereon as set forth in the Certificate. Any such Preferred Stock issued by the
Company may rank prior to the Common

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Stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of Common Stock.

The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding Common
Stock.

CERTAIN PROVISIONS OF THE SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BY-LAWS

A number of provisions of the Company's Certificate and By-laws concern
matters of corporate governance and the rights of stockholders. Certain of these
provisions, as well as the ability of the Board of Directors to issue shares of
Preferred Stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the Board of Directors, including
takeovers which stockholders may deem to be in their best interests. To the
extent takeover attempts are discouraged, temporary fluctuations in the market
price of the Company's Common Stock, which may result from actual or rumored
takeover attempts, may be inhibited. These provisions, together with the
classified Board of Directors and the ability of the Board to issue Preferred
Stock without further stockholder action, also could delay or frustrate the
removal of incumbent Directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders of the
Company. These provisions also could discourage or make more difficult a merger,
tender offer or proxy contest, even if favorable to the interests of
stockholders and could depress the market price of the Common Stock. The Board
of Directors believes that these provisions are appropriate to protect the
interests of the Company and all of its stockholders. The Board of Directors has
no present plans to adopt any other measures or devices which may be deemed to
have an "anti-takeover effect."

MEETINGS OF STOCKHOLDERS. The Company's By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law and subject to the rights of the holders of any
Preferred Stock then outstanding. The Company's By-laws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted upon at that special meeting unless otherwise provided by law. In
addition, the Company's By-laws set forth certain advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.

NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.

INDEMNIFICATION AND LIMITATION OF LIABILITY. The By-laws of the Company
provide that directors and officers of the Company shall be, and in the
discretion of the Board of Directors non-officer employees may be, indemnified
by the Company to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of the Company.
The By-laws of the Company also provide that the right of directors and officers
to indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any statute, charter,
by-law, agreement, vote of stockholders or otherwise. The Certificate contains a
provision permitted by Delaware law that generally eliminates the personal
liability of Directors for monetary damages for breaches of their fiduciary
duty, including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the Delaware General Corporation Law or

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obtained an improper personal benefit. This provision does not alter a
Director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.

AMENDMENT OF THE CERTIFICATE. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and (with
certain exceptions) thereafter approved by a majority of the shares present in
person or represented by proxy and entitled to vote on such amendment.

AMENDMENT OF BY-LAWS. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority of
the Directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the shares present in person or
represented by proxy and entitled to vote on such amendment or repeal at an
annual meeting of stockholders or a special meeting called for such purpose
unless the Board of Directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of shares present in
person or represented by proxy and entitled to vote on such amendment or repeal.

STATUTORY BUSINESS COMBINATION PROVISION

Upon completion of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
charter amendment shall not become effective until 12 months after the date it
is adopted. Neither the Certificate nor the By-laws contains any such exclusion.

TRANSFER AGENT AND REGISTRAR

Equiserve Limited Partnership, an affiliate of The First National Bank of
Boston, will be the transfer agent and registrar for the Common Stock.

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DESCRIPTION OF SENIOR BANK FACILITIES

The Senior Bank Facilities, pursuant to documentation that was amended and
restated as of May 30, 1996, consist of (a) a secured term loan facility
consisting of an A tranche and a B tranche providing for up to $90 million of A
term loans and $50 million of B term loans (collectively, the "Term Loans"); a
portion of the A tranche is denominated in an equivalent amount of foreign
currencies and (b) a secured revolving credit facility (the "Revolving Credit
Facility") providing for up to $25 million of revolving loans (a portion of
which may be denominated in foreign currencies) for general corporate purposes
and, as to $15 million thereof, to finance permitted acquisitions. As part of
the Revolving Credit Facility, the Senior Bank Facilities provide for the
issuance of letters of credit in an aggregate face amount of up to $5 million.
The full amount of the Term Loans and no advances under the Revolving Credit
Facility were outstanding immediately after giving effect to the Peltor
Acquisition. The Term Loans will amortize quarterly over a seven-year period.
Amounts repaid or prepaid in respect of the Term Loans may not be reborrowed.
Loans and letters of credit under the Revolving Credit Facility will be
available at any time prior to the maturity date of the Senior Bank Facilities
(as amended and restated).

The Company will be required to make mandatory prepayments of loans, and
letters of credit will be mandatorily reduced, in amounts and at times subject
to exceptions to be agreed upon, (a) in respect of 75% of consolidated excess
cash flow, or 50% if there is no default and if a certain leverage ratio is met
(after giving effect to debt service on the Senior Bank Facilities and the
Subordinated Notes), (b) in respect of 100% of the net cash proceeds from the
sale or other disposition of certain assets by the Company and (c) in respect of
100% of the net cash proceeds from the issuance of debt or equity securities by
the Company, provided : (i) that the Company may may make permitted acquisitions
and capital expenditures, subject to certain dollar limits; (ii) that the
proceeds received from an offering of Common Stock occurring on or prior to
December 31, 1996 may be used either to pay down Subordinated Notes pursuant to
the clawback provisions thereof or the Redeemable Preferred Stock of Aearo
Corporation, so long as the first $25 million of such proceeds are used either
to redeem the Subordinated Notes or to repay the Term Loans under the Senior
Bank Facilities; (iii) that with respect to any other equity issuance, $20
million may be used for permitted acquisitions; (iv) that the Company may incur
certain permitted indebtedness subordinated to the Senior Bank Facilities of up
to $25 million; and (v) that up to $15 million in excess cash flow may be used
to repay the Subordinated Notes. At the Company's option, loans may be
voluntarily prepaid, and revolving loan commitments and letter of credit
outstandings may be permanently reduced, in whole or in part, at any time in
certain minimum amounts.

At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities are either an adjusted rate based on the London Interbank
Offered Rate plus a margin of (x) 2.25% in the case of A Term Loans and
Revolving Loans and (y) 2.75% in the case of B Term Loans, or the Base Rate (as
defined herein) plus a margin of (x) 1.00% in the case of A Term Loans and
Revolving Loans and (y) 1.50% in the case of B Term Loans (in the case of A Term
and Revolving Loans, these margins shall be decreased if the Company, on a
consolidated basis, achieves certain leverage ratios). The Base Rate is the
higher of Bankers Trust Company's announced prime lending rate and the Overnight
Federal Funds rate plus 0.50%. The Company must pay certain fees in connection
with the Senior Bank Facilities, including a commitment fee (ranging from 0.375%
to 0.50%) on the undrawn portion of the commitments in respect of the Revolving
Credit Facility based upon the Company's leverage ratio, and fees relating to
the issuance of letters of credit.

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charge coverage ratio, a minimum interest coverage ratio, a maximum leverage
ratio and a maximum capital expenditures test. The Senior Bank Facilities also
contain provisions that prohibit modifications to the terms of the Subordinated
Notes and prohibit the Company from refinancing the Subordinated Notes, in each
case, without the consent of the lenders under the Senior Bank Facilities or as
otherwise provided for therein.

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon completion of the Offering and after giving effect to the Exchange
Transaction, the Company will have a total of 9,807,142 shares of Common Stock
outstanding that will be "restricted securities" as that term is defined by Rule
144 (the "Restricted Shares"). This amount excludes shares that may be
issuable upon exercise of options granted under the Stock Option Plans. The
Restricted Shares were issued by the Company in private transactions in reliance
upon exemptions from registration under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 153,071 shares upon completion
of the Offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement. The Securities and Exchange Commission is currently
contemplating amendments to Rule 144 which, if enacted, would permit the
Company's current stockholders to sell their shares of Common Stock as early as
July 1996.

The Company's executive officers and Directors, Vestar, Cabot and certain
other stockholders of the Company (who in the aggregate will hold 9,807,142
Restricted Shares upon completion of the Offering) have agreed, subject to
certain limited exceptions, not to sell or offer to sell or otherwise dispose of
any shares of Common Stock currently held by them, any right to acquire any
shares of Common Stock or any securities exercisable for or convertible into any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. The representatives of the Underwriters may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, the Company has
agreed that for a period of 180 days after the date of this Prospectus it will
not, without the prior written consent of the representatives of the
Underwriters, issue, offer, sell, grant options to purchase or otherwise dispose
of any equity securities or securities convertible into or exchangeable for
equity securities except for shares of Common Stock offered hereby and shares
issued pursuant to the Stock Option Plan.

Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the

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Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors--No Prior Market for Common Stock and Possible
Volatility of Stock Prices."

REGISTRATION RIGHTS

Subject to certain limitations, upon a written request by Vestar or a
written request by Cabot (but only in the event that a period of one year or
more has elapsed since a public offering without Cabot having an opportunity to
participate), the Company will use its best efforts to effect the registration
of all or part of Common Stock owned by such requesting stockholder, provided
that (i) the Company will not be required to effect more than one registration
within any 360 day period and (ii) neither Vestar nor Cabot will be entitled to
request more than two registrations. Under certain circumstances, if the Company
proposes to register shares of Common Stock, it will, upon the written request
of any stockholder, use all reasonable efforts to effect the registration of
such stockholders' Common Stock.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Goodwin, Procter &
Hoar LLP, Boston, Massachusetts. Ropes & Gray, Boston, Massachusetts, will pass
upon certain legal matters relating to the Offering for the Underwriters.

EXPERTS

The combined statement of operations of Aearo Inc. for the period ended
July 11, 1995, the consolidated balance sheet of Aearo Corporation as of
September 30, 1995 and the consolidated statements of operations, cash flows and
stockholders' equity for the period ended September 30, 1995 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and is included herein in reliance upon the
authority of said firm as experts in giving said reports.

The combined balance sheet as of September 30, 1994 and the combined
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1994 and 1993 included in this Prospectus and elsewhere in
the Registration Statement, to the extent and for the periods indicated in their
reports, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P. given on the authority of that firm as experts in accounting and
auditing.

The consolidated financial statements of Peltor Holdings AB included in
this Prospectus, to the extent and for the periods indicated in their report,
have been audited by Deloitte & Touche AB Sweden, independent auditors, and are
included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Securities and Exchange Commission (the
"Commission"), this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any agreement or other document referred to are
not necessarily complete. With respect to each such agreement or other document
filed as an exhibit to the Registration Statement,

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reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in all respects by
such reference.

The Registration Statement, including the exhibits and schedules thereto,
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and
at the following regional offices of the Commission: Seven World Trade Center,
New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the public
reference section of the Commission at its Washington address upon payment of
the prescribed fees. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, and such
electronic versions are available to the public at the Commission's World-Wide
Web Site, http://www.sec.gov.

The Company is currently subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the Commission.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.

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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Consolidated Financial Statements............. F-2
Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
September 30, 1995................................................................ F-3
Unaudited Pro Forma Consolidated Statement of Operations the Six Months Ended
March 31, 1996.................................................................... F-4
Unaudited Pro Forma Consolidated Statement of Operations for the Six Months Ended
March 31, 1995.................................................................... F-5
Notes to Unaudited Pro Forma Consolidated Statements of Operations................ F-6
Unaudited Pro Forma Consolidated Balance Sheet -- March 31, 1996.................. F-8
Notes to Unaudited Pro Forma Consolidated Balance Sheet........................... F-9
2. AEARO CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants -- Arthur Andersen LLP.................. F-10
Report of Independent Accountants -- Coopers & Lybrand L.L.P...................... F-12
Balance Sheets -- As of September 30, 1995 and 1994 and March 31, 1996
(unaudited)....................................................................... F-13
Statements of Operations for the Periods Ended September 30, 1995, July 11, 1995
and the Years Ended September 30, 1994 and 1993 and the Six Months Ended March 31,
1996 and 1995 (unaudited)......................................................... F-14
Statements of Stockholders' Equity for the Periods Ended March 31, 1996
(unaudited), September 30, 1995, July 11, 1995 and the Years Ended September 30,
1994 and 1993..................................................................... F-15
Statements of Cash Flows for the Periods Ended September 30, 1995, July 11, 1995
and the Years Ended September 30, 1994 and 1993 and the Six Months Ended March 31,
1996 and 1995 (unaudited)......................................................... F-16
Notes to Financial Statements..................................................... F-17
3. PELTOR HOLDING AB CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report...................................................... F-37
Consolidated Balance Sheets, December 31, 1995 and 1994........................... F-38
Consolidated Income Statements for the Years Ended December 31, 1995, 1994 and
1993.............................................................................. F-39
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993............................................................... F-40
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993.......................................................................... F-41
Notes to Consolidated Financial Statements........................................ F-42
</TABLE>

F-1
<PAGE> 67

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements of the
Company for the fiscal year ended September 30, 1995 and the six months ended
March 31, 1996 and 1995 were derived from the Company's historical financial
statements included elsewhere in this Prospectus, adjusted to give effect to (i)
the Formation Acquisition and the financing thereof, (ii) the Eastern
Acquisition and related financing, (iii) the Peltor Acquisition and related
financing (collectively, the Acquisitions), (iv) the Offering and (v) the
Exchange Transaction. The pro forma balance sheet data give effect to the
Offering, the Exchange Transaction and the Acquisitions and the financing
thereof as if they had occurred on March 31, 1996. The pro forma consolidated
statements of operations of the Company for the six months ended March 31, 1996
and for the year ended September 30, 1995 reflect the Offering, the Exchange
Transaction and the Acquisitions as if they had occurred on October 1, 1994.

The pro forma consolidated financial statements are provided for
informational purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred had the Offering, the
Exchange Transaction and the Acquisitions been consummated on the dates, or at
the beginning of the period, for which the consummation of the Offering, the
Exchange Transaction and the Acquisitions is being given effect, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments do not reflect any operating efficiencies and cost savings
which the Company believes are achievable or the cost of achieving any such
operating efficiencies and cost savings. The pro forma adjustments do include
the Company's estimate of incremental costs necessary to operate the Company on
a stand-alone basis as a result of the Formation Acquisition.

The unaudited pro forma consolidated financial statements have been
prepared using the purchase method of accounting, whereby the total cost of the
Acquisitions will be allocated to the tangible and intangible assets acquired
and liabilities assumed based upon their respective fair values at the effective
date of the acquisitions. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the pro forma consolidated financial statements are preliminary and
subject to revision.

The following unaudited pro forma consolidated financial statements have
been prepared from, and should be read in conjunction with, the Company's and
Peltor's historical consolidated financial statements, including the notes
thereto, included elsewhere in this Prospectus.

F-2
<PAGE> 68

AEARO CORPORATION

<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>

PREDECESSOR SUCCESSOR PELTOR YEAR EASTERN YEAR
OCTOBER 1, JULY 12, 1995 TO ENDED ENDED
1994 TO SEPTEMBER 30, DECEMBER 31, NOVEMBER 30, PRO FORMA PRO FORMA
JULY 11, 1995 1995 1995 1995 ADJUSTMENTS AS ADJUSTED
------------- ---------------- ------------ ------------ ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
Net Sales............................ $154,712 $47,900 $40,487 $13,813 $ -- $ 256,912
Cost of Sales........................ 87,674 29,319 19,759 10,114 (1,041) 145,825
-------- ------- ------- ------- -------- -----------
Gross profit...................... 67,038 18,581 20,728 3,699 1,041 111,087
-------- ------- ------- ------- -------- -----------
Operating Expenses:
Selling and administrative.......... 47,149 13,146 10,785 3,092 (808) 73,364
Research and technical service...... 2,273 551 307 -- -- 3,131
Amortization........................ 4,361 838 -- -- 3,397 8,596
Other charges (income), net......... (233) 70 (75) 41 -- (197)
-------- ------- ------- ------- -------- -----------
Operating profit.................. 13,488 3,976 9,711 566 (1,548) 26,193
Interest Expense, net................ 5,673 4,135 1 5 12,122 21,936
-------- ------- ------- ------- -------- -----------
Income (loss) before income
taxes........................... 7,815 (159) 9,710 561 (13,670) 4,257
Provision (Benefit) for Income
Taxes............................... 3,009 425 2,662 41 (3,381) 2,756
-------- ------- ------- ------- -------- -----------
Net income (loss)................. 4,806 (584) 7,048 520 (10,289) 1,501
Preferred Stock Dividend Accrued..... -- 1,283 -- -- (1,283) --
-------- ------- ------- ------- -------- -----------
Earnings (Loss) Applicable to Common
Shareholders........................ $ 4,806 $(1,867) $ 7,048 $ 520 $ (9,006) $ 1,501
======== ======= ======= ======= ======== ===========
Net Income (Loss) per Share (Note
2).................................. $ .10
===========
Weighted average number of common
shares outstanding.................. 15,307,142
-----------
</TABLE>

F-3
<PAGE> 69

AEARO CORPORATION

<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>

SUCCESSOR PELTOR EASTERN
OCTOBER 1, OCTOBER 1, OCTOBER 1, 1995
1995 TO 1995 TO TO DECEMBER 31, PRO FORMA PRO FORMA
MARCH 31, 1996 MARCH 31, 1996 1995 ADJUSTMENTS AS ADJUSTED
-------------- -------------- --------------- ----------- -----------
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $112,716 $22,645 $3,035 $ -- $ 138,396
Cost of Sales..................................... 62,340 11,327 2,320 190 76,177
-------- ------- ------ ------- -----------
Gross profit................................... 50,376 11,318 715 (190) 62,219
-------- ------- ------ ------- -----------
Operating Expenses:
Selling and administrative....................... 33,354 6,474 688 -- 40,516
Research and technical service................... 1,593 124 -- -- 1,717
Amortization expense............................. 1,956 -- -- 2,181 4,137
Other charges (income), net...................... (3) (448) (3) -- (454)
-------- ------- ------ ------- -----------
Operating profit............................... 13,476 5,168 30 (2,371) 16,303
Interest Expense, net............................. 9,068 1 1 1,544 10,614
-------- ------- ------ ------- -----------
Income (loss) before income taxes.............. 4,408 5,167 29 (3,915) 5,689
Provision (Benefit) for Income Taxes.............. 1,938 1,655 12 (927) 2,678
-------- ------- ------ ------- -----------
Net income (loss).............................. 2,470 3,512 17 (2,988) 3,011
Preferred Stock Dividend Accrued.................. 3,033 -- -- (3,033) --
-------- ------- ------ ------- -----------
Earnings (Loss) Applicable to Common
Shareholders..................................... $ (563) $ 3,512 $ 17 $ 45 $ 3,011
======== ======= ====== ======= ===========
Net Income (Loss) per Share (Note 2).............. $ .20
===========
Weighted average number of common shares
outstanding...................................... 15,307,142
</TABLE>

F-4
<PAGE> 70

AEARO CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR PELTOR EASTERN
OCTOBER 1, OCTOBER 1, DECEMBER 1,
1994 TO 1994 TO 1994 TO MAY 31, PRO FORMA AS
MARCH 31, 1995 MARCH 31, 1995 1995 ADJUSTED
-------------- -------------- --------------- PRO FORMA ------------
ADJUSTMENTS
-----------
(NOTE 1)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $ 97,704 $ 20,625 $ 6,907 $ -- $ 125,236
Cost of Sales..................................... 55,182 10,964 5,057 1,589 72,792
------- ------- ------ -------- -----------
Gross profit................................... 42,522 9,661 1,850 (1,589) 52,444
------- ------- ------ -------- -----------
Operating Expenses:
Selling and administrative....................... 28,204 5,336 1,546 690 35,776
Research and technical service................... 1,585 163 -- -- 1,748
Amortization expense............................. 2,801 -- -- 1,547 4,348
Other charges (income), net...................... 12 79 23 -- 114
------- ------- ------ -------- -----------
Operating profit............................... 9,920 4,083 281 (3,826) 10,458
Interest Expense, net............................. 3,577 1 -- 7,216 10,794
------- ------- ------ -------- -----------
Income (loss) before income taxes.............. 6,343 4,082 281 (11,042) (336)
Provision (Benefit) for Income Taxes.............. 2,343 1,225 21 (2,888) 701
------- ------- ------ -------- -----------
Net income (loss).............................. 4,000 2,857 260 (8,154) (1,037)
Preferred Stock Dividend Accrued.................. -- -- -- -- --
------- ------- ------ -------- -----------
Earnings (Loss) Applicable to Common
Shareholders..................................... $ 4,000 $ 2,857 $ 260 $ (8,154) $ (1,037)
======= ======= ====== ======== ===========
Net Income (Loss) per Share (Note 2).............. $ (.07)
===========
Weighted average number of common shares
outstanding...................................... 15,307,142
</TABLE>

F-5
<PAGE> 71

AEARO CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995

(DOLLARS IN THOUSANDS)

(1) Pro forma adjustments to the consolidated statements of operations are
summarized in the following table and are described in the notes below:

Pro forma adjustments for the year ended September 30, 1995 are as follows:

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------
FORMATION
ACQUISITION PELTOR EASTERN OFFERING TOTAL
----------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Cost of sales........................... $(1,443) $ 357 $ 45 $ -- $(1,041)(a)
Selling and administrative.............. (808) -- -- -- (808 (b)/(c)
Amortization............................ (1,151) 4,177 371 -- 3,397(d)
Interest expense, net................... 8,733 7,809 601 (5,021) 12,122(e)
Preferred stock dividend accrued........ 4,903 -- -- (6,186) (1,283)(g)
</TABLE>

Pro forma adjustments for the six months ended March 31, 1996 are as
follows:

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
PELTOR EASTERN OFFERING TOTAL
------ ------- -------- -------
<S> <C> <C> <C> <C>
Cost of sales........................................ $ 179 $ 11 $ -- $ 190(a)
Amortization expenses................................ 2,088 93 -- 2,181(d)
Interest expense, net................................ 3,905 150 (2,511) 1,544(e)
Preferred stock dividend accrued..................... -- -- (3,033) (3,033)(g)
</TABLE>

Pro forma adjustments for the six months ended March 31, 1995 are as
follows:

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------
FORMATION
ACQUISITION PELTOR EASTERN OFFERING TOTAL
----------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Cost of sales............................ $ 1,388 $ 179 $ 22 $ -- $1,589(a)
Selling and administrative............... 690 -- -- -- 690 b)/(c)
Amortization............................. (727) 2,088 186 -- 1,547(d)
Interest expense, net.................... 5,522 3,905 300 (2,511) 7,216(e)
</TABLE>

- ---------------
(a) Adjustments reflect increases in depreciation resulting from the
preliminary purchase price allocation and an increase in the estimated
useful lives of the corresponding property in the case of the Formation
Acquisition.

The adjustment related to the Formation Acquisition for the year ended
September 30, 1995 also reflects the elimination of a nonrecurring increase
in cost of sales resulting from the preliminary purchase price allocation
which increased the estimated fair value of finished goods inventories by
$3,640 on October 1, 1994. This amount was recorded in cost of sales as the
acquired inventory was sold during the period ended September 30, 1995.

(b) Reflects the estimated increased costs (primarily insurance and other
administrative costs) to be incurred by the Company on a stand-alone basis
of $1,092 as a result of the Formation Acquisition for the year ended
September 30, 1995.

(c) Reflects the elimination of non-recurring charges of approximately $800 and
$1,100 related to taxes and penalties resulting from delinquency in the
remittance of value-added tax payments to the French government and the
termination of the Old Cabot Safety Corporation stock option plan,
respectively, for the year ended September 30, 1995.

(d) Reflects the adjustment to amortization expense resulting from the
preliminary purchase price allocations based on the estimated useful lives
of the related intangible assets. Pro forma amortization of intangible
assets for the Formation Acquisition is calculated based on estimated
useful lives which range from 20 to 25 years. Pro forma amortization of
intangible assets for Eastern and Peltor is calculated based on an
estimated useful life of twenty-five years. Amortization of goodwill is
calculated based on an estimated useful life of 25 years.

F-6
<PAGE> 72

AEARO CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995 -- (CONTINUED)

(e) Reflects interest expense on indebtedness incurred in connection with the
Acquisitions as if they had been completed on October 1, 1994.

The following table summarizes the Acquisition pro forma adjustments to
interest expense for the year ended September 30, 1995:

<TABLE>
<CAPTION>
FORMATION
ACQUISITION PELTOR EASTERN
----------- ------ -------
<S> <C> <C> <C>
Pro forma interest expense --
Senior secured revolving credit facility(i)........ $ 401 $ -- $ --
Senior secured term loan at 8.0%................... 2,808 7,226 601
Senior subordinated notes at 12.5%................. 9,750 -- --
Other third-party debt............................. 423 -- --
Amortization of debt issuance costs(ii)............ 1,024 583 --
------- ------ ----
Pro forma interest expense...................... 14,406 7,809 601
Historical interest expense..................... 5,673 -- --
------- ------ ----
Net interest expense adjustment............ $ 8,733 $7,809 $ 601
======= ====== ====
</TABLE>

(i) Amounts include a commitment fee of .5% of the total unused portion of
available credit.

(ii) The costs incurred that were associated with the Formation
Acquisition debt financing of $9,300 have been capitalized as
deferred charges and are being amortized over the assumed term of the
related debt -- five years for the Senior Secured Revolving Credit
Facility and Senior Secured Term Loan and ten years for the
Subordinated Notes. Costs related to the Peltor debt financing
totaling $3,500 were capitalized and are being amortized over the
allowed six year term of the related debt.

Interest expense adjustment related to the Offering represents the impact
of the early retirement of a portion of the Subordinated Notes and the
elimination of amortization of deferred financing costs.

(f) Income tax adjustments have been calculated using estimated statutory
income tax rates. The tax adjustments related to Eastern include amounts
necessary to reflect its historical tax provisions as if it were operated
as a C Corporation. The primary difference between the provision calculated
at statutory rates and the amount reflected in the pro forma statements is
attributable to nondeductible goodwill associated with the Peltor
Acquisition.

(g) All outstanding shares of Redeemable Preferred Stock, including accrued and
unpaid dividends, will be redeemed or exchanged for Common Stock in
connection with the Offering and Exchange Transaction. See "The Offering"
and "Use of Proceeds." Accordingly, the pro forma consolidated statements
of income (as adjusted) for the year ended September 30, 1995 and six
months ended March 31, 1996 and 1995 are adjusted to eliminate preferred
stock dividends.

(h) Pro forma adjustments do not reflect the effect of an extraordinary charge
to be recorded related to the early retirement of certain debt which will
be recorded in the period in which the the debt is repaid. The Company
expects to record an extraordinary charge of approximately $4,000, net of
tax, or $.26 per share, in the fourth quarter of fiscal 1996 when the debt
is paid consisting of redemption premium and write-off of related debt
issuance costs. The Company also expects to record a charge of
approximately $800, net of tax, or $.05 per share, in connection with the
termination of the Company's management advisory agreement with Vestar and
Cabot.

(2) Pro forma earnings per common share give effect to the pro forma adjustments
described above and to the issuance of 5,500,000 shares of Common Stock in
the Offering and the Exchange Transaction as if each such transaction had
occurred as of October 1, 1994.

F-7
<PAGE> 73

AEARO CORPORATION

<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996

(DOLLARS IN THOUSANDS)
<CAPTION>

COMPANY PELTOR PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 2,447 $ 6,273 $ (5,273) $ 3,447
Accounts receivable, net........................ 35,907 6,201 -- 42,108
Inventories..................................... 28,087 9,711 1,000 38,798
Deferred and prepaid expenses................... 3,075 882 -- 3,957
-------- -------- -------- --------
Total current assets......................... 69,516 23,067 (4,273) 88,310
Property, Plant and Equipment, net................ 54,111 8,924 2,500 65,535
Intangible Assets................................. 95,434 1,474 64,413 161,321
Other Assets...................................... 7,120 1 1,300 8,421
-------- -------- -------- --------
Total assets................................. $226,181 $ 33,466 $ 63,940 $323,587
======== ======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable................................... $ -- $ 9,915 $ (9,915) $ --
Current portion of long-term debt............... 7,039 -- -- 7,039
Accounts payable and accrued liabilities........ 32,133 4,741 3,250 40,124
U.S. and foreign income taxes................... 731 470 (3,100) (1,899)
-------- -------- -------- --------
Total current liabilities.................... 39,903 15,126 (9,765) 45,264
-------- -------- -------- --------
Long-Term Debt.................................... 149,073 1,443 48,975 199,491
-------- -------- -------- --------
Deferred Income Taxes............................. -- 710 -- 710
-------- -------- -------- --------
Other Long-Term Liabilities....................... 2,860 -- -- 2,860
-------- -------- -------- --------
Stockholders' Equity:
Preferred stock................................. -- -- -- --
Common stock.................................... 1 -- 1 2
Additional paid-in capital...................... 32,652 658 44,983 78,293
Retained earnings............................... 1,886 15,529 (20,254) (2,839)
Foreign currency translation adjustment......... (194) -- -- (194)
-------- -------- -------- --------
Total stockholders' equity................... 34,345 16,187 24,730 75,262
-------- -------- -------- --------
Total liabilities and stockholders' equity... $226,181 $ 33,466 $ 63,940 $323,587
======== ======== ======== ========
</TABLE>

See accompanying notes to unaudited pro forma consolidated balance sheet.

F-8
<PAGE> 74

AEARO CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996

(DOLLARS IN THOUSANDS)

<TABLE>
(1) Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet are summarized in the
following table and are described in the notes below:
<CAPTION>

PURCHASE PRICE
ALLOCATION/PELTOR TOTAL
FINANCING(A) OFFERINGS(B) ADJUSTMENTS
------------------- ------------ -----------
<S> <C> <C> <C>
Cash............................................... $ (5,273) $ -- $ (5,273)
Inventories........................................ 1,000 -- 1,000
Property, plant and equipment...................... 2,500 -- 2,500
Intangible assets.................................. 64,413 -- 64,413
Deferred charges................................... 3,500 (2,200) 1,300
Notes payable...................................... (9,915) -- (9,915)
Accrued liabilities................................ 2,000 1,250 3,250
U.S. and foreign income taxes...................... -- (3,100) (3,100)
Senior secured revolving credit facility........... 85,600 -- 85,600
Long-term loan..................................... 4,642 (6,267) (1,625)
Subordinated notes................................. -- (35,000) (35,000)
Additional paid-in capital......................... (658) 45,641 44,983
Retained earnings.................................. (15,529) (4,725) (20,254)
</TABLE>

<TABLE>
- ---------------
(a) Reflects the acquisition of assets and liabilities as follows:
<CAPTION>
<S> <C>
Cash paid to Peltor....................................................... $81,100
Acquisition costs......................................................... 4,500
-------
Total consideration and acquisition costs....................... 85,600
Historical Cost of Net Assets Acquired.................................... 16,187
-------
Excess of consideration paid over historical cost....................... $69,413
========
Allocation of Excess of Consideration Paid over Historical Cost:
Inventories............................................................. $ 1,000
Property, plant and equipment, net...................................... 2,500
Deferred financing costs................................................ 3,500
Intangible assets....................................................... 64,413
Accrued liabilities..................................................... (2,000)
-------
$69,413
========
</TABLE>

<TABLE>
- ---------------
(b) Reflects the offering proceeds and uses as follows:
<CAPTION>
<S> <C>
Proceeds:
Estimated Proceeds...................................................... $77,000
Less -- Offering costs and expenses..................................... (6,700)
-------
$70,300
========
Uses:
Preferred stock, including accrued dividends............................ $24,658
Repayment of Notes, including a prepayment penalty of $4,375............ 39,375
Repayment of Term Loans................................................. 6,267
-------
$70,300
========
</TABLE>

The Company will record an extraordinary loss of approximately $4,000 or
$.26 per share as a result of the prepayment penalty and write off of deferred
financing costs associated with the early redemption of a portion of the
Subordinated Notes and repayment of bank debt in the period in which the Notes
are redeemed and bank debt is repaid. The Company also expects to record a
$1,250 charge ($750 net of tax) in connection with the termination of its
management advisory agreement with Vestar and Cabot in the same quarter.

F-9
<PAGE> 75

After the 80 for 1 stock split and increased share authorization described
in Note 17 to Aearo Corporation's financial statements is effected, we expect to
be in a position to render the following report.

Arthur Andersen LLP

June 1, 1996

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Aearo Corporation:

We have audited the accompanying balance sheet of Aearo Corporation (a
Delaware corporation) as of September 30, 1995, and the related statements of
operations, stockholders' equity and cash flows for the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aearo Corporation as of
September 30, 1995, and the results of its operations and its cash flows for the
period then ended, in conformity with generally accepted accounting principles.

Boston, Massachusetts
December 29, 1995 (Except
for the matters discussed in
Note 17 as to which the
date is June , 1996)

F-10
<PAGE> 76

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Aearo Inc.:

We have audited the accompanying combined statement of operations,
stockholders' equity and cash flows of Aearo Inc. (the Company) as of July 11,
1995, and for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Aearo Inc.
for the period ended July 11, 1995, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
December 29, 1995

F-11
<PAGE> 77

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Stockholders of
Aearo Inc.

We have audited the accompanying combined balance sheet of Aearo Inc.,
formerly Cabot Safety Corporation (the "Predecessor") as of September 30, 1994
and the related combined statements of operations, cash flows, and stockholder's
equity for the fiscal years ended September 30, 1994 and 1993. These financial
statements are the responsibility of the Predecessor's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Predecessor as
of September 30, 1994, and the combined results of its operations and its cash
flows for the fiscal years ended September 30, 1994 and 1993, in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
October 26, 1994

F-12
<PAGE> 78

AEARO CORPORATION

<TABLE>
BALANCE SHEETS

(DOLLARS IN THOUSANDS)
<CAPTION>

SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
(PREDECESSOR (SUCCESSOR (SUCCESSOR
COMPANY) COMPANY) COMPANY)
----------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 2,020 $ 4,707 $ 2,447
Accounts receivable (net of reserve for doubtful
accounts of $1,016 in 1994, $1,221 in 1995 and
$1,165 at March 31, 1996)........................ 26,739 28,586 35,907
Inventories......................................... 27,985 25,914 28,087
Deferred and prepaid expenses....................... 816 2,830 3,075
-------- -------- --------
Total current assets........................ 57,560 62,037 69,516
-------- -------- --------
Property, Plant and Equipment, net.................... 32,448 53,069 54,111
Intangible Assets, net................................ 66,072 92,445 95,434
Other Assets.......................................... -- 10,712 7,120
Intercompany Balances Receivable...................... 15,073 -- --
-------- -------- --------
Total assets................................ $171,153 $218,263 $226,181
======== ======== ========
Current Liabilities:
Note payable to bank................................ 25,000 -- --
Current portion of long-term debt................... 167 5,837 7,039
Accounts payable and accrued liabilities............ 19,462 28,412 29,379
Accrued interest.................................... -- 3,090 2,754
U.S. and foreign income taxes....................... 5,691 262 731
Deferred income taxes............................... 735 -- --
-------- -------- --------
Total current liabilities................... 51,055 37,601 39,903
-------- -------- --------
Long-term Debt........................................ 76,761 146,460 149,073
Deferred Income Taxes................................. 7,883 -- --
Other Liabilities..................................... 250 2,248 2,860
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value --
Authorized -- 200,000 shares
Issued and outstanding -- 45,000 shares.......... -- --
Common stock, $.10 par value --
Authorized -- 30,000 shares
Issued and outstanding -- 9,500 shares........... 1 -- --
Common stock, $.01 par value --
Authorized -- 50,000,000 shares
Issued and outstanding -- 8,000,000 shares....... 1 1
Additional paid-in capital.......................... 21,228 32,530 32,652
Retained earnings................................... 18,249 (584) 1,886
Foreign currency translation adjustments............ (4,274) 7 (194)
-------- -------- --------
Total stockholders' equity.................. 35,204 31,954 34,345
-------- -------- --------
Total liabilities and stockholders'
equity.................................... $171,153 $218,263 $226,181
======== ======== ========
</TABLE>

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

F-13
<PAGE> 79

AEARO CORPORATION

<TABLE>
STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>

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

F-14
<PAGE> 80

AEARO CORPORATION

<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>

PREDECESSOR COMPANY
------------------------------------------ FOREIGN
ADDITIONAL CURRENCY
PREFERRED COMMON PAID-IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992..... $ -- $ 1 $21,228 $ 25,841 $ (920) $ 46,150
Foreign currency translation
adjustments................ -- -- -- -- (4,617) (4,617)
Net income.................... -- -- -- 9,422 -- 9,422
----- ---- ------- -------- ------ --------
Balance, September 30, 1993..... -- 1 21,228 35,263 (5,537) 50,955
Foreign currency translation
adjustments................ -- -- -- -- 1,263 1,263
Net income.................... -- -- -- 7,986 -- 7,986
Dividend paid................. -- -- -- (25,000) -- (25,000)
----- ---- ------- -------- ------ --------
Balance, September 30, 1994..... -- 1 21,228 18,249 (4,274) 35,204
Foreign currency translation
adjustments................ -- -- -- -- 75 75
Net income.................... -- -- -- 4,806 -- 4,806
----- ---- ------- -------- ------ --------
Balance, July 11, 1995.......... $ -- $ 1 $21,228 $ 23,055 $(4,199) $ 40,085
===== ==== ======= ======== ======= ========

SUCCESSOR COMPANY
-----------------------------------------
Issuance of common and
preferred stock in
connection with acquisition,
net......................... $ -- $ 1 32,530 $ -- $ -- $ 32,531
Foreign currency translation
adjustments................ -- -- -- -- 7 7
Net loss...................... -- -- -- (584) -- (584)
----- ---- ------- -------- ------ --------
Balance, September 30, 1995..... -- 1 32,530 (584) 7 31,954
Repayment of shareholders
notes...................... -- -- 122 -- -- 122
Foreign currency translation
adjustment................. -- -- -- -- (201) (201)
Net income.................... -- -- -- 2,470 -- 2,470
----- ---- ------- -------- ------ --------
Balance, March 31, 1996
(unaudited)................... $ -- $ 1 $32,652 $ 1,886 $ (194) $ 34,345
===== ==== ======= ======== ======= ========
</TABLE>

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

F-15
<PAGE> 81

AEARO CORPORATION

<TABLE>
STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------------------------------- ----------------------------
YEAR ENDED FOR THE SIX FOR THE SIX
SEPTEMBER 30, MONTHS ENDED PERIOD ENDED PERIOD ENDED MONTHS ENDED
------------------- MARCH 31, JULY 11, SEPTEMBER 30, MARCH 31,
1993 1994 1995 1995 1995 1996
-------- -------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).......................... $ 9,422 $ 7,986 $ 4,000 $ 4,806 $ (584) $ 2,470
Adjustments to reconcile net income (loss)
to cash provided by operating
activities --
Depreciation and amortization............ 11,773 11,743 6,318 9,216 2,092 6,058
Deferred income taxes.................... 2,847 1,941 194 1,851 -- --
Cumulative effect of accounting
changes................................ (303) -- -- -- -- --
Other, net............................... 522 365 143 160 (27) 20
Changes in assets and liabilities --
Accounts receivable.................... 702 (2,111) (2,198) (410) (1,523) (6,225)
Inventory.............................. 2,574 (3,611) (1,235) 903 4,190 (911)
Accounts payable and accruals.......... (2,062) 1,069 (1,055) 991 7,229 (1,751)
Other, net............................. 369 542 1,366 (3,610) (368) 1,479
-------- -------- ------- -------- --------- -------
Net cash provided by operating
activities......................... 25,844 17,924 7,533 13,907 11,009 1,140
-------- -------- ------- -------- --------- -------
Cash Flows from Investing Activities:
Cash paid for Cabot Safety Corporation..... -- -- -- -- (169,200) (6,636)
Eastern escrow deposit..................... -- -- -- -- (3,000) 3,000
Additions to property, plant and
equipment................................ (9,040) (4,548) (5,320) (10,448) (2,719) (4,040)
Proceeds provided by disposals of property,
plant and equipment...................... 154 34 4 4 -- --
-------- -------- ------- -------- --------- -------
Net cash used by investing
activities......................... (8,886) (4,514) (5,316) (10,444) (174,919) (7,676)
-------- -------- ------- -------- --------- -------
Cash Flows from Financing Activities:
Issuance of common and preferred stock in
connection with acquisition, net......... -- -- -- -- 32,531 --
Proceeds from sale of notes.............. -- -- -- -- 100,000 --
Proceeds from term loan.................... -- -- -- -- 45,000 --
Proceeds from revolving credit facility,
net...................................... -- -- -- -- 3,800 6,800
Payment of financing costs................. -- -- -- -- (11,382) --
Repayment of term loan..................... -- -- -- -- (1,249) (2,480)
Proceeds from issuance of note payable to
bank..................................... -- 25,000 -- -- -- --
Repayment of external long-term debt....... (131) (161) (49) (122) (109) (75)
Increase (repayment) of note payable to
Cabot Corporation, net................... (10,054) (5,340) 5,338 1,412 -- --
Increase in intercompany receivables,
net...................................... (5,644) (8,137) (6,898) (5,381) -- --
Dividend paid.............................. -- (25,000) -- -- -- --
Repayment of shareholder notes............. -- -- -- -- -- 123
-------- -------- ------- -------- --------- -------
Net cash (used) provided by financing
activities......................... (15,829) (13,638) (1,609) (4,091) 168,591 4,368
-------- -------- ------- -------- --------- -------
Effect of Exchange Rate Changes on Cash...... (656) 886 376 78 26 (92)
-------- -------- ------- -------- --------- -------
Increase (Decrease) in Cash and Cash
Equivalents................................ 473 658 984 (550) 4,707 (2,260)
Cash and Cash Equivalents, beginning of
period..................................... 889 1,362 2,020 2,020 -- 4,707
-------- -------- ------- -------- --------- -------
Cash and Cash Equivalents, end of period..... $ 1,362 $ 2,020 3,004 $ 1,470 $ 4,707 2,447
======== ======== ======= ======== ========= =======
Noncash Investing and Financing Activities:
Capital lease obligations.................. $ 450 $ 71 $ -- $ 128 $ -- $ --
======== ======== ======= ======== ========= =======
Cash Paid for:
Interest................................... $ 342 $ 1,661 $ 1,041 $ 1,734 $ 794 $ 8,914
======== ======== ======= ======== ========= =======
Income taxes............................... $ 2,980 $ 3,013 $ 640 $ 2,265 $ 37 $ 407
======== ======== ======= ======== ========= =======
</TABLE>

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

F-16
<PAGE> 82

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(1) BASIS OF PRESENTATION

For periods prior to July 11, 1995, the accompanying financial statements
represent the combined results and financial position of Aearo Inc. (formerly
Cabot Safety Corporation) and certain affiliates (Predecessor) all of which were
wholly owned by Cabot Corporation (Cabot). On July 11, 1995, Cabot sold
substantially all of the assets and certain liabilities of the Predecessor to
Aearo Corporation (formerly Cabot Safety Holdings, Inc.) as described in Note 3
(Formation Acquisition). Financial statements for periods subsequent to July 11,
1995 represent the consolidated financial statements of Aearo Corporation and
subsidiaries (Successor). References to the Company refer to the Predecessor
prior to the Formation Acquisition and the Successor postacquisition.

Separate financial statements of Aearo Inc. are not presented because they
do not provide any additional information from what is presented in the
financial statements of Aearo Corporation that would be material to the holders
of the senior subordinated notes (see Note 8).

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly, in accordance with generally accepted accounting principles, the
Company's financial position, results of operations and cash flows for the
interim periods presented. Such adjustments consisted of only normal recurring
items. The results of operations for the interim periods shown in this report
are not necessarily indicative of results for any future interim period or for
the entire year. These condensed consolidated financial statements do not
include all disclosures associated with annual financial statements and
accordingly should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10K.

(2) ORGANIZATION

The Company manufactures and sells personal safety equipment, as well as
energy-absorbing, vibration-damping and impact-absorbing products for industrial
noise control and environment enhancement. Included in personal safety equipment
are hearing protection, safety eyewear and respiratory equipment.

Prior to 1990, Cabot operated its domestic and foreign safety products and
noise control businesses in several subsidiaries and divisions. During 1990,
Cabot contributed the capital stock and net assets of its E-A-R division to the
Company. In April 1990, Cabot purchased the assets of AOSafety, the Safety
Products Division of American Optical Corporation.

(3) ACQUISITION AND FINANCING

Aearo Corporation was formed by Vestar Equity Partners, L.P. (Vestar) in
June 1995 to effect the acquisition of substantially all of the assets and
liabilities of Aearo Inc. and its subsidiaries (the Acquisition). Aearo Inc. was
wholly owned by Cabot prior to the Acquisition. The acquisition closed on July
11, 1995, when Aearo Corporation acquired substantially all of the assets and
certain liabilities of Aearo Inc. for cash, preferred stock and a 42.5% common
equity interest in Aearo Corporation, as more fully described in Note 13. Aearo
Corporation immediately contributed the acquired assets and liabilities to Aearo
Inc., a wholly owned subsidiary of Aearo Corporation, pursuant to an asset
transfer agreement dated June 13, 1995. Aearo Corporation has no other material
assets, liabilities or operations other than those that result from its
ownership of the common stock of Aearo Inc.

F-17
<PAGE> 83

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

<TABLE>
The total financing related to the Formation Acquisition was $217.5 million
(including transaction fees and expenses of $11.2 million), subject to final
closing adjustments, as defined, including the assumption of certain debt. A
summary of the Formation Acquisition financing is as follows (in millions):
<CAPTION>

<S> <C>
Implied fair value of equity issued to Cabot(a)..................... $ 65.0
Issuance of stockholder loans....................................... (0.9)
Borrowings under revolving credit facility.......................... 2.5
Borrowings under term loans......................................... 45.0
Borrowings under notes.............................................. 100.0
Assumed debt........................................................ 4.8
Closing adjustment payable to Cabot................................. 1.1
------
$217.5
======
<FN>

- ---------------
(a) The implied fair value of equity represents the implicit fair value of
Aearo Corporation's equity based on the cash paid by Vestar and
management for their equity interest in Aearo Corporation. The actual
amount recorded for Aearo Corporation's equity was reduced by
approximately $31.5 million to reflect predecessor basis for the
portion of equity retained by Cabot.
</TABLE>

The Acquisition has been accounted for as a purchase transaction effective
as of July 11, 1995, in accordance with Accounting Principles Board Opinion No.
16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged Buyout
Transactions, and accordingly, the consolidated financial statements for the
periods subsequent to July 11, 1995 reflect the purchase price, including
transaction costs, allocated to tangible and intangible assets acquired and
liabilities assumed, based on their estimated fair values as of July 11, 1995,
which may be revised at a later date. The valuation of assets and liabilities
acquired reflect carryover basis for the percentage ownership retained by Cabot.

F-18
<PAGE> 84

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

<TABLE>
The preliminary allocation of the $206.1 million purchase price plus $2.1
million of direct acquisition costs is summarized as follows (in millions):
<CAPTION>

<S> <C>
Cash paid to Cabot.......................................................... $169.2
Debt assumed................................................................ 4.8
Closing adjustment payable to Cabot......................................... 1.1
Fair value of 42.5% equity interest in Holdings issued to Cabot............. 31.0
------
Total............................................................. 206.1
Direct acquisition costs.................................................... 2.1
------
Total consideration and direct acquisition costs.................. 208.2
Predecessor historical cost of net assets acquired.......................... 134.0
------
Excess of consideration paid over predecessor historical cost..... 74.2
Less -- Adjustment to reflect predecessor basis for the 42.5% equity
interest retained by Cabot................................................ 31.5
------
Fair market value step up......................................... 42.7
Debt issuance costs......................................................... 9.3
------
Net adjustment.................................................... $ 52.0
======
Allocation of net adjustment --
Inventories............................................................... $ 3.6
Property, plant and equipment, net........................................ 13.6
Intangible assets......................................................... 31.7
Deferred charges.......................................................... 9.3
Liabilities and other..................................................... (6.2)
------
$ 52.0
======
</TABLE>

The $3.6 million allocated to inventory was charged to cost of sales in the
period ended September 30, 1995.

(4) SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. The significant accounting policies of
the Company are described below.

PRINCIPLES OF COMBINATION AND CONSOLIDATION

The combined financial statements of the Company for the period ended July
11, 1995 and the years ended September 30, 1994 and 1993 include Aearo Inc. and
the results of certain affiliates of the Company whose operations are partially
or exclusively related to the business of the Company. All significant
transactions and balances between affiliates have been eliminated. Transactions
with Cabot and its subsidiaries are reflected as intercompany balances.

The consolidated financial statements of the Company for the period ended
September 30, 1995 include the accounts of Holdings and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.

F-19
<PAGE> 85

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

RISKS AND UNCERTAINTIES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all time
deposits and short-term investments with an original maturity of three months or
less at time of purchase to be cash equivalents.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's foreign operations are translated
at year-end exchange rates. Revenues and expenses are translated at the average
rate during the year. Foreign currency gains and losses arising from
transactions are reflected in net income. Balance sheet translation gains and
losses are reflected as a separate component of stockholders' equity.

INVENTORIES

Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment is calculated using the straight-line method based
on estimated economic useful lives. Expenditures for maintenance and repairs and
minor renewals are charged to expense.

<TABLE>
Property, plant and equipment and their estimated useful lives consist of
the following:
<CAPTION>

ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- ------------------------ ----------------------------
<S> <C>
Buildings 25-40 Years
Leasehold improvements Life of the lease or useful
life, whichever is shorter
Machinery and equipment 3-10 Years
Furniture and fixtures 3-10 Years
</TABLE>

Upon the sale or retirement of assets, the cost and related accumulated
depreciation are removed from the financial statements, and any resultant gain
or loss is recognized.

INCOME TAXES

For the period ended September 30, 1995, the Company will file a
consolidated federal income tax return. The Company will file a consolidated
federal income tax return with Cabot for the period ended July 11, 1995 as in
each of the fiscal years ended September 30, 1994 and 1993. The provision for
federal income taxes reflected in these financial statements has been determined
as if the Company filed a separate federal income tax return. Deferred taxes are
recorded to reflect the

F-20
<PAGE> 86

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end.

In 1993, the Company adopted Statement of Financial Standards (SFAS) No.
109, Accounting for Income Taxes, retroactive to October 1, 1992. Under the new
method, deferred income taxes are provided based on the estimated future tax
effects of differences between financial statement carrying amounts and the tax
bases of existing assets and liabilities.

INTANGIBLE ASSETS

Intangible assets consist primarily of the costs of patents and trademarks
purchased in business acquisitions. Intangible assets are amortized on the
straight-line basis over either 25 years or an estimated useful life, whichever
is shorter.

The Company accounts for long-lived and intangible assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of. The Company continually reviews its
intangible assets for events or changes in circumstances which might indicate
the carrying amount of the assets may not be recoverable. The Company assesses
the recoverability of the assets by determining whether the amortization of such
intangibles over their remaining lives can be recovered through projected
undiscounted future results. The amount of impairment, if any, is measured based
on projected discounted future results using a discount rate reflecting the
Company's average cost of funds. At September 30, 1995, no such impairment of
assets was indicated.

DEFERRED FINANCING COSTS

Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective interest
method. Amortization of deferred financing costs is included in interest
expense.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share has been computed by dividing net income
(loss) for the period by the weighted average number of common shares
outstanding during the period.

RECLASSIFICATION

Certain prior year balances have been reclassified to conform with the
current year's presentation.

F-21
<PAGE> 87

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(5) INVENTORIES

<TABLE>
Inventories consisted of the following (dollars in thousands):
<CAPTION>

SEPTEMBER 30, SEPTEMBER 30, MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
------------- ------------- -----------
<S> <C> <C> <C>
Raw materials............................. $ 8,711 $ 8,371 $10,606
Work in process........................... 5,094 3,332 3,598
Finished goods............................ 14,180 14,211 13,883
------- ------- -------
$27,985 $25,914 $28,087
======= ======= =======
</TABLE>

(6) PROPERTY, PLANT AND EQUIPMENT

<TABLE>
Property, plant and equipment consisted of the following (dollars in thousands):
<CAPTION>

SEPTEMBER 30
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Land........................................... $ 1,028 $ 2,167 $ 2,167
Buildings and improvements..................... 15,022 9,184 9,369
Machinery and equipment........................ 40,372 29,127 30,612
Furniture and fixtures......................... 4,644 2,709 3,639
Construction in progress....................... 2,597 11,381 14,652
------- ------- -------
63,663 54,568 60,439
Less -- Accumulated depreciation............... 31,215 1,499 6,328
------- ------- -------
$32,448 $53,069 $54,111
======= ======= =======
</TABLE>

(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
Accounts payable and accrued liabilities consisted of the following at September 30 (dollars in thousands):
<CAPTION>

SEPTEMBER 30
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Accounts payable -- trade...................... $ 9,322 $13,208 $13,437
Accrued liabilities --
Employee compensation and benefits........... 5,395 5,745 7,070
Other........................................ 4,745 9,459 8,872
------- ------- -------
$19,462 $28,412 $29,379
======= ======= =======
</TABLE>

F-22
<PAGE> 88

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(8) DEBT

<TABLE>
The long-term debt balances consisted of the following at (dollars in thousands):
<CAPTION>

SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
PREDECESSOR SUCCESSOR SUCCESSOR
COMPANY COMPANY COMPANY
----------- --------- -----------
<S> <C> <C> <C>
Revolving credit facility..................... $ -- $ 3,800 $ 10,600
Term loans, due 2000.......................... -- 43,784 40,839
Senior subordinated notes, due 2005, 12.5%.... -- 100,000 100,000
Note payable to Cabot Corporation............. 72,193 -- --
Note payable, other........................... -- 53 49
Mortgage note, due 1995 -- 2006, 10.1%........ 2,577 2,539 2,520
Industrial Revenue Bonds, due 1995 -- 2003,
6.4% less advance deposit of $121,715....... 663 600 598
Industrial Revenue Bonds, due 2002, 13.0%..... 1,000 1,000 1,000
Capitalized lease obligations --
Lease term 1995 -- 2003, 6.5%............... 405 363 347
Lease term 1995 -- 1997, 8.9%............... 90 58 42
Lease term 1995 -- 1998, 9.0%............... -- 100 85
Lease term 1995 -- 1999..................... -- -- 32
------- -------- --------
76,928 152,297 156,112
------- -------- --------
Less -- Current portion of long-term debt..... 167 5,837 7,039
------- -------- --------
Total............................... $76,761 $146,460 $149,073
======= ======== ========
</TABLE>

Revolving Credit and Term Loans

In July 1995, Aearo Inc. entered into a credit agreement (the Agreement)
that provides for secured borrowings from a syndicate of lenders consisting of
(i) a five-year revolving credit facility providing for up to $25.0 million in
revolving loans, $5.0 million of which may be used for letters of credit (the
Revolving Credit Facility) and (ii) a term loan facility providing for $45.0
million in term loans, consisting of a $28.5 million U.S. term loan, a $4.5
million term loan designated in Canadian dollars and a $12.0 million term loan
designated in Sterling (collectively, the Term Loans).

Amounts outstanding under the Term Loans currently bear interest, payable
quarterly in arrears, at a rate equal to the sum of the Eurodollar rate plus 2%.
At September 30, 1995, the rates on the Term Loans were 7.9% for the U.S. term
loan, 8.4% for the Canadian term loan and 8.8% for the Sterling term loan. The
weighted average interest rates paid during 1995 were 7.9%, 8.5% and 8.7% for
the US term loan, Canadian term loan and Sterling term loan, respectively.

Principal on the Term Loans is being paid in quarterly installments through
March 31, 2000 on the U.S. and Sterling term loans, and the principal on the
Canadian term loan is due on July 11, 2000. Holdings has the option to convert
all or a portion of the outstanding principal amount of Term Loans into either a
Eurodollar rate or a reference-rate loan. The amount outstanding at September
30, 1995 on the Term Loans was $43.8 million.

F-23
<PAGE> 89

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Under the Revolving Credit Facility, only the U.S. and UK entities are
permitted to borrow funds. Interest on borrowings under the Revolving Credit
Facility is payable in arrears at a rate equal to either the sum of .75% plus
the reference rate or 2% plus the Eurodollar rate. At September 30, 1995, the
rate on the Revolving Credit Facility was 9.5%. At September 30, 1995, CSC had
$3.8 million outstanding on the Revolving Credit Facility. During the period
from July 11, 1995 to September 30, 1995, the maximum amount outstanding under
the Revolving Credit Facility was $5.5 million with the average amount being
$2.7 million. The weighted average interest rate paid during 1995 was 9.5%.

The Revolving Credit Facility also requires Aearo Inc. to pay a commitment
fee on the average daily aggregate unutilized portion of the Revolving Credit
Facility at a rate of .50% per annum. The fee is payable quarterly in arrears as
well as a commission on trade and standby letters of credit of 2% per annum of
the amount to be drawn under the Agreement. Amount outstanding under the
revolving credit are due on July 11, 2000.

Under the terms of the Agreement, Aearo Inc. is required to comply with a
number of affirmative and negative covenants. Among other things, Aearo Inc.
must satisfy certain financial covenants and ratios, including interest coverage
ratios, leverage ratios and fixed charge coverage ratios. The Agreement also
imposes limitations on certain business activities of Aearo Inc. The Agreement
restricts, among other things, the incurrence of additional indebtedness,
creation of certain liens, sales of certain assets and limitations on
transactions with affiliates. As of September 30, 1995, Aearo Inc. is in
compliance with the covenants of the Agreement. The Agreement is unconditionally
guaranteed by Holdings and secured by first priority security interests in
substantially all the capital stock and tangible and intangible assets of the
Company.

Senior Subordinated Notes

In connection with the acquisition, Aearo Inc. issued $100.0 million of
Senior Subordinated Notes due 2005 (the Subordinated Notes). The Subordinated
Notes are unsecured obligations of Aearo Inc. The Subordinated Notes bear
interest at a rate of 12.5% per annum and are payable semiannually on each
January 15 and July 15 commencing on January 15, 1996.

The Subordinated Notes are redeemable at the option of Aearo Inc., on or
after July 15, 2000. From and after July 15, 2000, the Subordinated Notes will
be subject to redemption at the option of Aearo Inc., in whole or in part, at
various redemption prices, declining from 106.3% of the principal amount to par
on and after July 15, 2004. In addition, on or prior to July 15, 1998, the
Company may use the net cash proceeds of one or more equity offerings to redeem
up to 35% of the aggregate principal amount of the Subordinated Notes originally
issued at a redemption price of 112.5% of the principal amount thereof plus
accrued interest to the date of redemption.

The Subordinated Note indenture contains affirmative and negative covenants
and restrictions similar to those required under the terms of the Agreement
discussed above. As of September 30, 1995, Aearo Inc. is in compliance with the
various covenants of the Subordinated Note agreement. The Subordinated Notes are
unconditionally guaranteed on an unsecured, senior subordinated basis by Aearo
Corporation.

Other Obligations

As of December 31, 1993, the Company borrowed $25,000,000 through an
unsecured note payable to a bank. The note, as amended, is due September 30,
1995 and includes provisions

F-24
<PAGE> 90

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

regarding minimum net worth requirements and certain expenditure and
indebtedness limitations. Interest is payable at either the Base Rate or
Eurodollar Rate, as defined, at the option of the Company. The weighted average
interest rates for fiscal 1994 and the period ended July 11, 1995 were, 6.88%
and 7.78%, respectively. The note was not acquired by Aearo Corporation in the
Acquisition.

During 1990, the Company borrowed $118,000,000 from Cabot Corporation to
finance the purchase of the Safety Products Division of American Optical
Corporation under a revolving credit arrangement. Interest is accrued monthly,
and is based on the prime rate; accordingly, the stated value of this variable
rate debt approximates its market value. Annually, accrued interest is added to
the note principal. The weighted average interest rates for fiscal 1993, 1994
and the period ended July 11, 1995 were 6.0%, 6.61% and 8.66%, respectively.
This debt was not acquired by Aearo Corporation in the Acquisition.

In 1991, the Company purchased and mortgaged land and a building previously
leased. The mortgage provides for monthly payments of $24,498 for principal and
interest at 10.125% per annum through 2006, at which time the remaining
principal balance of $1,853,000 will be due. The property purchased is pledged
as collateral. The net book value of such property was approximately $3,264,000
and $3,757,000 at September 30, 1995 and 1994, respectively.

In connection with the purchase in 1989 of Specialty Composites
Corporation, the Company assumed the liability for State of Delaware Industrial
Development Bonds, which are due in series through 2003, bear interest at an
average annual rate of approximately 6.38%, and provide for annual payments
averaging $117,500, including principal and interest, through 2003. All
property, plant and equipment purchased with the original proceeds of the bonds
is pledged as collateral. The net book value of such property was approximately
$1,971,000 and $1,432,000 at September 30, 1995 and 1994, respectively.

In 1982, an acquisition of land and building was financed in part by an
Indianapolis, Indiana, Industrial Revenue Bond Obligation. The Bond provides for
semiannual payments of $65,000 and interest at 13.0% per annum through 2002, at
which time the principal amount of $1,000,000 will be due. All property, plant
and equipment purchased with the original proceeds of the bond are pledged as
collateral. The net book value of such property was approximately $3,433,000 and
$3,222,000 at September 30, 1995 and 1994, respectively.

In 1993, the Company entered into a 10-year lease agreement for a new
safety eyewear production facility with discounted aggregate minimum lease
payments of $450,000.

<TABLE>
The following is a summary of maturities of all of the Company's debt
obligations due after September 30, 1995 (in thousands):
<CAPTION>

AMOUNT
---------
<S> <C>
1996............................................................. $ 5,837
1997............................................................. 8,347
1998............................................................. 10,206
1999............................................................. 10,345
2000............................................................. 10,100
Thereafter....................................................... 107,462
--------
................................................................. $152,297
========
</TABLE>

F-25
<PAGE> 91

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(9) INTEREST EXPENSE, NET

<TABLE>
Interest expense (income) comprises the following items (dollars in thousands):
<CAPTION>

PREDECESSOR COMPANY
---------------------------------- SUCCESSOR
YEAR ENDED COMPANY
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
----------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Expense --
Note payable to Cabot
Corporation.................... $5,229 $5,143 $ 5,058 $ --
External.......................... 354 1,663 1,802 4,160
------ ------ ------- ------
Total interest expense......... 5,583 6,806 6,860 4,160
------ ------ ------- ------
Income --
Intercompany...................... (788) (971) (1,164) --
External.......................... (26) (16) (23) (25)
------ ------ ------- ------
Total interest income.......... (814) (987) (1,187) (25)
------ ------ ------- ------
Interest expense, net............... $4,769 $5,819 $ 5,673 $4,135
====== ====== ======= ======
</TABLE>

(10) EMPLOYEE BENEFIT PLANS

The Company has two noncontributory defined benefit pension plans, the
Aearo Inc. Employees Retirement Account Plan (the Aearo Plan), which is a cash
balance plan, and the E-A-R Specialty Composites Division of Aearo Inc.
Non-Union Employees Retirement Plan (the Specialty Composites Plan). Benefits
provided under these plans are primarily based on years of service and the
employee's compensation.

The Aearo Plan, effective May 1, 1990, covers most employees in the United
States and is funded quarterly based on actuarial and economic assumptions
designed to achieve adequate funding of projected benefit obligations. Plan
assets are invested in a portfolio consisting primarily of debt and equity
securities. The Specialty Composites Plan resulted from a 1989 acquisition. As
of March 31, 1989, the benefits under this plan were frozen. Plan assets are
invested in money market and fixed-income investments.

<TABLE>
Net periodic pension cost for these plans comprises the following elements
(dollars in thousands):
<CAPTION>

PREDECESSOR COMPANY
-------------------------------- SUCCESSOR
YEAR ENDED COMPANY
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
--------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
----- ----- ------------ -------------
<S> <C> <C> <C> <C>
Service cost......................... $ 914 $ 911 $ 748 $ 217
Interest cost........................ 241 285 272 79
Return on plan assets................ (2) (143) (527) (251)
Net amortization and deferral........ (219) (143) 207 160
----- ----- ----- -----
Net periodic pension cost.......... $ 934 $ 910 $ 700 $ 205
===== ===== ===== =====
</TABLE>

F-26
<PAGE> 92

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

<TABLE>
The following table sets forth the funded status of the pension plans at
September 30 (dollars in thousands):
<CAPTION>

1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations --
Vested benefit obligation................................. $(3,847) $(5,471)
======= =======
Accumulated benefit obligation............................ $(4,696) $(6,592)
======= =======
Projected benefit obligation.............................. $(4,696) $(6,592)
Plan assets at fair value................................. 4,112 5,697
------- -------
Excess of projected benefit obligation over plan
assets.......................................... (584) (895)
Unrecognized net loss....................................... 309 --
Unrecognized net assets at transition....................... (67) --
Additional minimum liability................................ (108) --
------- -------
Pension liability (included in accrued liabilities)......... $ (450) $ (895)
======= =======
</TABLE>

At September 30, 1995, the pension liability of $895,000 comprised a
liability of $911,000 related to the Aearo Plan and a prepaid pension asset of
$16,000 related to the Specialty Composites Plan. The pension liability of
$450,000 at September 30, 1994 comprised a liability of $686,000 related to the
Aearo Plan and a prepaid pension asset of $236,000 related to the Specialty
Composites Plan.

<TABLE>
The following weighted average rates were used in the calculations at September 30:
<CAPTION>

1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- ---------
<S> <C> <C>
Discount rate -- projected benefit obligation............... 8.0% 6.5%
Expected rate of return on plan assets...................... 8.6 8.5
Assumed rate of increase in compensation.................... 4.0 4.0
</TABLE>

In addition, the Company has an unfunded, noncontributory defined benefit
pension plan, the Aearo Inc. Supplemental Executive Retirement Plan (the SERP
Plan) which is also a cash balance plan. The SERP Plan, effective January 1,
1994, covers certain employees in the United States. The costs to the Company
for this Plan were $9,000, $32,000 and $25,000 for the periods ended September
30, 1995, July 11, 1995 and the year ended September 30, 1994.

A 401(k) plan, the Aearo Inc. Sound Savings Plan, was established as of May
1, 1990. Employees can join the plan after six months of service, during which
they work at least 500 hours and may contribute up to 15% of their compensation.
The Company contributes amounts equal to 40% of the employee's contribution to a
maximum of 2% of the employee's pay. The costs to the Company for this Plan were
$100,000, $345,000, $365,000 and $323,000 for the periods ended September 30,
1995, July 11, 1995 and the years ended September 30, 1994 and 1993,
respectively.

The Company has a defined contribution savings plan for U.K. employees,
under which eligible employees are allowed to contribute up to 15% of their
compensation. The Company contributes 5% of pay for all eligible employees and
additional amounts equal to 40% of the employee's contribution to a maximum of
2% of the employee's pay. For the periods ended September 30, 1995, July 11,

F-27
<PAGE> 93

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1995 and the years ended September 30, 1994 and 1993, the Company contributed
approximately $27,000, $79,000, $111,000 and $103,000, respectively.

Postretirement Benefits

The Company does not provide defined benefit postretirement plans for
retirees after age 65. All employees who elect early retirement at age 62 or
older are eligible to receive life insurance coverage that terminates on their
65th birthday. In addition, employees who were age 55 or older with 10 years of
service as of April 1, 1990 are eligible to receive limited health care and life
insurance coverage for themselves and their eligible dependents upon early
retirement at age 62 or older. These coverages terminate on the 65th birthday of
the retiree or his or her spouse. The health care benefit is a fixed dollar
contribution and the life insurance benefit is a fixed coverage amount.

Effective October 1, 1992, the Company adopted the provisions of SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
which requires accrual of these benefits during the years an employee provides
service. Prior to October 1, 1992, the expense for these benefits was recognized
as the actual costs or insurance premiums were incurred. As of October 1, 1992,
the cumulative effect of adopting SFAS No. 106 was a $139,000 after-tax charge.

As of September 30, 1995 and 1994, the accrued periodic postretirement
benefit cost was $215,000 and $250,000, respectively.

(11) RELATED PARTY TRANSACTIONS

An annual management fee, which is to be shared by Cabot and Vestar, will
be paid in aggregate amounts with respect to each fiscal year equal to the
greater of (i) $400,000 or (ii) 1.25% of the consolidated net income of the
Company and its subsidiaries before cash interest, taxes, depreciation and
amortization for such fiscal year. This annual management fee is shared by Cabot
and Vestar based on their relative equity ownership of the Company. At September
30, 1995, the Company has accrued $88,000 related to the management fee. This
amount is included in accounts payable and accrued liabilities in the
accompanying balance sheet.

Certain management investors (Management Investors) borrowed $934,000 to
fund a portion of the purchase price of Common Stock to be issued to such
management investors in connection with the Acquisition. Such loans are secured
by Common Stock, purchased with the proceeds thereof, are expected to have a
term of approximately 10 years, will bear interest at an annual rate determined
pursuant to Section 7872(f)(2) of the 1986 IRC, and will be subject to mandatory
prepayment in the event the employment of such management investors terminates.

Prior to the Acquisition, the Company engaged in various transactions with
Cabot and its affiliates that are characteristic of a combined group under
common control. Cabot had historically provided the Company with various
financial and administrative functions and services, including the continued
participation of the Company in certain insurance policies maintained by Cabot,
for which the Company is charged associated direct costs and expenses. In
addition, certain indirect administrative costs were allocated to the various
business units of Cabot, including the Company, principally based on a formula
that considered such proportionate variables as revenue, payroll and property
balances. Administrative costs of doing business on a stand-alone basis may have
been significantly different. Cabot also provided financing and cash management
for the Company through a centralized treasury system.

F-28
<PAGE> 94

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Operating expenses, as described above, were $1,728,000, $1,832,000 and
$1,313,000 for the period ended July 11, 1995 and the years ended September 30,
1994 and 1993, respectively.

At September 30, 1994, the net amount of $57,120,000 owed to Cabot is
included on the combined balance sheet in long-term debt of $72,193,000 and net
intercompany balances receivable of $15,073,000.

(12) INCOME TAXES

In 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes,
retroactive to October 1, 1992. The cumulative effect of this adoption resulted
in an increase to net income for the year ended September 30, 1993 of
approximately $442,000.

<TABLE>
Income before income taxes and cumulative effect of accounting changes is
as follows (dollars in thousands):
<CAPTION>

<TABLE>
A summary of taxes on income is as follows (dollars in thousands):
<CAPTION>

PREDECESSOR COMPANY SUCCESSOR
------------------------------------ COMPANY
YEAR ENDED -------------
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
------------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
------- ------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Federal and State --
Current......................... $ 510 $ 36 $(2,335) $ 47
Deferred........................ 2,264 1,986 1,851 --
------- ------- ------- ----
Total................... 2,774 2,022 (484) 47
------- ------- ------- ----
Foreign --
Current......................... 2,338 3,041 3,493 378
Deferred........................ 583 (45) -- --
------- ------- ------- ----
2,921 2,996 3,493 378
------- ------- ------- ----
Total........................ $ 5,695 $ 5,018 $ 3,009 $425
======= ======= ======= ====
</TABLE>

F-29
<PAGE> 95

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

<TABLE>
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate is as follows (dollars
in thousands):
<CAPTION>

PREDECESSOR COMPANY SUCCESSOR
------------------------------------ COMPANY
YEAR ENDED -------------
SEPTEMBER 30, PERIOD ENDED PERIOD ENDED
------------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Computed tax expense at the
expected statutory rate......... $ 5,148 $ 4,551 $ 2,735 $(56)
Change in federal rate............ 138 -- -- --
State taxes, net of federal
effect.......................... 350 385 61 31
Foreign income taxed at different
rates........................... 185 283 454 70
Increase in valuation allowance... -- -- -- 362
Other, net........................ (126) (201) (241) 18
------- ------- ------- ----
Provision for income taxes...... $ 5,695 $ 5,018 $ 3,009 $425
======= ======= ======= ====
</TABLE>

<TABLE>
Significant components of deferred income taxes are as follows (dollars in thousands):
<CAPTION>

1994 1995
PREDECESSOR SUCCESSOR
COMPANY COMPANY
----------- --------
<S> <C> <C>
Deferred tax liabilities
Intangible assets......................................... $ 6,974 $ --
Restructuring charges..................................... 1,959 --
Property, plant and equipment............................. 1,197 --
Pension and other benefits................................ 1,047 --
State and local taxes..................................... 1,018 --
Inventory................................................. 32 --
Other..................................................... 4 --
------- --------
Total deferred tax liabilities......................... $12,231 $ --
======= ========
Deferred tax assets
Pension and other benefits................................ $ 1,364 $ --
Property, plant and equipment............................. 442 2,513
Intangible assets......................................... -- 5,178
Restructuring charges..................................... 378 872
FSC commission............................................ 455 --
Inventory................................................. 249 294
Net operating loss carryforwards.......................... 135 1,030
Other..................................................... 725 878
------- --------
Subtotal............................................... 3,748 10,765
Valuation allowances........................................ (135) (10,765)
------- --------
Total deferred tax assets.............................. $ 3,613 $ --
======= ========
</TABLE>

F-30
<PAGE> 96

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

The valuation allowance at September 30, 1995 relates to the uncertainty of
realizing the tax benefits of reversing temporary differences and net operating
loss carryforwards. Of this valuation allowance, approximately $10,375 will be
used to reduce goodwill or other intangibles related to the purchase. The
valuation allowance at September 30, 1994 relates to the uncertainty of
realizing certain foreign deferred tax assets.

United States income tax returns for fiscal years 1990 through 1994 are
currently under examination by the Internal Revenue Service.

(13) STOCKHOLDERS' EQUITY

Stock Ownership and Stockholders' Agreement

Prior to the Acquisition, Cabot owned 100% of the outstanding shares of the
Company. Currently, (i) Cabot owns 42.5% of Common Stock and 50% of Redeemable
Preferred Stock, (ii) Vestar owns 42.5% of Common Stock and 50% of Redeemable
Preferred Stock and (iii) the Management Investors own 15% of Common Stock.
Vestar, Cabot and Management entered into a stockholders' agreement (the
Stockholders' Agreement) as of the Acquisition date. The Stockholders' Agreement
contains stock transfer restrictions, as well as provisions granting certain
tag-along rights, drag-along rights, registration rights and participation
rights.

Common and Preferred Stock

To finance a portion of the Acquisition, Aearo Corporation issued 8,000,000
(3,400,000 each to Vestar and Cabot and 1,200,000 to Management Investors)
shares of Common Stock and 45,000 shares of Redeemable Preferred Stock (22,500
each to Vestar and Cabot). Management Investors received a loan from the Company
in the amount of $934,000 to fund a portion of its cost of the Acquisition. This
amount has been reflected as a reduction to additional paid-in capital related
to the issuance of Common Stock.

The Redeemable Preferred Stock is cumulative redeemable $.01 par value
stock. Dividends accrue whether or not dividends are declared or funds are
available at an annual rate of 12.5%, compounded daily. Accrued dividends may be
paid in cash or in additional shares of preferred stock. Shares are redeemable
for cash at any time, subject to certain exceptions, at the option of Holdings
at a redemption price equal to the actual or implied purchase price ($45
million) plus a redemption payment based on the dividend rate.

Aearo Inc. is permitted to pay cash dividends to Holdings for taxes and
expenses in the ordinary course of business. The maximum amount of cash
dividends paid to Aearo Corporation for ordinary business expenses may not
exceed $500,000 in any fiscal year. As long as no event of default would result,
Aearo Corporation and Aearo Inc. are permitted to pay dividends consisting of
shares of qualified capital stock as defined in the Credit Agreement, and Aearo
Corporation may redeem or purchase shares of its capital stock held by former
employees of Holdings or any of its subsidiaries following the termination of
their employment, provided that the aggregate amount paid by Aearo Corporation
in respect to such purchases or redemptions does not exceed $1.5 million; Aearo
Inc. may pay cash dividends to Aearo Corporation for the latter purpose.
Additionally, Aearo Corporation may pay dividends on its preferred stock in
additional shares of preferred stock.

In May 1993, the Board of Directors of Old Cabot Safety approved a
recapitalization plan, which increased the authorized common shares from
5,000,000 to 30,000,000. In connection with this plan, Old Cabot Safety issued
9,499,000 new common shares and reserved an additional 500,000 shares for
issuance under the 1993 Cabot Safety Corporation Stock Option Plan (the 1993
Plan). In

F-31
<PAGE> 97

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

April 1994, the Board of Directors approved canceling the authorization for the
preferred stock class, decreasing the number of authorized shares of common
stock from 30,000,000 to 30,000, reducing the par value per share of common
stock from $1.00 to $.10, and decreasing the number of common shares reserved
for the 1993 Plan from 500,000 to 500. In connection with the recapitalization,
$9,499,050 was reclassified from common stock to additional paid-in capital. The
combined financial statements have been retroactively adjusted for the 1994
recapitalization.

The 1993 Plan, adopted in May 1993, provides for the granting of stock
options to key employees. Options granted may be either incentive stock options,
within the meaning of Section 422A of the Internal Revenue Code, or nonqualified
stock options.

The stock options are exercisable over a period determined by the Board of
Directors, but no longer than five years after the date they are granted. The
latest date on which the options may be exercised is September 30, 2002.
Compensation expense of $30,000 was recognized during fiscal 1994, and $815,000
related to current and retroactive vesting periods was recognized in fiscal
1993. The 1993 Plan was terminated in connection with the Acquisition.

<TABLE>
Information with respect to options under the 1993 Plan follows:
<CAPTION>

PREDECESSOR COMPANY
----------------------------
YEARS ENDED
SEPTEMBER 30, PERIOD ENDED
------------- JULY 11,
1993 1994 1995
---- ---- ------------
(SHARES OF STOCK)
<S> <C> <C> <C>
Outstanding --
Beginning of year...................................... 0 410 430
Granted at $16.00 to $19.50 per share.................. 410 170 0
Exercised at $16.00 per share.......................... 0 (130) 0
Canceled............................................... 0 (20) (430)
---- ---- ----
End of year............................................ 410 430 0
==== ===== ====
Exercisable --
End of year............................................ 244 234 --
==== ===== ====
Available for Grant --
End of year............................................ 90 70 --
==== ===== ====
</TABLE>

On December 30, 1993, the Company declared and paid a $25,000,000 dividend
to Cabot, financed through a $25,000,000 note payable to a bank.

(14) COMMITMENTS AND CONTINGENCIES

Compensation Plans

The Company provides performance-based compensation awards to executive
officers and key employees for achievement during each year as part of an annual
bonus plan. Such compensation awards are a function of individual performance
and consolidated operating results. Business unit performance is also a factor
used in determining compensation awards with respect to key employees who are
not executive officers. The Company also has an overall incentive plan which
provides performance-based compensation awards to all employees based on
consolidated operating results.

F-32
<PAGE> 98

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Upon consummation of the Acquisition, the Company adopted a supplemental
severance pay plan providing certain executive officers and key employees with
salary continuation, based on years of service, in the event of an eligible
termination. The plan provides for one month's base pay for each full year of
service with a minimum amount payable of three months and a maximum amount
payable of 12 months.

Lease Commitments

<TABLE>
The Company leases certain transportation vehicles, warehouse facilities,
office space, and machinery and equipment under cancelable and noncancelable
leases, most of which expire within 10 years and may be renewed by the Company.
Rent expense under such arrangements totaled $4,362,000, $4,268,000, $2,805,000
and $768,000 for the years ended September 30, 1993 and 1994, the period ended
July 11, 1995 and the period ended September 30, 1995, respectively. Future
minimum rental commitments under noncancelable leases in effect at September 30,
1995 are as follows (dollars in thousands):
<CAPTION>

<S> <C>
1996.............................................................. $ 3,445
1997.............................................................. 3,226
1998.............................................................. 3,109
1999.............................................................. 3,060
2000.............................................................. 3,148
2001 and thereafter............................................... 11,993
-------
$27,981
=======
</TABLE>

Contingencies

The Company is a defendant in various lawsuits and administrative
proceedings which are being handled in the ordinary course of business. In the
opinion of management of the Company, these suits and claims should not result
in final judgments or settlements which, in the aggregate, would have a material
adverse effect on the Company's financial condition or results of operations.

During fiscal 1995, the Company became aware that its French subsidiary has
been delinquent in the remittance of value-added tax payments to the French
government. The Company believes that any required tax payments and attendant
penalties will not have a material adverse effect on the Company's financial
condition or results of operations.

(15) ACQUISITION

On January 3, 1996, the Company acquired the stock of Eastern Safety
Equipment, Inc. (Eastern) for $6,800,000, subject to final closing adjustments,
as defined. In addition, the Company entered into noncompete and consulting
agreements that provide an aggregate of $1,000,000 in consideration to the
former controlling stockholder of Eastern. The transaction will be accounted for
using the purchase method of accounting. The pro forma impact of the transaction
is not material to the results of the periods presented.

At September 30, 1995, the Company had $3,000,000 in deposit pursuant to an
escrow agreement with the former stockholders of Eastern. This amount is
included in other assets on the accompanying balance sheet. These funds together
with additional borrowings under the revolving credit agreement were used to
fund the acquisition.

F-33
<PAGE> 99

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(16) FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

<TABLE>
All of Aearo Corporation's operations are included in the Safety and Energy
Absorbing Products industry segment. For the years ended September 30, 1993 and
1994, the period ended July 11, 1995 and the period ended September 30, 1995, no
single customer accounted for more than 10% of sales. Transfers between
geographic areas are recorded at cost plus markup or at market. Financial
information by geographic area for the years ended September 30, 1993 and 1994,
the period ended July 11, 1995 and the period ended September 30, 1995 is as
follows (dollars in thousands):
<CAPTION>

PREDECESSOR COMPANY
-------------------------------------- SUCCESSOR
YEAR ENDED SEPTEMBER COMPANY
30, PERIOD ENDED PERIOD ENDED
--------------------- JULY 11, SEPTEMBER 30,
1993 1994 1995 1995
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Sales:
United States --
Sales, excluding export sales..... $132,329 $138,336 $118,474 $ 36,366
Export sales...................... 8,903 11,959 9,599 3,818
-------- -------- -------- --------
Total U.S. sales............. 141,232 150,295 128,073 40,184
Canada............................... 11,713 11,834 10,098 3,102
Europe............................... 25,233 25,455 25,914 7,425
-------- -------- -------- --------
Total........................ 178,178 187,584 164,085 50,711
Less -- Eliminations................. 8,570 9,289 9,373 2,811
-------- -------- -------- --------
Net sales.................... $169,608 $178,295 $154,712 $ 47,900
======== ======== ======== ========
Operating Profit:
United States........................ $ 13,818 $ 15,213 $ 10,855 $ 4,624
Canada............................... 1,781 1,262 1,078 73
Europe............................... 6,727 6,253 6,585 1,208
-------- -------- -------- --------
Total operating profit....... 22,326 22,728 18,518 5,905
Interest expense, net................ 4,769 5,819 5,673 4,135
Unallocated corporate expenses(a).... 2,299 3,933 5,478 1,869
Foreign exchange (gain) loss......... 444 (28) (448) 60
-------- -------- -------- --------
Income before income taxes... $ 14,814 $ 13,004 $ 7,815 $ (159)
======== ======== ======== ========
Identifiable Assets:
United States........................ $119,998 $119,526 $189,328
Canada............................... 15,244 15,839 8,609
Europe............................... 28,200 35,788 20,326
-------- -------- --------
Total identifiable assets.... $163,442 $171,153 $218,263
======== ======== ========
<FN>

- ---------------
(a) Unallocated corporate expenses are corporate management costs and include
services provided by Cabot Corporation for the Predecessor.

</TABLE>

F-34
<PAGE> 100

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(17) SUBSEQUENT EVENTS

Common Stock Offering

On June , 1996, in connection with the Company's intention to complete an
initial public offering, the Company declared an 80 for 1 stock split effective
immediately and increased the number of authorized common shares to 50,000,000.
In addition, the Offering contemplates that 22,500 shares or 50% of the
Preferred Stock outstanding and related accrued dividends will be redeemed with
Offering proceeds and the remaining 50% will be converted into approximately
1,807,142 shares of common stock (based on an assumed initial public offering
price of $14.00 per share.) All previously reported share and per share amounts
have been retroactively restated to reflect the split. In addition, the proceeds
of the Offering will be used to redeem approximately $35 million in Subordinated
Notes and $4.6 million in loans under the Senior Bank Facilities. The
supplemental net income per share in the accompanying statements of operations
reflects the impact of the Offering, the Exchange Transaction and the use of
offering proceeds to redeem Preferred Stock and debt. Historical earnings per
share is not presented, as this amount would not be meaningful after the changes
in capital structure resulting from the Offering and Exchange Transaction.

Acquisition and Financing

On May 30, 1996, the Company acquired Peltor Holding AB for approximately
$86.0 million, subject to final closing adjustments, as defined. The transaction
will be acounted for using the purchase method of accounting. In connection with
the acquisition of Peltor Holding AB, the Company borrowed an additional $86
million under the Senior Bank Facilities, as amended.

The Senior Bank Facilities, as amended and restated as of May 30, 1996,
consist of (a) a secured term loan facility consisting of A and B term loans
providing for up to $90 million of A term loans and $50 million of B term loans
(collectively, the "Term Loans"); a portion of the A term loans is denominated
in an equivalent amount of foreign currencies and (b) a secured revolving credit
facility (the "Revolving Credit Facility") providing for up to $25 million of
revolving loans, a portion of which may be denominated in foreign currencies,
for general corporate purposes and, as to $15 million thereof, to finance
permitted acquisitions. As part of the Revolving Credit Facility, the Senior
Bank Facilities provide for the issuance of letters of credit in an aggregate
face amount of up to $5 million. The full amount of the Term Loans and no
advances under the Revolving Credit Facility were outstanding immediately after
giving effect to the Peltor Acquisition. The Term Loans will amortize quarterly
over a seven-year period. Amounts repaid or prepaid in respect of the Term Loans
may not be reborrowed. Loans and letters of credit under the Revolving Credit
Facility will be available at any time prior to the maturity date of the Senior
Bank Facilities as amended and restated.

At the Company's option, the interest rates per annum applicable to the
Senior Bank Facilities are either an adjusted rate based on the London Interbank
Offered Rate plus a margin of 2.25% in the case of A Term Loans and Revolving
Loans and 2.75% in the case of B Term Loans, or the Base Rate, as defined plus a
margin of 1.00% in the case of A Term Loans and Revolving Loans and 1.50% in the
case of B Term Loans. The Base Rate is the higher of Bankers Trust Company's
announced prime lending rate and the Overnight Federal Funds rate plus 0.50%.
The Company must pay certain fees in connection with the Senior Bank Facilities,
including a commitment fee ranging from 0.375% to 0.50% on the undrawn portion
of the commitments in respect of the Revolving Credit

F-35
<PAGE> 101

AEARO CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

Facility based upon the Company's leverage ratio, and fees relating to the
issuance of letters of credit.

The Senior Bank Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, create subsidiaries, issue capital stock or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the Senior Bank Facilities, the Company is
required to comply with specified financial ratios and tests, including a
minimum fixed charge coverage ratio, a minimum interest coverage ratio, a
maximum leverage ratio and a maximum capital expenditures test. The Senior Bank
Facilities also contain provisions that prohibit modifications to the terms of
the Subordinated Notes and prohibit the Company from refinancing the
Subordinated Notes, in each case, without the consent of the lenders under the
Senior Bank Facilities or as otherwise provided for therein.

F-36
<PAGE> 102

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of

PELTOR HOLDING AB
SWEDEN

We have audited the accompanying consolidated balance sheets of Peltor
Holding AB as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995, all expressed in thousands of
Swedish kronor. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion such consolidated financial statements present fairly, in
all material respects, the financial position of Peltor Holding AB as of
December 31, 1995 and 1994, and the results of its operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles in the United States of
America.

DELOITTE & TOUCHE AB

Malmo, Sweden
May 31, 1996

F-37
<PAGE> 103

PELTOR HOLDING AB

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF SWEDISH KRONOR, TSEK, EXCEPT PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ 43,312 34,067
Accounts receivable, net of allowance for doubtful accounts of
TSEK 260 and TSEK 218 at December 31, 1995 and 1994,
respectively.................................................... 31,958 29,768
Inventory........................................................ 61,047 52,928
Prepaid expenses and deferred income............................. 1,706 1,279
Deferred income taxes............................................ 1,407 1,401
Receivable from related party.................................... 15,479
Other current assets............................................. 4,815 3,546
------- -------
Total current assets........................................ 144,245 138,468
------- -------
Property, plant and equipment, net.................................... 43,401 41,031
Long-term note receivable and other assets............................ 53 352
Deferred income taxes................................................. 12,449
------- -------
Total assets................................................ 187,699 192,300
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. 15,673 10,573
Accrued interest................................................. 10 312
Accrued expenses and other current liabilities................... 19,637 15,121
Due to related party............................................. 7,856 --
Current tax liability............................................ 4,544 2,265
Current portion of long-term debt................................ 28,835 969
------- -------
Total current liabilities................................... 76,555 29,240
Deferred income taxes................................................. 264 --
------- -------
Long-term debt........................................................ 6,355 65,264
------- -------
Committments and Contingencies
Stockholders' equity:
Common Stock, par value of TSEK 5 per share;
878,050 shares issued and outstanding............................ 4,390 4,390
Contributed capital.............................................. 41,541 41,541
Capital deficiency at inception.................................. (33,649) (33,649)
Retained earnings................................................ 100,435 88,571
Cumulative translation adjustments............................... (8,192) (3,057)
------- -------
Total stockholders' equity.................................. 104,525 97,796
------- -------
Total liabilities and stockholders' equity.................. 187,699 192,300
======= =======
</TABLE>

See notes to consolidated financial statements.

F-38
<PAGE> 104

PELTOR HOLDING AB

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net Sales................................................. 278,808 231,557 194,659
Cost of sales............................................. 134,353 106,742 89,265
------- ------- -------
Gross profit.............................................. 144,455 124,815 105,394
------- ------- -------
Operating expenses:
Selling, general and administrative.................. 63,997 58,665 52,285
Research and development............................. 8,706 9,391 6,696
Management fee to related party...................... 10,500 -- --
------- ------- -------
Total operating expenses........................ 83,203 68,056 58,981
------- ------- -------
Operating profit.......................................... 61,252 56,759 46,413
------- ------- -------
Non-operating income (expenses):
Interest Income...................................... 1,622 1,673 4,013
Interest expense..................................... (3,293) (6,313) (12,729)
Currency (gain) loss................................. 1,844 1,125 (11,630)
------- ------- -------
Total non-operating expenses.................... 173 (3,515) (20,346)
------- ------- -------
Income before income taxes................................ 61,425 53,244 26,067
Income tax expense........................................ (21,061) (17,272) (7,589)
------- ------- -------
Net income................................................ 40,364 35,972 18,478
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-39
<PAGE> 105

PELTOR HOLDING AB

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
VOTING
COMMON STOCK CAPITAL CUMULATIVE
----------------- CONTRIBUTED DEFICIENCY RETAINED TRANSLATION
SHARES AMOUNT CAPITAL AT INCEPTION EARNINGS ADJUSTMENTS TOTAL
------- ------ ----------- ------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993...... 878,050 4,390 16,113 (33,649) 34,121 219 21,194
Net income............... 18,478 18,478
------- ----- ------ ------- ------- ------ -------
Balance, December 31, 1993.... 878,050 4,390 16,113 (33,649) 52,599 219 39,672
Net income............... 35,972 35,972
Cumulative Translation
Adjustment............. (3,276) (3,276)
Contributed Capital...... 25,428 25,428
------- ----- ------ ------- ------- ------ -------
Balance, December 31, 1994.... 878,050 4,390 41,541 (33,649) 88,571 (3,057) 97,796
Net income............... 40,364 40,364
Dividends paid........... (28,500) (28,500)
Cumulative Translation
Adjustment............. (5,135) (5,135)
------- ----- ------ ------- ------- ------ -------
Balance, December 31, 1995.... 878,050 4,390 41,541 (33,649) 100,435 (8,192) 104,525
======= ===== ====== ======= ======= ====== =======
</TABLE>

See notes to consolidated financial statements.

F-40
<PAGE> 106

PELTOR HOLDING AB

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... 40,364 35,972 18,478
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 6,088 6,707 5,811
Deferred income taxes................................. (12,707) 12,449 3,846
Provision for doubtful accounts....................... 260 218 97
Gain (loss) on sale of assets......................... 322 20 (36)
Changes in assets and liabilities which provided cash:
Decrease (Increase) in accounts receivable............ (2,232) 2,173 (5,398)
Decrease (Increase) in prepaid expenses and other
current assets...................................... 13,783 (10,936) (4,286)
Increase in inventory................................. (8,119) (2,474) (3,030)
Increase in accounts payable and accrued
liabilities......................................... 34,493 7,000 2,971
Other, net............................................ (231) 953 --
------- ------- ------
Net cash provided by operating activities........ 72,021 52,082 18,453
------- ------- ------
INVESTING ACTIVITIES
Proceeds from sale of equipment.......................... 645 601 64
Additions to property, plants and equipment.............. (9,412) (5,018) (6,992)
Deferred costs and other................................. 13,006 (1,614) 3,858
------- ------- ------
Net cash provided (used) in investing
activities..................................... 4,239 (6,031) (3,070)
------- ------- ------
FINANCING ACTIVITIES
Cash dividends paid...................................... (28,500) -- --
Payments of principal on amounts borrowed................ (33,380) (22,135) (7,224)
------- ------- ------
Net cash used in financing activities............ (61,880) (22,135) (7,224)
------- ------- ------
Effect of exchange rate changes on cash and short term
investments........................................... (5,135) (3,276) 2,094
------- ------- ------
Increase in cash and cash equivalents.................... 9,245 20,640 10,253
Cash and cash equivalents, beginning of period........... 34,067 13,427 3,174
------- ------- ------
Cash and cash equivalents, end of period................. 43,312 34,067 13,427
======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes.......................................... 6,028 3,901 7,308
======= ======= ======
Interest, net......................................... 2,016 4,913 8,744
======= ======= ======
</TABLE>

See notes to consolidated financial statements.

F-41
<PAGE> 107

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America. The
significant accounting policies of the Company are described below.

DESCRIPTION OF BUSINESS

Peltor Holding AB (Peltor or the Company) is incorporated in and has its
primary operations headquartered in Varnamo Sweden. The Company is primarily a
manufacturer and distributor of hearing protection equipment. The Company also
has operations in Germany, France, the United States of America, and the United
Kingdom. The accompanying consolidated financial statements include the accounts
of Peltor and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated.

The Company was formed in 1991 when the Founding Shareholders capitalized
the Company with a stock issuance of TSEK 2,000 and sold the underlying
operations to the Company for approximately TSEK 75,000. Contemporaneously, the
Company issued additional shares in exchange for approximately TSEK 17,500 to a
then unrelated third party (the Investor). Upon completion of these
transactions, the Founding Shareholders owned 64% of the outstanding stock of
the Company, 31% of the stock of the Company was owned by the Investor, and 5%
of the stock of the Company was owned by employees.

In 1994 the Investor exercised it's option to purchase all the stock of the
Company owned by the Founding Shareholders, including the 5% of previous
employee ownership that was acquired by the Founding Shareholders in 1994. In
connection with the Investors acquisition of the remaining 69% ownership of the
Company, the Founding Shareholders acquired an approximate 13% economic
ownership and 27% voting interest in the Investor. As a result of the Founding
Shareholders' continuing significant investment in the Company no change in the
basis of the underlying assets and liabilities of the Company have been
reflected in the consolidated financial statements of the Company, with all
assets and liabilities presented at historical amounts.

CASH AND CASH EQUIVALENTS consist of cash and highly liquid debt
instruments such as commercial paper and money market accounts purchased with an
original maturity date of less than three months.

INVENTORY is stated at the lower of cost or market, cost being determined
using the first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT are stated at cost. For financial reporting
purposes, depreciation is provided using the straight-line method over estimated
useful lives. Estimated useful lives are 25 years for building and improvements
and 3 to 8 years for machinery and equipment.

On an ongoing basis, management of the Company evaluates the carrying value
of property, plant and equipment by reviewing the performance of the underlying
operations, in particular, the future undiscounted operating cash flows
generated from the property, plant and equipment.

INCOME TAXES are recorded for all periods under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109. Accounting for Income Taxes.
SFAS No. 109 requires an asset and liability approach that recognizes deferred
tax assets and liabilities for the differences between the financial statement
carrying amount and the tax basis of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
years in which

F-42
<PAGE> 108

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

these temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period that includes the enactment date. In
addition, future tax benefits that result in deferred tax assets are recognized
to the extent realization of such benefits is more likely than not.

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

FOREIGN CURRENCY TRANSLATION assets and liabilities of the Company's
foreign operations are translated at year-end exchange rates. Revenues and
expenses are translated at the average rate during the year. Foreign currency
gains and losses arising from transactions are reflected in net income. Balance
sheet translation gains and losses are reflected as a separate component of
stockholder's equity.

The accompanying consolidated financial statements have been presented in
thousands of Swedish kroner, (TSEK), the functional currency of the Company.

ESTIMATES are made in the preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America and in Sweden. In making these estimates the Company makes
assumptions about amounts reported in the consolidated financial statements.
These estimates include the allowance for doubtful accounts, obsolete inventory,
and deferred income taxes, among others. These assumptions could change based
upon future experience and, accordingly, actual results may differ from these
estimates.

2. INVENTORY

Inventory consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Raw materials..................................... 21,700 16,838
Work in process................................... 16,760 18,205
Finished goods.................................... 22,587 17,885
------ ------
61,047 52,928
====== ======
</TABLE>

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land............................................ 3,190 2,851
Buildings and improvements...................... 40,089 38,021
Machinery and equipment......................... 36,754 32,509
------- -------
80,033 73,381
Less accumulated depreciation................... (36,632) (32,350)
------- -------
43,401 41,031
======= =======
</TABLE>

Depreciation expense for the years ended December 31, 1995, 1994 and 1993
was TSEK 6,088, 6,707 and 5,811, respectively.

F-43
<PAGE> 109

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

The Company leases certain property and equipment under agreements
generally with terms of four years and certain renewal options. Rental expense
for the years ended December 31, 1995, 1994 and 1993 was approximately TSEK 430,
445 and 455, respectively.

The minimum annual rental commitments under noncancelable operating leases
are as follows for each of the five years subsequent to December 31, 1995:

<TABLE>
<S> <C>
1996............................................................. 285
1997............................................................. 285
1998............................................................. 285
1999............................................................. 169
2000............................................................. 169
2001 and thereafter.............................................. 1,183
</TABLE>

4. LONG-TERM DEBT

Long-term debt consisted of the following on December 31:

<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Industrikredit AB payable September 30, 1996...................... $ 2,700 $ 2,850
(10,35% effective rate at December 31, 1995)
Industrikredit AB payable April 30, 1998.......................... 150 210
(12,25% effective rate at December 31, 1995)
Industrikredit AB (15,5% effective rate at December 31, 1994)..... -- 132
Gota Bank Currency Notes.......................................... 25,529 55,093
Ostgota Bank $100,000 payable April 30, 1996
(6,75% rate at December, 1995)
Richard Bowen $466,891 payable Mars 1999.......................... 3,782 4,376
(7,75% rate at December 1995)
Bezink Sparkasse Ettlingen payable Mars 31, 1997.................. 3,029 3,572
(5,357% effective rate at December 31, 1995)
35,190 66,233
-------- -------
Less current portion.............................................. (28,835) (969)
======== =======
$ 6,355 $65,264
======== =======
</TABLE>

At December 31, 1995 substantially all the assets of the Company are
pledged to collateralize the loans payable.

The Gota Bank Currency Notes outstanding at December 31, 1994 were due in
various foreign currencies, as follows:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deutsche Marks (DEM)................................... 20,521 34,566
Dutch Guilders (NLG)................................... 13,392
(CHF)................................... 5,008 7,135
------ ------
25,529 55,093
====== ======
</TABLE>

At December 31, 1995 the certain loans payable, primarily loans from
Industrikredit AB and the Gota Bank Currency Notes, have been classified as
current based upon managements intent to repay these loans prior to December 31,
1996.

F-44
<PAGE> 110

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

Annual maturities of all indebtedness, giving effect to managements
intentions discussed above, at December 31, 1995 are as follows:

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Payroll and benefits............................ 12,007 10,543
Value added taxes and other payables............ 7,630 4,578
------ ------
19,637 15,121
====== ======
</TABLE>

6. INCOME TAXES

The provision for income taxes consisted of the following for the years
ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------- -------- ------
<S> <C> <C> <C>
Current:
Swedish................................... 1,478 23,076 6,067
Foreign................................... 6,876 6,645 5,368
Deferred.................................... 12,707 (12,449) (3,846)
------ ------- ------
Total............................. 21,061 17,272 7,589
====== ======= ======
</TABLE>

The components of the net deferred asset were as follows at December 31:

<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Deferred Tax Assets:
Inventory................................... 1,407 1,316
Other assets................................ -- 162
Tax credits................................. -- 12,449
----- ------
Total.................................. 1,407 13,927
Deferred Tax Liability -- Net income
carryforward................................... (264) (77)
----- ------
Total.................................. 1,143 13,850
===== ======
</TABLE>

Deferred tax assets (liabilities) are reported in the consolidated balance
sheet as follows at December 31:

<TABLE>
<CAPTION>
1995 1994
----- ------
<S> <C> <C>
Current................................................. 1,407 1,401
Non Current............................................. (264) 12,449
----- ------
Total......................................... 1,143 13,850
===== ======
</TABLE>

F-45
<PAGE> 111

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

A reconciliation of the statutory Swedish income tax rate of 28% to the
effective rates of 34.3% , 32.4% and 29.1% for the years ended December 31,
1995, 1994 and 1993, respectively, is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Computed tax expense at the expected statutory
rate.......................................... 17,190 14,908 7,299
Foreign income taxes at higher rates............ 2,409 2,309 1,938
Income tax adjustments.......................... 1,427 -- --
Non deductible expenses and other............... 35 166 (1,148)
Tax exempt income............................... -- (111) (500)
------ ------ ------
Income tax expense.............................. 21,061 17,272 7,589
====== ====== ======
</TABLE>

No valuation allowance has been established for deferred taxes, as all
deferred taxes most likely will be realized.

One of the Swedish subsidiaries has been the subject of a routine tax audit
by the Swedish tax authorities. The preliminary conclusion of the audit is that
the subsidiary should be charged up to an additional TSEK 17,103 in taxes, fees
and interest. The Company has consulted with outside legal advisors and as a
result has recognized TSEK 1,427 as an expense in 1995, representing the likely
tax charge related to this matter. In the opinion of management of the Company
and its legal advisors the ultimate outcome of this matter will not be
materially different from the estimate accrued in 1995.

7. RELATED PARTY TRANSACTIONS

The Company has entered into employment agreements extending for periods up
to 12 months with certain key officers of the Company. These officers are in
some cases also members of the Board of Directors and shareholders of the
Company.

The Founding Shareholders of the Company, as defined in Note 1, jointly own
APAB AB. APAB AB has entered into a royalty agreement with Peltor. The royalties
paid in 1995 and 1994, respectively, amounts to TSEK 200 and TSEK 200. Certain
other former shareholders also have a royalty agreement with Peltor for the rest
of their lives. Royalties paid in 1995 and 1994 amounts to TSEK 317 and TSEK
317.

During 1995, the Company paid a management fees of TSEK 10,500 to the
Investor, as defined in Note 1. These fees related primarily to administrative
services. At December 31, 1995, TSEK 7,856 of these fees remain outstanding and
are reported as a current liability. Such amounts are noninterest bearing.

During 1994, the Company purchased an investment from the Investor for
approximately TSEK 8,000, which represented the Investors carrying value and the
fair value of the investment at the date purchased. The investment had a tax
basis of approximately TSEK 98,000 which carried over from the Investor. During
1994, the Company sold this investment for the approximate carrying value of
TSEK 8,000 and received a tax benefit of approximately TSEK 25,428. As no
amounts were remitted by the Company to the Investor for this tax benefit, it
has been reflected as a Capital Contribution in the accompanying consolidated
financial statements.

F-46
<PAGE> 112

PELTOR HOLDING AB

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF SWEDISH KRONOR, TSEK)

8. FOREIGN EXCHANGE CONTRACTS

The Company periodically enters into foreign exchange contracts for hedging
purposes. At December 31, 1995, there were no such contracts outstanding. Gains
and losses on the contracts which result from market risk associated with
changes in the market values of the underlying currencies are deferred and
reported as a part of the hedged item.

The Company does not enter into foreign exchange contracts for trading
purposes.

9. LITIGATION AND UNASSERTED CLAIMS

The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management of the Company, the
ultimate resolution of such legal proceedings and claims will not have a
material effect on the consolidated financial position or results of operations
of the Company.

10. RETAINED EARNINGS

Dividend distributions are required to be approved by a vote of the
shareholders. Dividends are allowed only to the extent of retained earnings,
based upon financial statements prepared in accordance with generally accepted
accounting principles in Sweden, which differ from accounting principles used to
prepare these consolidated financial statements. Retained earnings as determined
using accounting principles generally accepted in Sweden were approximately TSEK
105,408 at December 31, 1995.

11. FINANCIAL INSTRUMENTS

Financial instruments include cash and cash equivalents, accounts
receivable and long term debt.

The estimated fair values of financial instruments are determined using
available market information and valuation methodologies. However, considerable
judgment is required in interpreting data to develop the estimates of fair
value. Accordingly, the estimates as of December 31, 1995 and 1994 are not
necessarily indicative of the amounts that the Company could realized in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.

The fair value estimates are based on pertinent information available to
management as of December 31, 1995 and 1994. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
consolidated financial statements since that date, and current estimates of fair
value may differ significantly from the amounts estimated as of December 31,
1995 and 1994.

The Company places its cash and cash equivalents with high credit quality
financial institutions, thereby minimizing exposure to concentrations of credit
risk. Credit risk with respect to accounts receivable is limited due to the
number of customers comprising the Company's customer base.

At December 31, 1995 and 1994, the fair value of financial instruments
approximates the recorded amounts.

F-47
<PAGE> 113

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co. and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as representatives, has severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Goldman, Sachs & Co.................................................
Donaldson, Lufkin & Jenrette Securities Corporation.................

Total............................................................... 5,500,000
---------

</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 825,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 5,500,000 shares of Common
Stock offered.

The Company and all of the stockholders of the Company have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date 180 days after the date of this Prospectus, it will not
offer, sell, contract to sell or otherwise dispose of any securities of the
company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus) which are substantially similar to the shares of
Common Stock or which are convertible or exchangeable into securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered in
connection with this offering.

The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.

Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management, and the

U-1
<PAGE> 114

consideration of the above factors in relation to market valuation of companies
in related businesses.

The Company intends to apply for listing of the Common Stock on the New
York Stock Exchange under the symbol "AER". In order to meet one of the
requirements for listing the Common Stock on the New York Stock Exchange, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial holders.

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.

U-2
<PAGE> 115
(INSIDE BACK COVER)

(Photo: Six individual photos of each major product line)

HEARING PROTECTION: E-A-R is recognized worldwide as the leading brand name of
a wide variety of ear plugs and semi-aural devices. E-A-R's brand recognition is
so great, that the Company has successfully trademarked the color yellow for
ear plugs. Peltor is recognized worldwide as the leading brand name for ear
muff style hearing protection and communication devices.

PRESCRIPTION SAFETY EYEWEAR: AOSafety is the world's leading brand name for
prescription safety eyewear. AOSafety prescription eyewear programs are already
in place with over 350 of the Fortune 500 corporations.

PLANO EYEWEAR: AOSafety is also a leading brand name in plano (non-prescription
safety eyewear), and the Company believes its new Fectoids product line is the
most unique new eyewear product offered by any manufacturer.

RESPIRATORY: The AOSafety brand of respiratory products includes disposable
respirators; cartridge-equipped quarter-, half- and full-face masks; escape
respirators; and air line respirators.

CONSUMER: The Company is the leading supplier of a broad range of personal
protection products to the consumer/DIY market. The Company's AOSafety and
Eastern-branded products can be found in major retailers such as ACE, Home
Depot, Lowe's, Sears, and TrueValue.

E-A-R SPECIALTY COMPOSITES: This unique line of custom-formulated, engineered
polymers has seen substantial growth in recent years, and today can be found in
a wide variety of unique OEM (original equipment manufacturer) applications.
<PAGE> 116

================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 9
The Company.......................... 14
Use of Proceeds...................... 14
Dividend Policy...................... 14
Dilution............................. 15
Capitalization....................... 16
Selected Unaudited Pro Forma
Financial Data..................... 17
Selected Historical Consolidated
Financial Data..................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................. 29
Acquisition of Peltor................ 45
Management........................... 46
Principal Stockholders............... 52
Certain Relationships and Related
Transactions....................... 53
Description of Capital Stock......... 56
Description of Senior Bank
Facilities......................... 59
Shares Eligible for Future Sale...... 60
Legal Matters........................ 61
Experts.............................. 61
Additional Information............... 61
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>

================================================================================

5,500,000 SHARES

AEARO
CORPORATION

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

LOGO

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

GOLDMAN, SACHS & CO.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

REPRESENTATIVES OF THE UNDERWRITERS

================================================================================

<PAGE> 117

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the shares of Common
Stock:
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee...................... $32,716
NYSE filing fees......................................................... 86,350
NASD filing fees......................................................... 9,988
Blue Sky fees and expenses............................................... *
Printing expenses........................................................ *
Legal fees and expenses.................................................. *
Accounting fees and expenses............................................. *
Transfer Agent fees...................................................... *
Miscellaneous............................................................ *
-------
Total.......................................................... $ *
=======
<FN>

- ---------------
* To be completed by Amendment.

</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware (the
"Law") provides as follows:

"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

II-1
<PAGE> 118

(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.

(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.

(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.

(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.

(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

(i) For purposes of this section, references to "other enterprises" shall
include employee benefits plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.

II-2
<PAGE> 119

(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.

(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
of disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."

Section 102(b)(7) of the Law provides as follows:

"(b) In addition to the matters required to be set forth in the certificate
of incorporation by subsection (a) of this section, the certificate of
incorporation may also contain any or all of the following matters:

(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of this Title, or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
All references in this paragraph to a director shall also be deemed to refer (x)
to a member of the governing body of a corporation which is not authorized to
issue capital stock, and (y) to such other person or persons, if any, who
pursuant to a provision of the certificate of incorporation in accordance with
subsection (a) of Sec.141 of this title, exercise or perform any of the powers
or duties otherwise conferred or imposed upon the board of directors by this
title."

The Company maintains a director's and officer's liability insurance policy
which indemnifies directors and officers for certain losses arising from claims
by reason of a wrongful act, as defined therein, under certain circumstances.

In addition, the answer to this Item 14 incorporates by reference the
following: the information set forth under the caption "Management" contained in
the Prospectus; Article VII of the Second Amended and Restated Certificate of
Incorporation, as amended, of Aearo Corporation in substantially the form
included as Exhibit 3.1 to this Registration Statement; and Article V of the
Amended and Restated By-Laws of Aearo Corporation in substantially the form
included as Exhibit 3.2 to this Registration Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Aearo Corporation and the Subsidiary are Delaware corporations formed by
Vestar in July 1995 to effect the acquisition of substantially all of the assets
and certain liabilities of Old Cabot Safety Corporation and certain of its
affiliates. Old Cabot Safety Corporation was a wholly-owned subsidiary of Cabot
prior to the Formation Acquisition. Vestar invested $31.0 million and received
$22.5 million in Redeemable Preferred Stock and $8.5 million of Common Stock in
exchange for cash. A subsidiary of Cabot received $22.5 million of Redeemable
Preferred Stock and $8.5 million of Common Stock in exchange for assets
contributed to the Company. The Management Investors received $3.0 million in
Common Stock in exchange for cash and promissory notes. Vestar and Cabot each
own 50.0% of Redeemable Preferred Stock and 42.5% of Common Stock, and the
Management Investors own the remaining 15.0% of Common Stock. The Subordinated
Notes were sold to BT Securities Corporation and Chemical Securities, Inc. on
July 11,1995. See "Certain

II-3
<PAGE> 120

Relationships and Related Transactions -- The Formation Acquisition" and
"-- Other Relationships."

Aearo Corporation and the Subsidiary relied on Section 4(2) of the
Securities Act in effecting the offer and sale of Common Stock and Redeemable
Preferred Stock to Vestar and to Cabot's subsidiary. Aearo Corporation and the
Subsidiary relied on Rule 701 under the Securities Act in effecting sales of
Common Stock to the Management Investors.

The Subsidiary issued $100 million principal amount of 12 1/2% Senior
Subordinated Notes due 2005 under an indenture dated as of July 11, 1995 by and
between the Subsidiary and Fleet National Bank of Connecticut, as Trustee
(formerly Shawmut Bank Connecticut, N.A.). The Subordinated Notes are unsecured
obligations of the Subsidiary, ranking subordinate in right of payment to all
senior indebtedness of the Subsidiary. The Subordinated Notes are
unconditionally guaranteed by the Company. The Subsidiary and Aearo Corporation
relied on Section 4(2) of the Securities Act and Rule 144A thereunder in
effecting the offer and sale of the Subordinated Notes. In addition, Aearo
Corporation issued 8,000 shares of Common Stock to John W. Priesing in
connection with the commencement of his services as director of Aearo
Corporation in December 1995 for $20,000. Aearo Corporation relied on Section
4(2) of the Securities Act in effecting the offer and sale of such shares.

The Subsidiary and Aearo Corporation have reason to believe that all of the
foregoing investors were familiar with or had access to information concerning
the operations and financial condition of the Subsidiary and Aearo Corporation,
and all of those investors acquired the securities for investment and not with a
view to the distribution thereof. At the time of issuance, all of the
Subordinated Notes and shares of Common Stock and Redeemable Preferred Stock
were deemed to be restricted securities for purposes of the Securities Act and
the certificates representing such securities bore legends to that effect.

None of the transactions described above involved, or will involve, an
underwriter.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
(a) Exhibits
<CAPTION>

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* -- Form of Underwriting Agreement among the Underwriters named therein and the
Company.
2.1 -- Asset Transfer Agreement, dated as of June 13, 1995, among Aearo Inc. (formerly,
Cabot Safety Corporation), Cabot Canada Ltd., Cabot Safety Limited, Cabot
Corporation, Aearo Corporation (formerly, Cabot Safety Holdings Corporation), and
Cabot Safety Acquisition Corporation. (Incorporated by reference to Exhibit No.
2.1 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and
Aearo Corporation.)
2.2 -- Trademark Coexistence Agreement, dated July 11, 1995, between Cabot Corporation
and Cabot Safety Intermediate Corporation. (Incorporated by reference to Exhibit
No. 2.2 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc.
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).)
2.3 -- Subscription Agreement, dated July 11, 1995, between Aearo Corporation (formerly,
Cabot Safety Holdings Corporation) and Vestar Equity Partners, L.P. (Incorporated
by reference to Exhibit No. 2.3 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)
</TABLE>

II-4
<PAGE> 121

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.4 -- Stockholders' Agreement, dated as of July 11, 1995, among Vestar Equity Partners,
L.P., Cabot CSC Corporation, Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Cabot Corporation, and the Management Investors. (Incorporated by
reference to Exhibit No. 2.4 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)

2.5 -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995, between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and the Manage-
ment Investors (Senior Management). (Incorporated by reference to Exhibit No. 2.5
to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation.)

2.6 -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995, between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and the Manage-
ment Investors (Middle Management). (Incorporated by reference to Exhibit No. 2.6
to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation.)

2.7 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Intermediate Corporation. (Incorporated
by reference to Exhibit No. 2.7 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)

2.8 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Acquisition Limited (UK). (Incorporated
by reference to Exhibit No. 2.8 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)

2.9 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and between
Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot Safety
Acquisition Corporation and Cabot Safety Canada Acquisition Ltd. (Canada). (Incor-
porated by reference to Exhibit No. 2.9 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)

2.10 -- Bill of Sale and Assignment, dated as of July 11, 1995, made by Aearo Inc.
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., and Cabot Safety Limited
in favor of Aearo Corporation (formerly, Cabot Safety Holdings Corporation), Cabot
Safety Acquisition Corporation, Cabot Safety Intermediate Corporation, Cabot
Safety Acquisition Limited and Cabot Safety Canada Acquisition Ltd. (Incorporated
by reference to Exhibit No. 2.10 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation.)

2.11 -- Assumption Agreement, dated as of July 11, 1995, by Aearo Corporation (formerly,
Cabot Safety Holdings Corporation), Cabot Safety Acquisition Corporation, Cabot
Safety Intermediate Corporation, Cabot Safety Acquisition Limited and Cabot Safety
Canada Acquisition Ltd. in favor of Cabot Corporation, Aearo Inc. (formerly, Cabot
Safety Corporation), Cabot Canada Ltd. and Cabot Safety Limited. (Incorporated by
reference to Exhibit No. 2.11 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation.)
</TABLE>

II-5
<PAGE> 122

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.12 -- Worldwide Trademark Assignment, dated July 11, 1995, by Aearo Inc. (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation. (Incorporated
by reference to Exhibit No. 2.12 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)

2.13 -- Worldwide Copyright Assignment, dated July 11, 1995, by Aearo Inc. (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation. (Incorporated
by reference to Exhibit No. 2.13 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)

2.14 -- Worldwide Patent Assignment, dated July 11, 1995, by Aearo Inc. (formerly, Cabot
Safety Corporation) to Cabot Safety Intermediate Corporation. (Incorporated by
reference to Exhibit No. 2.14 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)

2.15 -- Management Advisory Agreement made as of July 11, 1995, among Aearo Inc.
(formerly, Cabot Safety Corporation), Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), Certain Subsidiaries of Aearo Corporation, Vestar Capital
Partners and Cabot Corporation. (Incorporated by reference to Exhibit No. 2.15 to
the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation.)

2.16 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1995 Employee
Stock Purchase Plan. (Incorporated by reference to Exhibit No. 2.16 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot
Safety Corporation) and Aearo Corporation.)

2.17 -- Assignment and Assumption Agreement dated July 11, 1995, by and between Aearo Inc.
(formerly, Cabot Safety Corporation) and Cabot Safety Acquisition Corporation with
Respect to the Installment Sale Agreement dated September 1, 1978 by and between
the Department of Community Affairs and Economic Development of the State of
Delaware and Specialty Composites Corporation (Predecessor to Cabot Safety
Corporation) Pertaining to Real Property Located in New Castle County, Delaware,
Tax Parcel Number 11-010.00-003 (Delaware IRB). (Incorporated by reference to
Exhibit No. 2.17 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Inc. and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

2.18 -- Assignment and Assumption Agreement dated July 11, 1995, by and between Cabot
Corporation and Cabot Safety Acquisition Corporation with Respect to that Certain
Loan Agreement dated as of June 1, 1982 by and between the City of Indianapolis,
Indiana and Cabot Corporation (Indianapolis IRB). (Incorporated by reference to
Exhibit No. 2.18 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)

2.19* -- Stock Purchase Agreement by and among Aearo Inc. (formerly, Cabot Safety
Corporation), Peltor Holding AB, Leif Palmaer Invest AB, Leif Anderzon Invest AB
and Active i Malmo, dated April 25, 1996.

2.20* -- Stock Purchase Agreement by and among Aearo Inc. (formerly, Cabot Safety
Corporation), Eastern Safety Equipment Co., Inc., Alfred H. Jacobson and William
Klein and Jack P. Hecht as Trustees of a certain Trust, dated September 19, 1995.
</TABLE>

II-6
<PAGE> 123

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1* -- Second Amended and Restated Certificate of Incorporation of Aearo Corporation
(formerly, Cabot Safety Holdings Corporation).

3.2* -- Amended and Restated By-Laws of Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).

4.1 -- Indenture dated as of July 11, 1995 between Aearo Inc. (formerly, Cabot Safety
Corporation), Aearo Corporation (formerly, Cabot Safety Holdings Corporation), and
Fleet National Bank of Connecticut (formerly, Shawmut Bank Connecticut, National
Association), as Trustee. (Incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation.)

4.2 -- Form of Note. (Incorporated by reference to Exhibit No. 4.2 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

4.3 -- Form of Exchange Note. (Incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot
Safety Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings Corpo-
ration).)

4.4 -- Registration Rights Agreement, dated as of July 11, 1995, among Cabot Safety
Acquisition Corporation, Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), BT Securities Corporation and Chemical Securities Inc. (Incorporated
by reference to Exhibit No. 4.4 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation.)

4.5 -- First Supplemental Indenture, dated December 6, 1995. (Incorporated by reference
to Exhibit No. 4.5 to the Annual Report on Form 10-K of Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) for the fiscal year ended September
30, 1995.)

5.1* -- Legality opinion of Goodwin, Procter & Hoar LLP.

10.1* -- Credit Agreement, dated as of July 11, 1995, and amended and restated as of May
30, 1996, among Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Aearo Inc. (formerly, Cabot Safety Corporation), Certain of its Subsidiaries,
Various Banks, and Bankers Trust Company as Co-Arranger and Administrative Agent.

10.2 -- US Pledge Agreement dated as of July 11, 1995, made by Cabot Safety Acquisition
Corporation, Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Intermediate Corporation and CSC FSC, Inc., in favor of Bankers Trust
Company as Collateral Agent for the Benefit of the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.2 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation.)

10.3 -- Foreign Pledge Agreement as of July 11, 1995, made by Cabot Safety Canada
Acquisition Limited and Cabot Safety Acquisition Limited in favor of Bankers Trust
Company as Collateral Agent for the Benefit of the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.3 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)
</TABLE>

II-7
<PAGE> 124

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.4 -- Charge Over United Kingdom Patents and Trademarks made the 11th Day of July, 1995,
by Cabot Safety Intermediate Corporation and the Bankers Trust Company as
Collateral Agent for Itself and for the Secured Creditors. (Incorporated by
reference to Exhibit No. 10.4 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation
(formerly, Cabot Safety Holdings Corporation).)

10.5 -- US Security Agreement dated as of July 11, 1995, among Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Safety Acquisition
Corporation, Cabot Safety Intermediate Corporation, CSC FSC, Inc., and Bankers
Trust Company as Collateral Agent for the Benefit of the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.5 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation.)

10.6 -- Canadian Security Agreement dated as of July 11, 1995, granted by Cabot Safety
Canada Acquisition Limited in favor of Bankers Trust Company as Collateral Agent
for the Benefit of the Secured Creditors. (Incorporated by reference to Exhibit
No. 10.6 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc.
(formerly, Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).)

10.7 -- English Security Agreement (The Debenture) made on the 11th Day of July, 1995
between the Cabot Safety Acquisition Limited and Bankers Trust Company as
Collateral Agent for Itself and for the Secured Creditors. (Incorporated by
reference to Exhibit No. 10.7 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation
(formerly, Cabot Safety Holdings Corporation).)

10.8 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in Marion County, Indiana) pertaining to Real Property located
at 7911 Zionsville Road, Indianapolis, Indiana. (Incorporated by reference to
Exhibit No. 10.8 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot
Safety Holdings Corporation).)

10.9 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to 10 Acre Site of
Unimproved Land adjacent to 5457 West 79th Street, Indianapolis, Indiana.
(Incorporated by reference to Exhibit No. 10.9 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

10.10 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to Real Property
located at 650 Dawson Drive, Newark, Delaware. (Incorporated by reference to
Exhibit No. 10.10 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)
</TABLE>

II-8
<PAGE> 125

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.11 -- Aearo Inc. (formerly, Cabot Safety Corporation) Employees' Retirement Account
Plan, dated as of May 1, 1990, as amended. (Incorporated by reference to Exhibit
No. 10.11 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc.
and Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

10.12 -- Fidelity Corporate (401(k)) Plan for Retirement, dated August 1, 1993, as amended.
(Incorporated by reference to Exhibit No. 10.12 to the Registration Statement on
Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

10.13 -- Aearo Inc. (formerly, Cabot Safety Corporation) Supplemental Executive Retirement
Plan, dated May 1, 1993. (Incorporated by reference to Exhibit No. 10.13 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)

10.14 -- Sublease, dated June 4, 1994, between C.W. Kay-Bee Inc. and Aearo Inc. (formerly,
Cabot Safety Corporation), pertaining to 8001-8003 Woodland Drive, Indianapolis,
Indiana, as amended. (Incorporated by reference to Exhibit No. 10.14 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).)

10.15 -- Sublease, dated April 16, 1990, between American Optical Corporation and Aearo
Inc. (formerly, Cabot Safety Corporation), pertaining to Southbridge,
Massachusetts manufacturing facility. (Incorporated by reference to Exhibit No.
10.15 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)

10.16* -- 1996 Stock Option Plan.

10.17* -- Employment Agreement between Peltor AB and Leif Palmaer, dated January 1, 1996.

10.18* -- Employment Agreement between Peltor AB and Leif Anderzon, dated January 1, 1996.

21.1* -- List of Subsidiaries.

23.1 -- Consent of Arthur Andersen LLP

23.2 -- Consent of Coopers & Lybrand L.L.P.

23.3 -- Consent of Deloitte & Touche AB
<FN>

- ---------------
(*) To be filed by amendment

</TABLE>

(b) Financial Statement Schedules

(1) The following Financial Statement Schedules of Cabot Safety are
filed herewith at the pages indicated below:

Report of Independent Certified Public Accountants

(2) The following Financial Statement Schedules of Holdings are filed
herewith at the pages indicated below:

Consent of Independent Auditors

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 20 of this Registration Statement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such

II-9
<PAGE> 126

liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof."

II-10
<PAGE> 127

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 30th day of May, 1996.

AEARO CORPORATION

/s/ JOHN D. CURTIN, JR.
By:
--------------------------------------

John D. Curtin, Jr.
Chairman and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Aearo Corporation hereby severally constitute John D. Curtin, Jr.,
Albert F. Young, Jr., Bryan J. Carey and Mark V.B. Tremallo, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, the
Registration Statement filed herewith and any and all amendments to said
Registration Statement (or any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933), and generally to do all such things in our names and in our capacities
as officers and directors to enable Aearo Corporation to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities of Aearo Corporation on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ JOHN D. CURTIN, JR. Chairman and Chief May 30, 1996
- ----------------------------------- Executive Officer
John D. Curtin, Jr. (Principal Executive Officer)

/S/ ALBERT F. YOUNG, JR. Director, President and May 30, 1996
- ----------------------------------- Chief Operating Officer
Albert F. Young, Jr.

/S/ BRYAN J. CAREY Treasurer and Vice President, Chief May 30, 1996
- ----------------------------------- Financial Officer, Assistant
Bryan J. Carey Secretary (Principal Accounting
Officer)

/S/ NORMAN W. ALPERT Director May 30, 1996
- -----------------------------------
Norman W. Alpert

/S/ DANIEL S. O'CONNELL Director May 30, 1996
- -----------------------------------
Daniel S. O'Connell
</TABLE>

II-11
<PAGE> 128

SIGNATURE TITLE DATE
--------- ----- ----

/S/ ARTHUR J. NAGLE Director May 30, 1996
- -----------------------------------
Arthur J. Nagle

/S/ KENYON C. GILSON Director May 30, 1996
- -----------------------------------
Kenyon C. Gilson

/S/ MARGARET J. HANRATTY Director May 30, 1996
- -----------------------------------
Margaret J. Hanratty

/S/ JOHN W. PRIESING Director May 30, 1996
- -----------------------------------
John W. Priesing

/S/ SAMUEL L. HAYES, III Director May 30, 1996
- -----------------------------------
Samuel L. Hayes, III

II-12
<PAGE> 129

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1* -- Form of Underwriting Agreement among the Underwriters named therein and the
Company.....................................................................

2.1 -- Asset Transfer Agreement, dated as of June 13, 1995, among Aearo Inc.
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., Cabot Safety
Limited, Cabot Corporation, Aearo Corporation (formerly, Cabot Safety
Holdings Corporation), and Cabot Safety Acquisition Corporation.
(Incorporated by reference to Exhibit No. 2.1 to the Registration Statement
on Form S-4, No. 33-96190, of Aearo Inc. and Aearo Corporation.)............

2.2 -- Trademark Coexistence Agreement, dated July 11, 1995, between Cabot
Corporation and Cabot Safety Intermediate Corporation. (Incorporated by
reference to Exhibit No. 2.2 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

2.3 -- Subscription Agreement, dated July 11, 1995, between Aearo Corporation
(formerly, Cabot Safety Holdings Corporation) and Vestar Equity Partners,
L.P. (Incorporated by reference to Exhibit No. 2.3 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation.)........................................

2.4 -- Stockholders' Agreement, dated as of July 11, 1995, among Vestar Equity
Partners, L.P., Cabot CSC Corporation, Aearo Corporation (formerly, Cabot
Safety Holdings Corporation), Cabot Corporation, and the Management Inves-
tors. (Incorporated by reference to Exhibit No. 2.4 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation.)........................................

2.5 -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and
the Management Investors (Senior Management). (Incorporated by reference to
Exhibit No. 2.5 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation.).....

2.6 -- Form of Executive Security Purchase Agreement, dated as of July 11, 1995,
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation) and
the Management Investors (Middle Management). (Incorporated by reference to
Exhibit No. 2.6 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo Corporation.).....

2.7 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Intermediate Corpora-
tion. (Incorporated by reference to Exhibit No. 2.7 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation.)........................................

2.8 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Acquisition Limited
(UK). (Incorporated by reference to Exhibit No. 2.8 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation.)........................................
</TABLE>

II-13
<PAGE> 130

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2.9 -- Assignment and Assumption Agreement, dated as of July 11, 1995, by and
between Aearo Corporation (formerly, Cabot Safety Holdings Corporation),
Cabot Safety Acquisition Corporation and Cabot Safety Canada Acquisition
Ltd. (Canada). (Incorporated by reference to Exhibit No. 2.9 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation.)...........................

2.10 -- Bill of Sale and Assignment, dated as of July 11, 1995, made by Aearo Inc.
(formerly, Cabot Safety Corporation), Cabot Canada Ltd., and Cabot Safety
Limited in favor of Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Cabot Safety Acquisition Corporation, Cabot Safety
Intermediate Corporation, Cabot Safety Acquisition Limited and Cabot Safety
Canada Acquisition Ltd. (Incorporated by reference to Exhibit No. 2.10 to
the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and
Aearo Corporation.).........................................................

2.11 -- Assumption Agreement, dated as of July 11, 1995, by Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Safety Acquisition
Corporation, Cabot Safety Intermediate Corporation, Cabot Safety Acquisition
Limited and Cabot Safety Canada Acquisition Ltd. in favor of Cabot
Corporation, Aearo Inc. (formerly, Cabot Safety Corporation), Cabot Canada
Ltd. and Cabot Safety Limited. (Incorporated by reference to Exhibit No.
2.11 to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc.
and Aearo Corporation.).....................................................

2.12 -- Worldwide Trademark Assignment, dated July 11, 1995, by Aearo Inc.
(formerly, Cabot Safety Corporation) to Cabot Safety Intermediate
Corporation. (Incorporated by reference to Exhibit No. 2.12 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

2.13 -- Worldwide Copyright Assignment, dated July 11, 1995, by Aearo Inc.
(formerly, Cabot Safety Corporation) to Cabot Safety Intermediate
Corporation. (Incorporated by reference to Exhibit No. 2.13 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

2.14 -- Worldwide Patent Assignment, dated July 11, 1995, by Aearo Inc. (formerly,
Cabot Safety Corporation) to Cabot Safety Intermediate Corporation.
(Incorporated by reference to Exhibit No. 2.14 to the Registration Statement
on Form S-4, No. 33-96190, of Aearo Inc. and Aearo Corporation (formerly,
Cabot Safety Holdings Corporation).)........................................

2.15 -- Management Advisory Agreement made as of July 11, 1995, among Aearo Inc.
(formerly, Cabot Safety Corporation), Aearo Corporation (formerly, Cabot
Safety Holdings Corporation), Certain Subsidiaries of Aearo Corporation,
Vestar Capital Partners and Cabot Corporation. (Incorporated by reference to
Exhibit No. 2.15 to the Registration Statement on Form S-4, No. 33-96190, of
Aearo Inc. and Aearo Corporation.)..........................................

2.16 -- Aearo Corporation (formerly, Cabot Safety Holdings Corporation) 1995 Em-
ployee Stock Purchase Plan. (Incorporated by reference to Exhibit No. 2.16
to the Registration Statement on Form S-4, No. 33-96190, of Aearo Inc.
(formerly, Cabot Safety Corporation) and Aearo Corporation.)................
</TABLE>

II-14
<PAGE> 131

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2.17 -- Assignment and Assumption Agreement dated July 11, 1995, by and between
Aearo Inc. (formerly, Cabot Safety Corporation) and Cabot Safety Acquisition
Corporation with Respect to the Installment Sale Agreement dated September
1, 1978 by and between the Department of Community Affairs and Economic
Development of the State of Delaware and Specialty Composites Corporation
(Predecessor to Cabot Safety Corporation) Pertaining to Real Property
Located in New Castle County, Delaware, Tax Parcel Number 11-010.00-003
(Delaware IRB). (Incorporated by reference to Exhibit No. 2.17 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

2.18 -- Assignment and Assumption Agreement dated July 11, 1995, by and between
Cabot Corporation and Cabot Safety Acquisition Corporation with Respect to
that Certain Loan Agreement dated as of June 1, 1982 by and between the City
of Indianapolis, Indiana and Cabot Corporation (Indianapolis IRB). (Incorpo-
rated by reference to Exhibit No. 2.18 to the Registration Statement on Form
S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and
Aearo Corporation (formerly, Cabot Safety Holdings Corporation).)...........

2.19* -- Stock Purchase Agreement by and among Aearo Inc. (formerly, Cabot Safety
Corporation), Peltor Holding AB, AB Leif Palmaer Invest AB, Leif Anderzon
Invest AB and Active i Malmo, dated April 25, 1996..........................

2.20* -- Stock Purchase Agreement by and among Aearo Inc. (formerly, Cabot Safety
Corporation), Eastern Safety Equipment Co., Inc., Alfred H. Jacobson and
William Klein and Jack P. Hecht as Trustees of a certain Trust, dated
September 19, 1995..........................................................

3.1* -- Second Amended and Restated Certificate of Incorporation of Aearo Corpora-
tion (formerly, Cabot Safety Holdings Corporation)..........................

3.2* -- Amended and Restated By-Laws of Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).......................................................

4.1 -- Indenture dated as of July 11, 1995 between Aearo Inc. (formerly, Cabot
Safety Corporation), Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), and Shawmut Bank Connecticut, National Association, as
Trustee. (Incorporated by reference to Exhibit No. 4.1 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. and Aearo
Corporation.)...............................................................

4.2 -- Form of Note. (Incorporated by reference to Exhibit No. 4.2 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).).....................................................

4.3 -- Form of Exchange Note. (Incorporated by reference to Exhibit No. 4.3 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).).....................................................

4.4 -- Registration Rights Agreement, dated as of July 11, 1995, among Cabot Safety
Acquisition Corporation, Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), BT Securities Corporation and Chemical Securities Inc.
(Incorporated by reference to Exhibit No. 4.4 to the Registration Statement
on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation.)........................................
</TABLE>

II-15
<PAGE> 132

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
4.5 -- First Supplemental Indenture, dated December 6, 1995. (Incorporated by
reference to Exhibit No. 4.5 to the Annual Report on Form 10-K of Aearo
Corporation (formerly, Cabot Safety Holdings Corporation) for the fiscal
year ended September 30, 1995.).............................................

5.1* -- Legality opinion of Goodwin, Procter & Hoar LLP.............................

10.1* -- Credit Agreement, dated as of July 11, 1995, and amended and restated as of
May 30, 1996, among Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Aearo Inc. (formerly, Cabot Safety Corporation), Certain of
its Subsidiaries, Various Banks, and Bankers Trust Company as Co-Arranger
and Administrative Agent....................................................

10.2 -- US Pledge Agreement dated as of July 11, 1995, made by Cabot Safety
Acquisition Corporation, Aearo Corporation (formerly, Cabot Safety Holdings
Corporation), Cabot Safety Intermediate Corporation and CSC FSC, Inc., in
favor of Bankers Trust Company as Collateral Agent for the Benefit of the
Secured Creditors. (Incorporated by reference to Exhibit No. 10.2 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation.)...........................

10.3 -- Foreign Pledge Agreement as of July 11, 1995, made by Cabot Safety Canada
Acquisition Limited and Cabot Safety Acquisition Limited in favor of Bankers
Trust Company as Collateral Agent for the Benefit of the Secured Creditors.
(Incorporated by reference to Exhibit No. 10.3 to the Registration Statement
on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation).)..............................................................

10.4 -- Charge Over United Kingdom Patents and Trademarks made the 11th Day of July,
1995, by Cabot Safety Intermediate Corporation and the Bankers Trust Company
as Collateral Agent for Itself and for the Secured Creditors. (Incorporated
by reference to Exhibit No. 10.4 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

10.5 -- US Security Agreement dated as of July 11, 1995, among Aearo Corporation
(formerly, Cabot Safety Holdings Corporation), Cabot Safety Acquisition
Corporation, Cabot Safety Intermediate Corporation, CSC FSC, Inc., and
Bankers Trust Company as Collateral Agent for the Benefit of the Secured
Creditors. (Incorporated by reference to Exhibit No. 10.5 to the
Registration Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly,
Cabot Safety Corporation) and Aearo Corporation.)...........................

10.6 -- Canadian Security Agreement dated as of July 11, 1995, granted by Cabot
Safety Canada Acquisition Limited in favor of Bankers Trust Company as
Collateral Agent for the Benefit of the Secured Creditors. (Incorporated by
reference to Exhibit No. 10.6 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................

10.7 -- English Security Agreement (The Debenture) made on the 11th Day of July,
1995 between the Cabot Safety Acquisition Limited and Bankers Trust Company
as Collateral Agent for Itself and for the Secured Creditors. (Incorporated
by reference to Exhibit No. 10.7 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation).).................
</TABLE>

II-16
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.8 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in Marion County, Indiana) pertaining to Real Property
located at 7911 Zionsville Road, Indianapolis, Indiana. (Incorporated by
reference to Exhibit No. 10.8 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation)...................

10.9 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to 10 Acre
Site of Unimproved Land adjacent to 5457 West 79th Street, Indianapolis,
Indiana. (Incorporated by reference to Exhibit No. 10.9 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation)................................................................

10.10 -- Mortgage and Security Agreement, Assignment of Leases, Rents and Profits,
Financing Statement, and Fixture Filing made by Cabot Safety Acquisition
Corporation, as Mortgagor, to Bankers Trust Company, as Collateral Agent, as
Mortgagee (recorded in New Castle County, Delaware) pertaining to Real
Property located at 650 Dawson Drive, Newark, Delaware. (Incorporated by
reference to Exhibit No. 10.10 to the Registration Statement on Form S-4,
No. 33-96190, of Aearo Inc. (formerly, Cabot Safety Corporation) and Aearo
Corporation (formerly, Cabot Safety Holdings Corporation)...................

10.11 -- Aearo Inc. (formerly, Cabot Safety Corporation) Employees' Retirement Ac-
count Plan, dated as of May 1, 1990, as amended. (Incorporated by reference
to Exhibit No. 10.11 to the Registration Statement on Form S-4, No.
33-96190, of Aearo Inc. and Aearo Corporation (formerly, Cabot Safety
Holdings Corporation).......................................................

10.12 -- Fidelity Corporate (401(k)) Plan for Retirement, dated August 1, 1993, as
amended. (Incorporated by reference to Exhibit No. 10.12 to the Registration
Statement on Form S-4, No. 33-96190, of Aearo Inc. (formerly, Cabot Safety
Corporation) and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation)................................................................

10.13 -- Aearo Inc. (formerly, Cabot Safety Corporation) Supplemental Executive
Retirement Plan, dated May 1, 1993. (Incorporated by reference to Exhibit
No. 10.13 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Inc. and Aearo Corporation (formerly, Cabot Safety Holdings Corporation)....

10.14 -- Sublease, dated June 4, 1994, between C.W. Kay-Bee Inc. and Aearo Inc.
(formerly, Cabot Safety Corporation), pertaining to 8001-8003 Woodland
Drive, Indianapolis, Indiana, as amended. (Incorporated by reference to
Exhibit No. 10.14 to the Registration Statement on Form S-4, No. 33-96190,
of Aearo Inc. and Aearo Corporation (formerly, Cabot Safety Holdings
Corporation)................................................................

10.15 -- Sublease, dated April 16, 1990, between American Optical Corporation and
Aearo Inc. (formerly, Cabot Safety Corporation), pertaining to Southbridge,
Massachusetts manufacturing facility. (Incorporated by reference to Exhibit
No. 10.15 to the Registration Statement on Form S-4, No. 33-96190, of Aearo
Inc. and Aearo Corporation (formerly, Cabot Safety Holdings Corporation)....
</TABLE>

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<TABLE>
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NUMBER DESCRIPTION PAGE
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10.16* -- 1996 Stock Option Plan......................................................

10.17* -- Employment Agreement between Peltor AB and Leif Palmaer, dated January 1,
1996.

10.18* -- Employment Agreement between Peltor AB and Leif Anderzon, dated January 1,
1996.

21.1* -- List of Subsidiaries........................................................

23.1 -- Consent of Arthur Andersen LLP..............................................

23.2 -- Consent of Coopers & Lybrand L.L.P. ........................................

23.3 -- Consent of Deloitte & Touche AB.............................................
<FN>

- ---------------
(*) To be filed by amendment

</TABLE>

II-18

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
May 31, 1996

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of
our report dated October 26, 1994 on our audits of the financial statements of
Aearo Inc., formerly Cabot Safety Corporation. We also consent to the reference
to our firm under the caption "Experts."

Coopers & Lybrand L.L.P.

Boston, Massachusetts
May 29, 1996

<PAGE> 1

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Aearo Corporation
on Form S-1 of our report dated May 31, 1996 related to the consolidated
financial statements of Peltor Holdings AB, appearing in the Prospectus, which
is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE AB

Malmo, Sweden
May 31, 1996