<HTML>
<HEAD>
<TITLE>AEARO TECHNOLOGIES INC.</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>As filed with the Securities and Exchange Commission on
November&nbsp;22, 2005</B>
</DIV>

<DIV align="right" style="font-size: 10pt;">
<B>Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</DIV>

<DIV align="center" style="font-size: 6pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt;">
<B>Form&nbsp;S-1</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>UNDER</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<DIV align="center" style="font-size: 24pt;">
<B>AEARO TECHNOLOGIES INC.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Exact name of registrant as specified in its charter)
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Delaware<BR>
     </B>(State or other jurisdiction of<BR>
    incorporation or organization)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>3990<BR>
     </B>(Primary Standard Industrial<BR>
    Classification Code Number)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>56-2443760<BR>
     </B>(I.R.S. Employer<BR>
    Identification No.)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>5457&nbsp;West
79<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&nbsp;Street</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Indianapolis, Indiana 46268</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(317)&nbsp;692-6666</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Address, including zip code, and telephone number, including
area code, of registrants&#146; principal executive offices)
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Jeffrey S. Kulka</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Chief Financial Officer, Senior Vice President and
Secretary</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>5457&nbsp;West
79<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&nbsp;Street</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Indianapolis, Indiana 46268</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(317)&nbsp;692-6666</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Name, address, including zip code, and telephone number,
including area code, of agent for service or process)
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>With copies to:</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Steven Khadavi,&nbsp;Esq.&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>Marc D. Jaffe,&nbsp;Esq.</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Dorsey&nbsp;&#38; Whitney LLP</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>Latham&nbsp;&#38; Watkins LLP</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>250 Park Avenue</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>885 Third Avenue</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>New York, New York 10177</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>New York, NY 10022</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>(212)&nbsp;415-9200</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>(212) 906-1200</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Approximate date of commencement of proposed sale to the
public:</B> As promptly as practicable after the effective date
of this Registration Statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule&nbsp;415 under the Securities Act of 1933, check the
following
box.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this form is filed to register additional securities for an
offering pursuant to Rule&nbsp;462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;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.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If delivery of the prospectus is expected to be made pursuant to
Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed&nbsp;Maximum</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed&nbsp;Maximum</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount of</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class of</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount to be</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Offering</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Aggregate</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registration</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Securities to be Registered</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registered</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Price Per Share</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Offering Price<SUP style="font-size: 85%; vertical-align: text-top">(1)(2)</SUP></B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Fee</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock, $0.01&nbsp;par value per share</DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $230,000,000</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $27,071</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule&nbsp;457(o) under the
    Securities Act of 1933, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Includes shares of common stock that the underwriters have the
    option to purchase solely to cover over-allotments, if any.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>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&nbsp;8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the
Commission, acting pursuant to said Section&nbsp;8(a), may
determine.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" cellpadding="5" style="border: 3pt double #000000; margin-bottom: 6pt; font-size: 10pt"><TR><TD>
<B><FONT style="font-size: 8pt" color="#E8112D">The information
in this prospectus is not complete and may be changed. We may
not and the selling stockholders may not sell these securities
until the Securities and Exchange Commission declares our
registration statement effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.</FONT></B><FONT style="font-size: 8pt"> <BR>


</FONT>
</TD></TR></TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 1pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#E8112D">Subject to completion, dated
November&nbsp;22, 2005</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Prospectus</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y13794y1379400.gif" alt="Aearo Logo">
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Aearo Technologies Inc.</B>
</DIV>

<DIV align="center" style="font-size: 16pt;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This is the initial public offering of shares of common stock of
Aearo Technologies Inc. No public market currently exists for
our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently anticipate that the initial public offering price
of our common stock will be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol &#147;AER.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are
offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
to be sold in the offering. The selling stockholders identified
in this prospectus are
selling &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock. We will not receive any of the proceeds from
the sale of the shares being sold by the selling stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Investing in the common stock involves risks that are
described in the &#147;Risk Factors&#148; section beginning on
page&nbsp;13 of this prospectus.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.</B>
</DIV>

<DIV align="left" style="font-size: 5pt; margin-top: 36pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 3.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public Offering Price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting Discount</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to Aearo Technologies Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to the selling stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The selling stockholders have granted the underwriters a 30-day
option to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares to cover any over-allotments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Delivery of shares will be made on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Joint Book-Running Managers</I>
</DIV>

<DIV style="margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 12pt;">

<TR>
    <TD width="33%"></TD>
    <TD width="33%"></TD>
    <TD width="33%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B>Bear, Stearns&nbsp;&#38; Co. Inc.</B></TD>
    <TD align="center"><B>Banc of America Securities LLC</B></TD>
    <TD align="right"><B>Deutsche Bank Securities</B></TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>JPMorgan</B>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Morgan Keegan&nbsp;&#38; Company, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="y13794y1379402.gif" alt="(COVER)">
</DIV>

<TABLE width="90%">
<TR><TD style="font-size: 1pt; color: #FFFFFF">HEARING
HEARING &#038; COMMUNICATIONS
EYE, FACE &#038; HEAD
PRESCRIPTION SAFETY EYEWEAR
RESPIRATORY
FALL PROTECTION
PRECISION ELECTRONICS
AVIATION
TRUCKING
INDUSTRIAL/MILITARY OEM
MANUFACTURER AND MARKETER OF PERSONAL PROTECTION EQUIPMENT ENERGY ABSORBING MATERIALS AND
SYSTEMS ARE USED IN A VARIETY OF END MARKETS
PROTECTING PEOPLE, PRODUCTS AND PERFORMANCE
AEARO TECHNOLOGIES</TD>
</TR>
</TABLE>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "PROSPECTUS SUMMARY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PROSPECTUS SUMMARY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>In this prospectus, the words &#147;Aearo,&#148; the
&#147;Company,&#148; &#147;we,&#148; &#147;us,&#148; and
&#147;our&#148; refer to Aearo Technologies Inc. (formerly known
as AC Safety Holding Corp.), a Delaware corporation, and its
subsidiaries; &#147;Aearo Corporation&#148; refers to Aearo
Corporation, a Delaware corporation and wholly-owned subsidiary
of Aearo Technologies Inc.; and &#147;Aearo Company&#148; refers
to Aearo Company&nbsp;I, a Delaware corporation and wholly-owned
subsidiary of Aearo Corporation. References to our fiscal year
refer to the twelve months ended September&nbsp;30 of each year.
The following summary contains basic information about us and
this offering. It likely does not contain all the information
that is important to you. For a more complete understanding of
this offering, we encourage you to read this entire document,
including the financial statements and related notes and the
documents we have referred you to.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a global leader in the hearing, eye, face, head,
respiratory and fall protection segments of the estimated
$15&nbsp;billion global personal protection equipment, or PPE,
market. We manufacture and sell technologically-advanced hearing
protection devices, communication headsets, prescription and
non-prescription safety eyewear, face shields, reusable and
disposable respirators, fall protection equipment, hard hats and
other safety products. Our products are sold in more than 70
countries under the well-recognized brand names AOSafety&#174;,
E-A-R&#174;, Peltor&#174; and SafeWaze&#174;. We also provide
engineered system solutions using a wide array of proprietary
energy absorbing composites that control noise, vibration and
shock and are incorporated into other manufacturers&#146;
products. These products are marketed under our brand name
E-A-R&#174; Specialty Composites. We place strong emphasis on
new product development, innovation and protection of
intellectual property. We believe that the strength of our brand
names; our reputation for developing high-quality, innovative
products; our coverage of multiple distribution channels
targeting a wide array of end-users; our broad product offering;
our global reach; and our commitment to providing exceptional
customer service have enabled us to achieve leading market
positions, strong margins and solid growth. Between fiscal year
2003 and fiscal year 2005, our net sales have increased at a
compounded annual growth rate of 15.7%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Segments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We operate three business segments:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Safety Products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Safety Prescription Eyewear; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Specialty Composites.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Through these three segments, we sell a wide range of products
to industrial distributors, as well as into the consumer,
military and construction channels and directly to industrial
companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Safety Products Segment (75% of fiscal 2005&nbsp;net
sales)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Safety Products segment manufactures and sells products
under the well-known brand names AOSafety&#174;, E-A-R&#174;,
Peltor&#174; and SafeWaze&#174;. These products serve a variety
of end-users, such as those in the construction, manufacturing,
transportation, forestry, textile, mining, military, motor
sports and health care markets. The products are categorized
into:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Passive Hearing Protection. Our passive hearing protection
    products consist of disposable and reusable earplugs and passive
    earmuffs. We have been a leader in hearing conservation research
    and development since 1972, when we first introduced the
    cylindrical disposable earplug currently known as the
    E-A-R&#174;<I> Classic&#174;</I>. Our product line includes an
    innovative line of reusable earplugs, including our
    UltraFit&#174; plugs, which are reusable and washable, and our
    Flex<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">TM</FONT></SUP>
    line of semiaural banded products which feature articulating
    arms that allow for use in multiple positions and easy storage
    around the neck.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Communication Headsets with Hearing Protection. In general,
    these headsets are equipped with noise attenuation features that
    are integrated into a variety of technologies, including FM
    radio, two-way radio, Bluetooth and duplex wireless
    communication, that permit the user to engage in a broad array
    of activities while receiving effective hearing protection.
    These products are marketed under the Peltor&#174; brand name
    and primarily serve the military, law enforcement, industrial,
    fire safety and recreational (e.g., hunting and motor sports)
    markets.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Eye Protection. We offer a range of non-prescription safety
    eyewear products under the AOSafety&#174; and Peltor&#174;
    brands with a variety of styles, frame colors and lens options.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Face and Head Protection. We offer a wide variety of
    use-specific face and head protection products, including face
    shields, visors and hard hats, under both the AOSafety&#174; and
    Peltor&#174; brands.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Respiratory Protection. We offer a broad line of disposable dust
    and mist masks, cartridge-equipped quarter, half and full-face
    respirators, and single-use, escape respirators for emergencies
    under the AOSafety&#174; brand.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Fall Protection. We offer a full line of fall protection
    equipment, including harnesses, lanyards and self-retracting
    lifelines. We market these products under the AOSafety&#174;<I>
    SafeWaze&#174;</I> brand.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Safety Prescription Eyewear Segment (9% of fiscal
2005&nbsp;net sales)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Safety Prescription Eyewear, or SRx, products are designed
to protect the eyes of workers who require corrective lenses
from the typical hazards encountered in industrial and other
work environments. We grind and shape lenses to the
end-user&#146;s prescription, and then assemble the glasses
using the end-user&#146;s choice of frame. We manufacture and
sell these products under the AOSafety&#174; brand to a wide
variety of end-user markets, such as utilities, transportation,
industrial manufacturing and federal, state and local
governments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Specialty Composites Segment (16% of fiscal 2005&nbsp;net
sales)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Specialty Composites segment manufactures a wide array of
energy-absorbing materials that control noise, vibration and
shock and are incorporated into other manufacturers&#146;
products. Specific product applications for Specialty
Composites&#146; materials, technology and engineering expertise
include thermal acoustical systems in business and regional jet
aircraft; protective and performance-enhancing components in
precision electronic equipment; thermal acoustical treatments
for heavy-duty trucks; and treatments to control noise,
vibration and shock in a wide range of industrial and commercial
equipment. Our Specialty Composites segment also produces the
specially formulated foams used in the manufacture of our Safety
Products&#146; earplugs.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Industries</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Personal Protection Equipment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Personal protection equipment encompasses all articles of
equipment and clothing worn for the purpose of protecting
against bodily injury, including safety eyewear and goggles,
earmuffs and earplugs, respirators, hard hats, fall protection
equipment, gloves, safety clothing and safety shoes. The size of
the global PPE market is approximately $15&nbsp;billion in
annual sales, and we expect it to continue to grow at its
historical annual growth rate of 3% to 4%&nbsp;per year over the
next several years. Within this global market, we primarily
compete in the approximately $4&nbsp;billion hearing, eye, face,
head, respiratory and fall protection segments. Historically,
overall demand for personal protection equipment has been
relatively stable due to government and industry regulations,
the diverse end-user customer base and the non-discretionary and
consumable nature of the products. We believe that the primary
factors driving growth of the PPE industry include:
(i)&nbsp;continued regulatory enforcement and compliance;
(ii)&nbsp;increased adoption of product standards; domestically
and internationally; (iii)&nbsp;increased consumer awareness and
demand for safety products; (iv)&nbsp;growth in the construction
market; and (v)&nbsp;increased military and law enforcement
spending.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Personal protection products are used in diverse end-markets
that include manufacturing, construction, utilities, public
security and law enforcement, military, motor sports,
do-it-yourself, or DIY, customers and hunters and shooters.
Several of these end-user segments, such as consumer, military
and construction, are growing more rapidly than the industry as
a whole as awareness of safety issues increases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The PPE market is highly fragmented. Participants in the
industry range in size from small, single-product companies to a
limited number of multinational corporations with multiple
product offerings. Competition is primarily based on product
characteristics (such as design, style and functional
performance), product quality, service, brand name recognition
and, to a lesser extent, price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Energy Absorbing Composites</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We compete, through our Specialty Composites segment, in the
energy absorbing composites industry, which consists of three
broad categories: barriers and absorbers for airborne noise
control, damping and isolation products for vibration and shock
control, and energy control products for vibration, shock
control and comfort management. We believe that growth in this
industry is driven by (i)&nbsp;new products requiring energy
absorbing solutions; (ii)&nbsp;new regulations impacting end
markets; (iii)&nbsp;manufacturing growth in developing markets
such as China; and (iv)&nbsp;increased applications for energy
absorbing materials.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Competitive Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Between fiscal years 2003 and 2005, our net sales increased at a
compounded annual growth rate of 15.7%, and for fiscal year
2005, we achieved gross margins of 48.8% and operating income
margins of 14.4%. We believe that our ability to generate these
exceptional growth rates and margins results from the following
competitive strengths:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Global market leader.</I> We are positioned as one of the few
large, global manufacturers in the highly fragmented PPE market.
Approximately 80% of our net safety products sales are derived
from products in which we estimate we hold the&nbsp;#1
or&nbsp;#2 global market position. For example, we believe we
are the&nbsp;#1 manufacturer of passive hearing protection
equipment, the&nbsp;#1 manufacturer of communication headsets
and the&nbsp;#2 manufacturer of eye protection products in the
world. Additionally, we believe we are&nbsp;#1 in the market for
safety products sold through the U.S.&nbsp;DIY/hardware channel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leading global brand names.</I> We market our broad range of
products primarily under four well-recognized brand names:
E-A-R&#174;, AOSafety&#174;, Peltor&#174; and SafeWaze&#174;.
Our yellow &#147;E-A-R&#174; Classic&#174;&#148; earplug color
is a registered trademark in the United States, Canada, Belgium,
Netherlands and Luxembourg, and customers associate the yellow
color with a brand they have used and trusted since its
introduction in 1972. AOSafety&#174; has its roots in the
American Optical Company, which introduced the first safety
glasses in 1910 and started its Industrial Eyewear Division in
1923. Peltor&#174; was founded in Sweden in the early 1950s and
introduced the first ear muff for hearing protection. Our strong
brand-name recognition stems from our significant investment in
the marketing and promotion of our brands, and our reputation
for manufacturing high quality, innovative products and
providing high levels of customer service. The recognition of
our brands and products facilitates our sales and marketing
efforts and provides a platform for line extensions and new
product launches. We believe that brand recognition and
reliability are key factors in our customers&#146; selection
process as these products prevent personal injury.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Successful history of product innovation.</I> We have
historically grown and gained market share through the
introduction of new and innovative products. We have
accomplished this by significantly increasing marketing and
research and development resources dedicated to new or improved
product development, which has allowed us to introduce an
increasing number of new or improved products over the last
five&nbsp;years. Notably, we have made recent investments in new
technologies such as application specific integrated circuit and
Bluetooth technology for use in communication headsets, and we
are currently investing in new platforms for active noise
reduction and duplex two-way communication. We have also
invested in China, establishing design, sourcing and sales
capabilities to enable us to sustain and expand our innovation
processes. Our investment is supported by our collaborative new
product development program, whereby our product
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
managers work closely with end-users to address defined problems
and create effective, comfortable and fashionable
high-performance safety products. As a result of our efforts, we
have achieved significant sales growth from new product
introductions. During fiscal 2005, more than one-third of our
combined gross Safety Products and Safety Prescription Eyewear
sales were derived from new or improved products (including line
extensions and existing products sold into new geographies and
channels) introduced since fiscal 2000. We continue to maintain
a strong new product pipeline, with more than 75 new or improved
products (including line extensions and existing products sold
into new geographies and channels) under development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leader in energy absorbing composites market.</I> Between
fiscal years 2002 and 2005, net sales of our Specialty
Composites segment increased at a compounded annual growth rate
of over 20%. We have achieved this growth by focusing on high
growth, value-added segments of the energy absorption industry.
For example, we manufacture damping materials for the hard disk
drive included in electronic products such as Apple
Computer&#146;s iPod. We compete primarily on the basis of our
leadership in foam chemistry and the design of integrated
thermal/acoustic systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Diverse business mix.</I> We derive our sales from a wide
range of end markets including the manufacturing, consumer,
military, construction, utility, transportation, government and
telecommunications markets. Over the last several years, we have
specifically targeted the consumer, military and construction
markets, which represented approximately 24% of our fiscal 2005
sales compared to less than 18% of our sales in fiscal 2002. In
addition, for fiscal 2005 our largest customer represented less
than 5% of our net sales, and our top 10 customers represented
less than 25% of net sales. Finally, foreign countries
contributed approximately 40% of our fiscal 2005&nbsp;net sales.
We have achieved strong geographic diversification through a
focused effort to grow our leading brand names in Europe and
other international markets. As a result, we currently sell our
products in more than 70 countries around the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Experienced and motivated management team.</I> We are led by
an experienced management team with a record of
(i)&nbsp;achieving profitable growth by building global brands;
(ii)&nbsp;driving productivity improvements; (iii)&nbsp;an
intense focus on operating discipline; (iv)&nbsp;introducing
innovative products; (v)&nbsp;maintaining long-term
relationships with customers and suppliers by focusing on
customer service; and (vi)&nbsp;integrating acquisitions. Chief
Executive Officer Michael McLain (along with certain other
senior management team members) joined our company in 1998 and
has been instrumental in implementing operational efficiencies
and continuous profitability enhancements. Our senior management
team has significant experience in the consumer and packaged
goods industries and understands the importance of brand
recognition and customer service to drive growth in a
competitive market. Following this offering, on a fully-diluted
basis, our management team will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common
stock.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Business Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Invest in technology capabilities.</I> We achieve growth by
bringing together: (i)&nbsp;our core competencies in the areas
of foam chemistry, optical molding, high speed automation and
the integration of electronics into hearing products;
(ii)&nbsp;our deep understanding of our end-users&#146; needs;
and (iii)&nbsp;our ability to adapt technology to develop new
products. As a result of our efforts, we have developed a
significant body of intellectual property assets, including a
portfolio of over 135 distinct patents with over 30 additional
patents pending. We seek to identify several new technology
development projects, and to capitalize on these opportunities
by investing in our infrastructure and by partnering with
outside development resources. In our Specialty Composites
segment, we will continue to invest in predictive analysis
capabilities that enable us to increase the speed and efficiency
with which we develop solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Grow our share in core industrial end-markets.</I> We plan to
continue to build our major brands, E-A-R&#174;, AOSafety&#174;,
Peltor&#174; and SafeWaze&#174;, through product innovation and
expansion into emerging markets.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Product innovation. We intend to develop new products based on
    demographics (e.g., colorful, patterned earplugs and fashionable
    eyewear to appeal to younger end-users) and for meeting specific
    end-user problems (e.g., metal detectable ear plugs,
    easy-to-remove respiratory masks, push-to-listen ear muffs and
    Bluetooth communication headsets that eliminate cables). We
    continue to maintain a</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    strong new product pipeline, with more than 75 new or improved
    products (including line extensions and existing products sold
    into new geographies and channels) under development.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Emerging markets. We have targeted the emerging markets of
    Eastern Europe, Russia and China to drive additional growth. The
    immediate potential within these markets includes sales to large
    multinational companies that implement their safety standards
    globally. To support this effort, we have recently added local
    infrastructure, hired local sales personnel, established
    relationships with local distributors, obtained local
    registrations where required and built local language websites.
    In 2005, we established sales offices in China and Russia, and
    we expect to significantly increase our presence in these
    markets. In the long term, we plan to focus on large locally
    owned enterprises and to work with local governments in
    promoting safety compliance programs.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Penetrate new end-markets. We have been expanding our sales
    beyond our traditional industrial and manufacturing base into
    markets that we expect will deliver significantly higher growth
    in the future. Our short term focus includes further penetrating
    the consumer, military and construction channels.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Consumer. We are benefiting from the strong continued growth in
    the consumer channel as safety awareness increases among
    consumers and small contractors. Our product quality and our
    experience in product styling, branding and packaging has given
    us a leadership position in the DIY/hardware segment, and we are
    leveraging that position to launch more premium products and
    expand our product lines.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Military. As militaries increasingly realize that personal
    protection equipment can improve the operational efficiency of
    troops, they have changed their approach to battlefield safety
    and communication. As a result, the military channel has
    experienced significant growth. We have invested, and continue
    to invest, in R&#38;D and marketing and sales infrastructure
    aimed at the military channel.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Construction. This segment is expected to be a source of growth
    because of the projected increase in construction employment and
    the increased regulatory focus on construction safety. We are
    taking numerous steps to increase our market share in this
    channel, including: (i)&nbsp;new product introductions;
    (ii)&nbsp;expansion of our fall protection manufacturing plant
    and warehouse to meet growing demand; (iii)&nbsp;construction of
    a new R&#38;D testing facility; and (iv)&nbsp;expansion of our
    sales, marketing and R&#38;D personnel.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leverage specialty composites momentum.</I> We intend to
leverage our technology leadership in thermal/acoustical systems
design and proprietary materials, thin sheet composites and high
performance materials to significantly increase sales in our
Specialty Composites segment. We are currently adding
infrastructure to ensure that we can meet the increasing demand
in each of our focus channels: precision electronics equipment;
business and regional jet aircraft; heavy duty truck; and
industrial OEM. To further benefit from demand in precision
electronics, we have recently established infrastructure in
Shenzhen, China (R&#38;D center, sales office and customer
service). We anticipate that this new China infrastructure will
allow us to capitalize on manufacturing growth in Asia by
providing us with local market presence, greater access to
customers, key supplier contacts and design support capabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Accelerate productivity improvements.</I> Over the last three
fiscal years, we have achieved manufacturing and logistics cost
savings of approximately $4&nbsp;million annually and increased
our gross profit margin as a result of disciplined and
productivity-focused management. We continue to focus on our
automated manufacturing processes and other ongoing continuous
improvement projects. We use well-established processes, such as
Kaizen programs, and in 2005 introduced demand flow technology
capabilities. Through external benchmarking, we identify our
manufacturing core competencies and actively outsource other
non-core processes to lower-cost locations. During 2005, we
contracted with a sourcing company in Asia to help us manage
product sourcing and added personnel in China to support this
effort. We initially plan to focus on obtaining improved pricing
on products already being outsourced and then evaluate
opportunities to outsource products currently manufactured
internally.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Pursue a focused acquisition strategy.</I> The global PPE
market is highly fragmented, comprised of several hundred
manufacturers, most of which are relatively small and
independent. As end-users and distributors are
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
reducing suppliers and acquisition opportunities continue to
arise, there is opportunity for consolidation. Since 1995, we
have successfully completed 11 acquisitions to support growth
and achieve greater operating efficiencies. Our acquisition
strategy is to selectively pursue attractive acquisitions that
enhance our existing product offering or enable us to enter new
segments. We intend to continue to selectively pursue
acquisitions that: (i)&nbsp;consolidate our position in the
hearing protection and safety eyewear markets; (ii)&nbsp;expand
product lines with leading brands in profitable and
higher-growth product categories and (iii)&nbsp;expand our
business in the consumer, military and construction markets.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Equity Sponsor</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Bear Stearns Merchant Banking, or BSMB, invests private equity
capital in compelling leveraged buyouts, recapitalizations and
growth capital opportunities alongside superior management
teams. BSMB is currently investing its $1.5&nbsp;billion
institutional private equity fund, Bear Stearns Merchant Banking
Partners&nbsp;II, L.P. and affiliated entities. Since its
inception in 1997, BSMB has been an investor in over 40
portfolio companies across a broad range of industries. In
addition to Aearo, recent investments by BSMB include ACA
Capital Holdings, Balducci&#146;s, CamelBak Products, Cavalry
Investments, Hand Innovations, New York&nbsp;&#38; Company,
Packaging Holdings, Reddy Ice, Seven For All Mankind, Stuart
Weitzman and Vitamin Shoppe.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Corporate Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a corporation organized under the laws of the State of
Delaware. Our principal executive office is located at
5457&nbsp;West 79th&nbsp;Street, Indianapolis, Indiana 46268 and
our telephone number is (317)&nbsp;692-6666.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The Offering</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    Issuer</TD>
    <TD></TD>
    <TD valign="top">
    Aearo Technologies Inc.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock offered</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    by us</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    by the selling stockholders</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Total offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Shares of common stock to be outstanding after this
    offering<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Proposed New York Stock Exchange symbol</TD>
    <TD></TD>
    <TD valign="top">
    &#147;AER&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Use of proceeds</TD>
    <TD></TD>
    <TD valign="top">
    We will not receive any proceeds from the sale of shares of
    common stock offered by the selling stockholders. We will use
    the net proceeds from the shares of common stock issued by us to
    repay a portion of the outstanding borrowings under our senior
    credit facility, repurchase all of our outstanding
    12.00%&nbsp;Senior Notes due 2013, or the 12.00%&nbsp;Notes, and
    pay all related fees and expenses. See &#147;Use of
    Proceeds.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Dividend policy</TD>
    <TD></TD>
    <TD valign="top">
    We have not declared or paid any dividends on our common stock
    since the acquisition of our company by Bear Stearns Merchant
    Banking on April&nbsp;7, 2004. We currently expect to retain
    future earnings, if any, for use in the operation and expansion
    of our business and do not anticipate paying any cash dividends
    in the foreseeable future. Our ability to pay dividends on our
    common stock is limited by the covenants of our senior credit
    facility and the indentures governing our outstanding debt
    securities. See &#147;Dividend Policy.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Risk Factors</TD>
    <TD></TD>
    <TD valign="top">
    You should carefully consider the information under the heading
    &#147;Risk Factors&#148; beginning on page&nbsp;13, as well as
    the other information contained in this prospectus before
    investing in our common stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The number of shares of common stock to be outstanding after
    this offering is based on shares of common stock outstanding as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005, and excludes:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock issuable upon exercise of outstanding options as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005 at a weighted average exercise price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share (of which options to
    acquire &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock were vested as
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005);&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock reserved for future grants under our Performance
    Incentive Plan.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>General Information About This Prospectus</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless otherwise indicated, the information in this prospectus:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes an offering price of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share of common stock, which represents the mid-point of the
    range set forth on the cover page of this prospectus;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    gives effect to the automatic vesting of all outstanding
    unvested restricted common stock upon the completion of this
    offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes no exercise of the underwriters&#146; over-allotment
    option to
    purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
    shares of common stock by the selling stockholders; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    gives effect to
    a &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-for-1
    split of our shares of common stock.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "Disclosure Regarding Forward-Looking Statements" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Disclosure Regarding Forward-Looking Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus contains &#147;forward-looking statements&#148;
within the meaning of the federal securities laws.
Forward-looking statements include statements concerning our
plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions
relating to acquisitions, business trends and other information
that is not historical information. When used in this
prospectus, the words &#147;estimates,&#148;
&#147;expects,&#148; &#147;anticipates,&#148;
&#147;projects,&#148; &#147;forecasts,&#148; &#147;plans,&#148;
&#147;intends,&#148; &#147;believes,&#148; &#147;may,&#148;
&#147;should&#148; and variations of these words or similar
expressions are intended to identify forward-looking statements.
All forward-looking statements, including without limitation,
management&#146;s examination of historical operating trends,
are based upon our current expectations and various assumptions.
Our expectations, beliefs and projections are expressed in good
faith and we believe there is a reasonable basis for them.
However, there can be no assurance that management&#146;s
expectations, beliefs and projections will result or be achieved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are a number of risks, uncertainties and other factors,
many of which are outside of our control, that could cause our
actual results to differ materially from the forward-looking
statements contained in this prospectus. Such factors may
include, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    personal safety equipment industry trends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general economic and business conditions, particularly an
    economic downturn;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    competition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    implementation of our business strategy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    retention of our senior management;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    availability and retention of qualified personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    ability to adequately protect our intellectual property;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    impact from certain product liability claims and environmental
    matters;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    ability to integrate acquisitions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    relationships with our customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    availability and terms of additional capital to fund our
    operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    fluctuations in exchange rates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restrictions imposed by our debt agreements; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the other factors set forth under &#147;Risk Factors.&#148;</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There may be other factors that could cause our actual results
to differ materially from the results referred to in the
forward-looking statements. All forward-looking statements
attributable to us or persons acting on our behalf apply only as
of the date of this prospectus and are expressly qualified in
their entirety by the cautionary statements included in this
prospectus. We undertake no obligation to publicly update or
revise forward-looking statements to reflect events or
circumstances after the date made or to reflect the occurrence
of unanticipated events.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Historical Consolidated Financial and Other Data</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, we acquired Aearo Corporation and its
subsidiaries for approximately $409.3&nbsp;million through a
merger of AC Safety Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Aearo Technologies Inc., with and
into Aearo Corporation. The summary historical consolidated
financial data as of and for the year ended September&nbsp;30,
2003 and as of and for the six months ended March&nbsp;31, 2004,
or the Predecessor data, reflects the historical basis of
accounting of these operations and the periods from and after
April&nbsp;1, 2004, or the Successor data, reflect the effects
of purchase accounting for the acquisition of these operations.
Accordingly, the Predecessor data is not comparable to the
results of operations for the periods from and after
April&nbsp;1, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The summary historical consolidated financial data as of and for
the year ended September&nbsp;30, 2003 and as of and for the six
months ended March&nbsp;31, 2004 are derived from the
consolidated financial statements of predecessor Aearo
Corporation. The summary historical consolidated financial data
as of and for the six months ended September&nbsp;30, 2004 and
as of and for the year ended September&nbsp;30, 2005 are derived
from the consolidated financial statements of successor Aearo
Technologies Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the information contained in this table in
conjunction with &#147;Selected Consolidated Historical
Financial and Other Data,&#148; &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&#148; and our historical consolidated financial
statements and the accompanying notes thereto of Aearo
Technologies Inc. included elsewhere in this prospectus.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (dollars in thousands except per share information)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statement of Operations Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net Sales&nbsp;&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>242,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>127,964</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>318,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,337</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,278</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Net Sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>423,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of Sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>164,019</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,056</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>118,491</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>216,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross Profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,523</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Expenses&nbsp;&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,835</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and technical service</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,623</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other charges (income), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring charge</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>) <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,420</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,786</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,549</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,871</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,734</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock dividend</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,930</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,207</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders per
    share<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP>:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.81</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70.76</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares
    outstanding<SUP style="font-size: 85%; vertical-align: text-top">(4)
    </SUP>:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,518,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,454</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,632,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EBITDA<SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,593</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>76,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,035</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,709</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,458</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,994</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(167,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,191</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,240</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>197,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35,707</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,931</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital expenditures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 9pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" valign="bottom"> <FONT style="font-size: 7pt"><B>As Adjusted<BR>September&nbsp; 30,<BR>2005<SUP style="font-size: 85%; vertical-align: text-top">(6) <HR size="1"></SUP></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance Sheet Data (at period-end):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,313</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,744</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,428</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>148,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>293,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>297,844</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>213,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>211,463</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>304,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,168</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</DIV>

<P align="center" style="font-size: 10pt;">11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    During fiscal 2003, we reversed $0.3&nbsp;million of reserves
    related to the September&nbsp;30, 2001 restructuring provision.
    The adjustment represents a change in estimate of the plan for
    the disposal of certain items of inventory. The inventory
    provision of $0.3&nbsp;million was classified as cost of sales.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    As a result of the merger agreement on April&nbsp;7, 2004, we
    recorded a non-recurring charge of $17.1&nbsp;million resulting
    from the write-up of inventory required by Statement of
    Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;141,
    Business Combinations, on the merger date and subsequent sale of
    such inventory.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    During the six month period ended March&nbsp;31, 2004, we
    reversed $1.1&nbsp;million of reserves related to the
    September&nbsp;30, 2001 restructuring provision. The adjustment
    represents a change in estimate related to amounts for
    non-cancelable lease obligations due to the renegotiation of the
    subject lease that was completed in the second quarter.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Does not give effect to the proposed stock split described
    elsewhere in this prospectus.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    EBITDA represents net income (loss) before interest expense,
    net, taxes and depreciation and amortization. For fiscal year
    2003, EBITDA includes $0.7&nbsp;million of legal expenses
    related to a lawsuit that was settled in 2005, $0.3&nbsp;million
    of income related to the reversal of excess reserves associated
    with the 2001 restructuring, a $0.7&nbsp;million management fee
    and $0.2&nbsp;million of expense related to non-cash charges.
    For fiscal year 2004, EBITDA includes a $17.1&nbsp;million
    charge related to the write-up of inventory on the merger date
    and subsequent sale of the inventory, a $1.5&nbsp;million bond
    call premium, $1.2&nbsp;million of legal expenses related to the
    2005 legal settlement, $1.1&nbsp;million of income related to
    the reversal of excess reserves associated with the 2001
    restructuring, $1.0&nbsp;million in management fees and
    $0.3&nbsp;million of income related to non-cash charges. For
    fiscal year 2005, EBITDA includes $2.3&nbsp;million of legal
    expenses related to the 2005 legal settlement, a
    $1.0&nbsp;million management fee and $1.2&nbsp;million of
    expense related to non-cash charges. EBITDA is presented because
    it is a management tool used to measure and monitor financial
    performance and it is frequently used by securities analysts,
    investors and other interested parties in the evaluation of
    companies in our industry, some of which present EBITDA when
    reporting their results. While we believe EBITDA is a useful
    indicator of our financial performance, it should not be
    considered as a substitute for net income (loss) determined in
    accordance with GAAP as an indicator of operating performance or
    as an alternative to cash flow as a measure of liquidity because
    EBITDA does not include reductions for cash payments for an
    entity&#146;s obligation to service its debt, fund its working
    capital, make capital expenditures and acquisitions and pay its
    income taxes. EBITDA is also not a measure of profitability
    because it does not include costs and expenses for depreciation
    and amortization, interest and related expenses and income
    taxes. In addition, investors should be aware that EBITDA may
    not be comparable to similarly titled measures presented by
    other companies and comparisons could be misleading unless all
    companies and analysts calculate this measure in the same
    fashion.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    The following table provides a reconciliation of EBITDA to net
    income (loss) for the periods presented above:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EBITDA</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,593</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>76,646</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19,587</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,549</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,908</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,096</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,551</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,734</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,752</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,369</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,173</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,860</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    The as adjusted balance sheet adjusts the historical data for
    the year ended September&nbsp;30, 2005 to give effect to this
    offering and the use of proceeds thereof as if they occurred on
    September&nbsp;30, 2005. The as adjusted financial data is for
    informational purposes only and should not be considered
    indicative of actual results that would have been achieved had
    these events actually been consummated on the dates indicated.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before investing in our common stock. Any of the
following risks could materially adversely affect our business,
financial condition or results of operations. In such case, you
may lose all or part of your original investment. The risks
described below are not the only risks facing us. Additional
risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially and
adversely affect our business, financial condition or results of
operations.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Relating to our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>If we fail to successfully introduce new products, we may
lose market position and our financial performance may be
negatively impacted.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In many of the markets in which we compete, new products and
product line extensions are frequently introduced. If we fail to
identify emerging consumer and technological trends, to maintain
and improve the competitiveness of our existing products or to
successfully introduce new products on a timely basis, we may
lose market position, which could have a material adverse effect
on our business, financial condition and results of operations.
Continued product development and marketing efforts have all the
risks inherent in the development of new products and line
extensions, including development delays, the failure of new
products and line extensions to achieve anticipated levels of
market acceptance and the cost of failed product introductions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>The markets in which we compete are highly
competitive.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The PPE and energy absorbing composites markets are highly
competitive. Our competitors range in size from small companies
focusing on single products to large multinational corporations
that manufacture and supply many types of products. Our main
competitors vary by region and product. We believe that
participants in this industry 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 our competitors have
greater financial and other resources than we do and may be able
to grow more quickly through strategic acquisitions and may be
able to better respond to changing business and economic
conditions. Our net income could be adversely affected by
competitors&#146; product innovations and increased pricing
pressure. Individual competitors have advantages and strengths
in different sectors of our markets, in different products and
in different areas, including manufacturing and distribution
systems, geographic market presence, customer service and
support, breadth of product, delivery time and price. Some of
our competitors also have greater access to capital and
technological resources and we may not be able to compete
successfully with them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The energy absorbing composites market is also very competitive
with competitors ranging from smaller companies competing in
single vertical segments to significantly larger companies that
participate in this market but have numerous other product lines
as well. Competitors vary by region and product lines. Our
profitability could be affected by competitor product
innovations, pricing pressures and mergers within this market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Downturns in the North American and European economies
could significantly reduce the demand for our products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The level of demand for our products depends on the general
economic conditions of the markets in which we compete. A
general economic decline in North America or Europe could
adversely affect our business, as customers tend to reduce their
purchases of our products during economic downturns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>If we are unable to retain senior executives and other
qualified professionals, our growth may be hindered, which could
negatively impact our results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success depends in part on our ability to attract, hire,
train and retain qualified managerial, sales and marketing
personnel. Competition for these types of personnel is intense.
We may be unsuccessful in
</DIV>

<P align="center" style="font-size: 10pt;">13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
attracting and retaining the personnel we require to conduct and
expand our operations successfully. Our results of operations
could be materially and adversely affected if we are unable to
attract, hire, train and retain qualified personnel. Our success
also depends to a significant extent on the continued service of
our management team. The loss of any member of the management
team could have a material adverse effect on our business,
results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We are subject to market risks with respect to industry
pricing of the raw materials we need to manufacture our
products.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We buy and consume a wide variety of raw materials in order to
manufacture our products. We are subject to market risks with
respect to industry pricing of such raw materials and we do not
enter into derivative instruments to manage such risk. If the
costs of these raw materials increase dramatically, it could
have a material adverse effect on our business, results of
operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Our continued success depends on our ability to protect
our intellectual property. If we are unable to protect our
intellectual property, our sales could be materially and
adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success depends, in part, on our ability to obtain and
enforce patents, maintain trade-secret protection and operate
without infringing on the proprietary rights of third parties.
We may find it necessary to initiate litigation to protect our
intellectual property. Litigation can be costly and time
consuming. Litigation expenses could be significant. In
addition, we may decide to settle legal claims, including
certain pending claims, despite our beliefs on the probability
of success on the merits, to avoid litigation expenses as well
as the diversion of management resources. While we have been
issued patents and have registered trademarks with respect to
many of our products and technologies, there can be no assurance
that our competitors will not infringe upon our patents or
trademarks, independently develop similar or superior products
or technologies, duplicate any of our designs, trademarks,
processes or other intellectual property or design around any
processes or designs on which we have or may obtain patents or
trademark protection. In addition, it is possible that third
parties may have or acquire other technology or designs that we
may use or desire to use, so that we may need to acquire
licenses to, or to contest the validity of, such third-party
patents or trademarks. Such licenses may not be made available
to us on acceptable terms, if at all, and we may not prevail in
contesting the validity of such third-party rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to patent and trademark protection, we also protect
trade secrets, know-how and other confidential information
against unauthorized use by others or disclosure by persons who
have access to them, such as our employees, through contractual
arrangements. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how
or other proprietary information. If we are unable to maintain
the proprietary nature of our technologies, our sales could be
materially adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have, and may need to acquire in the future, licenses
permitting us to use certain third-party technologies and
designs in connection with our business. We cannot be certain
that such licenses will continue to be available to us on
favorable terms, if at all. If we cannot acquire or maintain any
necessary license, or if any necessary license is too costly, we
may be prohibited from using certain technologies or designs in
our business, which could have an adverse effect on our
operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Litigation brought by third parties claiming infringement
of their intellectual property rights or trying to invalidate
intellectual property rights owned or used by us may be costly
and time consuming.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We face lawsuits from time to time alleging that our products
infringe on third-party intellectual property, and/or seeking to
invalidate or limit our ability to use our intellectual
property. If we become involved in litigation, we may incur
substantial expense defending these claims and the proceedings
may divert the attention of management, even if we prevail. An
adverse determination in proceedings of this type could subject
us to significant liabilities, allow our competitors to market
competitive products without a license from us, prohibit us from
marketing our products or require us to seek licenses from third
parties that may not be available on commercially reasonable
terms, if at all.
</DIV>

<P align="center" style="font-size: 10pt;">14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Product liability claims could have a material adverse
effect on our operating results.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We face an inherent business risk of exposure to product
liability claims arising from the alleged failure of our
products to prevent the types of personal injury or death
against which they are designed to protect. Any material
uninsured losses due to product liability claims that we
experience could subject us to material losses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In particular, we are a defendant in lawsuits by plaintiffs
alleging that they suffer from respiratory medical conditions,
such as asbestosis or silicosis, relating to exposure to
asbestos and silica, and that such conditions result, in part,
from the use of respirators that, allegedly, were negligently
designed or manufactured. The defendants in these lawsuits are
often numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. These lawsuits typically allege
that these conditions resulted in part from respirators that
were negligently designed or manufactured. Cabot Corporation has
retained all liabilities, including costs of defending claims,
resulting from respiratory products manufactured prior to our
acquisition of the business in July 1995. Many of these claims
are covered by the Asset Transfer Agreement entered into on
June&nbsp;13, 1995 by Aearo Company and Aearo Corporation, on
the one hand, and Cabot Corporation and certain of its
subsidiaries, or the Sellers, on the other hand, or the 1995
Asset Transfer Agreement. In the 1995 Asset Transfer Agreement,
so long as Aearo Corporation makes an annual payment of $400,000
to Cabot, the Sellers agreed to retain, and Cabot and the
Sellers agreed to defend and indemnify Aearo Corporation and its
subsidiaries against, any liability or obligation relating to or
otherwise arising under any proceeding or other claim against
Aearo Corporation and its subsidiaries or Cabot or their
respective affiliates or other parties with whom any Seller
directly or indirectly has a contractual liability sharing
arrangement which sounds in product liability or related causes
of action arising out of actual or alleged respiratory medical
conditions caused or allegedly caused by the use of respirators
or similar devices sold by Sellers or their predecessors
(including American Optical Corporation and its predecessors)
prior to July&nbsp;11, 1995. Nevertheless, we could potentially
be liable for these losses or claims if Cabot Corporation fails
to meet its obligations pursuant to our agreement with them. We
could also be liable if the alleged exposure involved the use of
products manufactured by us after our July 1995 acquisition of
the business. Cabot Corporation is currently handling the
defense of all the cases, and to date we have not incurred any
material costs with respect to these lawsuits. Consistent with
the experience of other companies involved in silica- and
asbestos-related litigation, there has been an increase in the
number of asserted claims that could potentially involve us. We
cannot determine our potential liability, if any, for such
claims, in part because the defendants in these lawsuits are
often numerous and the claims generally do not specify the
amount of damages sought. Additionally, bankruptcy filings of
companies with asbestos- and silica-related litigation could
increase our cost over time. If we are found liable in these
cases and Cabot Corporation fails to meet its obligations
pursuant to our agreement with them, it would have a material
adverse effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We could be required to recall or redesign our products if they
prove to be defective. We maintain insurance against product
liability claims (with the exception of asbestosis and silicosis
cases, for which coverage is not commercially available), but it
is possible that our insurance coverage will not continue to be
available on terms acceptable to us or that such coverage will
not be adequate for liabilities actually incurred. A successful
claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in
significant expense or adverse publicity against us, could have
a material adverse effect on our business, operating results and
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Environmental, health and safety requirements could expose
us to material obligations and liabilities.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to federal, state, local and foreign laws,
regulations and ordinances relating to the protection of the
environment, including those governing discharges to air and
water, handling and disposal practices for solid and hazardous
wastes, and occupational health and safety. The consequence for
violating such requirements can be material. We have made and
will continue to make capital and other expenditures to comply
with environmental and health and safety requirements. In
addition, if a release of hazardous substances occurs on or from
our properties or any offsite disposal location where our wastes
have been disposed, or if contamination from prior activities is
discovered at any of our properties or third-party owned
</DIV>

<P align="center" style="font-size: 10pt;">15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
properties that we or our predecessors formerly owned or
operated, we may be subject to liability arising out of such
conditions and the amount of such liability could be material.
Liability can include, for example, costs of investigation and
cleanup of the contamination, natural resource damages, damage
to properties and personal injuries. Environmental laws and
regulations are complex, change frequently and have tended to
become more strict over time. If more stringent environmental
laws or regulations are enacted, these future laws could have a
material adverse effect on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Our international operations are subject to various
uncertainties, and a significant reduction in international
sales of our products could have a material adverse effect on
our results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our international operations are subject to various political,
economic and other uncertainties which could adversely affect
our business. A significant reduction of our international
business would adversely affect our revenues. We operate
manufacturing, distribution and sales facilities in eight
foreign countries and sell our products in more than 70
countries. Approximately 40% of our fiscal 2005&nbsp;net sales
were made in foreign countries. These risks include unexpected
changes in regulatory requirements; currency exchange rate
fluctuations; changes in trade policy or tariff regulations;
customs matters; longer payment cycles; higher tax rates and
potentially adverse tax consequences, including restrictions on
repatriating earnings and the threat of &#147;double
taxation&#148;; additional tax withholding requirements;
intellectual property protection difficulties; difficulty in
collecting accounts receivable; complications in complying with
a variety of foreign laws and regulations, many of which
conflict with United States laws; costs and difficulties in
integrating, staffing and managing international operations; and
strains on financial and other systems to properly administer
VAT and other taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, foreign operations involve uncertainties arising
from local business practices, cultural considerations and
international political and trade tensions. If we are unable to
successfully manage the risks associated with expanding our
global business or to adequately manage operational fluctuations
internationally, it could have a material adverse effect on our
business, results of operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We expect that international sales will continue to
represent a significant percentage of our net sales, which
exposes us to currency exchange rate fluctuations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Because a significant percentage of our net sales are made in
foreign countries, our results of operations are subject to
risks associated with fluctuations in currency exchange rates.
While many of our selling and distribution costs are denominated
in Canadian and European currencies, a large portion of product
costs are U.S.&nbsp;dollar denominated. As a result, an increase
in the value of the U.S.&nbsp;dollar relative to other
currencies can have a negative impact on our profitability.
Also, our Swedish operations are affected by changes in exchange
rates relative to the Swedish Krona, and an increase in the
value of the Krona relative to other currencies can have a
negative impact on our profitability. We cannot predict whether
the foreign currency exchange risks inherent in doing business
in foreign countries will have a material adverse effect on our
operations and financial results in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We may be unable to successfully execute or effectively
integrate acquisitions, which may adversely affect our results
of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
One of our key operating strategies is to selectively pursue
acquisitions. Acquisitions involve a number of risks including
failure of the acquired businesses to achieve the results we
expect, diversion of our management&#146;s attention from
operational matters, our inability to retain key personnel of
the acquired businesses, risks associated with unanticipated
events or liabilities, the potential disruption of our existing
business, and customer dissatisfaction or performance problems
with the acquired businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If we are unable to integrate or successfully manage a business
that we may acquire in the future, we may not realize
anticipated cost savings, improved manufacturing efficiencies
and revenue growth. This may result in reduced profitability or
operating losses. In addition, we expect to face competition for
acquisition candidates, which may limit the number of our
acquisition opportunities and may lead to higher acquisition
prices. Moreover, acquisitions of businesses may require
additional debt financing, resulting in additional leverage. The
covenants in our senior credit facility and the indenture
governing our
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Subordinated Notes due 2012, or the
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes,
may further limit our ability to complete acquisitions. In
</DIV>

<P align="center" style="font-size: 10pt;">16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
addition, we may in the future pursue acquisitions of a
significantly larger scale than in the past, in which case these
risks would be intensified. The realization of all or any of the
risks described above could materially and adversely affect our
business, results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We do not have long-term contracts with many of our
customers.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not have contracts with many of our customers, and a
significant portion of the customer contracts that we do have,
are not long-term contracts. A significant number of our
customers may terminate their relationships with us at any time,
which could have a material adverse effect on our business,
results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Our results of operations and net sales are dependent on
existing regulations and standards. If these regulations or
standards are changed, our results and sales could be materially
and adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our products are and will continue to be subject to regulation
by various federal, state, local and foreign regulatory
authorities. Our net sales may be materially and adversely
affected by changes in safety regulations and standards covering
industrial workers in the United States, Canada and Europe,
including those of the Occupational Safety and Health
Administration or OSHA, the National Institute for Occupational
Safety and Health, or NIOSH, and the European Committee for
Standardization, or CEN. Our net sales could also be adversely
affected by a reduction in the level of enforcement of such
regulations. Changes in regulations could reduce the demand for
our products or require us to reengineer our products, thereby
creating opportunities for our competitors. If demand for our
products is reduced, our results of operations and net sales
could be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>As a public company, we will have to comply with certain
provisions of the Sarbanes-Oxley Act, as well as related rules
implemented by the SEC and the NYSE, which may divert company
and management resources.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a public company, we will be subject to the reporting
requirements of the Sarbanes-Oxley Act of 2002, as well as
related rules implemented by the SEC and the NYSE. Under
Section&nbsp;404 of the Sarbanes-Oxley Act, we will be required
to include a report of management on our internal control over
financial reporting in our Annual Report on Form&nbsp;10-K,
beginning with our Annual Report for the fiscal year ended
September&nbsp;30, 2007. Our independent registered public
accounting firm must attest to and report on management&#146;s
assessment of our internal control over financial reporting and
evaluate the effectiveness of internal control over financial
reporting. Such requirements may place a strain on our people,
systems and resources and will increase our legal and financial
compliance costs and could make some activities more costly and
time consuming. Management&#146;s attention may also be diverted
from other business concerns, which could have a material
adverse effect on our business, financial condition and results
of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the evaluation of disclosure controls and
procedures of our wholly-owned subsidiary, Aearo Company&nbsp;I,
for the fiscal year ended September&nbsp;30, 2005, management
identified a material weakness in the design of our internal
control over financial reporting in connection with interim
reporting of the tax effects of book and tax bases differences
for complex, non-routine business combinations. This material
weakness caused Aearo Company I to restate its financial results
for the fiscal quarters ended March&nbsp;31, 2005 and
June&nbsp;30, 2005. A material weakness is a significant
deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will
not be prevented or detected. If the auditors were to determine
that this deficiency were to still exist, or another new or
related deficiency were to develop, or if we were otherwise
unable to achieve and maintain effective internal controls on a
timely basis, management would not be able to conclude that we
have effective internal control over financial reporting for
purposes of Section&nbsp;404 of the Sarbanes-Oxley Act. In
addition, our independent registered public accounting firm
would not be able to certify as to the effectiveness of our
internal control over financial reporting when we are required
to obtain this certification beginning in September 2007. This
may subject us to adverse regulatory consequences and could
cause investors to lose confidence in the reliability of our
financial statements, which could result in a decline in our
common stock price.
</DIV>

<P align="center" style="font-size: 10pt;">17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also expect these rules and regulations may make it more
difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, we
may experience more difficulty attracting and retaining
qualified individuals to serve on our board of directors. We
cannot predict or estimate the amount of additional costs we may
incur as a result of these requirements or the timing of such
costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, we currently have only one director that qualifies
as an independent director under the rules of the SEC and the
NYSE and those rules require that we appoint additional
independent directors as needed, so that within one year of the
closing of this offering, a majority of our directors are
independent and all members of our Board committees are
independent. Any failure to appoint additional independent
directors as required by the NYSE would allow the NYSE to
de-list our common stock and could result in adverse publicity
and other sanctions, which could have a material adverse effect
on our results of operations and the market value of our common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We are a holding company and rely on dividends, interest
and other payments, advances and transfers of funds from our
operating subsidiary and investments to meet our debt service
and other obligations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have no direct operations and no significant assets other
than ownership of 100% of the stock of Aearo Corporation, which
in turn has no significant assets other than ownership of 100%
of the stock of Aearo Company. Because we conduct our operations
through our subsidiaries, we depend on those entities for
dividends and other payments to generate the funds necessary to
meet our financial obligations. Our subsidiaries, however, are
separate and distinct legal entities and they will have no
obligation, contingent or otherwise, to make any funds available
to pay those amounts, whether by dividend, distribution, loan or
other payments. Legal and contractual restrictions in agreements
governing current and future indebtedness, as well as the
financial condition and operating requirements of our
subsidiaries, may limit our ability to obtain cash from our
subsidiaries. Our senior credit facility and the indenture
governing our
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes
significantly restrict Aearo Company and its subsidiaries from
paying cash dividends or making other distributions or loans to
Aearo Corporation. See &#147;Description of Other
Indebtedness&nbsp;&#151; The Senior Credit Facility&#148; and
&#147;Description of Other Indebtedness&nbsp;&#151; The
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>
Senior Subordinated Notes due 2012.&#148; Subject to limitations
in our senior credit facility, our subsidiaries may also enter
into agreements that contain covenants prohibiting them from
distributing or advancing funds or transferring assets to us
under certain circumstances, including to pay dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>We have significant debt and the agreements governing our
indebtedness restrict our ability and the ability of most of our
subsidiaries to engage in some business and financial
transactions. Compliance with these restrictions could harm our
competitive position, and failure to comply with them could
result in an event of default and acceleration of our other
debt.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have now and, after this offering, will continue to have a
significant amount of indebtedness. On September&nbsp;30, 2005,
after giving effect to this offering and the use of proceeds
thereof, we would have had total indebtedness of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
Our senior credit facility and the indenture governing the
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes,
among other things, restrict our ability and the ability of our
restricted subsidiaries to, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    incur additional debt or issue preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pay dividends and make distributions on, or redeem or
    repurchase, capital stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    issue stock of subsidiaries;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    make investments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    create liens;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enter into transactions with affiliates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    merge or consolidate; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    transfer and sell assets.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
These restrictions could prevent us from taking actions we
otherwise would want to take, which could have a material and
adverse effect on our business. In addition, our senior credit
facility contains covenants that require us and our restricted
subsidiaries to maintain specified financial ratios and satisfy
other financial condition tests. The failure of Aearo Company to
comply with its obligations under our senior credit facility and
the indenture governing the
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes
may result in an event of default. A default, if not cured or
waived, may permit acceleration of our other indebtedness. See
&#147;Description of Other Indebtedness&nbsp;&#151; The Senior
Credit Facility&#148; and &#147;Description of Other
Indebtedness&nbsp;&#151; The
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>
Senior Subordinated Notes due 2012.&#148; We cannot be certain
that we will have funds available to remedy these defaults. If
our indebtedness is accelerated, we cannot be certain that we
will have sufficient funds available to pay the accelerated
indebtedness or that we will have the ability to refinance the
accelerated indebtedness on terms favorable to us or at all.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Relating to the Common Stock and this Offering</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>There is no existing market for our common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest will lead to the development of an active trading
market on the New York Stock Exchange or otherwise or how liquid
that market might become. The initial public offering price for
our shares of common stock will be determined by negotiations
among us, the selling stockholders and the representatives of
the underwriters and may not be indicative of the market price
of the common stock that will prevail in the open market
following this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Upon the issuance of additional securities and the
exercise or conversion of outstanding options, the ownership
interests of our stockholders will be diluted. In addition,
future sales or the possibility of future sales of a substantial
amount of our common stock may depress the price of shares of
our common stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
the prevailing market price of our common stock and could impair
our ability to raise capital through future sales of equity
securities. Upon the issuance of additional securities and
options and the exercise of outstanding options, your percentage
ownership may be diluted both in terms of book value and voting
percentage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, we may issue shares of our common stock or other
securities from time to time as consideration for future
acquisitions and investments. If any such acquisition or
investment is significant, the number of shares of our common
stock that we may issue may in turn be substantial. We may also
grant registration rights covering those shares of our common
stock or other securities in connection with any such
acquisitions and investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon consummation of this offering, there will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock outstanding. All shares of common stock sold
in this offering will be freely transferable without restriction
or further registration under the Securities Act of 1933. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding, including the shares owned by BSMB,
will be restricted securities within the meaning of
Rule&nbsp;144 under the Securities Act, but will be eligible for
resale subject to applicable volume, manner of sale, holding
period and other limitations of Rule&nbsp;144. The Company, its
directors and executive officers and substantially all of our
stockholders, including the selling stockholders, have agreed to
a &#147;lock-up&#148; with the underwriters of this offering,
pursuant to which neither we nor they will sell any shares
without the prior consent of Bear, Stearns&nbsp;&#38; Co. Inc.
for 180&nbsp;days after the date of this prospectus (which
period could be extended by Bear, Stearns &nbsp;&#38; Co. Inc.,
for an additional 34&nbsp;days under certain circumstances).
Following the expiration of the applicable lock-up period, all
these shares of our common stock will be eligible for future
sale, subject to the applicable volume, manner of sale, holding
period and other limitations of Rule&nbsp;144. See &#147;Shares
Eligible for Future Sale&#148; for a discussion of the shares of
common stock that may be sold into the public market in the
future.
</DIV>

<P align="center" style="font-size: 10pt;">19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Our common stock price may be volatile.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as general
economic, market or political conditions, could reduce the
market price of our common stock despite our operating
performance. In addition, our operating results could be below
expectations of public market analysts and investors and in
response, the market price of our common stock could decrease
significantly. Accordingly, you may be unable to resell your
shares of our common stock at or above the initial public
offering price. Some companies that have had volatile market
prices for their securities have had securities class action
suits filed against them. If a suit were to be filed against us,
regardless of the outcome, it could result in substantial costs
and a diversion of management&#146;s attention and resources.
This could have a material adverse effect on our business,
results of operations and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our common stock price may also fluctuate in response to a
number of events, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our operating results;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    future announcements concerning our business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    actions of competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    market and industry perception of our success, or lack thereof,
    in pursuing our strategy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in government and environmental laws and regulation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general market, economic and political conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    developments concerning intellectual property rights;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    natural disasters, terrorist attacks and acts of war; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    actions of stockholders, including sales of shares by our
    directors and executive officers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>Provisions of Delaware law and our organizational
documents may impede or discourage a takeover, which could
deprive our investors of the opportunity to receive a premium
for their shares.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions of our amended and restated certificate of
incorporation and amended and restated by-laws may make it more
difficult for, or prevent a third party from, acquiring control
of us without the approval of our board of directors. These
provisions include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability of our board of directors to designate one or more
    series of preferred stock and issue shares of preferred stock
    without stockholder approval;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the general inability of stockholders to act by written consent;
    and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    advance notice requirements for nominating directors or
    introducing other business to be conducted at stockholder
    meetings.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing factors and others available under Delaware law
could impede a merger, takeover or other business combination or
discourage a potential investor from making a tender offer for
our common stock or effecting any other change of control even
if a change of control would be beneficial to our existing
shareholders, which could reduce the market value of our common
stock. See &#147;Description of Capital Stock.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>You will suffer an immediate and substantial dilution in
the net tangible book value of the common stock you
purchase.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some prior investors have paid substantially less per share than
the price in this offering. The initial offering price is
expected to be substantially higher than the net tangible book
value per share of the outstanding common stock immediately
after this offering. Accordingly, based on an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range set forth on the cover page of
this prospectus),
</DIV>

<P align="center" style="font-size: 10pt;">20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
purchasers of common stock in this offering will experience
immediate and substantial dilution of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share in net tangible book value of the common stock. See
&#147;Dilution.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I>BSMB and its affiliates may continue to have substantial
control over us after this offering, and could limit your
ability to influence the outcome of matters requiring
shareholder approval and may also acquire businesses that
compete with us.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon consummation of this offering, affiliates of BSMB will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common
stock. The continued ownership of these shares of common stock
could have the effect of delaying or preventing a change of
control of us or could discourage a potential acquiror from
obtaining control of us, either of which could have an adverse
effect on the market price of our common stock or prevent you
from realizing a gain on your shares of common stock. In
addition, BSMB is in the business of making investments in
companies and may from time to time acquire and hold interests
in businesses that compete directly or indirectly with us. BSMB
may also pursue acquisition opportunities that may be
complementary to our business and as a result, those acquisition
opportunities may not be available to us.
</DIV>

<P align="center" style="font-size: 10pt;">21

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='104'></A>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We estimate net proceeds from the sale by us of our common
stock, after deducting underwriting discounts and estimated
offering expenses, of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
which is based on an assumed offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock, which represents the mid-point of the
range set forth on the cover page of this prospectus. We intend
to use the net proceeds of this offering to repay
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of outstanding indebtedness under our senior credit facility and
repurchase all of our outstanding 12.00%&nbsp;Notes, including
any premium associated with the repurchase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Borrowings under our senior credit facility mature on the dates
set forth in, and bear interest in the manner described under,
&#147;Description of Certain Indebtedness&nbsp;&#151; The Senior
Credit Facility.&#148; The 12.00%&nbsp;Notes mature on
May&nbsp;1, 2013 and bear interest at a rate of 12.00%&nbsp;per
annum. The net proceeds from the issuance of the
12.00%&nbsp;Notes were used to pay a dividend to Aearo
Technologies Inc. Aearo Technologies Inc. subsequently used such
proceeds to repurchase all of its outstanding shares of
preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Offering expenses include payments to BSMB in connection with
the termination of our professional services agreement in the
amount of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
in other fees and expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the aggregate, the selling stockholders and their affiliates
will receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of the net proceeds of this offering. We will not receive any
proceeds from the sale of common stock by the selling
stockholders.
</DIV>

<P align="center" style="font-size: 10pt;">22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DIVIDEND POLICY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We anticipate that we will retain any future earnings to support
operations and to finance the growth and development of our
business, and we do not expect to pay cash dividends in the
foreseeable future. Any future determination relating to our
dividend policy will be made at the discretion of our board of
directors and will depend on a number of factors, including
future earnings, capital requirements, financial conditions,
future prospects and other factors that the board of directors
may deem relevant. We have never declared or paid cash dividends
on our common stock. Additionally, our senior credit facility
and the instruments governing our outstanding debt securities
restrict the extent to which we, or any of our subsidiaries, may
declare or pay a cash dividend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividends</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Company I is permitted under our senior credit facility to
pay dividends to its parent, Aearo Corporation, for the purposes
of paying cash interest, when due, on its indebtedness if
certain conditions are met, and to pay up to $1.0 million per
fiscal year for expenses in the ordinary course of business. In
2006, there is no cash interest due on Aearo Corporation&#146;s
indebtedness; accordingly Aearo Company I will be prohibited
from paying dividends, other than for ordinary course expenses,
unless a consent or waiver of the senior credit facility is
obtained.
</DIV>

<P align="center" style="font-size: 10pt;">23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='106'></A>
</DIV>

<!-- link1 "DILUTION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DILUTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dilution is the amount by which:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the portion of the offering price paid by the purchasers of our
    common stock in this offering, exceeds</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the net tangible book value or deficiency per share of our
    common stock after the offering.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net tangible book value or deficiency per share of our common
stock is determined on any date of determination by subtracting
our total liabilities from our total tangible assets and
dividing the difference by the number of shares of common stock
deemed to be outstanding at that date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net tangible book value as of September&nbsp;30, 2005 was
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. After giving effect to our receipt and
intended use of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering, our as adjusted
net tangible book value as of September&nbsp;30, 2005 would have
been approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
(after adjustment), or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to existing stockholders and an
immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to new investors purchasing our common
stock in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table illustrates this substantial and immediate
dilution to new investors:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Initial public offering price per share of our common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net tangible book value (deficiency)&nbsp;per share as of
    September&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase per share attributable to cash payments made by
    investors in the offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma as adjusted net tangible book value
    (deficiency)&nbsp;after this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilution in net tangible book value per share to new investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth on a pro forma basis as of
September&nbsp;30, 2005, assuming no exercise of the
underwriters&#146; over-allotment option:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total number of shares of our common stock owned by our
    existing equity investors and our officers and the total number
    of shares of our common stock to be owned by the new investors
    purchasing our common stock in this offering, as represented by
    our common stock to be sold in this offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total consideration paid by the new investors purchasing our
    common stock in this offering;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the average price per share of existing common stock by our
    existing equity investors and our officers and the average price
    per share of our common stock to be paid by new investors
    purchasing our common stock in this offering.</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares of Common</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Stock Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Total Consideration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing Investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    New Investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CAPITALIZATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth our cash and cash equivalents and
capitalization as of September&nbsp;30, 2005 (i)&nbsp;on an
actual basis and (ii)&nbsp;on an as adjusted basis to give
effect to this offering at an assumed initial public offering
price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the mid-point of the range set forth on the cover of this
prospectus and the use of proceeds thereof. The information
should be read in conjunction with &#147;Use of Proceeds,&#148;
&#147;Selected Consolidated Historical Financial Data&#148; and
our consolidated historical financial statements and the
accompanying notes thereto included elsewhere in this prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(In millions)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Debt:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other
    debt<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;senior
    subordinated notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12.00%&nbsp;senior notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock, par value $0.01&nbsp;per share;
    actual&nbsp;&#151; (Cumulative dividend of $3,701 at
    September&nbsp;30, 2004); Authorized and issued&nbsp;&#151;
    76,168&nbsp;shares; Outstanding 76,168 and 0&nbsp;shares,
    respectively as
    adjusted, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, par value $0.01&nbsp;per share; actual,
    Authorized&nbsp;&#151; 3,849,999&nbsp;shares; Issued&nbsp;&#151;
    2,527,801&nbsp;shares, and Outstanding&nbsp;&#151; 2,527,214 as
    adjusted, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock subscription receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock, at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85.9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained
    earnings<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>391.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Includes mortgage notes and capitalized leases.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    As adjusted retained earnings reflects the write-off of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    of deferred financing fees, net of taxes, associated with
    repayment of indebtedness under our senior credit facility and
    the repurchase of our 12.00%&nbsp;Notes, including any premium
    associated with the repurchase.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">25

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='108'></A>
</DIV>

<!-- link1 "SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, we acquired Aearo Corporation and its
subsidiaries for approximately $409.3&nbsp;million through a
merger of AC Safety Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Aearo Technologies Inc. with and
into Aearo Corporation. The selected historical consolidated
financial data as of and for the years ended September&nbsp;30,
2003, 2002 and 2001 and as of and for the six months ended
March&nbsp;31, 2004, or the Predecessor data, reflects the
historical basis of accounting of these operations. The selected
historical consolidated financial data for the periods from and
after April&nbsp;1, 2004, or the Successor data, reflect the
effects of purchase accounting for the acquisition of these
operations. Accordingly, the Predecessor data is not comparable
to the results of operations for the periods from and after
April&nbsp;1, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The summary historical consolidated financial data as of and for
the years ended September&nbsp;30, 2001, 2002 and 2003 and as of
and for the six months ended March&nbsp;31, 2004 are derived
from the consolidated financial statements of predecessor Aearo
Corporation. The selected historical consolidated financial data
as of and for the six months ended September&nbsp;30, 2004 and
as of and for the year ended September&nbsp;30, 2005 are derived
from the consolidated financial statements of successor Aearo
Technologies Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the information contained in this table in
conjunction with &#147;Summary Consolidated Historical Financial
and Other Data,&#148; &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations&#148;
and our historical consolidated financial statements and the
accompanying notes thereto of Aearo Technologies Inc. included
elsewhere in this prospectus.
</DIV>

<P align="center" style="font-size: 10pt;">26

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (dollars in thousands except per share information)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statement of Operations Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net Sales&nbsp;&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>206,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>208,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>242,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>127,964</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>318,450</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,834</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,337</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,446</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,278</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,524</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Net Sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>283,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>286,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>423,420</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of Sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155,213</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,397</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>164,019</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,056</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>118,491</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>216,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross Profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>128,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>136,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,523</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Expenses&nbsp;&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,835</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,232</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and technical service</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,623</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,175</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,229</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other charges (income), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring charge</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(100</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>) <SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,420</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,786</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,549</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,096</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,752</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,871</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,690</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,734</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,880</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock dividend</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,930</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,084</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(13,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,360</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,207</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,854</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders per
    share<SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP>:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(128.23</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(32.95</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.81</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(128.83</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32.95</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70.76</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.92</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares
    outstanding<SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP>:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>102,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,518,181</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>102,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,454</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,632,520</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,173</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,860</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital expenditures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance Sheet Data (at period-end):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>261,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>270,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>293,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>297,844</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>202,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>213,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>211,463</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>304,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355,057</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholder&#146;s equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,168</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,294</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    On September&nbsp;30, 2001, we recorded a restructuring charge
    of $11.4&nbsp;million related to a restructuring plan announced
    by us to improve our competitive position and long-term
    profitability. The plan included the closure of our Ettlingen,
    Germany plant, significantly reorganizing operations at the our
    Varnamo, Sweden plant, rationalizing the manufacturing assets
    and product mix of</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">27

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">our Specialty Composites business
    unit and a reduction of products and product lines (see
    Note&nbsp;15 to our consolidated financial statements included
    elsewhere in this prospectus).
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">During fiscal 2002, we reversed
    $0.6&nbsp;million of reserves related to the September&nbsp;30,
    2001 restructuring provision. The adjustment represents a change
    in estimate of the plan for the disposal of certain items of
    inventory and the closure of our Ettlingen, Germany plant. The
    inventory provision of $0.5&nbsp;million was classified as cost
    of sales with the remaining $0.1&nbsp;million classified as
    operating expenses.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">During fiscal 2003, we reversed
    $0.3&nbsp;million of reserves related to the September&nbsp;30,
    2001 restructuring provision. The adjustment represents a change
    in estimate of the plan for the disposal of certain items of
    inventory. The inventory provision of $0.3&nbsp;million was
    classified as cost of sales.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">During the six month period ended
    March&nbsp;31, 2004, we reversed $1.1&nbsp;million of reserves
    related to the September&nbsp;30, 2001 restructuring provision.
    The adjustment represents a change in estimate related to
    amounts for non-cancelable lease obligations due to the
    renegotiation of the subject lease that was completed in the
    second quarter.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">As a result of the Merger on
    April&nbsp;7, 2004, we recorded a non-recurring charge of
    $17.1&nbsp;million resulting from the write-up of inventory
    required by Statement of Financial Accounting Standards
    (&#147;SFAS&#148;) No.&nbsp;141, Business Combinations, on the
    merger date and subsequent sale of such inventory.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">Does not give effect to the
    proposed stock split discussed elsewhere in this prospectus.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion should be read in conjunction with
&#147;Selected Consolidated Historical Financial Data,&#148; and
the consolidated financial statements of the Company, including
the notes thereto, appearing elsewhere in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a global leader in the hearing, eye, face, head and
respiratory protection segments of the approximately
$15&nbsp;billion global personal protection equipment, or PPE,
market. We manufacture hearing protection devices, communication
headsets, prescription and non-prescription safety eyewear, face
shields, reusable and disposable respirators, fall protection
equipment, hard hats and first aid kits that enhance the health
and safety of workers. Our products are manufactured and
marketed under the brand names AOSafety&#174;, E-A-R&#174;,
Peltor&#174; and SafeWaze&#174;, which are well known in the PPE
market. We also manufacture a wide array of energy-absorbing
materials that are incorporated into other manufacturers&#146;
products to control noise, vibration and shock. These products
are marketed under our brand name E-A-R&#174; Specialty
Composites.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are committed to be the PPE market leader with value-added
products and global, leading brands. We believe that the
strength of our brand names, our reputation for developing and
providing high-quality, innovative products, our intensive
coverage of multiple distribution channels targeting a wide
array of end-users, our broad product offering, and our
commitment to providing a high level of customer service have
enabled us to achieve leading positions in market segments in
which we compete.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We sell our products in more than 70 countries and approximately
40% of our sales are made outside of the United States.
Accordingly, our businesses are affected by levels of industrial
activity and economic conditions in the U.S. and in other
countries where our products are sold and by the relationship of
the U.S.&nbsp;dollar to other currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The PPE market is driven in part by the introduction and
continued adherence to increased governmental safety standards
for the health and safety of workers. Within the United States
and Europe, we anticipate that regulators will continue to
enforce compliance as well as introduce new safety standards.
The PPE market is also highly competitive and therefore requires
dedication to the introduction of new products and product line
extensions as well as productivity improvements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In recent years we have focused on initiatives intended to
foster share growth in our core markets through superior product
innovation, differentiated &#147;go-to-market&#148; strategies
and improved emerging market penetration. In addition, we seek
to accelerate the penetration of non-industrial end markets such
as consumer, military and construction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have used selective acquisitions, in targeted markets or
product lines, to enhance our strategies. Over the past nine
years we have made eleven acquisitions, with the most recent
being the March 2003 acquisition of the SafeWaze brand name,
which brought the fall protection product line and greater
access to the construction channel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;10, 2004, Aearo Corporation entered into a Merger
Agreement (the &#147;Merger Agreement&#148;) with Aearo
Technologies Inc. (formerly known as AC Safety Holding Corp.)
and its subsidiary, AC Safety Acquisition Corp., that closed on
April&nbsp;7, 2004 (the &#147;Merger&#148;). Prior to the
Merger, Aearo Technologies Inc. did not have any operations.
Pursuant to the terms of the Merger Agreement, AC Safety
Acquisition Corp. merged with and into Aearo Corporation with
Aearo Corporation surviving the Merger as a wholly-owned
subsidiary of Aearo Technologies Inc. The aggregate purchase
price was $409.3&nbsp;million, including fees and expenses. The
Merger was financed with $303.7&nbsp;million of new debt
consisting of $175.0&nbsp;million of
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes
and a $125.0&nbsp;million senior credit facility,
$3.7&nbsp;million of assumed debt, $4.3&nbsp;million of cash and
$101.3&nbsp;million of equity. Aearo Corporation accounted for
the Merger in accordance with SFAS&nbsp;No.&nbsp;141,
&#147;Business Combinations&#148;, and allocated the purchase
price to assets and liabilities based on their fair values.
Aearo Corporation&#146;s new basis of accounting was pushed down
to Aearo Company, therefore, the historical
</DIV>

<P align="center" style="font-size: 10pt;">29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
financial information of predecessor Aearo Corporation is not
comparable to the financial information of successor Aearo
Technologies Inc. for periods after March&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Critical Accounting Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. GAAP requires the use of estimates, judgments,
assumptions and subjective interpretations of accounting
principles that affect the reported amounts of assets,
liabilities, revenues and expenses. We believe our use of
estimates and underlying accounting assumptions adhere to GAAP
and are consistently applied. We revise our estimates and
assumptions as new information becomes available.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe the following policies involve a higher degree of
judgment and/or complexity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Basis of Presentation</I>&nbsp;&#151; The Merger was
accounted for as a business combination in accordance with
SFAS&nbsp;No 141, &#147;Business Combinations&#148;. The
purchase price was allocated to assets and liabilities based on
their fair values as determined by management and resulted in a
new basis of accounting as of April&nbsp;1, 2004. Due to the new
basis of accounting, historical financial information of
predecessor Aearo Corporation is not comparable to the financial
information of successor Aearo Technologies Inc. for the periods
after March&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Income Taxes</I>&nbsp;&#151; We account for income taxes in
accordance with SFAS&nbsp;No.&nbsp;109, &#147;Accounting for
Income Taxes&#148;, which requires deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between book and tax bases of recorded
assets and liabilities. SFAS&nbsp;No.&nbsp;109 also requires
deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. Realization of the deferred tax
asset for net operating losses is dependent on generating
sufficient future taxable income in the United States prior to
the expiration of the net operating losses and credit
carryforwards, which expire over various periods ranging from
2010 to 2021 and are subject to certain limitations on their use
after the Merger. Deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
currently enacted tax rates. At September&nbsp;30, 2004, our
deferred tax asset for domestic net operating losses was
partially offset by a valuation allowance of $7.5&nbsp;million.
During the period ended September&nbsp;30, 2005, management
determined that based on current domestic operating results, it
is more likely than not that domestic net operating losses will
be realized and consequently reversed the $7.5&nbsp;million
valuation allowance. Since the valuation allowance related to
our predecessor&#146;s net operating losses, goodwill was
reduced for this reversal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Product Liabilities</I>&nbsp;&#151; We have established
reserves for potential product liabilities that arise out of the
use of our products. A significant amount of judgment is
required to quantify our ultimate exposure in these matters and
the reserve is estimated based on currently available
information and historical claims experience. Reasonable
estimates of our probable product liabilities substantially
related to asbestos and silica-related claims are determined by
us based on data provided by a third party and past cases and
settlements. We have determined that the five year period
through 2010 is the most reasonable time period for projective
asbestos and silica-related claims and defense costs. From time
to time, we may seek the assistance of an independent consultant
to assess the adequacy of the reserve. While we believe that the
current level of reserve is adequate, changes in the future
could impact these determinations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Pension Plan</I>&nbsp;&#151; The valuation of our pension
plan requires the use of assumptions and estimates that are used
to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates,
investment returns, projected salary increases and mortality
rates. The actuarial assumptions used in our pension reporting
are reviewed annually and compared with external benchmarks and
internal operating trends to assure that they accurately account
for future pension obligations. Changes in assumptions and
future investment returns could potentially have a material
impact on our pension expense and funding requirements.
</DIV>

<P align="center" style="font-size: 10pt;">30

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Revenue Recognition and Allowance for Doubtful
Accounts</I>&nbsp;&#151; We recognize revenue when title and
risk transfer to the customer, which is generally when the
product is shipped to customers. At the time revenue is
recognized, certain provisions may also be recorded including
pricing discounts and incentives. We offer our customers three
types of incentive programs: a sales rebate/volume discount
program, a marketing incentive program and a co-operative
advertising program. The sales rebate/volume discount program is
based on achieved volume levels along with growth incentives
over the prior year&#146;s sales dollars. Rebate obligations are
estimated based on current sales levels and are recorded as a
reduction of revenue when sales to the customer make progress
towards the required sales level. The marketing incentive
program provides qualifying customers that achieve specified
volume levels with funds to assist the customers with marketing
our products. The funds provided to the qualifying customers are
recorded as a reduction of revenue when sales to the customer
make progress towards the required sales level. The co-operative
advertising program provides funds to specific customers to
advertise our products. The qualifying customers provide
specific documentation of the advertising to us to assure that
the benefit received is comparable to other arms length
advertising expenditures undertaken by us. The amount of
co-operative advertising charged to selling and administrative
expenses for the years ended September&nbsp;30, 2003, 2004 and
2005 were $1.7&nbsp;million, $1.9&nbsp;million and
$2.6&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An allowance for doubtful accounts is generally recorded based
on a percentage of aged receivables. However, management
judgment is involved with the final determination of the
allowance based on several factors including specific analysis
of a customer&#146;s credit worthiness, historical bad debt
experience, changes in payment history and general economic and
market trends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cost of Goods Sold</I>&nbsp;&#151; Cost of goods sold
includes all costs to manufacture our products including raw
materials, which include inbound freight and import duties,
direct labor, plant supervision, maintenance labor and parts,
quality control, receiving, purchasing, production planning,
manufacturing supplies, scrap, rework, utilities, depreciation,
property taxes, sales and use taxes and insurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Selling and Administrative Expenses</I>&nbsp;&#151; Selling
and administrative expenses include salaries and benefits for
selling, marketing, customer service, finance and human
resources personnel, direct marketing expenses, trade show
expenses, commissions, selling expenses, bad debts, advertising,
travel and entertainment, office supplies, recruiting,
relocation, legal expenses, accounting fees, consulting and
warehousing, shipping and handling expenses incurred after the
point of manufacture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Goodwill and Impairment of Long-Lived Assets</I>&nbsp;&#151;
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets,&#148; requires that goodwill no longer be amortized, and
instead, be tested for impairment on a periodic basis. In
testing for a potential impairment of goodwill,
SFAS&nbsp;No.&nbsp;142 requires us to individually allocate and
assign the carrying value of assets and liabilities (including
goodwill and intangible assets) to specific reporting units or
business segments, estimate the fair value of the reporting
units or business segments, and determine goodwill and
indefinite life intangible impairment by comparing the estimated
fair value to the assigned carrying value. The process of
evaluating the potential impairment is highly subjective and
requires significant judgment at many points during the
analysis. We evaluate long-lived assets, including other finite
life intangible assets, of identifiable reporting units for
impairment when events or changes in circumstances indicate, in
management&#146;s judgment, that the carrying value of such
assets may not be recoverable. Cash flows used in the potential
impairment evaluation are based on management&#146;s estimates
and assumptions. Changes in business conditions could
potentially require future adjustments to asset valuations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion provides a comparison of the results of
operations for the successor company for the fiscal year ended
September&nbsp;30, 2005 and that of the predecessor company on a
combined basis for the fiscal year ended September&nbsp;30, 2004
with the historical results of operations of the predecessor
company for the fiscal year ended September&nbsp;30 2003. The
discussion is provided for comparative purposes only, but the
value of such comparison may be limited. The combined results of
operations for the fiscal year ended September&nbsp;30, 2004
include the results of operations of the predecessor company for
the six months ended March&nbsp;31, 2004, combined with the
results of operations of the successor company for the six
months ended
</DIV>

<P align="center" style="font-size: 10pt;">31

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
September&nbsp;30, 2004. The combined financial information for
the year ended September&nbsp;30, 2004 is merely additive and
does not give proforma effect to the Merger transaction. Our
results of operations after March&nbsp;31, 2004 are not
comparable to the results of operations of the predecessor
company for the periods prior to April&nbsp;1, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the major components of the
Company&#146;s consolidated statements of operations expressed
as a percentage of net sales.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Years Ended September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and technical service</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other charges (income), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring charge</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Reflects a new basis of accounting subsequent to April&nbsp;7,
    2004 due to the Merger.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Fiscal 2005 Compared to Fiscal 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net sales in the year ended September&nbsp;30, 2005 increased
16.7% to $423.4&nbsp;million from $362.8&nbsp;million in the
year ended September&nbsp;30, 2004. The increase in net sales
was primarily driven by organic growth in the Safety Products
and Specialty Composites segments and foreign currency
translation. The weakness of the U.S.&nbsp;dollar favorably
impacted net sales by $7.7&nbsp;million. The Safety Products
segment net sales in the year ended September&nbsp;30, 2005
increased 16.0% to $318.5&nbsp;million from $274.4&nbsp;million
in the year ended September&nbsp;30, 2004. The increase in net
sales resulted from a 13.4% increase in organic growth and a
2.6% increase due to foreign currency translation. Organic sales
growth for the Safety Products segment, defined as net sales
less the impact of foreign currency translation and
acquisitions, has increased for thirteen consecutive quarters.
We attribute this growth to an improved economy and our ability
to generate market share gains enabled by our breath of product
offerings, complemented by successful introductions of new
products. The Safety Prescription Eyewear segment net sales in
the year ended September&nbsp;30, 2005 decreased slightly to
$39.4&nbsp;million from $39.8&nbsp;million in the year ended
September&nbsp;30, 2004. Specialty Composites&#146; net sales in
the year ended September&nbsp;30, 2005 increased 34.7% to
$65.5&nbsp;million from $48.6&nbsp;million in the year ended
September&nbsp;30, 2004. The increase was primarily driven by
market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Gross profit for the year ended September&nbsp;30, 2005
increased 33.1% to $206.7&nbsp;million from $155.3&nbsp;million
for the year ended September&nbsp;30, 2004. Gross profit for
fiscal 2004 was adversely affected by a non-recurring charge of
$17.1&nbsp;million resulting from the write-up of inventory
required by SFAS&nbsp;No.&nbsp;141 on the merger date and
subsequent sale of such inventory. Gross profit as a percentage
of sales for the year ended September&nbsp;30, 2005 was 48.8% as
compared to 47.5% for the year ended September&nbsp;30, 2004
with fiscal year 2004 calculated by excluding the effects of the
purchase accounting adjustment. The improvement in the gross
profit percentage, to the highest gross profit percentage in our
history, is primarily due to the favorable impacts of higher
manufacturing volumes in our plants covering our manufacturing
costs, favorable
</DIV>

<P align="center" style="font-size: 10pt;">32

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
product mix, productivity improvements and the impact of foreign
currency translation. Our gross profit may not be comparable to
the gross profit of other entities who record shipping and
handling expenses as a component of cost of sales. The Safety
Products segment gross profit in the year ended
September&nbsp;30, 2005, increased 20.8% to $161.1&nbsp;million
from $133.4&nbsp;million, when excluding the effects of the
purchase accounting adjustment, in the year ended
September&nbsp;30, 2004. The increase in gross profit is
primarily due to the favorable impacts of higher manufacturing
volumes in our plants covering our manufacturing costs due to an
improved economy and our ability to successfully introduce new
products, favorable product mix, productivity improvements and
the impact of foreign currency translation. The Safety
Prescription Eyewear segment gross profit in the year ended
September&nbsp;30, 2005, decreased slightly to
$17.8&nbsp;million from $18.5&nbsp;million in the year ended
September&nbsp;30, 2004, when excluding the effects of the
purchase accounting adjustment, primarily as a result of the
slight decline in sales volume and the mix in sales of our
products. The Specialty Composites&#146; segment gross profit in
the year ended September&nbsp;30, 2005 increased
$9.0&nbsp;million, or 47.8%, to $27.8&nbsp;million from
$18.8&nbsp;million in the year ended September&nbsp;30, 2004,
when excluding the effects of the purchase accounting
adjustment. The increase was primarily driven by market share
gains and an improving economy driving volume increases in the
precision electronics, truck, aircraft and industrial markets.
Productivity and improved manufacturing absorption, due to a
higher level of production in Specialty&#146;s plants, also
favorably impacted gross profit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating expenses for the year ended September&nbsp;30, 2005
increased 17.6% to $145.9&nbsp;million from $124.1&nbsp;million
for the year ended September&nbsp;30, 2004. The increase in
operating expenses was primarily driven by increases in selling
and administrative, research and technical services expenses,
amortization expense, and an absence of income as a result of
the prior year&#146;s partial reversal of a prior period&#146;s
restructuring provision. Selling and administrative expenses
included higher levels of variable selling expenses, as well as
increased marketing expenses to support new product launches and
our global brands. Selling and administrative expenses as a
percentage of net sales improved to 31.0% in the year ended
September&nbsp;30, 2005 as compared to 31.3% for the year ended
September&nbsp;30, 2004. The increase in selling and
administrative expenses included approximately $1.6&nbsp;million
due to foreign currency translation, $1.7&nbsp;million due to
variable selling expenses, as well as $2.0&nbsp;million in
increased marketing expenses to support new product launches and
build brand support. Amortization expense increased
approximately $2.3&nbsp;million due to the fair value allocation
of purchase price to finite lived intangible assets required by
SFAS&nbsp;No.&nbsp;141 due to the Merger. The restructuring
provision adjustment of $1.1&nbsp;million of income in the year
ended September&nbsp;30, 2004 was the result of a change in
estimate relating to non-cancelable leases. The decrease in
other charges (income), net of $0.8&nbsp;million was primarily
attributed to the bond call premium of $1.5&nbsp;million paid as
a result of the Merger that was expensed in the year ended
September&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating income for the year ended September&nbsp;30, 2005
increased 94.9% to $60.8&nbsp;million from $31.2&nbsp;million
for the year ended September&nbsp;30, 2004. Operating income in
2004 included a non-recurring charge of $17.1&nbsp;million
resulting from the write-up of inventory and a $1.7&nbsp;million
increase in depreciation and amortization for identifiable
assets written up to fair value as required by
SFAS&nbsp;No.&nbsp;141 on the merger date. Operating income in
the year ended September&nbsp;30, 2005 includes additional
amortization expense of approximately $2.4&nbsp;million due to
the fair value allocation of purchase price to finite lived
intangible assets required by SFAS&nbsp;No.&nbsp;141 due to the
Merger. Excluding the effects of the purchase accounting
adjustments for both years, operating income increased by
$14.2&nbsp;million and as a percentage of net sales for the year
ended September&nbsp;30, 2005 increased to 15.2% from 13.8% for
the year ended September&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest expense, net, for the year ended September&nbsp;30,
2005 decreased to $23.1&nbsp;million from $27.5&nbsp;million for
the year ended September&nbsp;30, 2004. Interest expense for the
year ended September&nbsp;30, 2004 included the write-off of
approximately $3.9&nbsp;million for deferred financing fees
related to the redemption of the 12.50%&nbsp;senior subordinated
notes and the repayment of our old senior bank facilities. In
addition, we incurred an incremental 30&nbsp;days of interest of
$1.0&nbsp;million on the 12.50%&nbsp;senior subordinated notes
between the call date for the 12.50%&nbsp;senior subordinated
notes and the redemption date. Net of the write-off of deferred
financing fees and the incremental senior subordinated notes
interest, the interest expense for the year ended
September&nbsp;30, 2005 increased $0.5&nbsp;million due to the
higher level of borrowings under our new credit facility, the
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;senior
subordinated notes and the 12.00%&nbsp;Notes.
</DIV>

<P align="center" style="font-size: 10pt;">33

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provision for income taxes for the year ended
September&nbsp;30, 2005 was $10.8&nbsp;million compared to
$0.8&nbsp;million for the year ended September&nbsp;30, 2004.
The effective tax rate for the year ended September&nbsp;30,
2005 and 2004 was different from the statutory rate due to the
mix of income between our foreign and domestic subsidiaries.
Generally, the foreign tax rates of our foreign subsidiaries are
lower than the domestic statutory rate. In addition, for the
year ended September&nbsp;30, 2005, a benefit was recorded to
adjust estimated post-merger net operating loss carryforwards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Fiscal 2004 Compared to Fiscal 2003</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net sales in the year ended September&nbsp;30, 2004 increased
14.7% to $362.8&nbsp;million from $316.4&nbsp;million in the
year ended September&nbsp;30, 2003. The increase in net sales
was primarily driven by organic growth in the Safety Products
and Specialty Composites segments, the impact of the SafeWaze
acquisition on March&nbsp;14, 2003 and foreign currency
translation. The weakness of the U.S.&nbsp;dollar and the
SafeWaze acquisition favorably impacted net sales by
$11.6&nbsp;million and $4.5&nbsp;million, respectively. The
Safety Products segment net sales in the year ended
September&nbsp;30, 2004 increased 13.2% to $274.4&nbsp;million
from $242.3&nbsp;million in the year ended September&nbsp;30,
2003. The increase in net sales resulted from a 6.7% increase in
organic growth, a 4.6% increase due to foreign currency
translation and a 1.9% increase due to the acquisition of
SafeWaze. Organic sales growth for the Safety Products segment,
defined as net sales less the impact of foreign currency
translation and acquisitions, has increased for nine consecutive
quarters. We attribute this growth to an improved economy and
our ability to successfully introduce new products into the
markets it serves. The Safety Prescription Eyewear segment net
sales in the year ended September&nbsp;30, 2004 decreased
slightly to $39.8&nbsp;million from $40.0&nbsp;million in the
year ended September&nbsp;30, 2003. Specialty Composites&#146;
net sales in the year ended September&nbsp;30, 2004 increased
42.5% to $48.6&nbsp;million from $34.1&nbsp;million in the year
ended September&nbsp;30, 2003. The increase was primarily driven
by market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets. The Company tracks measures such as computer
and electronic production data and truck build rates to gauge
the momentum in the Specialty Composites segment which has been
experiencing positive sales trends in the last five quarters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Gross profit for the year ended September&nbsp;30, 2004
increased 1.9% to $155.3&nbsp;million from $152.4&nbsp;million
for the year ended September&nbsp;30, 2003. Gross profit for
2004 was adversely affected by a non-recurring charge of
$17.1&nbsp;million resulting from the write-up of inventory
required by SFAS&nbsp;No.&nbsp;141 on the merger date and
subsequent sale of such inventory. Excluding the effects of the
purchase accounting adjustment, gross profit as a percentage of
net sales for the year ended September&nbsp;30, 2004 was 47.5%
as compared to 48.2% for the year ended September&nbsp;30, 2003.
The slight decline in the gross profit percentage, exclusive of
the non-recurring charge, is primarily due to unfavorable
product mix partially offset by productivity improvements and
the impact of foreign currency translation. The Safety Products
segment gross profit in the year ended September&nbsp;30, 2004,
excluding the effects of the purchase accounting adjustment,
increased 9.8% to $133.4&nbsp;million from $120.0&nbsp;million
in the year ended September&nbsp;30, 2003. The increase in gross
profit is primarily due to an improvement in sales volume due to
an improved economy, our ability to successfully introduce new
products into the markets we serve, and the favorable impact of
foreign currency translation. The Safety Prescription Eyewear
segment gross profit in the year ended September&nbsp;30, 2004,
excluding the effects of the purchase accounting adjustment,
decreased slightly to $18.5&nbsp;million from $18.9&nbsp;million
in the year ended September&nbsp;30, 2003, primarily a result of
the slight decline in sales volume and the mix in sales of our
products. Specialty Composites&#146; gross profit in the year
ended September&nbsp;30, 2004, excluding the effects of the
purchase accounting adjustment, increased 61.5% to
$18.8&nbsp;million from $11.7&nbsp;million in the year ended
September&nbsp;30, 2003. The increase was primarily driven by
market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets, aided by productivity and improved
manufacturing absorption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating expenses for the year ended September&nbsp;30, 2004
increased 13.1% to $124.1&nbsp;million from $109.7&nbsp;million
for the year ended September&nbsp;30, 2003. The increase in
operating expenses was primarily driven by an increase in
selling and administrative, research and technical services
expenses and amortization expense, partially offset by the
restructuring provision adjustment and other charges, net.
Selling and
</DIV>

<P align="center" style="font-size: 10pt;">34

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
administrative expenses included approximately $1.1&nbsp;million
of expenses due to the acquisition of SafeWaze,
$3.2&nbsp;million due to foreign currency translation,
$1.7&nbsp;million due to variable selling expenses, as well as
increased marketing expenses to support new product launches and
build brand support. Selling and administrative expenses as a
percentage of net sales improved to 31.3% in the year ended
September&nbsp;30, 2004 as compared to 32.0% for the year ended
September&nbsp;30, 2003. Depreciation and amortization expense
increased approximately $1.7&nbsp;million due to the fair value
allocation of purchase price to tangible assets and finite lived
intangible assets required by SFAS&nbsp;No.&nbsp;141 due to the
Merger. The restructuring provision adjustment of
$1.1&nbsp;million of income was the result of a change in
estimate relating to non-cancelable leases. The decrease in
other charges, net was attributed to a reduction in foreign
currency transaction expenses partially offset by the bond call
premium of $1.5&nbsp;million as a result of the Merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating income for the year ended September&nbsp;30, 2004
decreased 26.9% to $31.2&nbsp;million from $42.7&nbsp;million
for the year ended September&nbsp;30, 2003. Operating income in
2004 included a non-recurring charge of $17.1&nbsp;million
resulting from the write-up of inventory and the
$1.7&nbsp;million increase in depreciation and amortization as
required by SFAS&nbsp;No.&nbsp;141 on the merger date due to
purchase accounting. Excluding the effects of the purchase
accounting adjustment, operating income increased by
$7.3&nbsp;million and as a percentage of net sales for the year
ended September&nbsp;30, 2004 increased to 13.8% from 13.5% for
the year ended September&nbsp;30, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest expense, net, for the year ended September&nbsp;30,
2004 increased to $27.5&nbsp;million from $19.6&nbsp;million for
the year ended September&nbsp;30, 2003. Interest expense for the
year ended September&nbsp;30, 2004 included the write-off of
approximately $3.9&nbsp;million for deferred financing fees
related to the redemption of the 12.50%&nbsp;senior subordinated
notes and the repayment of our old senior bank facilities. In
addition, we incurred an incremental 30&nbsp;days of interest of
$1.0&nbsp;million on the 12.50%&nbsp;senior subordinated notes
between the call date for the 12.50%&nbsp;senior subordinated
notes and the redemption date. The balance of the increase is
due to the higher level of borrowings under our senior credit
facility and the
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;senior
subordinated notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provision for income taxes for the year ended
September&nbsp;30, 2004 was $0.8&nbsp;million compared to
$2.6&nbsp;million for the year ended September&nbsp;30, 2003.
The effective tax rate for the year ended September&nbsp;30,
2004 and 2003 was different from the statutory rate due to the
mix of income between our foreign and domestic subsidiaries. Our
foreign subsidiaries had taxable income in their foreign
jurisdictions while our domestic subsidiaries have net operating
loss carry-forwards for income tax purposes. Due to the
uncertainty of realizing these tax benefits at
September&nbsp;30, 2004, the tax benefits for net operating
losses were partially offset by a valuation allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Effects of Changes in Exchange Rates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, our results of operations are affected by changes in
exchange rates. Subject to market conditions, we price our
products in Europe and Canada in local currency. While many of
our selling and distribution costs are also denominated in these
currencies, a large portion of product costs are
U.S.&nbsp;Dollar denominated. As a result, a decline in the
value of the U.S.&nbsp;Dollar relative to other currencies can
have a favorable impact on our profitability, and an increase in
the value of the U.S.&nbsp;Dollar relative to these other
currencies can have a negative effect on our profitability. Our
Peltor&#174; operations are also affected by changes in exchange
rates relative to the Swedish Krona. In contrast to the above, a
decline in the value of the Krona relative to other currencies
can have a favorable impact on our profitability and an increase
in the value of the Krona relative to other currencies can have
a negative impact on our profitability. From time to time we
will utilize forward foreign currency contracts and other
hedging instruments to mitigate the effects of changes in
foreign currency rates on profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Effects of Inflation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In recent years, inflation has been modest and has not had a
material impact upon our results of operations.
</DIV>

<P align="center" style="font-size: 10pt;">35

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our business is affected by macroeconomic activity, mainly
manufacturing output in developed nations. In addition,
significant changes in product mix and volume can impact our
liquidity and capital resources in both the short term and long
term. We believe that our disciplined approach to cost control,
our diversification into consumer and other channels and the
available capacity on our revolving credit facility will enable
us to maintain adequate liquidity and capital resources in an
economic downturn. The introduction of new products is likely to
continue to favorably impact liquidity and capital resources in
periods of economic growth, although there are no guarantees
that this trend will continue in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our sources of funds have consisted primarily of operating cash
flow and debt financing. Our uses of these funds consists
principally of debt service, capital expenditures, dividends and
acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September&nbsp;30, 2005, our debt structure included:
(a)&nbsp;$175.0&nbsp;million of
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes,
which are publicly held and redeemable at the option of Aearo
Company, in whole or in part at various redemption prices,
(b)&nbsp;up to an aggregate of $175.0&nbsp;million under the
senior credit facility comprised of (i)&nbsp;a secured term loan
facility consisting of loans providing for up to
$125.0&nbsp;million of term loans (collectively, the &#147;Term
Loans&#148;) with a portion of the Term Loans denominated in
Euros and (ii)&nbsp;a secured revolving credit facility
(&#147;Revolving Credit Facility&#148;) providing for up to
$50.0&nbsp;million of revolving loans for general corporate
purposes (effective April&nbsp;28, 2005, the senior credit
facility also has an uncommitted incremental term loan facility
of up to $75.0&nbsp;million for acquisitions (collectively, the
&#147;Senior Bank Facilities&#148;)) and
(c)&nbsp;$54.0&nbsp;million in aggregate principal amount of
12.00%&nbsp;Notes due 2013. Since the date of the consummation
of the Merger, our debt has been negatively impacted by
$0.1&nbsp;million related to the fluctuation of the Euro
relative to the U.S dollar as of September&nbsp;30, 2005. We do
not plan to take any measure to minimize the foreign exchange
impact of our Euro denominated debt. The amounts outstanding on
the Term Loans were approximately $123.2&nbsp;million at
September&nbsp;30, 2005. There were no amounts outstanding under
the Revolving Credit Facility at September&nbsp;30, 2005. The
Revolving Credit Facility provides for the issuance of letters
of credit in an aggregate face amount of up to
$15.0&nbsp;million. We had approximately $1.6&nbsp;million of
letters of credit outstanding at September&nbsp;30, 2005. The
Term Loans amortize quarterly over a seven-year period. Amounts
repaid or prepaid in respect of the Term Loans may not be
re-borrowed. Loans and letters of credit under the Revolving
Credit Facility will be available until the Revolving Loan
Maturity Date, which is April&nbsp;7, 2010. The Term Loans
mature on April&nbsp;7, 2011. Effective December&nbsp;31, 2004,
we received a 0.25% reduction in the interest rate paid on the
Term Loans for meeting certain financial covenants. We were in
compliance with all financial covenants and restrictions as of
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;28, 2005, Aearo Company amended the existing
credit agreement to allow it to make, prior to
September&nbsp;30, 2005, up to $35.0&nbsp;million of cash
distributions to Aearo Corporation for the purpose of paying
cash dividends to Aearo Technologies Inc., its parent, to be
used by Aearo Technologies Inc. primarily to repurchase, pro
rata, its outstanding preferred shares and to pay accrued
dividends on the preferred shares. In addition, the amendment,
among other things, (i)&nbsp;increased the amount of the
incremental term loan commitment from $60.0&nbsp;million to
$75.0&nbsp;million (ii)&nbsp;eliminated the termination date for
the incremental term loan commitment and (iii)&nbsp;allowed for
incremental term loans in Euros.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May&nbsp;5, 2005, Aearo Company&#146;s Board of Directors
declared and paid a cash dividend of $35.0&nbsp;million to Aearo
Company&#146;s parent, Aearo Corporation, the sole holder of all
issued and outstanding shares of Aearo Company&#146;s common
stock. Aearo Corporation then paid a cash dividend to Aearo
Technologies Inc., Aearo Company&#146;s ultimate parent and sole
holder of all issued and outstanding shares of Aearo
Corporation&#146;s common stock. Aearo Technologies Inc. then
used the proceeds from the dividend to make a partial repurchase
of its preferred stock. Aearo Company used available cash to
fund the dividend.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;3, 2005, Aearo Corporation issued and sold
$54.0&nbsp;million in aggregate principal amount of
12.00%&nbsp;Notes. In connection with the sale, Aearo
Corporation&#146;s Board of Directors declared and paid a cash
dividend of $54.0&nbsp;million to its parent, Aearo Technologies
Inc., the sole holder of all issued and outstanding shares of
Aearo Corporation&#146;s common stock. Aearo Technologies Inc.
then used the proceeds from the dividend to repurchase all
remaining outstanding shares of its preferred stock.
</DIV>

<P align="center" style="font-size: 10pt;">36

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We typically make capital expenditures related primarily to the
maintenance and improvement of manufacturing facilities. Our
principal source of cash to fund these capital requirements is
cash from operations. We spent $7.7&nbsp;million and
$9.5&nbsp;million, respectively, for capital expenditures for
the years ended September&nbsp;30, 2005 and 2004, respectively.
We anticipate spending approximately $13.0&nbsp;million for
capital expenditures in the fiscal year ending
September&nbsp;30, 2006, which is expected to be funded by
operating cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net cash provided by operating activities for the year ended
September&nbsp;30, 2005 totaled $44.5&nbsp;million as compared
to $2.3&nbsp;million for the year ended September&nbsp;30, 2004.
The increase of $42.2&nbsp;million was primarily due to a
$9.3&nbsp;million increase related to the increase in net income
adjusted for cash and non-cash charges (depreciation, inventory
purchase accounting adjustment, amortization, deferred taxes and
other), combined with a $32.9&nbsp;million increase related to
the net changes in assets and liabilities. Our net changes in
assets and liabilities were primarily driven by increases in
cash from receivables and inventory, accounts payable and
accrued liabilities and other, net.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash used for investing activities was $6.2&nbsp;million for
the year ended September&nbsp;30, 2005 as compared to
$172.8&nbsp;million for the year ended September&nbsp;30, 2004.
The decrease in net cash used by investing activities is
primarily attributed to the non-recurrence of merger activities
in 2005. Investments were only made for routine capital
purchases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash used for financing activities for the year ended
September&nbsp;30, 2005 was $35.7&nbsp;million compared with
$192.4&nbsp;million for the year ended September&nbsp;30, 2004.
The change is primarily due to the non-recurrence of significant
refinancings of new debt in 2005, other than the
12.00%&nbsp;Notes, the proceeds of which were used to redeem
preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We maintain a non-contributory defined benefit cash balance
pension plan. We utilize an outside actuarial firm to estimate
pension expense and funding based on various assumptions
including the discount rate and the expected long-term rate of
return on plan assets. To develop the expected long-term rate of
return on assets assumption, we considered historical returns
and future expectations for returns for each asset class, as
well as the target asset allocation of the pension portfolio.
Based on Actuarial Standard of Practice No.&nbsp;27 and
interpretation of this standard, the SFAS&nbsp;No.&nbsp;87
long-term rate of return on asset assumption must fall within a
&#147;best estimate range&#148;&nbsp;&#151; that is, a range of
returns within which the actual return is more likely than not
to fall. This &#147;best estimate range&#148; equates to a
20-year compound average return derived using the outside
actuarial firms&#146; proprietary Portfolio Return calculator,
or PRC, reflecting the asset allocation of the trust with
appropriate adjustments for investment, trading, management and
administrative expenses that are paid from the trust. For
purposes of determining the 25th&nbsp;to 75th&nbsp;percentile
range, the PRC uses the outside actuarial firms&#146; capital
market assumptions with respect to each class to develop the
probability distribution of returns. The independently developed
rate of 8.00% falls within the 25th&nbsp;and
75th&nbsp;percentiles of 4.96% and 8.61%, respectively. The
discount rate was lowered to 5.5% for the fiscal year ended
September&nbsp;30, 2005 from 6.0% for the fiscal year ended
September&nbsp;30, 2004. We base the discount rate on the AA
Corporate bond yields. The estimated impact of a 1% change in
the discount rate results in a $0.1&nbsp;million impact on
annual pension expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The variability of asset returns and discount rates may have
either a favorable or unfavorable impact on pension expense and
the funded status of the pension plan. Under minimum funding
rules, no additional pension contributions were required to be
made in fiscal 2005. The following benefit payments, which
reflect expected future service, as appropriate, are expected to
be paid (in thousands of dollars):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,047</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>561</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,070</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,001</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2011&nbsp;&#150; 2015</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,108</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">37

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have a substantial amount of indebtedness. We rely on
internally generated funds, and to the extent necessary, on
borrowings under our senior credit facility (subject to certain
customary drawing conditions) to meet our liquidity needs. We
anticipate that operating cash flow will be adequate to meet
operating, capital expenditures and debt service requirements
for the next several years, although there can be no assurances
that existing levels of sales and normalized profitability, and
therefore cash flow, will be maintained.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Product Liability Claims</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a defendant in lawsuits by plaintiffs alleging that they
suffer from respiratory medical conditions, such as asbestosis
or silicosis, relating to exposure to asbestos and silica, and
that such conditions result, in part, from the use of
respirators that, allegedly, were negligently designed or
manufactured. The defendants in these lawsuits are often
numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. Many of these claims are covered
by the Asset Transfer Agreement entered into on June&nbsp;13,
1995 by Aearo Company and Aearo Corporation, on the one hand,
and Cabot Corporation and certain of its subsidiaries, or the
Sellers, on the other hand, or the 1995 Asset Transfer
Agreement. In the 1995 Asset Transfer Agreement, so long as
Aearo Corporation makes an annual payment of $400,000 to Cabot,
the Sellers agreed to retain, and Cabot and the Sellers agreed
to defend and indemnify Aearo Corporation and its subsidiaries
against, any liability or obligation relating to or otherwise
arising under any proceeding or other claim against Aearo
Corporation and its subsidiaries or Cabot or their respective
affiliates or other parties with whom any Seller directly or
indirectly has a contractual liability sharing arrangement which
sounds in product liability or related causes of action arising
out of actual or alleged respiratory medical conditions caused
or allegedly caused by the use of respirators or similar devices
sold by Sellers or their predecessors (including American
Optical Corporation and its predecessors) prior to July&nbsp;11,
1995. To date, Aearo Corporation has elected to pay the annual
fee and intends to continue to do so. In addition, under the
terms of the Merger Agreement with AC Safety Acquisition Corp.,
Aearo Corporation agreed to make the annual payment to Cabot for
a minimum of seven years from the date of the consummation of
the Merger. Aearo Corporation and its subsidiaries could
potentially be liable for claims currently retained by Sellers
if Aearo Corporation elects to cease paying the annual fee or if
Cabot and the Sellers are no longer able to perform their
obligations under the 1995 Asset Transfer Agreement. Cabot
acknowledged in a stock purchase agreement that it and Aearo
Corporation entered into on June&nbsp;27, 2003 (providing for
the sale by Cabot to Aearo Corporation of all of the common and
preferred stock of Aearo Corporation owned by Cabot) that the
foregoing provisions of the 1995 Asset Transfer Agreement remain
in effect. The 1995 Asset Transfer Agreement does not apply to
claims relating to the business of Eastern Safety Equipment, the
stock of which Aearo Company acquired in 1996.
</DIV>

<P align="center" style="font-size: 10pt;">38

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information concerning
respiratory claims filed against Aearo Company&nbsp;I in fiscal
2003, 2004 and 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Silica</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Asbestos</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004 through</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims at beginning</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,087</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,282</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increases in number of claims</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,409</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,074</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims settled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims dismissed without payment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>780</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,232</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ending number of claims</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,714</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,124</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average amount per claims settled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16.99</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>83.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average amount per claims
    closed<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.04</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>72.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The 1,074 new asbestos claims include 114 claims that allege
    exposure from clothing, which Aearo Company&nbsp;I never
    manufactured.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The difference between average amount for claims
    &#147;settled&#148; versus average amount for claims
    &#147;closed&#148; is that some claims are dismissed or
    withdrawn without having to pay a settlement or any amount. The
    &#147;average amount per claim closed&#148; includes claims
    closed by both settlement and by dismissal without payment,
    while the &#147;average amount per claim settled&#148; is for
    claims settled.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the above claims, we may agree to pay a share of
the settlement and defense costs in particular cases even though
we are not named as a defendant because of agreements with prior
owners of the brand and/or because of allegations that we have
some risk of legal liability as a successor (&#147;Additional
Claims&#148;). During fiscal 2005, we paid a total of
$1.6&nbsp;million for settlement, administrative and defense
costs resulting in the settlement of 4,325 silica and asbestos
claims that were settled between October&nbsp;1, 2002 and
September&nbsp;30, 2004 involving both claims in which we were
named as a defendant and Additional Claims. During fiscal 2005,
we paid a total of $0.7&nbsp;million for administrative and
defense costs involving both claims in which we were named as a
defendant and Additional Claims. Also in fiscal 2005, in
addition to the cases in the above chart, we paid
$0.3&nbsp;million to settle approximately 4,449 claims,
involving a still being determined ratio of claims in which
Aearo Company&nbsp;I was named as a defendant and Additional
Claims and therefore the above table does not reflect the
settlement of these claims. In addition, we may receive the
benefit of releases in some additional cases settled by the AO
Defense Group regardless of whether or not any claim was made
against it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The above information was based on data compiled by a third
party that tracks numbers of cases and settlements on behalf of
the &#147;AO Defense Group&#148; and is believed to be
materially accurate. This information may be subject to future
adjustment in light of new information becoming available. The
AO Defense Group is a voluntary association of current and
former manufacturers of the &#147;AO Safety&#148; brand of
respirators and certain of their insurers in which we
participate and through which all of our settlements have been
handled in the relevant years. Also, during fiscal 2005, there
may have been claims settled by and fully funded by the insurers
of Eastern Safety Equipment Co., Inc., a subsidiary of Aearo
Company which is in the process of winding up its affairs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September&nbsp;30, 2005 and September&nbsp;30, 2004, we
recorded liabilities of approximately $5.1&nbsp;million and
$5.4&nbsp;million, respectively, which represent reasonable
estimates of our probable liabilities for product liabilities
substantially related to asbestos and silica-related claims as
determined by us in consultation with an independent consultant.
The $0.3&nbsp;million reduction in the reserve, net of new
accruals which added to the reserve, since September&nbsp;30,
2004 is primarily attributed to the payment of
$1.6&nbsp;million, as referenced above, to pay costs attributed
to settlement, administrative and defense costs that had been
reached over a two year
</DIV>

<P align="center" style="font-size: 10pt;">39

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
time period, $0.7&nbsp;million for administrative and defense
costs involving both claims in which we were named as a
defendant and Additional Claims, the payment of
$0.3&nbsp;million, as referenced above, for the settlement of
4,445 claims during fiscal 2005, and $0.1&nbsp;million, net of
insurance proceeds, to settle a safety eyewear product liability
claim. This reserve is re-evaluated periodically and additional
charges or credits to results of operations may result as
additional information becomes available. Various factors
increase the difficulty in determining our potential liability,
if any, in such claims, including the fact that the defendants
in these lawsuits are often numerous and the claims generally do
not specify the amount of damages sought. Additionally, the
bankruptcy filings of other companies with asbestos and
silica-related litigation could increase our cost over time. In
light of these and other uncertainties inherent in making
long-term projections, the Company has determined that the
five-year period through fiscal 2010 is the most reasonable time
period for projecting asbestos and silica-related claims and
defense costs. It is possible that we may incur liabilities in
an amount in excess of amounts currently reserved. However,
taking into account currently available information, historical
experience, and the 1995 Asset Transfer Agreement, but
recognizing the inherent uncertainties in the projection of any
future events, it is management&#146;s opinion that these suits
or claims should not result in final judgments or settlements in
excess of our reserve that, in the aggregate, would have a
material effect on our financial condition, liquidity or results
of operations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Contractual Obligations</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have the following minimum commitments under contractual
obligations as of September&nbsp;30, 2005:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2011</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007&nbsp;&#150; 2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010&nbsp;&#150; 2011</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>and After</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,106</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,795</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,048</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,649</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Respiratory commitment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,422</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term debt and interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,403</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>435,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>556,471</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>64,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>67,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>442,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,691</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The amounts for long term debt above include both interest and
principal payments. We paid approximately $4.2&nbsp;million for
taxes worldwide in fiscal 2005 and do not anticipate significant
changes to our tax obligations in 2006. We had approximately
$1.6&nbsp;million of letters of credit outstanding as of
September&nbsp;30, 2005 and do not anticipate significant
changes to our outstanding letters of credit in the future. We
plan to fund approximately $1.5-$2.2&nbsp;million per year for
pension obligations over the next 5&nbsp;years. The above
contribution level was determined by considering many factors
such as the funded status of the plan, the long term rate of
return on plan assets of 8%, the duration of plan liabilities,
workforce characteristics and changes to the plan features. The
goal of the funding strategy is to achieve full funding while
minimizing the year to year volatility of contribution payments.
The deferred compensation plan is fully funded by investments
made in a rabbi trust.
</DIV>

<P align="center" style="font-size: 10pt;">40

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We expect to have the following minimum commitments under
contractual obligations as of September&nbsp;30, 2005 after
giving effect to this offering and the use of proceeds thereof:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2011</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2006</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2007&nbsp;&#150; 2009</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2010&nbsp;&#150; 2011</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>and After</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Respiratory commitment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term debt and interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Off-Balance Sheet Arrangements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have no off-balance sheet arrangements or financing
arrangements involving variable interest entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Quantitative and Qualitative Disclosures about Market Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are exposed to market risks related to changes in foreign
currencies, interest rates and commodity pricing. We use
derivatives to mitigate the impact of changes in foreign
currencies and interest rates. All derivatives are for purposes
other than trading. We account for derivatives pursuant to
SFAS&nbsp;No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148;, as amended. We have
formally documented our hedging relationships, including
identification of hedging instruments and the hedge items, as
well as our risk management objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Foreign Currency Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our results of operations are subject to risks associated with
operating in foreign countries, including fluctuations in
currency exchange rates. While many of our selling and
distribution costs are denominated in Canadian and European
currencies, a large portion of product costs are
U.S.&nbsp;Dollar denominated. As a result, a decline in the
value of the U.S.&nbsp;Dollar relative to other currencies can
have a favorable impact on our profitability and an increase in
the value of the U.S.&nbsp;Dollar relative to these other
currencies can have a negative effect on our profitability. Our
Swedish operations are also affected by changes in exchange
rates relative to the Swedish Krona. A decline in the value of
the Krona relative to other currencies can have a favorable
impact on our profitability and an increase in the value of the
Krona relative to other currencies can have a negative impact on
our profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To mitigate the effects of changes in foreign currency rates on
results of operations and cash flows, we execute two hedging
programs, one for transaction exposures, and the other for cash
flow exposures in foreign operations. For the year ended
September&nbsp;30, 2003, the impact on earnings for trade
activities was a net gain of $0.3&nbsp;million. For the year
ended September&nbsp;30, 2004 the impact on earnings for trade
activities was a net loss of $0.5&nbsp;million. For the year
ended September&nbsp;30, 2005, the impact on earnings for trade
activities was minimal.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to implement the transaction hedging program, we
utilize forward foreign currency contracts for up to 30-day
terms to protect against the adverse effects that exchange rate
fluctuations may have on the foreign-currency-denominated trade
activities (receivables, payables and cash) of foreign
subsidiaries. These contracts have not been designated as hedges
under SFAS&nbsp;No.&nbsp;133 and, accordingly, the gains and
losses on both the derivative and foreign-currency-denominated
trade activities are recorded as transaction adjustments in
results of operations. The impact on results of operations was a
loss of approximately $0.6&nbsp;million, a loss of approximately
$0.2&nbsp;million and a gain of approximately $1.0&nbsp;million
for the years ended September&nbsp;30, 2005, 2004 and 2003,
respectively. In regard to our cash flow hedging program, we
comply with SFAS&nbsp;No.&nbsp;133 which requires that
derivative instruments be recorded in the balance sheet as
either an asset
</DIV>

<P align="center" style="font-size: 10pt;">41

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
or liability measured at its fair value. During the year ended
September&nbsp;30, 2005, we entered into 36 new forward foreign
currency contract derivatives that are designed to protect us
against exchange rate movement during fiscal 2006. As result of
the new forward currency contracts, we have recorded a
derivative payable of $0.6&nbsp;million at September&nbsp;30,
2005. For the years ended September&nbsp;30, 2004 and 2003, we
reclassified into earnings losses of $0.8&nbsp;million and
$2.0&nbsp;million, respectively, resulting from the exercise of
forward foreign currency contracts. All forward foreign currency
contracts were determined to be highly effective whereby no
ineffectiveness was recorded in earnings. In addition, we limit
the foreign exchange impact on the balance sheet with debt
denominated in Euros. We estimate that a hypothetical 1% adverse
change in foreign currency exchange rates relative to the
U.S.&nbsp;Dollar would impact net income by $0.4&nbsp;million
for our consolidated operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Interest Rates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are exposed to market risk from changes in interest rates.
From time to time we will utilize interest rate instruments to
reduce the impact of either increases or decreases in interest
rates on our floating rate debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We had approximately $30.5&nbsp;million of variable rate debt
protected under an interest rate cap arrangement, which expired
December&nbsp;31, 2004. The approximate fair value of the cap at
September&nbsp;30, 2004 was $0.1&nbsp;million. We did not elect
hedge accounting treatment for the interest rate cap as defined
under SFAS&nbsp;No.&nbsp;133 and, as a result, fair value
adjustments were charged directly to other charges (income),
net. During the twelve months ended September&nbsp;30, 2004
there was a $0.1&nbsp;million gain in earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management is of the opinion that it is well positioned to
manage interest rate exposures in the short term. We continue to
monitor interest rate movements and have mitigated the risks of
potential interest rate fluctuations through the use of the
aforementioned interest rate instruments. We estimate that a
hypothetical 1% increase in interest rates would increase
interest expense by $1.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commodity Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to market risks with respect to industry pricing
in paper and crude oil as it relates to various commodity items.
We are also exposed to market risks for electricity, fuel oil
and natural gas consumed in our operations. Items with potential
risk of price volatility are paperboard, packaging films,
nylons, resins, propylene, ethylene, plasticizer and freight. We
manage pricing exposures on larger volume commodities such as
polycarbonate, polyols and polyvinyl chloride via price
negotiations utilizing alternative supplier competitive pricing.
We source some products and parts from Far East sources where
resource availability, competition, and infrastructure stability
has provided a favorable purchasing environment. We do not enter
into derivative instruments to manage commodity risks.
</DIV>

<P align="center" style="font-size: 10pt;">42

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='110'></A>
</DIV>

<!-- link1 "INDUSTRY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INDUSTRY</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Personal Protection Equipment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The personal protection equipment market includes equipment and
clothing worn for protection against bodily injury. Products
include earmuffs and earplugs, communication headsets for noisy
environments, safety eyewear and goggles, respirators, fall
protection equipment, head protection equipment, protective
clothing, gloves, footwear and other products. The global PPE
market is approximately $15&nbsp;billion in annual sales. Within
this global market, we compete primarily in the approximately
$4&nbsp;billion segment of the market represented by hearing,
eye, face, head, respiratory and fall protection products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Personal protection products are used primarily in the following
end-markets:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Manufacturing. </B>To protect workers from plant hazards such
    as industrial noise, dangerous gases, flying particles that may
    cause eye injuries and acidic, caustic and high temperature
    materials.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Construction. </B>To protect workers from the risk of falling
    while working at heights, heavy falling objects, airborne dust
    and debris and construction equipment noise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Telecommunications, gas and electricity. </B>To protect
    workers from electrical shock and acidic and caustic chemicals.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Public safety and military. </B>To prevent bodily harm, and
    to protect the eyes and ears during the use of firearms,
    explosives and other weaponry.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Consumer. </B>To protect consumers in home improvement and
    maintenance projects.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Growth Drivers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Historically, overall demand for personal protection equipment
has been relatively stable due to government and industry
regulations, a diverse end-user customer base and the
non-discretionary and consumable nature of the products. The
factors outlined below are the primary growth drivers of the PPE
industry:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Increased regulatory standards and enforcement. </B>The
    enforcement of safety regulations and an increased commitment to
    worker safety are key drivers of growth in the PPE industry.
    Regulatory and industry agencies such as OSHA, NIOSH and
    American National Standards Institute establish standards and/or
    enforce regulations with regard to worker safety. These
    regulatory bodies are active in updating and establishing new
    regulatory standards and enforcing those standards through
    strict compliance measures. Most regulatory changes tend to
    increase PPE use by better defining the requirements for
    compliance programs or by requiring PPE use against a new or
    formerly underestimated hazard. Evolving industry regulations
    represent opportunities for PPE innovators to drive growth.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Increased global adoption of workplace safety standards.
    </B>Emerging markets represent a significant opportunity for
    growth in the PPE industry. Emerging markets such as China,
    Russia and Eastern Europe are experiencing significant growth in
    manufacturing and plant employment and rapid infrastructure
    improvements. At the same time, multinational companies are
    implementing their global safety standards in each of their
    locations, thereby increasing the focus on worker safety and
    increasing local pressure to keep up with Western safety
    standards and business practices. This trend is creating
    opportunities for PPE manufacturers to increase sales
    internationally.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Increased awareness of the benefits of workplace safety.
    </B>Companies are realizing that the economic costs of a robust
    worker safety program are relatively small in relation to their
    overall maintenance, repair and overhaul budgets and the cost of
    regulatory fines, lost productivity and potential worker
    compensation lawsuits.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">43

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Improving compliance through product comfort and fashion
    appeal.</B> PPE manufacturers are increasingly focused on
    product comfort and ergonomics as a means to increase PPE usage.
    Comfortable, well-fitting products help overcome worker
    reluctance to use PPE products and therefore appeal to the
    safety managers who are concerned with improving regulatory
    compliance and who typically make PPE purchasing decisions.
    Fashion and style have also become key growth drivers,
    especially for safety glasses. The development of more stylish
    and fashionable products has driven demand for safety eyewear by
    appealing to a broader audience and increasing usage.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Growing opportunities in the consumer segment. </B>The
    consumer market is a growing segment of the PPE marketplace as
    more consumers become aware of the benefits provided by personal
    protection equipment and are attracted to consumer-oriented
    styles and branding. PPE in the consumer marketplace is used by
    small contractors and DIY consumers during projects such as
    construction, painting, woodworking, remodeling and refurbishing
    and lawn and garden work and during active outdoor activities
    where there are high noise or airborne particle levels.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Projected growth in the PPE construction market. </B>The
    approximately $300&nbsp;million U.S.&nbsp;construction PPE
    market, including fall protection equipment, has become an
    important growth category as employment growth, regulatory
    changes and disaster rebuilding efforts take effect. According
    to the U.S.&nbsp;Bureau of Labor Statistics, construction
    employment grew from 5.3&nbsp;million in 1995 to
    7.0&nbsp;million in 2004 and is expected to continue to grow
    over the next five years. In addition, the industry&#146;s
    relatively poor track record for worker safety has drawn
    increased scrutiny and heightened safety standards from
    regulatory agencies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Increasing military opportunities.</B> As leading militaries
    fundamentally reformulate battlefield requirements, there is an
    increasing opportunity for PPE products that improve operational
    efficiency and better protect the soldier. While militaries are
    reviewing a wide range of possibilities, several key focus areas
    include protecting soldiers from loud noises such as explosions;
    protecting their eyes while improving their visual acuity; and
    enabling significantly improved communication capability on the
    battlefield. Notably, the U.S.&nbsp;military has increased its
    purchase of headsets and associated equipment as it searches for
    technologies, such as tactical and active noise reduction
    headsets, that improve battlefield communication while reducing
    the risk of hearing loss.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Participants and Basis for Competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The global PPE market is highly fragmented. Participants in the
industry include small, single-product companies, larger
multi-segment safety companies such as us, Bacou-Dalloz, Mine
Safety Appliances, Ansell and Norcross, as well as several
multinational corporations with product offerings generally
limited to products adjacent to their core business. Competition
is primarily based on product characteristics (such as design,
style and functional performance), product quality, service,
brand name recognition and, to a lesser extent, price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Competition in the PPE industry occurs at several levels:
(i)&nbsp;the regulatory level where industry standards are
adopted; (ii)&nbsp;the distributor level where products are
sold; (iii)&nbsp;the purchaser level where safety managers
determine product specifications; and (iv)&nbsp;the end-user
level where workers select specific products for use.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Regulatory level.</B> As noted above, the PPE Industry is
    defined by government regulations set by agencies such as OSHA
    in the U.S. and the CEN in the European Union. New regulations
    and changes in regulations result in new opportunities, and
    larger competitors work closely with regulatory agencies to help
    define these new regulatory standards. Products are required by
    law to meet standards and pass specified, rigorous testing
    protocols before they are introduced to the market; larger PPE
    manufactures typically benefit from this market dynamic, as they
    tend to have superior research and development capabilities and
    experience in product certification.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Distributor level.</B> In general, the industry&#146;s
    products are sold through industrial and safety products
    distributors. These distributors focus on offering a
    comprehensive product range from dependable manufacturers with
    well know brand names. As a result, distributors generally look
    to partner with</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">44

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    manufacturers that can offer a range of products with recognized
    brand names and a reputation for product quality and superior
    service records. Distributors often are reluctant to change
    suppliers in order to avoid having to repeat the specification
    process with their customers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Purchaser level.</B> Safety directors, plant managers or site
    managers typically make the purchase decisions at the company
    level. Generally, the purchase decisions are based on
    (i)&nbsp;product compliance with applicable safety standards and
    end-user specific needs and (ii)&nbsp;the likelihood that
    workers will use the product. Frequently, multiple products are
    provided to end-users to help ensure compliance. Only a few of
    the larger PPE manufacturers have the sales force and dedicated
    resources to work directly with end users to pair products with
    end-users&#146; specific needs, train them on the proper use of
    the products and help them manage their safety supply chain.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>End-user level.</B> Plant and shop floor workers select the
    products to be used based on fit, comfort, style and brand.
    End-users typically prefer equipment with premium brands that
    have a reputation for style, quality and comfort while providing
    the necessary level of protection.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Energy Absorbing Composites</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We compete, through our Specialty Composites division, in the
energy absorbing composites industry, which develops and
produces materials that reduce, control or eliminate excess
noise, vibration and thermal energy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Energy absorbing composites are used primarily in the following
end-markets:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Precision Electronics Equipment. </B>Advanced energy-control
    materials and technology for the design of quiet, durable and
    accurate precision electronic devices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Business/ Regional Jet Aircraft. </B>Highly customized
    solutions designed to control the interior levels of noise,
    vibration and thermal conditions in order to increase passenger
    comfort and improve operational efficiency.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Heavy Duty Truck. </B>Design solutions for truck
    manufacturers to meet regulatory pass-by noise standards and
    thermal under hood and in-cabin requirements.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <B>Industrial OEM. </B>Thermal/acoustic solutions to
    manufacturers in a wide range of industries including
    applications for marine, power generators, garage door openers,
    pumps, compressors and electrical systems.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The primary factors driving growth include: (i)&nbsp;new
products that require unique energy absorbing solutions such as
new consumer electronics; (ii)&nbsp;new regulations impacting
the markets served such as new emission and &#147;no-idle&#148;
laws in the trucking market; (iii)&nbsp;manufacturing growth in
developing markets such as China; and (iv)&nbsp;increased
applications for energy absorbing materials. Over the next
several years, key end markets such as precision electronics and
business and regional jets are expected to grow significantly
due to trends in consumer electronics and the recovery of the
aerospace market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The global energy absorbing composites market is highly
fragmented, with few participants serving all the primary
end-markets or geographies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Companies in this industry compete on the basis of engineering
services, solution package characteristics (functional
performance and installation ease), product quality, service,
reputation and price. Industrial OEM product designers generally
base their purchasing decisions on (i)&nbsp;the extent to which
the solution meets design goals, including noise, vibration,
shock or thermal performance along with government, industry or
environmental regulations and (ii)&nbsp;the overall installed
cost, including purchased components and installation
considerations. Due to the technical nature of the solutions in
most end markets, solutions are developed directly with customer
design engineers. This fosters a direct channel sales approach
and creates a significant barrier to entry.
</DIV>

<P align="center" style="font-size: 10pt;">45

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='111'></A>
</DIV>

<!-- link1 "BUSINESS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BUSINESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a global leader in the hearing, eye, face, head,
respiratory and fall protection segments of the estimated
$15&nbsp;billion global personal protection equipment, or PPE,
market. We manufacture hearing protection devices, communication
headsets, prescription and non-prescription safety eyewear, face
shields, hard hats, reusable and disposable respirators, fall
protection equipment and other safety products. Our products are
marketed in over 70 countries under the well-recognized brand
names AOSafety&#174;, E-A-R&#174;, Peltor&#174; and
SafeWaze&#174;. We also manufacture a wide array of
energy-absorbing materials that are incorporated into other
manufacturers&#146; products to control noise, vibration and
thermal energy. These products are marketed under our brand name
E-A-R&#174; Specialty Composites. We believe that the strength
of our brand names, our reputation for developing and providing
high-quality, innovative products, our intensive coverage of
multiple distribution channels targeting a wide array of
end-users, our broad product offering, and our commitment to
providing exceptional customer service have enabled us to
achieve leading positions in the market segments in which we
compete. For the year ended September&nbsp;30, 2005, our net
sales were $423.4&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Segments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We operate three business segments:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Safety Products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Safety Prescription Eyewear; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Specialty Composites.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Through these three segments we sell a wide range of products to
industrial distributors, as well as into the consumer, military
and construction channels and directly to industrial companies.
Please see Note&nbsp;13 to our consolidated financial statements
included elsewhere in this prospectus for more detailed
financial information regarding our business segments as well as
sales by principal geographic area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Safety Products Segment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Safety Products segment manufactures hearing protection
devices, communication headsets, non-prescription safety
eyewear, face shields, hard hats, reusable and disposable
respirators, fall protection equipment and other safety
equipment. These products are sold under our AOSafety&#174;,
E-A-R&#174;, Peltor&#174; and SafeWaze&#174; brand names.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of Safety Product&#146;s major
categories and product lines:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Hearing Protection:</B> Our hearing protection category
includes passive hearing protection products as well as
communication headsets with hearing protection. Our hearing
protection category generated gross sales (which we define as
net sales plus freight revenue, cash discounts and rebates) of
$207.5&nbsp;million during our fiscal year ended
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Passive Hearing Protection.</I> Passive hearing protection
products are used in work environments where high noise levels
could lead to hearing loss. Our passive hearing protection
products primarily consist of disposable and reusable earplugs
and passive earmuffs. We have been a leader in hearing
conservation research and development since 1972, when we first
introduced the cylindrical disposable earplug. We believe that
we are the&nbsp;#1 global competitor in passive hearing
protection.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The earplug&#146;s low expense and easy application are among
the key factors in making it the most popular product used in
the hearing protection market. The majority of earplugs are made
of scientifically formulated polyvinyl chloride, or PVC, and
polyurethane, or PU, foams. The earplug market is segmented into
disposable and reusable. The disposable earplug market is
further segmented into &#147;roll-down&#148; plugs and
&#147;push-in&#148; plugs. Roll-down earplugs are designed to be
&#147;rolled down&#148; (i.e., compressed) before being inserted
into the ear, at which point they slowly &#147;recover&#148; to
fill the ear canal, thereby providing the desired protection.
Push-in earplugs, which are not compressed before insertion,
combine the easy use and fit benefits of a reusable
</DIV>

<P align="center" style="font-size: 10pt;">46

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
earplug with the cost and comfort advantages of a disposable
earplug. Reusable earplugs, while initially more expensive than
disposables, offer savings over the long term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We offer a wide range of products for each of the disposable,
reusable and earmuff product categories. Our E-A-R&#174;
Classic&#174; disposable earplug is the market leader due to its
unique slow-recovery characteristics that provide superior fit,
protection and comfort. Its yellow color is a registered
trademark in the United States, Canada, Belgium, Netherlands and
Luxembourg. Our disposable earplugs are available corded and
uncorded and in a variety of packaging options. In the reusable
earplug segment, we offer our patented E-A-R&#174;
UltraFit&#174; and E-A-R&#174; Express&#174; products. The
E-A-R&#174; Express&#174; product features a polyurethane pod
and a short plastic stem to facilitate sanitary and easy
insertion of the plug into the ear. We also offer the
&#147;Flex&#148;<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
line of &#147;semi-aural&#148; banded products, featuring
articulating arms that allow for use in multiple positions and
for easy storage around the neck.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the military channel, we sell the E-A-R&#174; Combat
Arms<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
earplug. Its patented design, specially developed for the armed
forces and law enforcement personnel, allows wearers to hear
low-level sounds critical to mission safety (e.g., conversation,
footsteps and rifle bolts) while the plugs&#146; filters are
engineered to provide instant protection from high level noises
(e.g., weapons fire and explosions). Combat
Arms<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
has been sold to the U.S., Canadian, French, British and
Australian militaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also manufacture, assemble and sell a broad line of passive
earmuffs under the E-A-R&#174; and Peltor&#174; brand names.
These headsets provide effective and comfortable hearing
protection in a variety of noise environments, can be worn
over-the-head, under-the-chin or attached to a helmet and are
made of durable, lightweight non-conductive plastic. We believe
that our Peltor Optime Series is the&nbsp;#1 selling earmuff
line in the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Communication Headsets with Hearing Protection.</I> We offer
a rapidly growing full line of technology-driven hearing and
communication headset solutions. We believe that we are
the&nbsp;#1 competitor in Europe and the&nbsp;#2 competitor in
North America in communication headsets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Communication headsets are technologically advanced, premium
priced products that are designed to offer a variety of
communication and/or entertainment solutions while ensuring
reliable hearing protection. In general, these products are
equipped with noise attenuation features that are integrated
into a variety of technologies like FM radio, two-way radio,
Bluetooth and duplex wireless communication to permit the user
to engage in a broad array of activities while receiving
effective hearing protection. For example, tactical headsets are
designed for impulse noise environments to protect against
harmful loud noises such as gunfire or explosions, while at the
same time amplifying low decibel ambient sounds. These products
primarily serve the military, law enforcement, industrial, fire
safety and recreational (e.g., hunting and motor sports) markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The communication headsets market is primarily driven by new
technologies and product developments that expand end-user
applications. We believe we have led the adaptation of
entertainment functions, such as AM/ FM radio, for use with
electronic ear muffs. Employers, particularly in Europe,
increasingly regard these as tools to reduce worker monotony and
improve productivity. These products are also used in the
consumer channel in air travel, while mowing the lawn or
undertaking DIY projects. In addition, we are pursuing
developments in active noise reduction, or ANR, technology and
wireless duplex technology (simultaneous multi-user
communication) in military headsets are believed to
significantly increase the safety and efficiency of military
personnel while enabling them to communicate more effectively in
battlefield situations. The U.S.&nbsp;military has increased its
purchase of communication headsets and related material by 300%
in the last three years as it re-thinks its communication needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We entered the communication headset market in 1996 with our
acquisition of Peltor Communications. Peltor has over
50&nbsp;years of experience in the communications field and is
widely considered the leader in communication headset and
passive earmuffs in Europe. We strengthened our North American
communication headset footprint in 2000 with the acquisition of
Norhammer, Peltor&#146;s North American master distributor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Through our Peltor&#174; brand, we have a long-standing
reputation for developing sophisticated, high quality products
with maximum user comfort, performance, protection and design
aesthetics. This reputation
</DIV>

<P align="center" style="font-size: 10pt;">47

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
has positioned the Peltor&#174; brand at the higher end of the
market. Our leading products include: the WorkTunes&#174; and FM
Radio<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
family of products, which have become increasingly popular
across a range of industrial and consumer applications due to
enhanced aesthetics and easy-to-use controls; the Ground
Mechanic&#174; headset, featuring the PowerCom and
LiteCom<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
product lines, which allow airline ramp crews to maintain
constant communication with the cockpit crew; and the
Peltor&#174;
PTL<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
(&#147;Push to Listen&#148;) over-the-head earmuff, which allows
normal communication at the touch of a button while still
providing protection from loud noises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Eye, Face and Head Protection:</B> Our eye, face and head
protection category includes non-prescription eye protection as
well as face and head protection products. Our eye, face and
head protection products generated gross sales of
$73.4&nbsp;million during our fiscal year ended
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Non-Prescription Eye Protection.</I> Non-prescription eye
protection is used in work environments where a number of
hazards present a danger to the eyes, including dust, flying
particles, metal fragments, chemicals, extreme glare and optical
radiation. The basic categories of eyewear protection products
are non-prescription, or &#147;plano&#148; eyewear and goggles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Plano eyewear accounts for the majority of our sales in this
category and encompasses a full range of protective needs,
including visitor spectacles, over-the-glass, single lens and
dual lens products. Within these categories are a variety of
styles, frame colors and lens options that include a number of
adjustability and comfort features. Many of these AOSafety&#174;
and Peltor&#174; products feature our proprietary
DX<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
coating, combining the benefits of chemical and scratch
resistance with anti-fog properties. Flywear&#174;,
Maxim<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
X-Series<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
Metaliks&#174;,
Fuel<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
X-Factor&#174; and
X.Sport<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
eyewear offer modern sport styling with numerous comfort
features.
Nuvo<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
eyewear has the classic dual lens look redesigned for
today&#146;s worker. Our Lexa&#174; eyewear line blends a
wrapping, single lens with a lightweight, frameless design.
Virtua<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
offers stylish eyewear at an economical price. Visitor
spectacles and over-the-glass products are represented by our
Seepro&#174; and Tourguard&#174; models.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also sell a broad line of goggles, which are typically
required 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, we offer a variety of
vented and non-vented goggles with varying fields of view
including Dust
GoggleGear<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
for Lexa&#174;, Splash
GoggleGear<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
for Lexa&#174; and Centurion&#174;, all under the AOSafety&#174;
brand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to optimize our cost of product, we will either
manufacture or import our non-prescription eye protection
products from Asia. During fiscal year 2005, we imported
approximately 40% of these products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Face and Head Protection.</I> Face and head protection are
used in work environments where a number of hazards present a
danger to the face and head, including flying particles, metal
fragments, chemicals, extreme glare, dust, optical radiation and
items dropped from above. The basic categories of face and head
protection are faceshields and hard hats.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Faceshields are designed to protect against heat, splash and
flying particles and are worn in conjunction with other
protective equipment, such as plano eyewear and respirators. We
offer a wide variety of use specific faceshields under both the
AOSafety&#174; and Peltor&#174; brands. The patented AO
TuffMaster&#174; line of faceshields is one of the leading
brands in the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also sell a broad line of hard hats, including
&#147;bump&#148; caps, full-brim hats and traditional hard hats,
featuring four or six point suspension, ratchet adjustment, and
a wide selection of colors and custom imprinting. The XLR8&#174;
line of hard hats represents the latest design and functionality
under the AOSafety&#174; brand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Other Safety:</B> Our other safety category includes
respiratory and fall protection products as well as other safety
equipment. Our other safety category generated gross sales of
$49.5&nbsp;million during our fiscal year ended
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Respiratory Protection.</I> We offer a broad line of
respiratory protection products in North America primarily
focused on the U.S.&nbsp;consumer channel.
</DIV>

<P align="center" style="font-size: 10pt;">48

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Respiratory protection products are used to protect against the
harmful effects of contamination and pollution caused by dust,
gases, fumes, sprays and other contaminants. The respiratory
market can be segmented into the following product categories:
disposable masks; air-purifying respirators; self-contained
breathing apparatuses; and airline respirators.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We offer a broad line of disposable dust and mist masks;
cartridge-equipped quarter, half and full-face respirators; and
&#147;escape&#148; respirators (a single-use respirator for
emergencies) under the AOSafety&#174; brand. We focus on product
innovation by improving ease of use, convenience and comfort.
Our leadership in design and innovation is manifested in our
product offerings, including the QuickLatch&#174; 8000 series
half mask respirator and the QuickFit&#174; full face mask
respirator, each featuring a patented on-and-off latching system
that can be accomplished with just one hand. The
QuickLatch&#174; 8000 line is increasing penetration in the
industrial and retail paint channels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Fall Protection.</I> We entered the fall protection market in
2003 with the acquisition of SafeWaze, Inc. We offer a line of
fall protection equipment under the AOSafety&#174;
SafeWaze&#174; brand name. Based on management beliefs regarding
competitors in the North America construction market, we
estimate that we currently hold the&nbsp;#3 position in the
North American construction market, with growing market share in
the industrial and consumer markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Fall protection consists of equipment used to protect workers
operating at heights, and primarily serves the construction,
industrial and consumer markets. Types of equipment are
traditionally broken up into two categories: soft goods and hard
goods. Soft goods consist of the items a worker wears up to and
including an anchor point device such as harnesses, lanyards,
self-retracting lifelines, miscellaneous anchoring devices and
hardware. Hard goods refer mainly to engineered, permanent
anchor points systems traditionally built into structures. We
focus mainly on the soft goods market. Our products are
specifically designed to not only protect a worker if a fall
occurs, but to allow maximum comfort, maneuverability and
ergonomic safety while in use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Safety Prescription Eyewear Segment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Safety Prescription Eyewear, or SRx, segment manufactures
and sells products under the AOSafety&#174; brand name that are
designed to protect the eyes of workers who require corrective
lenses from the typical hazards encountered in the industrial
and other work environments. We purchase component parts, lenses
and the majority of our frames from various suppliers. We grind
and shape the lenses to the end-user&#146;s prescription, and
then assemble the glasses using the end-user&#146;s choice of
frame. We view our ability to provide individual attention to
each patient through Company-employed, as well as independently
contracted eye-care professionals, as an essential part of our
SRx business. These products serve a wide variety of end-user
markets such as utilities, transportation, industrial
manufacturing and federal, state and local governments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Specialty Composites Segment</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Specialty Composites segment manufactures a wide array of
energy-absorbing composites that control noise, vibration and
shock and are incorporated into other manufacturers&#146;
products to control noise, vibration and shock. These materials
are used in applications such as noise and vibration damping for
precision electronics, integrated acoustical systems for
business and regional jet aircraft, thermal insulation and
damping for heavy duty trucks and vibration and noise control
for industrial products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success in this specialized industry is based on our ability
to leverage our two main core competencies: (1)&nbsp;our
proprietary computer design know-how, which positions us as a
design partner with industrial OEM customers to create
integrated thermal, acoustic and shock solutions; and
(2)&nbsp;our unique ability to design specialized
high-performance materials such as PU, PVC and thermoplastic
elastomers, or TPE&#146;s, for a variety of end uses, including:
Tufcote&#174; acoustical products; Confor&#174; for cushioning
and shock protection; ISODAMP&#174; for reduction of mechanical
vibration; ISOLOSS&#174; for LCD gasketing; and VersaDamp&#174;
for shock protection. Specialty Composites also produces the
specially formulated foams used in the manufacture of Safety
Products&#146; earplugs.
</DIV>

<P align="center" style="font-size: 10pt;">49

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Specialty Composites&#146; marketing efforts are aimed at four
key strategic segments worldwide: aircraft, precision electronic
equipment, heavy-duty trucks and industrial original equipment
manufacturing, or OEM.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Aircraft Market.</I> We provide integrated thermal acoustic
systems for aircraft manufacturers and refurbishers worldwide.
We have integrated a full suite of computer assisted design
software to create integrated thermal/acoustic solutions
primarily for business and regional jets. These highly
customized solutions are designed to control the interior levels
of noise, vibration and thermal conditions in a weight-efficient
manner, allowing aircraft OEMs to produce aircraft that have
desirable passenger comfort and operational efficiency
characteristics and that meet FAA regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Precision Electronic Equipment Market.</I> This global market
has increasingly focused on compact portable devices that
require durability and lower noise levels. Our design expertise
and proprietary energy absorbing materials and technology are
critical to enterprise and consumer electronics product
development, helping in the design of quieter, more rugged and
higher speed devices. Among the key applications for which we
have developed proprietary solutions are noise/vibration
reduction and shock protection for hard disk drives in portable
and desk top computers, hand held portable devices, data servers
and data storage arrays.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Heavy-Duty Truck Market.</I> We provide design solutions for
truck manufacturers to meet regulatory pass-by noise standards
and acoustical and thermal underhood and in-cabin requirements.
We design light-weight integrated systems for the truck market
that include: damped or resilient gaskets and seals that absorb
the vibration between body parts; specialty foam seating that
reduces the level of vibration that the operator feels; cabin
interior liners and floor and door panel damping that reduce the
noise level and provide thermal insulation of the cabin; and
under hood barrier/absorber to reduce noise emission to the
surroundings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Industrial OEM Market.</I> Our energy-control technology
base, broad product line and depth of engineering experience
enable us to provide highly effective, targeted solutions to
manufacturers in a wide range of industries. Our engineered
systems provide cost-effective acoustical and thermal solutions
that include noise control treatments for pumps, power
generators and compressors; vibration damping for garage door
openers and laboratory centrifuges; shock protection for
personal protection apparel; and high performance sealing
solutions for electrical control boxes and electrical systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Competitive Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Between fiscal years 2003 and 2005, our net sales increased at a
compounded annual growth rate of 15.7%, and for fiscal year
2005, we achieved gross margins of 48.8% and operating income
margins of 14.4%. We believe that our ability to generate these
exceptional growth rates and margins results from the following
competitive strengths:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Global market leader.</I> We are positioned as one of the few
large, global manufacturers in the highly fragmented PPE market.
Approximately 80% of our net safety products sales are derived
from products in which we estimate we hold the&nbsp;#1
or&nbsp;#2 global market position. For example, we believe we
are the&nbsp;#1 manufacturer of passive hearing protection
equipment, the&nbsp;#1 manufacturer of communication headsets
and the&nbsp;#2 manufacturer of eye protection products in the
world. Additionally, we believe we are&nbsp;#1 in the market for
safety products sold through the U.S.&nbsp;DIY/hardware channel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leading global brand names.</I> We market our broad range of
products primarily under four well-recognized brand names:
E-A-R&#174;, AOSafety&#174;, Peltor&#174; and SafeWaze&#174;.
Our yellow &#147;E-A-R&#174; Classic&#174;&#148; earplug color
is a registered trademark in the United States, Canada, Belgium,
Netherlands and Luxembourg, and customers associate the yellow
color with a brand they have used and trusted since its
introduction in 1972. AOSafety&#174; has its roots in the
American Optical Company, which introduced the first safety
glasses in 1910 and started its Industrial Eyewear Division in
1923. Peltor&#174; was founded in Sweden in the early 1950s and
introduced the first ear muff for hearing protection. Our strong
brand-name recognition stems from our significant investment in
the marketing and promotion of our brands, and our reputation
for manufacturing high quality, innovative products and
providing high levels of customer service. The recognition of
our brands and products facilitates our sales and marketing
efforts and provides a platform for line extensions and
</DIV>

<P align="center" style="font-size: 10pt;">50

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
new product launches. We believe that brand recognition and
reliability are key factors in our customers&#146; selection
process as these products prevent personal injury.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Successful history of product innovation.</I> We have
historically grown and gained market share through the
introduction of new and innovative products. We have
accomplished this by significantly increasing marketing and
research and development resources dedicated to new or improved
product development, which has allowed us to introduce an
increasing number of new or improved products over the last five
years. Notably, we have made recent investments in new
technologies such as application specific integrated circuit and
Bluetooth technology for use in communication headsets, and we
are currently investing in new platforms for active noise
reduction and duplex two-way communication. We have also
invested in China, establishing design, sourcing and sales
capabilities to enable us to sustain and expand our innovation
processes. Our investment is supported by our collaborative new
product development program, whereby our product managers work
closely with end-users to address defined problems and create
effective, comfortable and fashionable high-performance safety
products. As a result of our efforts, we have achieved
significant sales growth from new product introductions. During
fiscal 2005, more than one-third of our combined gross Safety
Products and Safety Prescription Eyewear sales were derived from
new or improved products (including line extensions and existing
products sold into new geographies and channels) introduced
since fiscal 2000. We continue to maintain a strong new product
pipeline, with more than 75 new or improved products (including
line extensions and existing products sold into new geographies
and channels) under development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leader in energy absorbing composites market.</I> Between
fiscal years 2002 and 2005, net sales of our Specialty
Composites segment increased at a compounded annual growth rate
of over 20%. We have achieved this growth by focusing on high
growth, value-added segments of the energy absorption industry.
For example, we manufacture damping materials for the hard disk
drive included in electronic products such as Apple
Computer&#146;s iPod. We compete primarily on the basis of our
leadership in foam chemistry and the design of integrated
thermal/acoustic systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Diverse business mix.</I> We derive our sales from a wide
range of end markets including the manufacturing, consumer,
military, construction, utility, transportation, government and
telecommunications markets. Over the last several years, we have
specifically targeted the consumer, military and construction
markets, which represented approximately 24% of our fiscal 2005
sales compared to less than 18% of our sales in fiscal 2002. In
addition, for fiscal 2005 our largest customer represented less
than 5% of our net sales, and our top 10 customers represented
less than 25% of net sales. Finally, foreign countries
contributed approximately 40% of our fiscal 2005&nbsp;net sales.
We have achieved strong geographic diversification through a
focused effort to grow our leading brand names in Europe and
other international markets. As a result, we currently sell our
products in more than 70 countries around the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Experienced and motivated management team.</I> We are led by
an experienced management team with a record of
(i)&nbsp;achieving profitable growth by building global brands;
(ii)&nbsp;driving productivity improvements (iii)&nbsp;an
intense focus on operating discipline; (iv)&nbsp;introducing
innovative products; (iv)&nbsp;maintaining long-term
relationships with customers and suppliers by focusing on
customer service; and (v)&nbsp;integrating acquisitions. Chief
Executive Officer Michael McLain (along with certain other
senior management team members) joined our company in 1998 and
has been instrumental in implementing operational efficiencies
and continuous profitability enhancements. Our senior management
team has significant experience in the consumer and packaged
goods industries and understands the importance of brand
recognition and customer service to drive growth in a
competitive market. Following this offering, on a fully-diluted
basis, our management team will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Business Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Invest in technology capabilities.</I> We achieve growth by
bringing together: (i)&nbsp;our core competencies in the areas
of foam chemistry, optical molding, high speed automation and
the integration of electronics into hearing products;
(ii)&nbsp;our deep understanding of our end-users&#146; needs;
and (iii)&nbsp;our ability to adapt technology to develop new
products. As a result of our efforts, we have developed a
significant body of intellectual property assets, including a
portfolio of over 135 distinct patents with over 30 additional
patents
</DIV>

<P align="center" style="font-size: 10pt;">51

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
pending. We seek to identify several new technology development
projects, and to capitalize on these opportunities by investing
in our infrastructure and by partnering with outside development
resources. In our Specialty Composites segment, we will continue
to invest in predictive analysis capabilities that enable us to
increase the speed and efficiency with which we develop
solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Grow our share in core industrial end-markets.</I> We plan to
continue to build our major brands, E-A-R&#174;, AOSafety&#174;,
Peltor&#174; and SafeWaze&#174;, through product innovation and
expansion into emerging markets.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Product innovation. We intend to develop new products based on
    demographics (e.g., colorful, patterned earplugs and fashionable
    eyewear to appeal to younger end-users) and for meeting specific
    end-user problems (e.g., metal detectable ear plugs,
    easy-to-remove respiratory masks, push-to-listen ear muffs and
    Bluetooth communication headsets that eliminate cables). We
    continue to maintain a strong new product pipeline, with more
    than 75 new or improved products (including line extensions and
    existing products sold into new geographies and channels) under
    development.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Emerging markets. We have targeted the emerging markets of
    Eastern Europe, Russia and China to drive additional growth. The
    immediate potential within these markets includes sales to large
    multinational companies that implement their safety standards
    globally. To support this effort, we have recently added local
    infrastructure, hired local sales personnel and established
    relationships with local distributors, obtained local
    registrations where required, and built local language websites.
    In 2005, we established sales offices in China and Russia, and
    we expect to significantly increase our presence in these
    markets. In the long term, we plan to focus on large locally
    owned enterprises and to work with local governments in
    promoting safety compliance programs.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Penetrate new end-markets.</I> We have been expanding our
sales beyond our traditional industrial and manufacturing base
into markets that we expect will deliver significantly higher
growth in the future. Our short term focus includes further
penetrating the consumer, military and construction channels.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Consumer. We are benefiting from the strong continued growth in
    the consumer channel as safety awareness increases among
    consumers and small contractors. Our product quality and our
    experience in product styling, branding and packaging has given
    us a leadership position in the DIY/hardware segment, and we are
    leveraging that position to launch more premium products and
    expand our product lines</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Military. As militaries increasingly realize that personal
    protection equipment can improve the operational efficiency of
    troops, they have changed their approach to battlefield safety
    and communication. As a result, the military channel has
    experienced significant growth. We have invested and continue to
    invest in R&#38;D and marketing and sales infrastructure aimed
    at the military channel.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Construction. This segment is expected to be a source of growth
    because of the projected increase in construction employment and
    the increased regulatory focus on construction safety. We are
    taking numerous steps to increase our market share in this
    channel, including: (i)&nbsp;new product introductions;
    (ii)&nbsp;expansion of our fall protection manufacturing plant
    and warehouse to meet growing demand; (iii)&nbsp;construction of
    a new R&#38;D testing facility; and (iv)&nbsp;expansion of our
    sales, marketing and R&#38;D personnel.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leverage specialty composites momentum.</I> We intend to
leverage our technology leadership in thermal/acoustical systems
design and proprietary materials, thin sheet composites and high
performance materials to significantly increase sales in our
Specialty Composites segment. We are currently adding
infrastructure to ensure that we can meet the increasing demand
in each of our focus channels: precision electronics equipment;
business and regional jet aircraft; heavy duty truck; and
industrial OEM. To further benefit from demand in precision
electronics, we have recently established infrastructure in
Shenzhen, China (R&#38;D center, sales office and customer
service). We anticipate that this new China infrastructure will
allow us to capitalize on manufacturing growth in Asia by
providing us with local market presence, greater access to
customers, key supplier contacts and design support capabilities.
</DIV>

<P align="center" style="font-size: 10pt;">52

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Accelerate productivity improvements.</I> Over the last three
fiscal years, we have achieved manufacturing and logistics cost
savings of approximately $4&nbsp;million annually and increased
our gross profit margin as a result of disciplined and
productivity-focused management. We continue to focus on our
automated manufacturing processes and other ongoing continuous
improvement projects. We use well-established processes, such as
Kaizen programs, and in 2005 introduced demand flow technology
capabilities to the Company. Through external benchmarking, we
identify our manufacturing core competencies and actively
outsource other non-core processes to lower-cost locations.
During 2005, we contracted with a sourcing company in Asia to
help us manage product sourcing and added personnel in China to
support this effort. We initially plan to focus on obtaining
improved pricing on products already being outsourced and then
evaluate opportunities to outsource products currently
manufactured internally.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Pursue a focused acquisition strategy.</I> The global PPE
market is highly fragmented, comprised of several hundred
manufacturers, most of which are relatively small and
independent. As end-users and distributors are reducing
suppliers and acquisition opportunities continue to arise, there
is opportunity for consolidation. Since 1995, we have
successfully completed 11 acquisitions to support growth and
achieve greater operating efficiencies. Our acquisition strategy
is to selectively pursue attractive acquisitions that enhance
our existing product offering or enable us to enter new
segments. We intend to continue to selectively pursue
acquisitions that: (i)&nbsp;consolidate our position in the
hearing protection and safety eyewear markets; (ii)&nbsp;expand
product lines with leading brands in profitable and
higher-growth product categories and (iii)&nbsp;expand our
business in the consumer, military and construction markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Sales and Marketing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We divide our sales and marketing force into our three business
segments:
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Products Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Within Safety Products, sales are managed through four channels:
North American Distribution; Consumer; Europe and International.
Each of these channels has its own sales force and its own
distinct yet synergistic sales strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>North American Distribution.</I> This is the largest channel
for Safety Products and is comprised of the U.S. and Canada.
Approximately 1,000 North American distributors and dealers are
served by 31&nbsp;sales managers, six national account managers,
55&nbsp;sales agents dedicated to the construction channel and
four dedicated military/law enforcement sales managers. In
addition, we also employ three internal sales agents. Currently,
approximately 225 of our distributors qualify for our
Dialog<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
rebate program. Participation in the
Dialog<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>
program requires minimum annual purchase levels and offers
growth and volume rebates. The program also offers customers
cooperative advertising and marketing incentives for developing
marketing programs that promote our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Consumer.</I> Under the AOSafety&#174; brand name, we are
North America&#146;s leading supplier of personal safety
products to the Consumer/ DIY segment. Within the Consumer/ DIY
marketplace, AOSafety&#174; is the primary personal safety
products brand carried by The Home Depot, Sears, Lowe&#146;s
Home Improvement Warehouse and other retailers. Our sales in
this channel are managed by a corporate sales force of six
regional sales managers supported by independent rep agencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Europe.</I> We have a significant presence in Europe with
sales offices in the U.K., Sweden, Norway, Germany, France and
Italy with a total of 63&nbsp;sales persons. We sell through
over 1,000 industrial distributors and organize our sales effort
by country.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>International.</I> International sales are managed by 14
sales representatives located in Australia, New Zealand,
Shanghai, Singapore, Miami (covering the Caribbean and Central
America), Mexico, Brazil and Dubai (covering the Middle East,
South Africa and Indianapolis, Indiana).
</DIV>

<P align="center" style="font-size: 10pt;">53

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Prescription Eyewear Segment (SRx)</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our SRx segment employs 39 of its own sales persons to sell our
products throughout North America. Approximately 85% of our
safety prescription eyewear are sold directly to more than
10,000 customers, including a majority of the industrial
companies in the Fortune&nbsp;500. The remainder of our SRx
products are sold through the industrial distribution channel
and directly to eye-care professionals.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Specialty Composites Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have a Specialty Composites sales and marketing team of
21&nbsp;professionals, as well as independent manufacturers
representatives and select distributors to identify global sales
opportunities in target markets. Once such applications have
been identified, our marketing, sales and technical staffs work
closely with customer product development teams to provide the
customer with cost-effective, integrated solutions. Specialty
Composites&#146; marketing efforts are aimed at four key
strategic segments worldwide: precision electronic equipment,
aircraft, heavy-duty trucks and industrial OEM.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Research and Development</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We place a strong emphasis on new product development and
innovation. We employ over 60&nbsp;R&#38;D scientists, engineers
and technologists.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Products Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since its inception in 1972, our ultimate predecessor, the
former E-A-R&#174; (Energy Absorbing Resins) Division of Cabot
Corporation, has been a leader in the development of technology
for understanding noise, measuring noise and hearing loss, and
in the development of products and programs to encourage hearing
protection and conservation. To maintain that leadership
position, and in order to test the efficacy of our hearing
protection products, we own and operate a National Voluntary
Laboratory Accreditation Program laboratory in the United
States. We also operate sound chambers and testing facilities in
the United States and Sweden that measure the performance of our
materials and designs. With these and other capabilities, we
believe we continue to be a leader in the development of both
passive hearing products and communication headsets. Similarly,
we believe that we have been a pioneer and leader in the
development and testing of safety eyewear, maintaining and
operating extensive facilities for the design and testing of
these products. Many of our research and development personnel
are recognized experts in the safety products industry and are
members of various committees of standard-setting organizations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are making a significant investment in research and
development in the Safety Products segment. This includes
investing in outside consultants to adapt existing technology to
communication headsets primarily for military applications. In
addition, we recently established a research and development
operation in China to support our consumer headset and eyewear
products.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Prescription Eyewear Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This segment shares resources with the Safety Products segment
in the areas of coating technology, automation and manufacturing
process improvements. This segment works extensively with
outside suppliers for the development of frames, lenses and
coatings.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Specialty Composites Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Specialty Composites&#146; research and development efforts
focus on developing proprietary materials and enhancing existing
products in order to meet customer needs identified by our
marketing, sales and technical staffs. Products such as
VersaDamp&#174; thermoplastic elastomers, Confor&#174;
energy-absorbing foams and products to meet no-idle trucking
regulations and FAA requirements on burn-through have been
developed as a result of these efforts. R&#38;D has been a key
factor driving sales growth in an increasing number of
applications across all markets served by Specialty Composites.
</DIV>

<P align="center" style="font-size: 10pt;">54

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Over the last two years, we have invested in computer modeling
capabilities and personnel. Our use of statistical energy
analysis, finite element analysis and sound quality has created
a competitive advantage by enabling us to develop faster and
more accurate design solutions for our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Raw Materials and Suppliers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We buy and consume a wide variety of raw materials, component
parts, office supplies, and maintenance and repair parts.
Significant categories include corrugated paper products,
polyethylene packaging films, chemicals, eyewear frames and
optical lenses. The chemical category includes plastic resins
and includes polycarbonates, propionates, polyols, plasticizers,
substrates, pre-polymers, isocyanates and adhesives. The eyewear
frames are for both the non-prescription and SRx products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have a diverse base of material suppliers and are subject to
market risks with respect to industry pricing in paper and crude
oil as it relates to various commodity items. Items with
potential risk of price volatility include paperboard, packaging
films, nylons, resins, propylene, ethylene, plasticizer and
freight. We manage pricing pressure exposure on large volume
commodities such as polycarbonate, polyols and polyvinyl
chloride via price negotiations utilizing alternative supplier
competitive pricing. However, where appropriate, we will use a
single source for supply of certain items. In addition, based on
the material, availability of supply, level of quality and the
technical difficulty to produce, we will use a major and minor
source to insure continued best pricing and a ready back up
supply. We do not enter into derivative instruments to manage
commodity risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our commodity pricing and negotiating strategy is to consolidate
suppliers where applicable, leverage competitive pricing,
identify alternate lower cost materials and work with existing
suppliers to reduce costs through engineering and innovation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although we outsource the production of less than 25% of our
assembled parts and products to various manufacturers, we have
found resource availability, abundant supplier competition and
infrastructure stability in the Far East to provide favorable
supply opportunities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Manufacturing Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our core manufacturing strengths include: foam casting, molding
and fabricating for Specialty Composites&#146; products
(including the foam used in the manufacture of earplugs);
proprietary high-speed assembly and packaging of earplugs;
optical quality plastic injection molding and coating; automated
eyewear assembly and packaging; precision molding for hearing
attenuation; assembly, grinding, polishing and coating of
prescription eyewear; and automated earmuff and wire bending
assembly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Approximately 75% of our cost of goods sold is associated with
internally manufactured products that we sell, and the balance
is externally sourced or contract manufactured. We have
implemented a strategy of sourcing or utilizing contract
manufacturers where we have limited competences and there is a
clear cost advantage. We are working with a limited number of
contract manufacturers in the United States, Mexico and Eastern
Europe to assemble and/or manufacture products. We use selected
Asian suppliers for some product lines to complement our product
lines. We expect to continue to use contract manufacturers where
appropriate to remain competitive and maximize profit margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of our manufacturing sites have implemented a number of
initiatives including lean manufacturing concepts and an
extensive Kaizen event schedule. During 2005, we introduced
Demand Flow Technology, or DFT, and developed our first pilot
line at our Southbridge, Massachusetts location. Our plan is to
implement DFT at all of our manufacturing locations. Our
continuous improvement efforts continue to result in significant
improvements in the areas of safety, quality, cost, and customer
service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Consistent across all of our manufacturing operations is an
emphasis on using world class manufacturing standards to produce
high-quality products. Currently, the majority of our
manufacturing facilities have been awarded ISO&nbsp;9002 or
ISO&nbsp;9001 certification, indicating that we have achieved
and sustained a high degree of quality and consistency with
respect to our products. We have also attained QS 9000
certification for the Specialty Composites operations in
Indianapolis and Newark, and our operations in Sweden have
achieved
</DIV>

<P align="center" style="font-size: 10pt;">55

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
ISO&nbsp;14001 certification. We believe that ISO certification
is an increasingly important selling feature both domestically
and internationally, as certain customers require ISO
certification from all their vendors.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Products Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe our Indianapolis, Indiana plant is one of the largest
earplug manufacturing facilities in the world. It fabricates,
molds, assembles and packages hundreds of millions of pairs of
earplugs annually, utilizing automated, high-speed assembly and
packaging equipment. The plant&#146;s high-speed robotic
facility facilitates low cost, high-volume, and short supply
chain production techniques.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Southbridge, Massachusetts facility is our largest
manufacturing site and manufactures a wide variety of personal
protection equipment, including respiratory devices, reusable
earplugs and ear-muffs, head and face products and a broad
offering of safety eyewear products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our principal international manufacturing operations are located
in Poynton, England and Varnamo, Sweden. The Poynton facility
serves customers in Western Europe, producing and packaging
earplugs and other hearing and eyewear products. The Varnamo,
Sweden plant is the principal Peltor&#174; manufacturing
location supplying finished goods and components to our
customers and subsidiaries.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Safety Prescription Eyewear Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our SRx manufacturing facilities generally possess lens
surfacing, edging, grinding and coating machinery capable of
handling glass, plastic and polycarbonate lenses. Following
manufacture, the lenses are then fitted into frames and shipped
to customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SRx production operations are comprised of two facilities
located in the United States, one in Canada and one in England.
The U.S.&nbsp;locations are in Indiana and Oklahoma and both
locations include customer service. In Canada, the Mississauga,
Ontario plant fabricates prescription eyewear and, together with
a small customer service operation in Montreal, produces SRx
products for the Canadian market. In Poynton, England, we have a
small plant that performs edging and assembly operations and
serves primarily the U.K. and French markets. These facilities
currently manufacture and distribute approximately 500,000 pairs
of safety prescription glasses annually.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Specialty Composites Segment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Specialty Composites&#146; products are manufactured in
Indianapolis, Indiana, and Newark, Delaware. The Indianapolis
plant supplies specially formulated foam for PVC earplugs,
manufactures and fabricates sheet and roll polyvinyl chloride
and polyurethane materials. This facility also houses technical
support functions, including research and development,
applications engineering, sales and marketing administration,
quality assurance and customer service support. The Newark,
Delaware facility manufactures polyurethane foams and houses our
proprietary, thin sheet foam casting line, which permits the
casting of both sheet and composite materials, including facings
and substrates, in a single pass-through line. Product
development for this facility is onsite.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Distribution Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We fill virtually all of our domestic orders and certain
segments of our international orders through our distribution
center located in Indianapolis, Indiana, which has bar-code
scanning capabilities to assure rapid turn-around time and high
service levels for customer orders. A key feature of the
distribution center is the ability to ship a single customer
order with multiple products, thus achieving a high fill rate,
which minimizes backorders and maximizes customer satisfaction.
Our products are generally shipped within several days from the
receipt of a purchase order. As a result, backlog is not
material to our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Service from road carriers is readily available in Indianapolis,
with competitive pricing for both inbound and outbound business.
In addition, we make direct customer shipments from Concord,
North Carolina and Newark, Delaware (Specialty Composites).
European orders are filled from distribution facilities near
</DIV>

<P align="center" style="font-size: 10pt;">56

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
Manchester, U.K. and in Varnamo, Sweden. During 2005, we
initiated a distribution facility agreement with a third party
in Australia to better serve our growing customer base in the
region.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>China Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2005, we expanded operations to Mainland China. Functions
operating within China include Sales, Customer Service,
Engineering, and Purchasing. The expansion to China helps us
provide better service to our existing customers in this portion
of the world and positions us to further expand our global
market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Also during 2005, a partnership agreement was established with a
major Chinese sourcing company to achieve Asia procurement
savings. This company has over two decades of experience in
sourcing from China; it focuses on select clients and provides
sourcing capability from China/ Asia. With over 300 locally
based personnel for purchasing, quality control and logistics
management, we believe that this partnership will shorten our
supply chain and generate substantial material savings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The global PPE market is highly fragmented. We estimate that
there are several hundred 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&nbsp;million, to a small number of
multinational corporations with annual sales in excess of
$100&nbsp;million. We believe 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. From a competitive standpoint, we believe we are
currently well situated, primarily because of our brands&#146;
size and our broad product offerings, to compete in this
fragmented industry. We enjoy certain economies of scale that
are not available to smaller competitors and our advanced
distribution center further facilitates timely and accurate
deliveries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Several manufacturers compete in noise and vibration control,
but few if any of our Specialty Composites segment&#146;s
competitors offer the complete range of technology and
energy-control materials as we do. Thus we are able to
differentiate ourselves by leveraging our technology,
engineering and wide ranges of proprietary products into energy
control solutions or systems that add value to customers&#146;
products. In markets where technology is of particular value we
are able to command better margins due to our product solution
and positioning. There are however market segments in which we
compete where price is still a significant factor. We believe
that participants in this market generally compete on the basis
of design capability, solution package characteristics
(functional performance and installation ease), product quality,
service, reputation and installed cost.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September&nbsp;30, 2005, we had 1,659&nbsp;full-time
employees, of whom 1,053 were primarily engaged in
manufacturing, 403 in sales, marketing, customer service and
distribution, 66 in research and development and 137 in general
and administrative. We believe our employee relations are good.
We have one domestic U.S.&nbsp;facility that employs union
members. This facility, located in Plymouth, Indiana, employs 61
members of the International Union of Electronic, Electrical,
Salaried, Maritime and Furniture Workers (out of a total of 74
employees), and our relations with these union members are fully
satisfactory. The union contract expires on June&nbsp;27, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Patents and Trademarks</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We own and have obtained licenses to various domestic and
foreign patents, patent applications and trademarks related to
our products, processes and business. We place significant value
on our trademark for the color yellow for earplugs in the United
States, Canada, Belgium, Netherlands and Luxembourg and on our
overall patent portfolio. However, no single patent or patent
application that we own is material to us. Our patents expire at
various times in the future not exceeding 20&nbsp;years.
</DIV>

<P align="center" style="font-size: 10pt;">57

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Government Regulation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a manufacturer of safety products, we are subject to
regulation by numerous governmental bodies. Principal among the
federal regulatory agencies in the United States of America are
the following: (i)&nbsp;OSHA, which regulates the occupational
usage of all PPE; (ii)&nbsp;the Environmental Protection Agency,
which regulates labeling of hearing protection devices;
(iii)&nbsp;the Mine Safety and Health Administration, which
regulates safety in mines; and (iv)&nbsp;NIOSH, which certifies
respirators. These agencies generally mandate that our products
meet standards established by private groups, such as ANSI. Our
products are also subject to foreign laws and regulations. In
particular, they must comply with the Canadian Standards
Association, European Committee for Standardization and
Standards Australia in order to be sold in these markets. Our
products are also subject to the Export Administration
Regulation administered by the Department of Commerce, and
certain products are subject to the International Traffic in
Arms Regulations administered by the Department of State. We
believe we are in compliance in all material respects with the
regulations and standards of these governmental bodies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Environmental, Health and Safety Matters</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to various evolving federal, state, local and
foreign environmental, health and safety 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. We
believe that we are in substantial compliance with all such laws
and regulations. We have an active program to ensure
environmental compliance and achievement of environmental goals
and objectives. We will continue to implement environmental
management systems at our manufacturing facilities. The
consequence for violating these laws and regulations can be
material. We have made and will continue to make capital and
other expenditures to comply with environmental and health and
safety requirements. In addition, certain environmental laws and
regulations impose joint and several strict liability on
responsible parties, including past and present owners and
operators of sites, to clean up, or contribute to the cost of
cleaning up, sites at which hazardous wastes or materials were
disposed or released. For example, if a release of hazardous
substances occurs on or from our properties or any offsite
disposal location where our wastes have been disposed, or if
contamination from prior activities is discovered at any of our
properties or third-party owned properties that we or our
predecessors formerly owned or operated, we may be subject to
liability arising out of such conditions and the amount of such
liability could be material. Liability can include, among other
things, for example, costs of investigation and cleanup of the
contamination, natural resource damages, property damage to
properties and personal injuries. Environmental laws and
regulations are complex, change frequently and have tended to
become more strict over time. If more stringent environmental
laws or regulations are enacted, these future laws could have a
material adverse effect on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Properties</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We own and/or lease facilities in the United States, Canada,
Europe and China. The following table sets forth the location of
each, its square footage and the principal function as of
September&nbsp;30, 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Approximate</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Location</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Square Feet</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Function</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>SAFETY PRODUCTS</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Southbridge, Massachusetts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Administration</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Indianapolis,
    Indiana<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>226,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Indianapolis,
    Indiana<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Corporate Headquarters</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Concord, North Carolina</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Poynton,
    England<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Manufacturing/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Varnamo,
    Sweden<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>144,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Manufacturing/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ettlingen, Germany</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Customer Service</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">58

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Approximate</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Location</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Square Feet</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Function</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Paris, France</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales Office</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Milan, Italy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(*</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales Office</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Barrie, Ontario, Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Oslo, Norway</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Joinville-le-Pont, France</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shanghai, China</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(*</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales Office</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>SAFETY PRESCRIPTION EYEWEAR</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chickasha, Oklahoma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plymouth, Indiana</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mississauga, Ontario, Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Montreal, Quebec, Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Newport News, Virginia</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>SPECIALTY COMPOSITES</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Indianapolis,
    Indiana<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Distribution/Customer Service</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Newark,
    Delaware<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Manufacturing/Distribution</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Newark, Delaware</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Warehouse/Distribution</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shenzhen, China</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Sales/Customer Service/Administration</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    This facility also serves as an international distribution
    center.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    We own this facility. (All other facilities are leased.)</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    This facility&#146;s primary function is manufacturing safety
    products.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 8pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
(*) Less than 1,000&nbsp;square feet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our facilities are suitable for our operations
and provide sufficient capacity to meet our current
requirements. We believe that we will be able to renew each of
our leases upon their respective expiration dates on
commercially reasonable terms. In addition, we believe that we
will be able to lease suitable additional or replacement space
on commercially reasonable terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Legal Proceedings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the matters described in &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&nbsp;&#151; Liquidity and Capital
Resources&nbsp;&#151; Product Liability Claims,&#148; various
lawsuits and claims arise against us in the ordinary course of
our business. Most of these lawsuits and claims are product
liability matters that arise out of the use of safety eyewear
and respiratory product lines we manufacture as well as products
purchased for resale.
</DIV>

<P align="center" style="font-size: 10pt;">59

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Directors and Executive Officers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth certain information with respect
to our current directors and executive officers and certain
other key employees and their ages as of November&nbsp;1, 2005.
In accordance with our amended and restated bylaws, within one
year after the closing of this offering we will restructure the
composition of our board so that a majority of the members of
our board of directors will be &#147;independent&#148; as such
term is defined in Rule&nbsp;10A-3(b)(i) under the Exchange Act
and under NYSE Rule&nbsp;303(A):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Age</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Position</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael A.
    McLain<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Chief Executive Officer, President, and Chairman of the Board of
    Directors</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jeffrey S. Kulka</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President, Chief Financial Officer and Secretary</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James H. Floyd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    President, Aearo Europe, Managing Director, International</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. Rand Mallitz</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    President, Specialty Composites</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    D. Garrad (Gary) Warren,&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    President, North American Safety Products Group</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James M. Phillips</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President, Human Resources</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rahul Kapur</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President, Corporate Development and Chief Strategy
    Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thomas R. D&#146;Amico</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Senior Vice President, Operations and Research and Development</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    John D. Howard</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas R.
    Korn<SUP style="font-size: 85%; vertical-align: text-top">(1)(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director, Chairman of Audit Committee</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nick White</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Peter S.
    Cureton<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Director</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Member of Compensation Committee</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Member of Audit Committee</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
<I>Michael A. McLain </I>has been President, Chief Executive
Officer and Director of the Company since February 1998.
Effective May&nbsp;30, 2001, he was named Chairman of the Board
of Directors. Prior to joining the Company, he was President and
Chief Executive Officer of DowBrands, Inc., a large manufacturer
of household consumer products. Mr.&nbsp;McLain is a Director of
Gold Toe Brands, Inc., Little Rapids Corporation and Timex, Inc.
He currently serves as chairman of the International Safety
Equipment Association&#146;s Board of Trustees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Jeffrey S. Kulka, </I>Senior Vice President, Chief Financial
Officer and Secretary joined the Company in March 1997 as
Corporate Controller. Prior to joining Aearo, he spent ten years
with Augat Inc. in a variety of assignments including divisional
controllerships and business development in domestic and
international settings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>James H. Floyd, </I>President, Aearo Europe, Managing
Director, Aearo International, joined Aearo in April 1998. Prior
to 1998, he was responsible for global logistics and packaging
functions at DowBrands. He began his career at Procter and
Gamble where he worked for seven years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>M.&nbsp;Rand Mallitz, </I>President, E-A-R&#174; Specialty
Composites, joined the Company in January 1992. In December
1999, he was promoted to Vice President Aearo, Senior Vice
President Specialty Composites. In 2004, he was promoted to
President of E-A-R&#174; Specialty Composites. Prior to joining
the Company, Mr.&nbsp;Mallitz was CEO/ President of Roth Office
Products.
</DIV>

<P align="center" style="font-size: 10pt;">60

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>D.&nbsp;Garrad (Gary) Warren, </I>III joined the Company in
November 1999 and currently serves as President, North American
Safety Products Group. Prior to that, Mr.&nbsp;Warren was Senior
Vice President, Sales and Customer Development for International
Home Foods in Parsippany, New Jersey.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Thomas R. D&#146;Amico </I>joined the Company in July 2004
and currently serves as Senior Vice President, Operations and
Research&nbsp;&#38; Development. Prior to joining Aearo, from
2001 through 2004, Mr.&nbsp;D&#146;Amico was Senior Vice
President of Global Manufacturing, Quality, and Procurement for
Diebold, Inc. in North Canton, Ohio and from 1996 through 2001,
was Executive Vice President of Operations for the Genie
Division of Overhead Door Corporation in Alliance, Ohio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>James M. Phillips, </I>Senior Vice President, Human Resources
joined the Company in May 1998. He worked for Dow Chemical
Company for more than 20&nbsp;years and has worked in
recruiting, training and compensation for many diverse divisions
of Dow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Rahul Kapur </I>joined the Company in April 1998 as Vice
President of Corporate Development. He currently is Senior Vice
President of Corporate Development and Chief Strategy Officer.
Mr.&nbsp;Kapur joined DowBrands in 1985 in New Product
Development and held various positions in Marketing and
Strategic Development, including Director of Marketing for
Europe. He began his career with Richardson Vicks and Unilever.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>John D. Howard </I>is a Senior Managing Director of Bear,
Stearns&nbsp;&#38; Co. Inc. and group head of BSMB. Prior to
joining Bear Stearns, Mr.&nbsp;Howard was co-Chief Executive
Officer of Vestar Capital Partners Inc., a private investment
firm specializing in management buyouts. Mr.&nbsp;Howard is
currently a Director of Aeropostale, Inc., New York&nbsp;&#38;
Company, Inc., Seven For All Mankind, LLC, Stuart Weitzman
Holdings, LLC, Sutton Place Group, LLC, The John Henry Company
and Vitamin Shoppe Industries Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Douglas R. Korn </I>is a Senior Managing Director of Bear,
Stearns&nbsp;&#38; Co. Inc. and an Executive Vice President of
BSMB. Prior to joining Bear Stearns, Mr.&nbsp;Korn was a
Managing Director of Eos Partners, L.P., an investment
partnership. Mr.&nbsp;Korn is currently a Director of Reddy Ice
Group, Inc. and Vitamin Shoppe Industries Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Nick White </I>was appointed to the Board of Directors in
November 2004. Mr.&nbsp;White held various executive level
positions with Wal-Mart Stores, Inc. over a 28&nbsp;year period.
He was a member of Wal-Mart&#146;s Executive Committee during
his last fifteen years with the company. Mr.&nbsp;White is
currently the President and CEO of White and Associates
Consulting Firm.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Peter S. Cureton </I>was appointed to the Board of Directors
in February 2005. Mr.&nbsp;Cureton is a Vice President of Bear,
Stearns&nbsp;&#38; Co. Inc. and BSMB. Prior to joining Bear
Stearns, Mr.&nbsp;Cureton was an Associate at Wellspring Capital
Management LLC, a private equity firm.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Committees of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has standing compensation and audit
committees. Upon the closing of this offering, we will create a
nominating and corporate governance committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Compensation Committee.</I> The members of our compensation
committee currently are Messrs.&nbsp;McLain and Korn. Upon the
closing of this offering, we intend to increase the size of our
compensation committee by one and to nominate an independent
director to the committee. Within 90&nbsp;days from the closing
of this offering, we intend to nominate a second independent
director to our compensation committee to replace
Mr.&nbsp;McLain. We will add a third new independent member
within one year of the closing of this offering to replace
Mr.&nbsp;Korn so that all of our compensation committee members
will be independent as such term is defined under NYSE Manual
Rule&nbsp;303(A). Our compensation committee:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviews and approves the compensation and benefits for our
    employees, directors and consultants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    administers our employee benefit plans, authorizes and ratifies
    stock option grants and other incentive arrangements;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    authorizes employment and related agreements.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">61

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Audit Committee.</I> The members of our audit committee
currently are Messrs.&nbsp;Cureton and Korn. Upon the closing of
this offering, we intend to increase the size of our audit
committee by one and nominate an independent director to our
audit committee. Within 90&nbsp;days from the closing of this
offering, we intend to nominate a second independent director to
our audit committee to replace Mr.&nbsp;Cureton, who will step
down from the audit committee. We will add a third new
independent member within one year of the closing of this
offering to replace Mr.&nbsp;Korn so that all of our audit
committee members will be independent, as such term is defined
in Rule&nbsp;10A-3(b)(i)&nbsp;under the Exchange Act and under
NYSE Manual Rule&nbsp;303(A). We anticipate that one of the new
nominees to the audit committee will serve as the audit
committee&#146;s financial expert. Our audit committee is
responsible for:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the annual appointment of our registered public accounting firm;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing the scope of, and approving, all audit and non-audit
    services and related fees of our registered public accounting
    firm;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing with the registered public accounting firm, among
    other matters, accounting principles we will use in financial
    reporting, internal auditing procedures and the adequacy of our
    internal auditing procedures, including control over financial
    reporting.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Nominating and Corporate Governance Committee.</I> Upon the
closing of this offering, we will create a nominating and
corporate governance committee. The composition of our
nominating and corporate governance committee has not yet been
determined but will comply with NYSE rules regarding
independence. Upon the closing of this offering, among other
functions, the principal duties and responsibilities of our
nominating and corporate governance committee will be to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    identify candidates qualified to become board members,
    consistent with criteria approved by the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    recommend the candidates identified be selected as nominees for
    the next annual meeting of shareholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    develop and recommend to the board a set of corporate governance
    principles applicable to the corporation;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    oversee the evaluation of the board and management.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Code of Ethics</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have adopted a code of ethics that applies to all of our
Board members and to all of our employees, including our Chief
Executive Officer, Chief Financial Officer, Controller and other
finance executives. The Code of Ethics is available on our
website at www.aearo.com. If we make substantive amendments to
the Code of Ethics or grant any waiver, including any implicit
waiver, from a provision of the Code of Ethics applicable to our
Chief Executive Officer, Chief Financial Officer or Controller,
we will make a public disclosure of the nature of such amendment
or waiver.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The compensation of executive officers of the Company is
determined by the Board of Directors. 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 serving at
the end of fiscal
</DIV>

<P align="center" style="font-size: 10pt;">62

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
2005 (the &#147;Named Executive Officers&#148;) for services
rendered to the Company in all capacities (including service as
an officer or director) in fiscal 2005.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Compensation Table</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Annual Compensation</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fiscal</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael A. McLain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>568,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>499,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>86,303</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    Chief Executive Officer, President and Chairman of the Board of
    Directors</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    D. Garrad Warren,&nbsp;III</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>297,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>209,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70,973</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    President, North American Safety Products Group</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    Thomas R. D&#146;Amico</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>232,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>162,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>108,642</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    Senior Vice President, Operations and R&#38;D</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    James H. Floyd</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>256,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>179,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,938</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    President, Aearo Europe, Managing Director, International</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    M. Rand Mallitz</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>231,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>162,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,889</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    President, Specialty Composites</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Includes contributions made on behalf of Mr.&nbsp;McLain to the
    Company&#146;s 401(k) Savings Plan ($6,450) and to the
    Company&#146;s Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr.&nbsp;McLain&#146;s behalf to the Company&#146;s Supplemental
    Executive Retirement Plan ($66,732).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Includes contributions made on behalf of Mr.&nbsp;Warren to the
    Company&#146;s 401(k) Savings Plan ($6,450) and to the
    Company&#146;s Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr.&nbsp;Warren&#146;s behalf to the Company&#146;s Supplemental
    Executive Retirement Plan ($22,989). Also includes interest
    earned on 221 deferred preferred stock units held in
    Mr.&nbsp;Warren&#146;s account under the 2004 Aearo Technologies
    Inc. Deferred Compensation Plan ($28,413). The deferred
    preferred stock units were redeemed in May 2005 (91&nbsp;units)
    and August 2005 (130&nbsp;units).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Includes contributions made on behalf of Mr.&nbsp;D&#146;Amico
    to the Company&#146;s 401(k) Savings Plan ($8,179) and to the
    Company&#146;s Cash Balance Plan ($6,600). Includes expenses
    recognized by the Company for unfunded accruals made on
    Mr.&nbsp;D&#146;Amico&#146;s behalf to the Company&#146;s
    Supplemental Executive Retirement Plan ($4,413). Includes a
    sign-on bonus ($70,000) and relocation expenses ($19,450).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Includes contributions made on behalf of Mr.&nbsp;Floyd to the
    Company&#146;s 401(k) Savings Plan ($6,350) and to the
    Company&#146;s Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr.&nbsp;Floyd&#146;s behalf to the Company&#146;s Supplemental
    Executive Retirement Plan ($17,467).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Includes contributions made on behalf of Mr.&nbsp;Mallitz to the
    Company&#146;s 401(k) Savings Plan ($6,726) and to the
    Company&#146;s Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr.&nbsp;Mallitz&#146;s behalf to the Company&#146;s
    Supplemental Executive Retirement Plan ($14,042).</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information concerning the number
and value of unexercised options to purchase Aearo Technologies
Inc.&#146;s Common Stock held by the Named Executive Officers at
the end of fiscal 2005. None of the Named Executive Officers
exercised any options during fiscal 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Number of Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Value of Outstanding</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Covered by Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>In-the-money Options</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>at Fiscal Year-end</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>At Fiscal Year-end<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Acquired</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>On Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Realized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unexercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unexercisable</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael A. McLain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>823,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,536,475</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    D. Garrad Warren,&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>287,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>882,895</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James H. Floyd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>278,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>885,360</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. Rand Mallitz</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>171,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>524,680</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thomas R. D&#146;Amico</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>170,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>455,177</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">63

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    There was no public market for Aearo Technologies Inc.&#146;s
    capital stock as of September&nbsp;30, 2005. Accordingly, these
    values have been calculated on the basis of an assumed fair
    market value of $39&nbsp;per share as established by the Aearo
    Technologies Inc. Board of Directors.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Director Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The members of the Company&#146;s Board of Directors receive
compensation to recognize their contributions for their service
to the Company. The type and amount of compensation is split
into two groups. The first group is the Independent Group that
consists of members not employed by the Company or its major
shareholders (i.e. BSMB and Vestar Capital Partners). The second
group, the Affiliated Group, would consist of those members
either employed by the Company or its major shareholders of the
Company. The Directors in the Independent Group receive $20,000
annually for their service as Directors and an additional
$1,000&nbsp;per meeting for physical attendance or $500&nbsp;per
meeting for phone attendance plus reimbursement of expenses. The
Affiliated Group serves without compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employment Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the Merger, AC Safety Acquisition Corp.
entered into employment agreements with the following 7 senior
executives: Michael McLain, D. Garrad Warren&nbsp;III, M. Rand
Mallitz, James M. Phillips, Rahul Kapur, Jeffrey S. Kulka and
James H. Floyd. We entered into an employment agreement with
Thomas R. D&#146;Amico upon the commencement of his employment
with us in July 2004. Under each agreement, the applicable
executive will receive (i)&nbsp;a base salary that will
initially be equal to the base salary received by such executive
prior to the Merger and will be subject to annual review each
year beginning with fiscal year 2005, (ii)&nbsp;an annual bonus
that will be based on the achievement by Aearo Company and Aearo
Technologies Inc. of certain performance targets and
(iii)&nbsp;certain employee benefits under health and welfare
plans and participation in incentive, savings and retirement
plans that, for the period beginning on the consummation of the
Merger and ending on the second anniversary of the consummation
of the Merger will be no less favorable in the aggregate than
those currently provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each employment agreement provides the applicable executive with
severance benefits equal to two times the executive&#146;s base
salary if termination occurs within the first two years and one
and a half times base salary if termination occurs after two
years (two and a half times and two times, respectively, in the
case of Michael McLain) plus the executive&#146;s target bonus
in the event such executive is terminated without cause or such
executive terminates his employment for good reason, in each
case, within five years from the date of the closing of the
Merger. In the event an executive&#146;s employment terminates
for any other reason, such executive will only be entitled to
amounts required by law to be paid, including a payout of such
executive&#146;s annual base salary through the date of
termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each employment agreement also contains a covenant not to
compete and a non-solicitation and non-interference provision
with respect to employees and customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Deferred Compensation Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Aearo Plan.</I> We currently maintain a deferred compensation
plan for certain of our employees and directors. The plan is a
non-qualified plan savings plan under the IRS code that provides
executive officers the opportunity to defer the receipt of base
salary and/or bonus. The total amount of Aearo assets and
obligations outstanding under the plan was approximately
$3.4&nbsp;million as of September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>2004 Aearo Technologies Inc. Plan.</I> On April&nbsp;7, 2004,
Aearo Technologies Inc. adopted the 2004 Deferred Compensation
Plan. A limited group of executives of Aearo Technologies Inc.
were credited with a transaction bonus under the plan as of that
date. The bonus amounts credited under the plan were credited to
a deferred compensation account in each participant&#146;s name
and deemed to be invested in a combination of common stock units
and preferred stock units. Stock units do not have voting or
dividend rights. However, upon the payment of a stock or cash
dividend, participants will have dividend equivalent rights. In
the event of a stock dividend, the dividend equivalents will be
credited in the form of additional preferred or common stock
units, as applicable. In the event of a cash dividend, each
participant will be entitled to a cash payment from
</DIV>

<P align="center" style="font-size: 10pt;">64

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
Aearo Technologies Inc. in an amount equal to the aggregate cash
dividend that would have been paid on the preferred or common
units, as applicable, credited to the participant&#146;s
deferred compensation account on the dividend record date as if
those units had actually been shares outstanding. The amounts
credited to the participant&#146;s deferred compensation account
generally become payable upon the first to occur of the
participant&#146;s termination of employment or certain
liquidity or other events set forth in the Aearo Technologies
Inc. 2004 Deferred Compensation Plan. Stock units will be paid
in an equal number of shares of common or preferred stock, as
applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employee Stock and Other Benefit Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Incentive Plan.</I> In connection with the Merger,
Aearo Technologies Inc. adopted a Stock Incentive Plan for the
benefit of certain of its employees. Options to acquire 18.5% of
the total outstanding shares of our common stock on a fully
diluted basis were granted under the plan. With respect to the
options, the plan only permits the issuance of non-qualified
options. In addition, common stock representing a total of 1.5%
of the outstanding shares of our common stock on a fully diluted
basis was designated as restricted stock and made available for
grant under the plan for new hires and for incentives for
existing employees, of which 20,000&nbsp;shares have been
granted under the plan. The number of shares of restricted stock
and the number of options to be issued to each new hire or
existing employee will be determined by the Compensation
Committee of the Board of Directors of Aearo Technologies Inc.
based on the recommendation of the Chief Executive Officer.
There were no option grants to any of our Named Executive
Officers in the twelve months ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Performance Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Concurrently with the closing of this offering, we will adopt
the Performance Incentive Plan to provide an additional means
through the grant of awards to attract, motivate, retain and
reward selected employees and other eligible persons. Employees,
officers, directors and consultants that provide services to us
or one of our subsidiaries may be selected to receive awards
under the plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our compensation committee will have the authority to administer
the plan. The administrator of the plan will have broad
authority to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    select participants and determine the types of awards that they
    are to receive;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determine the number of shares that are to be subject to awards
    and the terms and conditions of awards, including the price (if
    any) to be paid for the shares or the award;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cancel, modify or waive our rights with respect to, or modify,
    discontinue, suspend or terminate any or all outstanding awards,
    subject to any required consents;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    construe and interpret the terms of the plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    accelerate or extend the vesting or exercisability or extend the
    term of any or all outstanding awards;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    subject to the other provisions of the plan, make certain
    adjustments to an outstanding award and authorize the
    conversion, succession or substitution of an award; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    allow the purchase price of an award or shares of our common
    stock to be paid in the form of cash, check or electronic funds
    transfer, by the delivery of already-owned shares of our common
    stock or by a reduction of the number of shares deliverable
    pursuant to the award, by services rendered by the recipient of
    the award, by notice and third party payment or cashless
    exercise on such terms as the administrator may authorize, or
    any other form permitted by law.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A total
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock will be authorized for issuance with respect
to awards granted under the plan. Any shares subject to awards
that are not paid or exercised before they expire or are
terminated, as well as shares used to pay the purchase or
exercise price of awards or related tax withholding obligations,
will become available for other award grants under the plan. As
of the date of this prospectus, the plan has not yet been
adopted.
</DIV>

<P align="center" style="font-size: 10pt;">65

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Awards under the plan may be in the form of incentive or
nonqualified stock options, stock appreciation rights,
restricted stock, stock bonuses and other forms of awards
granted or denominated in our common stock or units of our
common stock. Awards under the plan generally will not be
transferable other than by will or the laws of descent and
distribution, except that the plan administrator may authorize
certain transfers for tax or estate planning purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Restricted stock awards can be issued for nominal or the minimum
lawful consideration. Stock options must have an exercise price
that is at least equal to the fair market value of our common
stock, or 110% of fair market value of our common stock for
incentive stock option grants to any 10% owner of our common
stock, on the date of grant. These and other awards may also be
issued solely or in part for services. Awards are generally paid
in cash or shares of our common stock. The plan administrator
may provide for the deferred payment of awards and may determine
the terms applicable to deferrals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As is customary in incentive plans of this nature, the number
and kind of shares available under the plan and any outstanding
awards, as well as the exercise or purchase prices of awards,
will be subject to adjustment in the event of certain
reorganizations, mergers, combinations, recapitalizations, stock
splits, stock dividends or other similar events that change the
number or kind of shares outstanding, and extraordinary
dividends or distributions of property to the stockholders. In
no case (except due to an adjustment referred to above or any
re-pricing that may be approved by our stockholders) will any
adjustment be made to a stock option or stock appreciation right
award under the plan (by amendment, cancellation and re-grant,
exchange or other means) that would constitute a re-pricing of
the per-share exercise or base price of the award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each award granted under our plan will generally become fully
vested, exercisable, and/or payable, as applicable, upon a
&#147;Change in Control Event&#148; if the award will not be
assumed or substituted for or otherwise continued after the
event. The term Change in Control Event is defined in the plan
and generally includes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    stockholder approval of our dissolution or liquidation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    certain changes in a majority of the membership of our board of
    directors over a period of two years or less;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the acquisition of more than 30% of our outstanding voting
    securities by any person other than a person who held more than
    30% of our outstanding voting securities as of the date that the
    plan was approved, affiliates of BSMB, a company benefit plan,
    or one of their affiliates, successors, heirs, relatives or
    certain donees or certain other affiliates; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a merger, consolidation, reorganization (other than with an
    affiliate) or similar corporate transactions, or a sale or other
    transfer of all or substantially all of our assets, after which
    our stockholders do not own more than 50% of the outstanding
    voting securities of the resulting entity after such event.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors may amend or terminate the plan at any
time, but no such action will affect any outstanding award in
any manner materially adverse to a participant without the
consent of the participant. Plan amendments will be submitted to
stockholders for their approval as required by applicable law or
any applicable listing agency. The plan is not
exclusive&nbsp;&#151; our board of directors and compensation
committee may grant stock and performance incentives or other
compensation, in stock or cash, under other plans or authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The plan will terminate
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
However, the plan administrator will retain its authority until
all outstanding awards are exercised or terminated. The maximum
term of options, SARs and other rights to acquire common stock
under the plan is ten years after the initial date of the award.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation Committee Interlocks and Insider
Participation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our Compensation Committee makes all executive officer
compensation decisions and submits them to our Board of
Directors for final review and approval. The Compensation
Committee is comprised of Michael A. McLain and Douglas R. Korn.
In addition, no member of our Compensation Committee serves as a
</DIV>

<P align="center" style="font-size: 10pt;">66

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
member of the board of directors or compensation committee of
any entity that has one or more executive officers serving as a
member of our Board of Directors or Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Management Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On an annual basis we provide performance-based compensation
awards to executive officers and key employees as part of a
management incentive plan. Such compensation awards are a
function of individual performance and consolidated corporate
results. Business unit performance also is a factor in
determining compensation awards with respect to key employees
who are not executive officers. The specified qualitative and
quantitative criteria employed by our Board of Directors in
determining bonus awards varies for each individual and from
year to year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Supplemental Severance Pay Policy.</I> We have adopted a
severance pay policy providing key employees with salary
continuation in the event of a termination. Termination
resulting from cause, retirement, death and disability are not
eligible. Subject to our discretion, the policy generally
provides for one month&#146;s base pay for each full year of
service with a minimum amount payable of three months and a
maximum amount payable of twelve months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>401(k) Plan.</I> We have adopted a savings plan which is
qualified under Section&nbsp;401(a) and 401(k) of the Internal
Revenue Service Code. All of our employees in the United States
normally scheduled to work a minimum of 1,000&nbsp;hours per
year are eligible to participate in the savings plan effective
with their hire date. For each employee who elects to
participate in the savings plan and makes a contribution
thereto, we will make a matching contribution. We match 50.0% of
the first 6.0% of compensation contributed. The maximum
contribution for any participant for any year is 60.0% of such
participant&#146;s eligible compensation, not to exceed the
401(k) plan elective deferral limit set forth by the IRS.
Contributions to the savings plan will be invested, as the
employee directs, in a variety of investment options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Pension Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have adopted a Cash Balance Pension Plan. Under this plan, we
will provide participants with annual credits of 4.0% of
eligible compensation up to the Social Security Wage Base as set
forth annually by the Social Security Administration and
Department of Health and Human Services. An additional annual
credit of 4.0% of eligible compensation from the Social Security
Wage Base up to the Qualified Plan Compensation Limit set forth
by the IRS is provided. All balances in the accounts of
participants will be credited with interest based on the prior
year&#146;s U.S.&nbsp;Treasury bill rate. At retirement,
participants eligible for benefits may receive their account
balance in a lump sum or on a monthly basis with the monthly
distribution determined to have an equivalent actuarial value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, we have adopted a Supplemental Executive
Retirement Plan, which is a non-qualified plan under the IRS
Code, and which provides unfunded deferred compensation benefits
to certain individuals whose salary exceeds the Qualified Plan
Compensation Limit set forth by the IRS. Pursuant to the plan,
participants are credited annually with amounts representing 8%
of compensation in excess of the Qualified Plan Compensation
Limit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth, for the Named Executive
Officers, the estimated annual benefits payable upon retirement
at normal retirement age, from both the qualified and
non-qualified pension plans assuming in each case that such
officer elects payment over time rather than in a lump sum:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Annual</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Benefits</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Payable</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael A. McLain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>110,876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    D. Garrad Warren,&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>53,815</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thomas R. D&#146;Amico</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,273</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James H. Floyd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>62,607</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. Rand Mallitz</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,174</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">67

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='112'></A>
</DIV>

<!-- link1 "PRINCIPAL AND SELLING STOCKHOLDERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PRINCIPAL AND SELLING STOCKHOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information as of
September&nbsp;30, 2005 regarding beneficial ownership of our
common stock before and after completion of this offering, and
shows the number of shares and percentage owned by (i)&nbsp;each
person known to beneficially own more than 5% of our common
stock before and after completion of this offering,
(ii)&nbsp;each of our named executive officers, (iii)&nbsp;the
other employee selling stockholders, (iv)&nbsp;each member of
our board of directors and (v)&nbsp;all of our executive
officers and members of our board of directors as a group. As of
September&nbsp;30, 2005, there were 57&nbsp;holders of record of
our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The amounts and percentages of common stock beneficially owned
are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under
the rules of the SEC, a person is deemed to be a
&#147;beneficial owner&#148; of a security if that person has or
shares &#147;voting power,&#148; which includes the power to
vote or to direct the voting of such security, or
&#147;investment power,&#148; which includes the power to
dispose of or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities
of which that person has a right to acquire beneficial ownership
within 60&nbsp;days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person
may be deemed a beneficial owner of securities as to which he
has no economic interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The column below titled &#147;Shares to be Sold in this
Offering&#148; represents the shares of common stock being sold
in this offering by entities or funds affiliated with BSMB, our
equity sponsor, and by the other selling stockholders identified
below. Additional information with respect to our equity sponsor
and employee selling stockholders and their relationships with
our company is provided under the captions
&#147;Management&#148; and &#147;Certain Relationships and
Related Party Transactions.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned After This</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned After This</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Offering Assuming</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Offering Assuming</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned Prior to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>No Exercise of the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercise in Full of the</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>This Offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares to be</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Over-Allotment Option</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Over-Allotment Option</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Sold in This</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bear Stearns Merchant
    Capital&nbsp;II,&nbsp;L.P.<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vestar Equity Partners,
    L.P.<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael A. McLain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James H. Floyd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rahul Kapur</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    D. Garrad Warren&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. Rand Mallitz</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    James M. Phillips</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jeffrey S. Kulka</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thomas A. D&#146;Amico</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    John D.
    Howard<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Douglas R.
    Korn<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nick White</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Peter S. Cureton</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Directors and Executive Officers as a group</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Includes shares of common stock owned by each of Bear Stearns
    Merchant Banking Partners&nbsp;II, L.P., Bear Stearns Merchant
    Banking Investors&nbsp;II, L.P., Bear Stearns MB-PSERS&nbsp;II,
    L.P., The BSC Employee Fund&nbsp;V, L.P. and The BSC Employee
    Fund&nbsp;VI, L.P. Bear</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">68

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">Stearns Merchant Capital&nbsp;II,
    L.P. is the general partner of each of these entities. Bear
    Stearns Merchant Capital&nbsp;II, L.P. and each of the foregoing
    entities is an affiliate of Bear, Stearns&nbsp;&#38; Co. Inc.
    and has an address at 383&nbsp;Madison Avenue, New York, New
    York 10179.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">Vestar Equity Partners, L.P. has an
    address at 245&nbsp;Park Avenue, 41st&nbsp;Floor, New York, NY
    10167.
    </FONT></TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT style="font-size: 8pt">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT style="font-size: 8pt">Each of Messrs.&nbsp;Howard and
    Korn may be deemed the beneficial owner of the shares of common
    stock owned by Bear Stearns Merchant Capital&nbsp;II, L.P. set
    forth in note&nbsp;(1) above due to their status as senior
    managing directors of Bear Stearns&nbsp;&#38; Co. Inc. and group
    head and executive vice president, respectively, of Bear Stearns
    Merchant Banking. Each such person disclaims beneficial
    ownership of any such shares, except for any pecuniary interest
    therein.
    </FONT></TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">69

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='113'></A>
</DIV>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stockholder Support Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;10, 2004, Aearo Technologies Inc. entered into a
stockholder support agreement with AC&nbsp;Safety Acquisition
Corp. and Vestar Equity Partners, L.P. The stockholder support
agreement contains, among other things, the following provisions
with respect to Vestar and its affiliates:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a prohibition on sales, dispositions, pledges and other
    transfers on shares of Aearo Corporation capital stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a non-solicitation and non-interference provision with respect
    to Aearo&#146;s current employees, certain former employees and
    customers, suppliers, licensees and other business
    relations;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an agreement not to acquire or otherwise render services to
    certain of our competitors prior to March&nbsp;10, 2006.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Professional Services Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, Aearo Technologies Inc., Aearo
Corporation and Aearo Company entered into a professional
services agreement with Bear Stearns Merchant Manager&nbsp;II,
LLC, or BSMM (the &#147;Professional Services Agreement&#148;).
Under the terms of the Professional Services Agreement, Aearo
Technologies Inc., Aearo Corporation and Aearo Company retained
BSMM to provide certain management consulting and financial
advisory services, for which Aearo Corporation will pay BSMM an
annual advisory fee equal to the greater of (i)&nbsp;$700,000
and (ii)&nbsp;1.25% of the Adjusted Consolidated EBITDA (as
defined in our senior credit facility as in effect on
April&nbsp;7, 2004, plus, to the extent deducted in arriving at
Consolidated EBITDA, the aggregate advisory fee paid under the
Successor Agreement and any fees paid to Vestar Capital Partners
or any of its affiliates). If Aearo Technologies Inc., Aearo
Corporation or Aearo Company engages BSMM with respect to any
merger, acquisition, disposition, recapitalization, issuance of
securities, financing or similar transaction, Aearo Corporation
will pay BSMM a transaction fee to be negotiated between the
parties. If the parties do not agree on a fee, the transaction
fee will be 1.0% of the aggregate enterprise value paid or
provided to Aearo Technologies Inc., Aearo Corporation or Aearo
Company. BSMM will also be entitled to a fee (a &#147;Company
Sale Fee&#148;) of 0.65% of the aggregate enterprise value paid
to Aearo Technologies Inc. or Aearo Corporation in a sale of
Aearo Technologies Inc. or Aearo Corporation. The Professional
Services Agreement will terminate on the earlier of
(i)&nbsp;April&nbsp;7, 2014, (ii)&nbsp;the consummation of a
sale of Aearo Technologies Inc., Aearo Corporation or Aearo
Company, (iii)&nbsp;termination upon thirty days&#146; written
notice by BSMM and (iv)&nbsp;the consummation of a qualified
public offering of Aearo Technologies Inc. common stock. If not
terminated by the foregoing, upon the tenth anniversary of the
date of the Professional Services Agreement and the end of each
year thereafter, the term is automatically extended for an
additional year unless terminated by either party at least
30&nbsp;days prior to such year end. Under the Professional
Services Agreement, Aearo Technologies Inc., Aearo Corporation
and Aearo Company have agreed to indemnify BSMM for any and all
claims and losses arising out of, or relating, to the
professional services agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since September&nbsp;30, 2004, we have paid approximately
$1.0&nbsp;million to BSMM pursuant to the Professional Services
Agreement. In connection with this offering, we will pay an
additional
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to
BSMM and the Professional Services Agreement will thereafter be
terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stockholders&#146; Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, all holders of our capital stock entered
into and became subject to a stockholders&#146; agreement that
governs certain aspects of our relationship with our security
holders. The stockholders&#146; agreement, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    allows security holders to join, and allows BSMM and its
    affiliates to require security holders to join, in any sale or
    transfer of shares of common stock or preferred stock by BSMM to
    any third party prior to a qualified public offering of common
    stock or preferred stock, following which (when aggregated with
    all prior such sales or transfers) BSMM and its affiliates shall
    have disposed of in excess of a</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">70

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    certain specified percentage of the number of shares of common
    stock or preferred stock, as applicable, that BSMM and its
    affiliates owned as of April&nbsp;7, 2004;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restricts the ability of certain security holders to transfer,
    assign, sell, gift, pledge, hypothecate or encumber, or
    otherwise dispose of, common stock or preferred stock or all or
    part of the voting power associated with common stock or
    preferred stock, subject to certain specified exceptions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants to BSMM the right to designate members of our board of
    directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants to security holders the right to buy their proportionate
    percentage of securities offered for sale to BSMM by us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    allows us and BSMM to repurchase all or any portion of the
    common stock and preferred stock held by directors, employees
    and consultants of Aearo Corporation at varying prices upon the
    termination of their employment with Aearo Corporation for any
    reason (including death or disability);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants demand and piggyback registration rights to BSMM and
    allows security holders to include securities in a registration
    statement filed by us with respect to an offering of common
    stock or preferred stock (i)&nbsp;in connection with the
    exercise of any demand rights by BSMM and its affiliates or any
    other security holders possessing such rights or (ii)&nbsp;in
    connection with an offering by us which BSMM and its affiliates
    exercise &#147;piggyback&#148; registration rights;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provides for the payment by us of the fees and expenses
    associated with the exercise of registration rights under the
    stockholders&#146; agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restricts our ability to enter into certain transactions with
    BSMM and its affiliates;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provides for non-operating board members of our management to
    vote their shares at the direction of the Company and to grant
    us a proxy in respect of their shares;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants to our security holders information rights with respect
    of the Company.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with this offering, we intend to terminate the
stockholders&#146; agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Indebtedness of Management</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the past, certain members of management were issued loans by
us, the proceeds of which were used to purchase company stock.
All outstanding indebtedness bore interest at a rate of
2.73%&nbsp;per annum and all such indebtedness was subsequently
repaid in connection with our acquisition of Aearo Corporation
on April&nbsp;7, 2004. The following table set forth the largest
aggregate amount of indebtedness outstanding at any time.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="81%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Indebtedness</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. McLain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>669,660</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    M. Rand Mallitz</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>97,830</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    R. Kapur</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. Floyd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. Phillips</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    D. Garrad Warren,&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>270,000</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">71

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='114'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CERTAIN INDEBTEDNESS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DESCRIPTION OF CERTAIN INDEBTEDNESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The Senior Credit Facility</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, Aearo Corporation entered into a senior
secured senior credit facility, which was amended on
April&nbsp;28, 2005. Aearo Company is the borrower under the
senior credit facility and such facility is unconditionally
guaranteed by Aearo Technologies Inc., Aearo Corporation and
Aearo Company&#146;s domestic subsidiaries. Bear Stearns
Corporate Lending Inc. is syndication agent, National City Bank
of Indiana and Wells Fargo Bank, N.A. are co-documentation
agents and Deutsche Bank&nbsp;AG, New York Branch is
administration agent. The senior credit facility is comprised of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a $125.0&nbsp;million term loan facility, with a portion
    denominated in Euros;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a revolving credit facility providing for up to
    $50.0&nbsp;million of borrowings.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
In addition, the agreement provides for uncommitted incremental
term loan facilities of up to $75.0&nbsp;million or the
equivalent amount in Euros.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amounts under the committed term loan facility were only drawn
at the closing of the consummation of the Merger, and term loan
amounts repaid or prepaid may not be re-borrowed. The maturity
date of the term loan is April&nbsp;7, 2011. Until
September&nbsp;30, 2010, the term loan will amortize quarterly
in an amount equal to 1% of the initial principal amount. After
September&nbsp;30, 2010, the remaining principal will be paid in
two quarterly amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Amounts drawn under the revolving credit facility may be
borrowed, repaid and re-borrowed until the final maturity date.
The final maturity date under the revolving credit facility is
April&nbsp;7, 2010. A portion of the revolving credit facility
will be available for the issuance of stand-by and trade letters
of credit. Maturities for letters of credit will not exceed
twelve months, renewable annually thereafter. As of
September&nbsp;30, 2005, we did not have any outstanding
borrowings under the revolving credit facility excluding
$1.6&nbsp;million of letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At our option, the interest rates applicable to the term loans
(other than incremental term loans) and the loans under the
revolving senior credit facility will be set at a margin over
the base rate or the Eurodollar rate. The margins applicable to
the incremental term loans will be determined at the time we
draw under any such facility. The base rate is either the
administrative agent&#146;s announced prime lending rate or the
overnight Federal Funds rate plus 0.50%, whichever is higher.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Subordinated Notes due 2012</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Company issued $175.0&nbsp;million aggregate principal
amount
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Subordinated Notes due 2012 under an indenture dated
April&nbsp;7, 2005. Interest is payable semiannually on April 15
and October 15 of each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The senior subordinated notes are unsecured subordinated
obligations of Aearo Company and are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    subordinated in right of payment to all of Aearo Company&#146;s
    existing and future senior indebtedness;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    equal in right of payment with any of Aearo Company&#146;s
    existing and future senior subordinated indebtedness;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    senior in right of payment to Aearo Company&#146;s future
    subordinated indebtedness, if any.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Company&#146;s senior subordinated notes include customary
covenants that restrict, among other things, the ability to
incur additional debt, pay dividends or make certain other
restricted payments, incur liens, merge or sell all or
substantially all of the assets or enter into various
transactions with affiliates. Prior to April&nbsp;15, 2007,
Aearo Company may redeem up to 35% of the aggregate principal
amount of the senior subordinated notes at a redemption price of
108.25% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption, with funds raised in
specified equity offerings. In addition, prior to April&nbsp;15,
2008, the senior subordinated notes are redeemable, in whole or
in part, at Aearo Company&#146;s option, at a redemption price
equal to 100% of the principal amount thereof plus a make-whole
premium. At
</DIV>

<P align="center" style="font-size: 10pt;">72

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
any time on or after April&nbsp;15, 2008, the senior
subordinated notes are redeemable at Aearo Company&#146;s
option, at a premium declining to par in 2010. Aearo
Company&#146;s senior subordinated notes are guaranteed, fully,
jointly and severally, and unconditionally, on a senior
subordinated basis by its domestic subsidiaries. The senior
subordinated notes are not guaranteed by us or by Aearo
Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>12.00%&nbsp;Senior Notes due 2013</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Corporation issued $54&nbsp;million aggregate principal
amount 12.00%&nbsp;senior notes due 2013 under an indenture
dated August&nbsp;3, 2005. Pursuant to the terms of the purchase
agreement with the buyer of such notes, Aearo Corporation is
permitted to issue an additional $46&nbsp;million aggregate
principal amount of such notes, subject to certain terms and
conditions contained in the purchase agreement, at any time
prior to August&nbsp;3, 2006. Interest is payable on the
12.00%&nbsp;Notes quarterly on February&nbsp;1, May,&nbsp;1,
August&nbsp;1 and November&nbsp;1 of each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 12.00%&nbsp;Notes are unsecured subordinated obligations of
Aearo Corporation and are:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    subordinated in right of payment to all of Aearo Company&#146;s
    existing and future senior indebtedness and senior subordinated
    indebtedness;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    equal in right of payment with any of Aearo Corporation&#146;s
    existing and future senior indebtedness;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    senior in right of payment to Aearo Corporation&#146;s future
    subordinated indebtedness, if any.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Corporation&#146;s 12.00%&nbsp;Notes include customary
covenants that restrict, among other things, the ability to
incur additional debt, pay dividends or make certain other
restricted payments, incur liens, merge or sell all or
substantially all of the assets or enter into various
transactions with affiliates. Prior to August&nbsp;3, 2006,
Aearo Corporation may redeem all or any part of the aggregate
principal amount of the 12.00%&nbsp;Notes at a redemption price
of 106% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption, with funds raised in
specified equity offerings. At any time on or after
August&nbsp;3, 2006, the senior notes are redeemable at Aearo
Corporation&#146;s option, at a premium declining to par in 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will repay all amounts outstanding under the
12.00%&nbsp;Notes with the proceeds from this offering.
</DIV>

<P align="center" style="font-size: 10pt;">73

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='115'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DESCRIPTION OF CAPITAL STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a description of the terms of our amended and
restated certificate of incorporation and amended and restated
by-laws, the forms of which have been filed with the Securities
and Exchange Commission as exhibits to the registration
statement of which this prospectus is part and which will become
effective upon the consummation of this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Authorized Capitalization</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the closing of this offering, our authorized capital stock
will consist of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock, par value $0.01&nbsp;per share, all such shares
    will be designated common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of preferred stock, par value $0.01&nbsp;per share.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After this
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock and no shares of our preferred stock will be
issued and outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All shares of common stock to be outstanding upon completion of
this offering will be validly issued, fully paid and
nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends.</I> Holders of shares of our common stock will be
entitled to receive dividends and other distributions in cash,
stock or property of ours as may be declared by our board of
directors from time to time out of our assets or funds legally
available for dividends or other distributions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Rights Upon Liquidation.</I> In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share in our
assets remaining after payment of all debts and other
liabilities, subject to the liquidation preference of any
outstanding preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Voting Rights.</I> Shares of our common stock carry one vote
per share. Except as otherwise required by law, holders of our
common stock are not entitled to vote on any amendment to our
amended and restated certificate of incorporation that relates
solely to the terms of one or more outstanding series of
preferred stock if the holders of the affected shares are
entitled to vote on the amendment. Holders of shares of our
common stock will not be entitled to cumulative voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except as otherwise required by the Delaware General Corporation
Law and our amended and restated certificate of incorporation
and amended and restated by-laws, action requiring stockholder
approval may be taken by a vote of the holders of a majority of
the common stock at a meeting at which a quorum is present. See
&#147;&#151;&nbsp;Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Restated Certificate of Incorporation and
Amended and Restated By-laws.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Rights.</I> Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated certificate of incorporation provides
that we may issue up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our preferred stock in one or more series as may be
determined by our board of directors.
</DIV>

<P align="center" style="font-size: 10pt;">74

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has broad discretionary authority with
respect to the rights of issued series of our preferred stock
and may take several actions without any vote or action of the
holders of our common stock, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determining the number of shares to be included in each series;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    fixing the designation, powers, preferences and relative rights
    of the shares of each series and any qualifications, limitations
    or restrictions with respect to each series, including
    provisions related to dividends, conversion, voting, redemption
    and liquidation, which may be superior to those of our common
    stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increasing or decreasing the number of shares of any series.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The board of directors may authorize, without approval of
holders of our common stock, the issuance of preferred stock
with voting and conversion rights that could adversely affect
the voting power and other rights of holders of our common
stock. For example, our preferred stock may rank prior to our
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be
convertible into shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our preferred stock could be issued quickly with terms designed
to delay or prevent a change in the control of our company or to
make the removal of our management more difficult. This could
have the effect of discouraging third party bids for our common
stock or may otherwise adversely affect the market price of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that the ability of our board of directors to issue
one or more series of our preferred stock will provide us with
flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of our preferred stock, as well as
shares of our common stock, will be available for issuance
without action by our common stockholders, unless such action is
required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although our board of directors has no intention at the present
time of doing so, it could issue a series of our preferred stock
that could, depending on the terms of such series, be used to
implement a stockholder rights plan or otherwise impede the
completion of a merger, tender offer or other takeover attempt
of our company. Our board of directors could issue preferred
stock having terms that could discourage an acquisition attempt
through which an acquirer may be able to change the composition
of the board of directors, including a tender offer or other
transaction that some, or a majority, of our stockholders might
believe to be in their best interest or in which stockholders
might receive a premium for their stock over the then best
current market price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Anti-Takeover Effects of Various Provisions of Delaware Law
and Our Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions of the Delaware General Corporation Law, our amended
and restated certificate of incorporation and amended and
restated by-laws contain provisions that may have some
anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in
a premium over the market price for the shares held by
stockholders.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I>Delaware Anti-Takeover Statute</I></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to Section&nbsp;203 of the Delaware General
Corporation Law. Subject to specific exceptions,
Section&nbsp;203 prohibits a publicly held Delaware corporation
from engaging in a &#147;business combination&#148; with
</DIV>

<P align="center" style="font-size: 10pt;">75

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
an &#147;interested stockholder&#148; for a period of three
years after the time the person became an interested
stockholder, unless:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the business combination, or the transaction in which the
    stockholder became an interested stockholder, is approved by our
    board of directors prior to the time the interested stockholder
    attained that status;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    upon consummation of the transaction that resulted in the
    stockholder becoming an interested stockholder, the interested
    stockholder owned at least 85% of the voting stock of the
    corporation outstanding at the time the transaction commenced,
    excluding those shares owned by persons who are directors and
    also officers and by employee stock plans in which employee
    participants do not have the right to determine confidentially
    whether shares held subject to the plan will be tendered in a
    tender or exchange offer;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    at or after the time a person became an interested stockholder,
    the business combination is approved by our board of directors
    and authorized at an annual or special meeting of stockholders
    by the affirmative vote of at least two-thirds of the
    outstanding voting stock that is not owned by the interested
    stockholder.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&#147;Business combinations&#148; include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, in
general an &#147;interested stockholder&#148; is a person who,
together with his or her affiliates and associates, owns, or
within three years did own, 15% or more of the shares of the
corporation&#146;s outstanding voting stock. These restrictions
could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to us and,
therefore, may discourage attempts to acquire us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, provisions of our amended and restated certificate
of incorporation and amended and restated by-laws, which are
summarized in the following paragraphs, may have an
anti-takeover effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Quorum Requirements; Removal of Directors.</I> Our amended
and restated certificate of incorporation provides for a minimum
quorum of one-third in voting power of the outstanding shares of
our capital stock entitled to vote, except that a minimum quorum
of a majority in voting power of the outstanding shares of our
capital stock entitled to vote is necessary to hold a vote for
any director in a contested election, the removal of a director
or the filling of a vacancy on our board of directors. Our
amended and restated by-laws provide that directors may be
removed only for cause by the affirmative vote of at least a
majority in voting power of the outstanding shares of our
capital stock entitled to vote generally in the election of
directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>No Cumulative Voting.</I> The Delaware General Corporation
Law provides that stockholders are denied the right to cumulate
votes in the election of directors unless our amended and
restated certificate of incorporation provides otherwise. Our
amended and restated certificate of incorporation does not
expressly address cumulative voting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>No Stockholder Action by Written Consent; Calling of Special
Meeting of Stockholders.</I> Our amended and restated
certificate of incorporation prohibits stockholder action by
written consent. It and our amended and restated by-laws also
provide that special meetings of our stockholders may be called
only by (1)&nbsp;the chairman of our board of directors or
(2)&nbsp;our board of directors or (3)&nbsp;our board of
directors upon a request by holders of at least 50% in voting
power of all the outstanding shares entitled to vote at that
meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Advance Notice Requirements for Stockholder Proposals and
Director Nominations.</I> Our amended and restated by-laws
provide that stockholders seeking to bring business before or to
nominate candidates for election as directors at an annual
meeting of stockholders must provide timely notice of their
proposal in writing to the corporate secretary. To be timely, a
stockholder&#146;s notice must be delivered or mailed and
received at our principal executive offices not less
than&nbsp;90 nor more than 120&nbsp;days in advance of the
anniversary date of the immediately preceding annual meeting of
stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated by-laws also specify requirements as to
the form and content of a stockholder&#146;s notice. These
provisions may impede stockholders&#146; ability to bring
matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
Stockholder
</DIV>

<P align="center" style="font-size: 10pt;">76

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
nominations for the election of directors at a special meeting
must be received by our corporate secretary by the later of
10&nbsp;days following the day on which notice of the date of
the special meeting was mailed or public disclosure of the date
of the special meeting was made or 90&nbsp;days prior to the
date that meeting is proposed to be held and not more than
120&nbsp;days prior to such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Limitations on Liability and Indemnification of Officers and
Directors.</I> The Delaware General Corporation Law authorizes
corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary
damages for breaches of directors&#146; fiduciary duties as
directors. Our amended and restated certificate of incorporation
includes a provision that eliminates the personal liability of
directors to us or our stockholders for monetary damages for
breaches of their fiduciary duty as directors to the fullest
extent permitted by the Delaware General Corporation Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated by-laws provide that we must indemnify
our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law and that such indemnitees
shall generally also be entitled to an advancement of expenses.
We are also expressly authorized to, and do, carry
directors&#146; and officers&#146; insurance for our directors,
officers and certain employees for some liabilities. We believe
that these indemnification provisions and insurance are useful
to attract and retain qualified directors and executive officers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The limitation of liability and indemnification provisions in
our amended and restated by-laws may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Authorized but Unissued Shares.</I> Our authorized but
unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred
stock could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Supermajority Provisions.</I> The Delaware General
Corporation Law provides generally that the affirmative vote of
a majority in voting power of the outstanding shares entitled to
vote is required to amend a corporation&#146;s certificate of
incorporation, unless the certificate of incorporation requires
a greater percentage. Our amended and restated certificate of
incorporation provides that the following provisions in the
amended and restated certificate of incorporation may be amended
only by a vote of two-thirds or more in voting power of all the
outstanding shares of our capital stock entitled to vote:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the prohibition on stockholder action by written consent;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to call a special meeting of stockholders being
    vested solely in (1)&nbsp;the chairman of our board of
    directors, (2)&nbsp;our board of directors and (3)&nbsp;our
    board of directors upon a request by holders of at least 50% in
    voting power of all the outstanding shares entitled to vote at
    that meeting;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions requiring that our business and affairs be
    managed by or under the direction of our board of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the classification of our board of
    directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the size of our board of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the filling of vacancies on our board
    of directors;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">77

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the quorum requirements at
    stockholder meetings for the transaction of business and at
    stockholder meetings regarding votes for any director in a
    contested election, the removal of a director, or the filling of
    a vacancy on our board of directors by our stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to advance notice requirements for
    stockholder proposals and director nominations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the limitation on the liability of our directors to us and our
    stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions granting authority to our board of directors to
    amend or repeal our amended and restated by-laws without a
    stockholder vote, as described below in more detail;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions granting stockholders representing no less than
    two-thirds of the voting power of our capital stock the
    authority to amend our amended and restated by-laws, as
    described below in more detail;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the supermajority voting requirements listed above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated certificate of incorporation grants our
board of directors the authority to amend and repeal our amended
and restated by-laws without a stockholder vote in any manner
not inconsistent with the laws of the State of Delaware or our
amended and restated certificate of incorporation. In addition,
our amended and restated certificate of incorporation provides
that our amended and restated by-laws may be amended by
stockholders representing no less than two-thirds of the voting
power of all the outstanding shares of our capital stock
entitled to vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Listing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply to list our common stock on the New York
Stock Exchange under the trading symbol &#147;AER&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Transfer Agent and Registrar</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
be the transfer agent and registrar for our shares of common
stock.
</DIV>

<P align="center" style="font-size: 10pt;">78

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='116'></A>
</DIV>

<!-- link1 "SHARES ELIGIBLE FOR FUTURE SALE" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SHARES ELIGIBLE FOR FUTURE SALE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock will be outstanding. Of these shares, the shares
of common stock sold in this offering will be freely tradable
without restriction or further registration under the Securities
Act, except for any shares which may be acquired by an affiliate
of ours as that term is defined in Rule&nbsp;144 under the
Securities Act, which will be subject to the resale limitations
of Rule&nbsp;144. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding will be restricted securities, as
that term is defined in Rule&nbsp;144, and may in the future be
sold without restriction under the Securities Act to the extent
permitted by Rule&nbsp;144 or any applicable exemption under the
Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, under Rule&nbsp;144 as currently in effect, a person
(or persons whose shares are aggregated) who has beneficially
owned its, his or her shares of common stock for at least one
year from the date such securities were acquired from us or an
affiliate of ours 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 then-outstanding shares of common
stock (approximately shares immediately after this offering) and
the average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person. Sales under
Rule&nbsp;144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current
public information about us. Under Rule&nbsp;144, however, a
person who has held restricted securities for a minimum of two
years from the later of the date of such securities were
acquired from us or an affiliate of ours and who is not, and for
the three months prior to the sale of such restricted securities
has not been, an affiliate of ours, is free to sell such shares
of common stock without regard to the volume, manner-of-sale and
the other limitations contained in Rule&nbsp;144. The foregoing
summary of Rule&nbsp;144 is not intended to be a complete
discussion thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Commencing 180&nbsp;days after the date of this prospectus,
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
restricted securities will be eligible for sale under
Rule&nbsp;144 subject to applicable volume limitations, manner
of sale and notice requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or any securities convertible into or
exchangeable or exercisable for any such shares, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Bear, Stearns&nbsp;&#38; Co. Inc. for a period of 180&nbsp;days
after the date of this prospectus, subject to specified
exceptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our officers, directors and all existing stockholders have
agreed, subject to specified exceptions, that they will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, shares of our common stock or any
securities convertible into or exchangeable or exercisable for
any such securities, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement without, in each case, the prior written
consent of Bear, Stearns&nbsp;&#38; Co. Inc. for a period of
180&nbsp;days after the date of this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no established market for
our common stock, and no predictions can be made about the
effect, if any, that market sales of shares of common stock or
the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, the actual
sale of, or the perceived potential for the sale of, common
stock in the public market may have an adverse effect on the
market price for the common stock.
</DIV>

<P align="center" style="font-size: 10pt;">79

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='117'></A>
</DIV>

<!-- link1 "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MATERIAL U.S.&nbsp;FEDERAL INCOME TAX CONSEQUENCES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of certain material U.S.&nbsp;federal
income tax considerations related to the ownership and
disposition of our common stock that may be relevant to you if
you acquire our common stock pursuant to this offering. This
summary is based on the Internal Revenue Code of 1986, as
amended (the &#147;Code&#148;), existing and proposed Treasury
regulations promulgated under the Code and administrative and
judicial interpretations of the Code, all as of the date of this
prospectus and all of which are subject to change, possibly with
retroactive effect. The Internal Revenue Service is referred to
as &#147;IRS&#148; in this summary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This summary discusses only the federal income tax consequences
to the initial investors who purchase our common stock pursuant
to this offering and does not discuss the tax consequences
applicable to subsequent purchasers of our common stock. This
summary deals only with common stock held as capital assets
within the meaning of Section&nbsp;1221 of the Code. It does not
discuss all of the tax considerations that may be relevant to
holders of our common stock in light of their particular
circumstances or to holders of common stock subject to special
rules, such as financial institutions, regulated investment
companies, holders subject to the alternative minimum tax,
insurance companies, pension funds, tax exempt organizations,
expatriates, partnerships or pass through entities, dealers in
securities or currencies, traders who elect to mark to market
their securities or persons holding the common stock as part of
a hedging or constructive sale transaction,
&#147;straddle,&#148; conversion transaction, or other
integrated transaction, or foreign currency effects on holders
of the common stock whose functional currency is not the
U.S.&nbsp;dollar. We have not requested a ruling from the IRS on
the tax consequences of owning or disposing of our common stock.
As a result, the IRS could disagree with portions of this
discussion. Persons considering the purchase of our common stock
should consult with their own tax advisors about the application
of the U.S.&nbsp;federal income tax laws to their particular
situations as well as any tax considerations under other
U.S.&nbsp;federal tax laws (such as estate and gift tax laws),
or the laws of any state, local or foreign jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As used in this prospectus, the term
&#147;U.S.&nbsp;Holder&#148; means a beneficial owner of common
stock that is, for U.S.&nbsp;federal income tax purposes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a citizen or individual resident of the United States;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a corporation, or other entity treated as a corporation for
    U.S.&nbsp;federal income tax purposes, created in or under the
    laws of the United States or of any political subdivision
    thereof;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an estate the income of which is subject to U.S.&nbsp;federal
    income taxation regardless of its source;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a trust if a court within the United States is able to exercise
    primary supervision over the administration of the trust and one
    or more U.S.&nbsp;persons have the authority to control all
    substantial decisions of the trust, or a trust that has a valid
    election in effect under applicable U.S.&nbsp;Treasury
    regulations to be treated as a U.S.&nbsp;person.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As used in this prospectus, the term
&#147;Non-U.S.&nbsp;Holder&#148; means a beneficial owner of
common stock that is an individual, corporation, trust or estate
that is not a U.S.&nbsp;Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If an entity treated as a partnership for U.S.&nbsp;federal
income tax purposes holds shares of common stock, the tax
treatment of a partner will generally depend on the status of
the partner and upon the activity of the partnership. If you are
a partner of a partnership holding shares of common stock, we
suggest you consult your own tax advisor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Distributions to U.S.&nbsp;Holders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If distributions are paid on the shares of our common stock,
these distributions generally will constitute dividends for
U.S.&nbsp;federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined
under U.S.&nbsp;federal income tax principles, and will
constitute a tax-free return of capital that is applied against
your tax basis in the common stock to the extent these
distributions exceed those earnings and profits. Distributions
in excess of our current and accumulated earnings and profits and
</DIV>

<P align="center" style="font-size: 10pt;">80

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
your tax basis in the common stock will be treated as a gain
from the sale or exchange of the common stock, the treatment of
which is discussed below. For the tax years 2003 through 2008,
non-corporate U.S.&nbsp;Holders are generally subject to a
maximum tax rate on dividends equal to 15%, which corresponds to
the maximum tax rate for long-term capital gains. However, under
current legislation for tax years beginning after
December&nbsp;31, 2008, dividends will be taxed at the same rate
as other items of ordinary income, which will exceed the tax
rate for long-term capital gains.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Distributions to Non-U.S.&nbsp;Holders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dividends paid to a Non-U.S.&nbsp;Holder that are not
effectively connected with the conduct of a U.S.&nbsp;trade or
business of the Non-U.S.&nbsp;Holder generally will be subject
to U.S.&nbsp;federal withholding tax at a 30% rate or, if an
income tax treaty applies and certain certification requirements
described below are satisfied, a lower rate specified by the
treaty. Non-U.S.&nbsp;Holders should consult their tax advisors
regarding their entitlement to benefits under a relevant tax
treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Withholding generally is imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings
and profits to cause the distribution to be a dividend for
U.S.&nbsp;federal income tax purposes. However, we may elect to
withhold on less than the gross amount of the distribution if we
determine that the distribution is not paid out of our current
or accumulated earnings and profits, based on our reasonable
estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Non-U.S.&nbsp;Holder eligible for a reduced rate of
U.S.&nbsp;federal withholding tax under a tax treaty may obtain
a refund of any excess amounts withheld by filing an appropriate
claim for a refund together with the required information with
the IRS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dividends that are effectively connected with a
Non-U.S.&nbsp;Holder&#146;s conduct of a trade or business
within the United States and, if a tax treaty applies,
attributable to a Non-U.S.&nbsp;Holder&#146;s
U.S.&nbsp;permanent establishment, are exempt from
U.S.&nbsp;federal withholding tax if the Non-U.S.&nbsp;Holder
furnishes to us or our paying agent the appropriate IRS form and
other applicable requirements are met. However, dividends exempt
from U.S.&nbsp;federal withholding tax because they are
&#147;effectively connected&#148; or attributable to a
U.S.&nbsp;permanent establishment under an applicable tax treaty
are subject to U.S.&nbsp;federal income tax on a net income
basis at the regular graduated U.S.&nbsp;federal income tax
rates. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject
to an additional &#147;branch profits tax&#148; at a 30% rate or
a lower rate specified by an applicable tax treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Gain on Disposition of Common Stock by U.S.&nbsp;Holders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A U.S.&nbsp;Holder will recognize gain or loss on the sale or
exchange of our common stock to the extent of the difference
between the amount realized on such sale or exchange and the
U.S.&nbsp;Holder&#146;s adjusted tax basis in such shares. Such
gain or loss generally will constitute long-term capital gain or
loss if the U.S.&nbsp;Holder has held such shares for more than
one year. Non-corporate U.S.&nbsp;Holders are subject to a
maximum tax rate of 15% on long-term capital gain (increased to
20% for years after 2008).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Gain on Disposition of Common Stock by
Non-U.S.&nbsp;Holders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A Non-U.S.&nbsp;Holder generally will not be subject to
U.S.&nbsp;federal income tax with respect to gain recognized on
a sale or other disposition of our common stock unless one of
the following applies:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the gain is effectively connected with a
    Non-U.S.&nbsp;Holder&#146;s conduct of a trade or business
    within the United States and, if a tax treaty applies, the gain
    is attributable to a Non-U.S.&nbsp;Holder&#146;s
    U.S.&nbsp;permanent establishment. In such case, the
    Non-U.S.&nbsp;Holder will, unless an applicable tax treaty
    provides otherwise, generally be taxed on its net gain derived
    from the sale at regular graduated U.S.&nbsp;federal income tax
    rates, and in the case of a foreign corporation, may also be
    subject to the branch profits tax described above;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a Non-U.S.&nbsp;Holder who is an individual holds our common
    stock as a capital asset, is present in the United States for
    183 or more days in the taxable year of the sale or other
    disposition, and certain</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">81

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    other conditions are met. In such a case, the
    Non-U.S.&nbsp;Holder will be subject to a flat 30% tax on the
    gain derived from the sale, which may be offset by certain
    U.S.&nbsp;capital losses;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we are or have been a &#147;United States real property holding
    corporation&#148; (a &#147;USRPHC&#148;) for U.S.&nbsp;federal
    income tax purposes at any time during the shorter of the
    five-year period ending on the date of the sale or other
    disposition and the period such Non-U.S.&nbsp;Holder held our
    common stock (the shorter period hereinafter referred to as the
    &#147;lookback period&#148;); provided that if our common stock
    is regularly traded on an established securities market, this
    rule will generally not cause any gain to be taxable unless the
    Non-U.S.&nbsp;Holder owned more than 5% of our common stock at
    some time during the lookback period. We do not believe that we
    are a USRPHC and do not expect to become one in the future.
    However, we could become a USRPHC as a result of future changes
    in assets or operations.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Information Reporting and Backup Withholding Tax</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under certain circumstances, U.S.&nbsp;Treasury regulations
require information reporting and backup withholding on certain
payments on common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A U.S.&nbsp;Holder may be subject to information reporting and
backup withholding (currently at a rate of 28%) with respect to
dividends on, and the proceeds from the sale or redemption of,
common stock, unless such U.S.&nbsp;Holder (a)&nbsp;is an entity
that is exempt from withholding (including, among others,
corporations and certain tax-exempt organizations) and when
required, demonstrates this fact, or (b)&nbsp;provides the payor
with its correct taxpayer identification number
(&#147;TIN&#148;), which, for an individual, is ordinarily his
or her social security number, and otherwise complies with
applicable requirements of the backup withholding rules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dividends on common stock paid to a Non-U.S.&nbsp;Holder will
generally be exempt from backup withholding, provided the
Non-U.S.&nbsp;Holder meets applicable certification requirements
or otherwise establishes an exemption. We must report annually
to the IRS and to each Non-U.S.&nbsp;Holder the amount of
dividends paid to that Non-U.S.&nbsp;Holder and the
U.S.&nbsp;federal withholding tax withheld with respect to those
dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under Treasury regulations, payments on the sale or redemption
of our common stock effected through a foreign office of a
broker to its customer generally are not subject to information
reporting or backup withholding. However, if the broker is a
U.S.&nbsp;person, a controlled foreign corporation, a foreign
person 50% or more of whose gross income is effectively
connected with a U.S.&nbsp;trade or business for a specified
three-year period, a foreign partnership with significant
U.S.&nbsp;ownership, or a U.S.&nbsp;branch of a foreign bank or
insurance company, then information reporting (but not backup
withholding) will be required, unless the broker has in its
records documentary evidence that the beneficial owner of the
payment is not a U.S.&nbsp;person or is otherwise entitled to an
exemption, and other applicable certification requirements are
met. Information reporting and backup withholding generally will
apply to sale or redemption payments effected at a
U.S.&nbsp;office of any U.S.&nbsp;or foreign broker, unless the
broker has in its records documentary evidence that the
beneficial owner of the payment is not a U.S.&nbsp;person or is
otherwise entitled to an exemption, and other applicable
certification requirements are met.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Backup withholding does not represent an additional income tax.
Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against the
holder&#146;s U.S.&nbsp;federal income tax liability and may
entitle the holder to a refund, provided that the required
information or returns are timely furnished by the holder to the
IRS.
</DIV>

<P align="center" style="font-size: 10pt;">82

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='118'></A>
</DIV>

<!-- link1 "UNDERWRITING" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNDERWRITING</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and the selling stockholders intend to offer the shares
through the underwriters. Subject to the terms and conditions in
an underwriting agreement among us, the selling stockholders and
Bear, Stearns&nbsp;&#38; Co. Inc., Banc of America Securities
LLC, Deutsche Bank Securities Inc., J.P.&nbsp;Morgan Securities
Inc. and Morgan Keegan&nbsp;&#38; Company, Inc., we and the
selling stockholders have agreed to sell to the underwriters,
and the underwriters severally have agreed to purchase from us
and the selling stockholders, the number of shares of common
stock listed opposite their names below.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Underwriter</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of Shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bear, Stearns&nbsp;&#38; Co. Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Banc of America Securities LLC</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deutsche Bank Securities Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J.P.&nbsp;Morgan Securities Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Morgan Keegan&nbsp;&#38; Company, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters have agreed to purchase all of the shares sold
under the underwriting agreement if any of these shares are
purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting
agreement may be terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 and liabilities incurred in
connection with the directed share program referred to below, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officer&#146;s certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Affiliates of Bear, Stearns&nbsp;&#38; Co. Inc. that are selling
stockholders in this offering purchased their securities in the
ordinary course of their business. At the time of purchase of
their securities, those entities had no agreements or
understandings, directly or indirectly, with any person to
distribute those securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commissions and Discounts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters have advised us that they propose initially to
offer the shares to the public at the public offering price on
the cover page of this prospectus and to dealers at that price
less a concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to other dealers. After the public offering, the public
offering price, concession and discount may be changed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table shows the public offering price,
underwriting discount, proceeds before expenses to us and
proceeds to the selling stockholders. The information assumes
either no exercise or full exercise by the underwriters of their
option to purchase up to &nbsp;additional shares to cover
over-allotments.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Without</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>With</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Option</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Option</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public offering price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting discount</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to Aearo Technologies Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to the selling stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">83

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The expenses of this offering, excluding the underwriting
discount and commissions and related fees, are estimated at
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
and are payable by us. The underwriters have agreed to reimburse
us for certain of our expenses associated with this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Over-Allotment Option</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The selling stockholders have granted the underwriters an option
exercisable for 30&nbsp;days from the date of this prospectus to
purchase a total of up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares at the public offering price less the underwriting
discount. The underwriters may exercise this option solely to
cover any over-allotments, if any, made in connection with this
offering. To the extent the underwriters exercise this option in
whole or in part, each will be obligated, subject to conditions
contained in the underwriting agreement, to purchase a number of
additional shares approximately proportionate to that
underwriter&#146;s initial commitment amount reflected in the
above table.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Directed Share Program</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters have reserved for sale, at the initial public
offering price, up to five percent of the shares of our common
stock being offered for sale in this offering for our employees
and their families and other persons associated with us who
express an interest in purchasing these shares of common stock
in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent
these persons purchase reserved shares. Any reserved shares not
purchased by these persons will be offered by the underwriters
to the general public on the same terms as the other shares
offered in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>United Kingdom</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the underwriters has represented and agreed that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    it has not made or will not make an offer of shares to the
    public in the United Kingdom within the meaning of
    section&nbsp;102B of the Financial Services and Markets Act 2000
    (as amended) (&#147;FSMA&#148;) except to legal entities which
    are authorized or regulated to operate in the financial markets
    or, if not so authorized or regulated, whose corporate purpose
    is solely to invest in securities or otherwise in circumstances
    which do not require the publication by the company of a
    prospectus pursuant to the Prospectus Rules of the Financial
    Services Authority;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    it has only communicated or caused to be communicated and will
    only communicate or cause to be communicated an invitation or
    inducement to engage in investment activity (within the meaning
    of section&nbsp;21 of FSMA) to persons who have professional
    experience in matters relating to investments falling within
    Article&nbsp;19(5) of the Financial Services and Markets Act
    2000 (Financial Promotion) Order 2005 or in circumstances in
    which section&nbsp;21 of FSMA does not apply to the company; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    it has complied with, and will comply with all applicable
    provisions of FSMA with respect to anything done by it in
    relation to the shares in, from or otherwise involving the
    United Kingdom.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>European Economic Area</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
&#147;Relevant Member State&#148;), each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the &#147;Relevant Implementation
Date&#148;) it has not made and will not make an offer of shares
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in
</DIV>

<P align="center" style="font-size: 10pt;">84

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of shares to the public in that Relevant Member
State at any time:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    to legal entities which are authorized or regulated to operate
    in the financial markets or, if not so authorized or regulated,
    whose corporate purpose is solely to invest in securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    to any legal entity which has two or more of (1)&nbsp;an average
    of at least 250 employees during the last financial year;
    (2)&nbsp;a total balance sheet of more than
    <FONT face="times new roman,times">&#128;</FONT>43,000,000 and
    (3)&nbsp;an annual net turnover of more than
    <FONT face="times new roman,times">&#128;</FONT>50,000,000, as
    shown in its last annual or consolidated accounts; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    in any other circumstances which do not require the publication
    by the issuer of a prospectus pursuant to Article&nbsp;3 of the
    Prospectus Directive.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the purposes of this provision, the expression an
&#147;offer of shares to the public&#148; in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression &#147;Prospectus Directive&#148; means
Directive 2003/71/ EC and includes any relevant implementing
measure in each Relevant Member State.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>No Sales of Similar Securities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, each of our executive officers, directors, each holder of
our common stock including the selling stockholders, subject to
certain exceptions, have agreed with the underwriters not to
dispose of or hedge any of our shares of common stock for
180&nbsp;days after the date of this prospectus without first
obtaining the written consent of Bear, Stearns&nbsp;&#38; Co.
Inc.. The 180-day &#147;lock-up&#148; period during which we and
our executive officers, directors, each holder of our common
stock including the selling stockholders are restricted from
engaging in transactions in our common stock is subject to
extension such that, in the event that either (i)&nbsp;during
the last 17&nbsp;days of the &#147;lock-up&#148; period, we
issue an earnings or financial results release or material news
or a material event relating to us occurs, or (ii)&nbsp;prior to
the expiration of the &#147;lock-up&#148; period, we announce
that we will release earnings or financial results during the
16-day period beginning on the last day of the
&#147;lock-up&#148; period, then in either case the expiration
of the &#147;lock-up&#148; period will be extended until the
expiration of the 18-day period beginning on the issuance of the
earnings or financial results release or the occurrence of the
material news or material event, as applicable, unless Bear,
Stearns&nbsp;&#38; Co. Inc. waives, in writing, such an
extension. See &#147;Shares Eligible for Future Sale&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Quotation on the New York Stock Exchange</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol &#147;AER&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Price Stabilization, Short Positions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Until the distribution of the shares is completed, SEC rules may
limit the underwriters from bidding for and purchasing our
common stock. However, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the
price of our common stock during and after this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the underwriters over-allot or otherwise create a short
position in our common stock in connection with this offering,
i.e., if they sell more shares than are listed on the cover of
this prospectus, the underwriters may reduce that short position
by purchasing shares in the open market. The underwriters may
also elect to reduce any short position by exercising all or
part of the option to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
to cover over-allotments described above. The underwriters may
also sell shares in excess of the option to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares to cover over-allotments, creating a naked short
position. A naked short position can only be closed out by
buying shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that
there could be downward pressure on the price of the shares in
the open market after pricing that could adversely affect
investors who purchase in this offering. In addition, the
underwriters may impose penalty bids, under which selling
</DIV>

<P align="center" style="font-size: 10pt;">85

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
concessions allowed to syndicate members or other broker-dealers
participating in this offering are reclaimed if shares of our
common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or
otherwise. These transactions to stabilize or maintain the
market price may cause the price of our common stock to be
higher than it might be in the absence of such transactions. The
imposition of a penalty bid may also affect the price of our
common stock to the extent that it discourages resales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters makes any representation that we or they will
engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Other Relationships</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us.
They have received customary fees and commissions for these
transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, entities affiliated with Bear Stearns
Merchant Banking, an affiliate of Bear, Stearns&nbsp;&#38; Co.
Inc., owned approximately 80.1% of our outstanding common stock.
Following this offering and assuming full exercise of the option
to purchase up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares to cover over-allotments by the underwriters, entities
affiliated with Bear Stearns Merchant Banking will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our then
outstanding common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004 Aearo Company issued in a private
placement $175.0&nbsp;million aggregate principal amount
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Notes
due 2012, for which Bear, Stearns&nbsp;&#38; Co. Inc. and
Deutsche Bank Securities Inc., two of the underwriters in this
offering, were the initial purchasers and received customary
fees with respect thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, we entered into a senior credit facility
with a syndicate of lenders including affiliates of Bear,
Stearns&nbsp;&#38; Co. Inc. and Deutsche Bank Securities Inc.,
two of the underwriters in this offering. Aearo Company is the
borrower under the senior credit facility and such facility is
unconditionally guaranteed by us, Aearo Corporation and Aearo
Company&#146;s domestic subsidiaries. On April&nbsp;28, 2005, we
amended this senior credit facility and paid the lenders
customary fees in connection therewith. In connection with this
offering, we will repay
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of outstanding indebtedness under our senior credit facility.
See &#147;Description of Certain Indebtedness&nbsp;&#151; The
Senior Credit Facility&#148;.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Professional Services Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, Aearo Corporation, Aearo Company and Bear Stearns Merchant
Manager&nbsp;II, LLC, an entity affiliated with Bear Stearns
Merchant Banking and Bear, Stearns&nbsp;&#38; Co. Inc. are
parties to a professional services agreement, pursuant to which
Bear Stearns Merchant Manager&nbsp;II, LLC provides management
consulting and financial advisory services, for which Aearo
Corporation pays Bear Stearns Merchant Manager&nbsp;II, LLC an
annual advisory fee equal to the greater of (i)&nbsp;$700,000
and (ii)&nbsp;1.25% of the Adjusted Consolidated EBITDA (as
defined in our senior credit facility as in effect on
April&nbsp;7, 2004, plus, to the extent deducted in arriving at
Consolidated EBITDA, the aggregate advisory fee paid under the
professional services agreement and any fees paid to Vestar
Capital Partners or any of its affiliates). The agreement is
more fully described above under &#147;Certain Relationships and
Related Transactions&nbsp;&#151; Professional Services
Agreement.&#148; Since September&nbsp;30, 2004, we have paid
approximately $1.0&nbsp;million to Bear, Stearns Merchant
Manager&nbsp;II, LLC pursuant to the agreement. In connection
with this offering, we will pay an additional
$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to
Bear, Stearns Merchant Manager&nbsp;II, LLC and the agreement
will thereafter be terminated.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Stockholders Agreement</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, entities affiliated with Bear Stearns Merchant Banking and
our other stockholders are party to a stockholders agreement,
more fully described under &#147;Certain Relationships and
Related Transactions&nbsp;&#151; Stockholders&#146;
Agreement,&#148; pursuant to which our stockholders have agreed,
among other things, to grant to
</DIV>

<P align="center" style="font-size: 10pt;">86

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
Bear Stearns Merchant Manager&nbsp;II, LLC the right to
designate members of our board of directors. Upon consummation
of this offering the stockholders agreement will be terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Qualified Independent Underwriter</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Bear, Stearns&nbsp;&#38; Co. Inc. is a member of the National
Association of Securities Dealers, Inc., or &#147;NASD&#148;.
Under Rule&nbsp;2720 of the NASD Conduct Rules, we are
considered an affiliate of Bear, Stearns&nbsp;&#38; Co. Inc.
since the parent company of this entity beneficially owns
through its affiliate, Bear Stearns Merchant Capital&nbsp;II,
L.P., 80.1% of our common stock outstanding as of the date of
this prospectus. In addition, affiliates of Bear,
Stearns&nbsp;&#38; Co. Inc. are selling stockholders and
collectively will receive more
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the net proceeds from
the sale of common stock in this offering. Under Rule&nbsp;2720,
when an NASD member participates in the underwriting of an
affiliate&#146;s equity securities, the public offering price
per share can be no higher than that recommended by a
&#147;qualified independent underwriter&#148; meeting certain
standards. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
assuming the responsibilities of acting as the qualified
independent underwriter in pricing this offering and conducting
due diligence. The initial public offering price of the shares
of our common stock will be no higher than the price recommended
by &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
which will not receive any additional compensation in connection
with its acting as a qualified independent underwriter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Discretionary Shares</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters will not allocate shares to discretionary
accounts without the prior specific written approval of the
customers. The underwriters will not allocate shares to
discretionary accounts in excess of 5% of the total number of
shares in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Pricing of This Offering</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for our
shares of common stock. Consequently, the initial public
offering price for our shares of common stock was determined by
negotiations between us and the representatives of the
underwriters. Among the factors considered in these negotiations
were prevailing market conditions, our financial information,
market valuations of other companies that we and the
representatives of the underwriters believe to be comparable to
us, estimates of our business potential, the present state of
our development and other factors deemed relevant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Electronic Prospectus</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The lead
managers may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
</DIV>

<P align="center" style="font-size: 10pt;">87

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='119'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>LEGAL MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The validity of the issuance of the shares of common stock
offered hereby will be passed upon for us by Dorsey&nbsp;&#38;
Whitney LLP, New York, NY. Certain legal maters relating to this
offering will be passed upon for the underwriters by
Latham&nbsp;&#38; Watkins LLP, New York, NY.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='120'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXPERTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financial statements included in this prospectus have been
audited by Deloitte&nbsp;&#38; Touche LLP, an independent
registered public accounting firm, as stated in their report
appearing herein, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting
and auditing.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='121'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WHERE YOU CAN FIND MORE INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have filed a Registration Statement on Form&nbsp;S-1 with the
SEC regarding this offering. This prospectus, which is part of
the registration statement, does not contain all of the
information included in the registration statement, and you
should refer to the registration statement and its exhibits to
read that information. As a result of the effectiveness of the
registration statement, we will be subject to the informational
reporting requirements of the Exchange Act of 1934 and, under
that Act, we will file reports, proxy statements and other
information with the SEC. You may read and copy the registration
statement, the related exhibits and the reports, proxy
statements and other information we file with the SEC at the
SEC&#146;s public reference facilities maintained by the SEC at
100&nbsp;F Street, N.E., Room&nbsp;1580, Washington,&nbsp;DC
20549. You can also request copies of those documents, upon
payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The SEC also maintains
an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file
with the SEC. The site&#146;s Internet address is www.sec.gov.
Certain information about our company may also be obtained from
our website at www.aearo.com.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You may also request a copy of these filings, at no cost, by
writing or telephoning us at:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Aearo Technologies Inc.
</DIV>

<DIV align="center" style="font-size: 10pt;">
5457&nbsp;West
79<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>&nbsp;Street
</DIV>

<DIV align="center" style="font-size: 10pt;">
Indianapolis, Indiana 46268
</DIV>

<DIV align="center" style="font-size: 10pt;">
(317)&nbsp;692-6666
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to furnish holders of the shares of common stock
offered in this offering with annual reports containing audited
consolidated financial statements together with a report by our
independent registered public accounting firm.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Market data and other statistical information used throughout
this prospectus are based on independent industry publications,
government publications, reports by market research firms or
other published independent sources. Some data is also based on
our good faith estimates, which are derived from our review of
internal surveys, as well as the independent sources listed
above. We believe these sources are reliable but we have not
independently verified the information obtained from them.
</DIV>

<P align="center" style="font-size: 10pt;">88

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='122'></A>
</DIV>

<!-- link1 "INDEX TO FINANCIAL STATEMENTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INDEX TO FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#301'>Report of Independent Registered Public
    Accounting Firm</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of September&nbsp;30, 2005 and September&nbsp;30, 2004:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#302'>Consolidated Balance Sheets</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the years ended September&nbsp;30, 2005, the six month
    periods ended March&nbsp;31, 2004 and September&nbsp;30, 2004
    and the year ended September&nbsp;30, 2003:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#303'>Consolidated Statements of Operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#304'>Consolidated Statements of
    Stockholders&#146; Equity</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#305'>Consolidated Statements of Cash Flows</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#306'>Notes to Consolidated Financial
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-7</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='301'></A>
</DIV>

<!-- link1 "REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
To the Board of Directors and Stockholders of Aearo Technologies
Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying consolidated balance sheet of
Aearo Technologies Inc. and subsidiaries
(&#147;Aearo&nbsp;&#151; Successor&#148;) as of
September&nbsp;30, 2005 and 2004, and the related consolidated
statements of operations, stockholders&#146; equity and cash
flows for the year ended September&nbsp;30, 2005 and for the
period from April&nbsp;1, 2004 (date of inception) through
September&nbsp;30, 2004. We have also audited the accompanying
consolidated statements of operations, stockholders&#146; equity
and cash flows of Aearo Corporation and subsidiaries
(&#147;Aearo&nbsp;&#151; Predecessor&#148;), a wholly-owned
subsidiary of Aearo&nbsp;&#151; Successor, for the six months
ended March&nbsp;31, 2004 and for the year ended
September&nbsp;30, 2003. Aearo&nbsp;&#151; Successor and
Aearo&nbsp;&#151; Predecessor are collectively referred to as
the &#147;Company&#148;. These financial statements are the
responsibility of management of the Company. Our responsibility
is to express opinions on these financial statements based on
our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company&#146;s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 opinions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, such consolidated financial statements referred
to above of Aearo&nbsp;&#151; Successor present fairly, in all
material respects, the financial position of Aearo&nbsp;&#151;
Successor at September&nbsp;30, 2005 and 2004, and the results
of their operations and their cash flows for the year ended
September&nbsp;30, 2005 and for the period from April&nbsp;1,
2004 (date of inception) through September&nbsp;30, 2004, in
conformity with accounting principles generally accepted in the
United States of America, and in our opinion, the consolidated
financial statements referred to above of Aearo&nbsp;&#151;
Predecessor present fairly, in all material respects, the
results of operations and cash flows of Aearo&nbsp;&#151;
Predecessor for the six months ended March&nbsp;31, 2004 and the
year ended September&nbsp;30, 2003 in conformity with accounting
principles generally accepted in the United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
/s/ DELOITTE&nbsp;&#38; TOUCHE LLP
</DIV>

<DIV align="left" style="font-size: 3pt;">
<DIV style="width: 75%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Indianapolis, Indiana
</DIV>

<DIV align="left" style="font-size: 10pt;">
November&nbsp;21, 2005
</DIV>

<P align="center" style="font-size: 10pt;">F-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='302'></A>
</DIV>

<!-- link1 "CONSOLIDATED BALANCE SHEETS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Dollars in Thousands, Except Share Amounts)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Current Assets:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,068</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable (net of allowance for doubtful accounts of
    $1,334 and $1,206, respectively)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,998</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,132</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred and prepaid expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,061</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>149,259</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Long Term Assets:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,444</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>148,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,191</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other intangible assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>185,855</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,237</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>LIABILITIES</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Current Liabilities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current portion of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,723</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    U.S. and foreign income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,888</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Long Term Liabilities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>302,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>351,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,340</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,984</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>434,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>481,624</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Commitments and Contingent
    Liabilities
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="11" align="center" valign="top">
    <B>STOCKHOLDERS&#146; EQUITY</B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock, $.01&nbsp;par value&nbsp;&#151; (Cumulative
    dividend of $3,701 at September&nbsp;30, 2004) Authorized and
    issued&nbsp;&#151; 76,168&nbsp;shares; Outstanding 76,168 and
    0&nbsp;shares, respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, $.01&nbsp;par value&nbsp;&#151;
    Authorized&nbsp;&#151; 3,849,999&nbsp;shares;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issued&nbsp;&#151; 2,517,999 and 2,527,801 shares, respectively,
    and Outstanding&nbsp;&#151; 2,517,999 and 2,527,214&nbsp;shares,
    respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Paid in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111,642</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock subscription receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock, at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,959</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated earnings (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,039</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,325</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these
consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='303'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Dollars in Thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>193,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>423,420</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>164,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,056</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>118,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>216,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,523</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,835</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,752</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,232</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Research and technical services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,623</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,175</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,229</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other charges (income), net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,420</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,786</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(146</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(100</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,602</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,196</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,871</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,690</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,734</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock dividend</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,930</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,084</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,207</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,854</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic net income (loss) available for common stockholders per
    share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.81</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted net income (loss) available for common stockholders per
    share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.76</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7.92</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares and equivalents:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,518,181</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,454</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,632,520</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these
consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='304'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Dollars in Thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Preferred</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Comprehensive</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Paid In</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Treasury</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Subscription</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Earnings</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Comprehensive</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Income</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Receivable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Deficit)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Loss</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Loss)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, October&nbsp;1, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,360</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,536</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,500</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(42,500</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33,614</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(892</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34,506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest on shareholder notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,079</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized loss on derivative instruments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(390</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(390</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(390</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net minimum pension liability adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,060</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,357</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, September&nbsp;30, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,399</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,787</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued interest on shareholder notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,688</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net minimum pension liability adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,829</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, March&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,417</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>34,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>28,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="46" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital contribution</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,517,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>101,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>101,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,213</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, September&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,517,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(103</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Vesting of restricted stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax benefit of stock options exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued for exercise of stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock subscription receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,789</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,954</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,954</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock repurchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign currency translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(871</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(871</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(871</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized gain on derivative instruments, net of tax of $215</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25,716</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, September&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,527,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>111,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(85,959</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,325</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these
consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='305'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF CASH FLOWS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Dollars in Thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash Flows from Operating
    Activities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,137</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,110</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income (loss) to cash provided by
    operating activities&nbsp;&#151;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,931</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,631</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangible assets and deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,283</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,145</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory purchase accounting adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(986</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,584</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>682</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>646</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in assets and liabilities&nbsp;&#151; (net of effects of
    acquisitions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,113</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(54,060</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,080</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(443</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,464</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,657</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,814</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,454</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,381</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid and deferred assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,707</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,065</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,151</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(142</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,983</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(432</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,020</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,137</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,727</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used for) operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,035</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,709</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,493</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash Flows from Investing
    Activities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions to property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,886</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,006</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,521</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,313</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for acquisitions, net of cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,600</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(163,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used by investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,458</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,994</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(167,765</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,191</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash Flows from Financing
    Activities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital infusion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (Repayment of) proceeds from revolving credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,950</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,600</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of old credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,949</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(78,711</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from new credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of senior subordinate notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of Holdco note</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of new credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(611</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,274</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of 12.50%&nbsp;senior subordinated notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(98,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from 8.25%&nbsp;senior subordinated notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Debt issue costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,990</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,834</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,913</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemption of common and preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34,506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,305</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,954</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(224</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(122</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(128</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(269</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayment of long term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(119</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(54</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(297</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used for) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(25,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,240</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>197,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35,707</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Effect of Exchange Rate on
    Cash
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(789</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(251</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Increase (Decrease) in
    Cash and Cash Equivalents
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,179</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,988</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,344</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash and Cash Equivalents,
    Beginning of Period
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,301</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,724</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash and Cash Equivalents,
    End of Period
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,313</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,068</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Non-Cash Investing and
    Financing Activities:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Plant, property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,352</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock dividend</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,789</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital Lease Obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT style="font-variant:SMALL-CAPS">Cash Paid For:
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,862</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,853</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income Taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,254</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,205</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these
consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='306'></A>
</DIV>

<!-- link1 "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" -->

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Basis of Presentation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Technologies Inc. (formerly AC Safety Holding Corp.), a
Delaware corporation (&#147;Aearo&#148;), and its wholly owned
subsidiaries, (hereafter referred to as &#147;we&#148;,
&#147;our&#148;, or the &#147;Company&#148;) manufactures and
sells products under the brand names: AOSafety&#174;,
E-A-R&#174;, Peltor&#174; and
SafeWaze<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm.</FONT></SUP>
These products are sold through three reportable segments, which
are Safety Products, Safety Prescription Eyewear and Specialty
Composites. The Safety Products segment manufactures and sells
hearing protection devices, non-prescription safety eyewear,
face shields, reusable and disposable respirators, hard hats and
first aid kits under the brand names: AOSafety&#174;,
E-A-R&#174;, and Peltor&#174;. The Safety Prescription Eyewear
segment manufactures and sells prescription eyewear products
that are designed to protect the eyes from the typical hazards
encountered in the industrial work environment. The
Company&#146;s Safety Prescription Eyewear segment purchases
component parts (lenses and the majority of its frames) from
various suppliers, grinds and shapes the lenses to the
customer&#146;s prescription, and then assembles the glasses
using the customer&#146;s choice of frame. The Specialty
Composites segment manufactures and sells a wide array of
energy-absorbing materials that are incorporated into other
manufacturers&#146; products to control noise, vibration and
shock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;10, 2004, Aearo Corporation entered into a merger
agreement (&#147;Merger Agreement&#148;) with Aearo Technologies
Inc. and its subsidiary, AC Safety Acquisition Corp. that closed
on April&nbsp;7, 2004 (the &#147;Merger&#148;). Pursuant to the
terms of the Merger Agreement, on April&nbsp;7, 2004
(&#147;Acquisition Date&#148;), AC Safety Acquisition Corp.
merged with and into Aearo Corporation with Aearo Corporation
surviving the Merger as a wholly-owned subsidiary of Aearo
Technologies Inc. Prior to the Merger, Aearo Technologies Inc.
did not have any operating activities. The aggregate purchase
price was approximately $409.3&nbsp;million, including fees and
expenses. The Merger was financed with approximately
$303.7&nbsp;million of new debt as discussed in Note&nbsp;6,
$3.7&nbsp;million of assumed debt, $4.3&nbsp;million of cash and
$101.3&nbsp;million of equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Merger was a business combination under
SFAS&nbsp;No.&nbsp;141, <I>Business Combinations</I>.
Accordingly, the results of operations subsequent to the
Acquisition Date are presented on a different basis of
accounting than the results of operations prior to the
Acquisition Date, and therefore, are not directly comparable.
The sale was accounted for as if it had occurred on
March&nbsp;31, 2004, as management determined that results of
operations were not significant and no material transactions
occurred during the period from April&nbsp;1, 2004 to
April&nbsp;7, 2004. The periods prior to April&nbsp;7, 2004 for
Aearo Corporation are referred to as predecessor financial
statements and the periods after April&nbsp;7, 2004 for Aearo
Technologies Inc. are referred to as successor financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purchase price is allocated to the Company&#146;s net
tangible and intangible assets and liabilities based upon
estimated fair values as of the date of the Merger. The
adjustment made to deferred tax liabilities and goodwill in
fiscal 2005 reflect the adjustment of the purchase price
allocation to identifiable intangible assets and the related
deferred tax liabilities for differences between book and tax
bases of those assets as a result of finalizing the book bases
of certain assets. The allocation included a $17.1&nbsp;million
fair value adjustment to inventory as of March&nbsp;31, 2004
which was charged to cost of goods sold during the three month
period ended June&nbsp;30, 2004. The inventory adjustment above
was based on the guidance for assigning amounts to inventory in
accordance with paragraph&nbsp;37(c) of SFAS&nbsp;No.&nbsp;141,
which requires inventory to be valued at
</DIV>

<P align="center" style="font-size: 10pt;">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
estimated selling prices less a reasonable profit allowance for
the selling effort. The purchase price was allocated as follows
(dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,139</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets and liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,073</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,384</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Finite lived intangible asset</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,104</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Indefinite lived intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,736</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>409,344</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following unaudited pro forma financial information is
presented as if the Merger had been completed as of the
beginning of each period presented. The pro forma amounts
include certain adjustments, including increases in
depreciation, amortization and interest expense based on the
allocation of purchase price to tangible and intangible assets
and the issuance of additional debt (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31, 2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before provision for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,444</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,862</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America. All significant
intercompany balances and transactions have been eliminated in
consolidation. The significant accounting policies of the
Company are described below.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Use of Estimates</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Revenue Recognition and Allowance for Doubtful Accounts</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company recognizes revenue when title and risk transfer to
the customer, which is generally when the product is shipped to
customers. At the time revenue is recognized, certain provisions
may also be recorded including pricing discounts and incentives.
The Company offers its customers three types of incentive
programs: a sales rebate/volume discount program, a marketing
incentive program and a co-operative advertising program. The
sales rebate/volume discount program is based on achieved volume
levels along with growth incentives over the prior year&#146;s
sales dollars. Rebate obligations are estimated based on current
sales levels and are recorded as a reduction of revenue when
sales to the customer make progress towards the required sales
level. The marketing incentive program provides qualifying
customers that achieve specified volume levels funds to assist
the customers with marketing the Company&#146;s products. The
funds provided to the qualifying customers are recorded as a
reduction of revenue when sales to the customer make
</DIV>

<P align="center" style="font-size: 10pt;">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
progress towards the required sales level. The co-operative
advertising program provides funds to specific customers to
advertise the Company&#146;s products. The qualifying customers
provide specific documentation of the advertising to the Company
to assure that the benefit received is comparable to other arms
length advertising expenditures undertaken by the Company. The
amount of co-operative advertising charged to selling and
administrative expenses for the years ended September&nbsp;30,
2003, 2004 and 2005 were $1.7&nbsp;million, $1.9&nbsp;million
and $2.6&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An allowance for doubtful accounts is generally recorded based
on a percentage of aged receivables. However, management
judgment is involved with the final determination of the
allowance based on several factors including specific analysis
of a customer&#146;s credit worthiness, historical bad debt
experience, changes in payment history and general economic and
market trends.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Advertising</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company expenses the costs of advertising as incurred. These
expenses, including co-operative advertising, were approximately
$7.3&nbsp;million, $4.3&nbsp;million, $4.9&nbsp;million and
$10.9&nbsp;million for the years ended September&nbsp;30, 2003,
the six months ended March&nbsp;31, 2004 and September&nbsp;30,
2004 and the year ended September&nbsp;30, 2005, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Cost of Goods Sold</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cost of goods sold includes all costs to manufacture the
Company&#146;s products including raw materials, which include
inbound freight and import duties, direct labor, plant
supervision, maintenance labor and parts, quality control,
receiving, purchasing, production planning, manufacturing
supplies, scrap, rework, utilities, depreciation, property
taxes, sales and use taxes and insurance.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Selling and Administrative Expenses</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Selling and administrative expenses include salaries and
benefits for selling, marketing, customer service, finance and
human resources personnel, direct marketing expenses, trade show
expenses, commissions, selling expenses, bad debts, advertising,
travel and entertainment, office supplies, recruiting,
relocation, legal expenses, accounting fees, consulting and
warehousing and logistics expenses incurred after the point of
manufacture.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Cash Equivalents</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company considers all time deposits and short-term
investments with an original maturity of three months or less to
be cash equivalents. Substantially all cash is on hand with one
bank.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Marketable Securities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has acquired certain investment securities for the
purpose of funding its obligations under deferred compensation
plans. The Company&#146;s investments in marketable securities
are classified as trading securities and are carried at fair
value under SFAS&nbsp;No.&nbsp;115, <I>Accounting for Certain
Investments in Debt and Equity Securities.</I> The investments
are included in other assets in the consolidated balance sheet.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Foreign Currency Translation and Transactions</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Foreign Currency Translation:</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Assets and liabilities of the Company&#146;s foreign
subsidiaries are translated at period-end exchange rates. Income
and expenses are translated at the approximate average exchange
rate during the period. Foreign currency translation adjustments
are recorded as a separate component of stockholders&#146;
equity.
</DIV>

<P align="center" style="font-size: 10pt;">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Foreign Currency Transactions:</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Foreign currency gains and losses arising from transactions by
any of the Company&#146;s subsidiaries are reflected in net
income (loss). For the year ended September&nbsp;30, 2003 the
accompanying consolidated statements of operations include
approximately $0.3&nbsp;million of transaction gains included in
other charges (income), net. For each of the six month periods
ended March&nbsp;31, 2004 and September&nbsp;30, 2004 the
accompanying consolidated statements of operations include
approximately $0.3&nbsp;million, and $0.2&nbsp;million,
respectively, of transaction losses included in other charges
(income), net. For the year ended September&nbsp;30, 2005 the
accompanying consolidated statements of operations included a
minimal amount of transaction gains in other charges (income),
net.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To mitigate the effects of changes in foreign currency rates on
operating results related to trade accounts receivable and trade
accounts payable denominated in foreign currencies, the Company
enters into forward foreign currency contracts. Gains and losses
related to contracts designated as hedges of trade accounts
receivable and trade accounts payable denominated in foreign
currencies are accrued as exchange rates change and are
recognized in the accompanying consolidated statements of
operations as transaction (gains)&nbsp;and losses and included
in other charges (income), net. As of September&nbsp;30, 2004
and 2005, relative to these exposures, the Company had forward
foreign currency contracts open in the following amounts:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30, 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Currency</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(000s)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contract Position</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(000s)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contract Position</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    British Pound</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Canadian Dollar</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Norwegian Krona</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Swedish Krona</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Buy</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Swiss Franc</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Euro</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Danish Krona</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Sell</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September&nbsp;30, 2004 and 2005, the Company had less
than $0.1&nbsp;million and $0.3&nbsp;million of unrealized
losses in other charges (income) associated with the above
forward foreign currency contract commitments, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Company enters into forward foreign currency
contracts to hedge a portion of anticipated sales denominated in
Euro and Canadian Dollar to mitigate the impact of the effects
of changes in foreign currency rates on operating results
related to cash flows from foreign operations. Gains and losses
on these derivative hedge contracts are deferred in other
comprehensive income and recognized as an adjustment to the
other charges (income), net when contracts settle. For the year
ended September&nbsp;30, 2003 the accompanying consolidated
statements of operations include approximately $0.6&nbsp;million
of transaction losses included in other charges (income), net.
For each of the six month periods ended March&nbsp;31, 2004 and
September&nbsp;30, 2004 the accompanying consolidated statements
of operations include approximately $0.3&nbsp;million, and
$0.2&nbsp;million, respectively, of transaction losses included
in other charges (income), net. For the year ended
September&nbsp;30, 2005 the accompanying consolidated statements
of operations included no transaction gains or losses in other
charges (income), net.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There were thirty six open forward foreign currency contracts to
hedge anticipated revenues and costs as of September&nbsp;30,
2005. The Company does not enter into forward foreign contracts
for trading purposes.
</DIV>

<P align="center" style="font-size: 10pt;">F-10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Inventories</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost or market, cost
being determined using the first-in, first-out
(FIFO)&nbsp;method. Our excess and obsolete reserves are
determined by historical sales data and, in the case of new
products, by future demand forecasts.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Property, Plant and Equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property, plant and equipment is 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. Expenses for maintenance and repairs totaled
approximately $2.4&nbsp;million for the year ended
September&nbsp;30, 2003, $1.2&nbsp;million and $1.3&nbsp;million
for each of the six month periods ended March&nbsp;31, 2004 and
September&nbsp;30, 2004, respectively, and $2.8&nbsp;million for
the year ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property, plant, equipment, and the related estimated useful
lives are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Asset Classification</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Estimated Useful Life</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Buildings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>25-40&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2-15&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3-10&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Furniture and fixtures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3-10&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the sale or retirement of assets, the cost and related
accumulated depreciation are removed from the consolidated
financial statements, and any resultant gain or loss is
recognized.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of
assets and liabilities using currently enacted tax rates.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Research and Technical Services</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company engages in research and development through the
normal course of its business and expenses all costs as incurred
to its statement of operations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Goodwill and Intangible Assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the provisions of SFAS&nbsp;No.&nbsp;142, <I>Goodwill and
Other Intangible Assets</I>, goodwill and intangible assets that
have indefinite useful lives are not amortized but are tested at
least annually for impairment. Intangible assets that have
finite useful lives are amortized over their useful lives and
reviewed for impairment at each reporting date. The following
presents a summary of goodwill and intangible assets at
September&nbsp;30, 2004 and 2005 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Carrying</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>September&nbsp;30, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trademarks</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer Relationship List</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,433</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,567</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(122</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>679</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(76</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>309</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>188,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,631</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>185,855</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Carrying</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>September&nbsp;30, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trademarks</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer Relationship List</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,299</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Patents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(377</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>586</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(185</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>188,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(7,861</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>180,787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The weighted average life of patents is 4&nbsp;years,
non-compete agreements and other is 5&nbsp;years and customer
relationships is 15&nbsp;years. Trademarks have indefinite lives.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Estimate of Aggregate Amortization Expense</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending September&nbsp;30, 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,121</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending September&nbsp;30, 2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,010</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending September&nbsp;30, 2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,900</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending September&nbsp;30, 2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,910</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ending September&nbsp;30, 2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,902</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following presents the changes in the carrying amount of
goodwill for the six month period ended September&nbsp;30, 2004
and the year ended September&nbsp;30, 2005 (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Beginning balance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>148,050</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Merger transaction</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>147,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,709</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reversal of deferred income tax valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,549</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Translation adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,601</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ending balance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>148,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>122,191</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Of the goodwill resulting from the Merger, $6.8&nbsp;million is
deductible for tax purposes as a result of carryover tax basis
and the remaining amount is not deductible for tax purposes.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Impairment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for long-lived and certain intangible
assets in accordance with SFAS&nbsp;No.&nbsp;144, <I>Accounting
for the Impairment or Disposal of Long-Lived Assets</I>, and
SFAS&nbsp;No.&nbsp;142. The Company continually reviews its
long-lived tangible and intangible assets for events or changes
in circumstances that 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 assets over their remaining lives can be
recovered through projected undiscounted future cash flows. The
amount of impairment, if any, is measured based on projected
discounted future cash flows using a discount rate reflecting
the Company&#146;s average cost of funds. During the year ended
September&nbsp;30, 2003, as a result of normal product/equipment
obsolescence and productivity or capacity enhancement projects,
the Company wrote off approximately $0.3&nbsp;million of
manufacturing assets. During each of the six month periods ended
March&nbsp;31, 2004 and September&nbsp;30, 2004, the Company
wrote off $0.1&nbsp;million of manufacturing assets,
respectively. During the year ended September&nbsp;30, 2005, the
Company wrote off $0.5&nbsp;million of manufacturing assets.
</DIV>

<P align="center" style="font-size: 10pt;">F-12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Deferred Financing Costs</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred financing costs are stated at cost as a component of
other assets and amortized over the life of the related debt.
Amortization of deferred financing costs is included in interest
expense and aggregated $1.4&nbsp;million for the year ended
September&nbsp;30, 2003. Deferred financing amortization was
approximately $1.9&nbsp;million and $0.7&nbsp;million for each
of the six month periods ended March&nbsp;31, 2004 and
September&nbsp;30, 2004, respectively. In addition, the six
month periods ended September&nbsp;30, 2004 included
approximately $3.9&nbsp;million of interest expense for the
write-off of deferred financing costs related to the Senior Bank
Facility and the 12.50%&nbsp;Notes. Deferred financing
amortization was approximately $1.1&nbsp;million for the year
ended September&nbsp;30, 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Fair Value of Financial Instruments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with the requirements of SFAS&nbsp;No.&nbsp;107,
<I>Disclosures about Fair Value of Financial Instruments</I>,
the Company has determined the estimated fair value of its
financial instruments using appropriate market information and
valuation methodologies. Considerable judgment is required to
develop the estimates of fair value; thus, the estimates are not
necessarily indicative of the amounts that could be realized in
a current market exchange. The Company&#146;s financial
instruments consist of a combination of cash and cash
equivalents, accounts receivable, accounts payable, Senior
Subordinated Notes, bank debt (including Term Loans, the
Revolving Credit Facility and other debt) and interest rate
instruments. The carrying value of these assets and liabilities
is a reasonable estimate of their fair value at
September&nbsp;30, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company had approximately $30.5&nbsp;million of variable
rate debt protected under an interest rate cap arrangement at a
strike price of 1.13% LIBOR, which expired December&nbsp;31,
2004. The approximate fair value of the cap at
September&nbsp;30, 2004 was $0.1&nbsp;million. The Company had
not elected hedge accounting treatment for the interest rate cap
as defined under SFAS&nbsp;No.&nbsp;133 and, as a result, fair
value adjustments were charged directly to other charges
(income), net. No amounts were recorded to income or expense
related to the interest rate cap for the six months ended
March&nbsp;31, 2004, approximately $0.1&nbsp;million was
recorded as income during the six months ended
September&nbsp;30, 2004 and no amounts were recorded to income
or expense for the year ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company also uses financial instruments in the form of
forward foreign currency contracts. Current market prices were
used to estimate the fair value of the forward foreign currency
contracts. The fair value of these financial instruments was
$0.4&nbsp;million loss net of a tax benefit of $0.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The future value of the forward foreign currency contracts and
the related currency positions are subject to offsetting market
risk resulting from foreign currency exchange rate volatility.
The counter-parties to these contracts are substantial and
creditworthy financial institutions. Neither the risks of
counter-party non-performance nor the economic consequences of
counter-party non-performance associated with these contracts
are considered by the Company to be material.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Accounting for Stock-based Compensation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for stock-based compensation under the
recognition and measurement principles of Accounting Principals
Board (&#147;APB&#148;) Opinion No.&nbsp;25, <I>Accounting for
Stock Issued to Employees</I>. Accordingly, no compensation
expense for stock options has been recognized as all options
granted had an exercise price equal to or above the price of the
underlying common stock. The Company does recognize compensation
expense related to restricted stock awards and amortizes the
expense over the vesting period based on the estimated value of
the stock at the date of grant.
</DIV>

<P align="center" style="font-size: 10pt;">F-13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table illustrates the effect on net income (loss)
if the Company had applied the fair value recognition provisions
of SFAS&nbsp;No.&nbsp;123, <I>Accounting for Stock-Based
Compensation</I>, as amended by SFAS&nbsp;No.&nbsp;148,
<I>Accounting for Stock-Based Compensation&nbsp;&#151;
Transition and Disclosure</I>, to stock-based employee
compensation (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders as reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,207</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,854</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation expense recorded under APB No.&nbsp;25,
    net of tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation expense determined under fair value
    based method, net of tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(147</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(67</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(82</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income (loss) available for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,140</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(8,972</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income (loss) available for common stockholders
    per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.81</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70.81</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8.07</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The fair value of each option grant was estimated on the grant
date using the Black-Scholes pricing model with the following
weighted average assumptions:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>4.71%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>4.35%</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>4.08%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>4.09%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life of options granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.6&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.5&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected volatility of underlying stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><BR>0%</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Net Income (Loss) Available for Common Stockholders Per
    Share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net income (loss) available for common stockholders per share is
based on the weighted average number of shares outstanding
during the period. The following table is a reconciliation of
the common shares for the basic and diluted per share
computations:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted-average common shares outstanding, basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,413</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,518,181</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of dilutive employee stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>151,565</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted-average common shares outstanding, diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,454</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,513,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,632,520</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Employee stock options of 11,923, 11,923, 525,585 and 176,550
are not included in the calculation of diluted earnings per
share due to their anti-dilutive impact for the year ended
September&nbsp;30, 2003, the six months ended March&nbsp;31,
2004, the six months ended September&nbsp;30, 2004 and the year
ended September&nbsp;30, 2005, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Shipping and Handling Costs</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shipping and handling costs include payments to third parties
for the delivery of products to customers, as well as internal
salaries and overhead costs incurred to store, move and prepare
finished products for shipment. Shipping and handling costs are
included with selling and administrative expenses in the
accompanying consolidated statement of operations and totaled
$18.3&nbsp;million for the year ended September&nbsp;30, 2003
and $9.6&nbsp;million for the six month periods ended
March&nbsp;31, 2004 and September&nbsp;30, 2004, respectively
and $22.0&nbsp;million for the year ended September&nbsp;30,
2005. The Company recovers a portion of its shipping and
handling costs from its customers and records this recovery in
net sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s gross profit may not be comparable to the
gross profit of other entities who record shipping and handling
expenses as a component of cost of sales.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Accounting for Derivative Instruments and Hedging
    Activities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company accounts for derivatives in accordance with the
provisions of SFAS&nbsp;No.&nbsp;133, <I>Accounting for
Derivative Instruments and Hedging Activities</I>, as amended
and interpreted. SFAS&nbsp;No.&nbsp;133 requires that every
derivative instrument be recorded in the consolidated balance
sheet as either an asset or a liability measured at its fair
value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has formally documented its hedging relationships,
including identification of the hedging instruments and the
hedge items, as well as its risk management objectives and
strategies for undertaking each hedge transaction. From time to
time, the Company enters into forward foreign currency contracts
to mitigate the effects of changes in foreign currency rates on
profitability and enters into interest rate derivative
agreements to hedge its variable interest rate risk. These
derivatives are cash flow hedges as defined by
SFAS&nbsp;No.&nbsp;133. For all qualifying and highly effective
cash flow hedges, the changes in the fair value of the
derivatives are recorded in other comprehensive income (loss).
Amounts accumulated in other comprehensive income (loss) will be
reclassified as earnings when the related product sales affect
earnings for forward foreign currency contracts or when related
interest payments affect earnings for interest rate derivatives.
At September&nbsp;30, 2003 the Company had Canadian Dollar
forward foreign currency contracts and no interest
</DIV>

<P align="center" style="font-size: 10pt;">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
rate derivatives as defined under SFAS&nbsp;No.&nbsp;133. For
the year ended September&nbsp;30, 2003, the Company reclassified
into earnings net losses of $2.0&nbsp;million, resulting from
the exercise of forward foreign currency contracts for cash flow
hedges. For the six month periods ended March&nbsp;31, 2004 and
September&nbsp;30, 2004, the Company reclassified into earnings
net losses of $0.5&nbsp;million and $0.3&nbsp;million,
respectively, resulting from the exercise of forward foreign
currency contracts. All forward foreign currency contracts were
determined to be highly effective whereby no ineffectiveness was
recorded in earnings. For the year ended September&nbsp;30,
2005, the Company did not enter into any forward foreign
currency contracts for cash flow hedges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company entered into an interest rate collar arrangement in
October 2001 to protect $25.0&nbsp;million of the outstanding
variable rate term loan debt from future interest rate
volatility through September&nbsp;30, 2003. The collar floor was
set at 2% LIBOR (London Interbank Offering Rate) and capped at
6.25% LIBOR. The collar was not designated as a hedge under
SFAS&nbsp;No.&nbsp;133, and accordingly, the fair value gains or
losses were charged to earnings. Approximately $0.2&nbsp;million
was expensed during the fiscal year ended September&nbsp;30,
2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company had approximately $30.5&nbsp;million of variable
rate debt protected under an interest rate cap arrangement at a
strike price of 1.13% LIBOR, which expired December&nbsp;31,
2004. The approximate fair value of the cap at
September&nbsp;30, 2004 was $0.1&nbsp;million. The Company had
not elected hedge accounting treatment for the interest rate cap
as defined under SFAS&nbsp;No.&nbsp;133 and, as a result, fair
value adjustments were charged directly to other charges
(income), net. No amounts were recorded to income or expense
related to the interest rate cap for the six months ended
March&nbsp;31, 2004, approximately $0.1&nbsp;million was
recorded as income during the six months ended
September&nbsp;30, 2004 and no amounts were recorded to income
or expense for the year ended September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company also executes forward foreign currency contracts for
up to 30&nbsp;day terms to protect against the adverse effects
that exchange rate fluctuations may have on the
foreign-currency-denominated trade activities (receivables,
payables and cash) of foreign subsidiaries. These contracts have
not been designated as hedges under SFAS&nbsp;No.&nbsp;133, and
accordingly, the gains and losses on both the derivative and
foreign-currency-denominated trade activities are recorded as
transaction adjustments in current earnings. For the year ended
September&nbsp;30, 2003 the impact on earnings for trade
activities was a net gain of $0.3&nbsp;million. For the six
months ended March&nbsp;31, 2004 and September&nbsp;30, 2004,
the impacts on earnings for trade activities were a net loss of
$0.4&nbsp;million and $0.1&nbsp;million, respectively. For the
year ended September&nbsp;30, 2005 there was no impact on
earnings for trade activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On June&nbsp;30, 2005, the FASB issued Derivatives
Implementation Group (&#147;DIG&#148;) B39, &#147;Application of
Paragraph&nbsp;13(b) to Call Options That are Exercisable Only
by the Debtor&#148;, which provides an explicit scope exception
to the provisions of paragraph&nbsp;13(b) of
SFAS&nbsp;No.&nbsp;133 when the right to accelerate a repayment
can only be exercise by the debtor (issuer/borrower). The
Company adopted DIG B39 on April&nbsp;1, 2005. Prior to the
adoption of DIG B39, the Company determined under the provisions
of DIG B16, &#147;Calls and Puts in Debt Instruments&#148;, that
the embedded call option in the Company&#146;s Senior
Subordinated Notes was not clearly and closely related to the
debt host contract, and therefore, required bifurcation. The
carrying values of the derivative asset and liability were
$2.0&nbsp;million at September&nbsp;30, 2004. Prior to the
adoption of DIG B39, the Company had recorded $0.2&nbsp;million
loss in other (income) charges, net for the mark to market
revaluation of the embedded call option and $0.2&nbsp;million
for the reduction of interest due to the amortization of the
corresponding liability during 2005. Upon the adoption of DIG
B39, the Company reversed a derivative asset of approximately
$1.8&nbsp;million and the corresponding liability that was
previously recorded.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>New Accounting Pronouncements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB enacted SFAS&nbsp;No.&nbsp;123R,
<I>Share-Based Payment,</I> which replaces
SFAS&nbsp;No.&nbsp;123, <I>Accounting for Stock-Based
Compensation,</I> and supersedes APB Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees.</I>
SFAS&nbsp;No.&nbsp;123R requires the measurement of all employee
share-based payments
</DIV>

<P align="center" style="font-size: 10pt;">F-16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
to employees, including grants of employee stock options, using
a fair-value-based method and the recording of such expense in
our results of operations. The accounting provisions of
SFAS&nbsp;No.&nbsp;123R will be adopted by the Company beginning
on October&nbsp;1, 2005. The Company anticipates that this will
impact net income by approximately $0.1&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In May 2005, the FASB issued SFAS&nbsp;No.&nbsp;154,
<I>Accounting Changes and Error Corrections</I>,
(SFAS&nbsp;154). SFAS&nbsp;154 replaces APB Opinion No.&nbsp;20,
<I>Accounting Changes</I>, and FASB Statement No.&nbsp;3,
<I>Reporting Accounting Changes in Interim Financial
Statements.</I> SFAS&nbsp;154 requires that a voluntary change
in accounting principle be applied retrospectively with all
prior period financial statements presented on the new
accounting principle, unless it is impracticable to do so.
SFAS&nbsp;154 also provides that a correction of errors in
previously issued financial statements should be termed a
&#147;restatement.&#148; The new standard is effective for
accounting changes and correction of errors beginning
October&nbsp;1, 2005. The Company does not expect that the
adoption of SFAS&nbsp;154 will have a material impact on our
consolidated financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2004, the FASB issued SFAS&nbsp;No.&nbsp;151,
<I>Inventory Costs, an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4</I>, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This statement is effective
October&nbsp;1, 2005. The Company has determined that the effect
of SFAS&nbsp;No.&nbsp;151 on its financial position, results of
operations and cash flows will be minimal.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Other Comprehensive Income</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents the reclassification amounts
related to unrealized holding gains and losses presented in the
statement of stockholders&#146; equity for the year ended
September&nbsp;30, 2003, the six month periods ended
March&nbsp;31, 2004 and September&nbsp;30, 2004, and the year
ended September&nbsp;30, 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized holding losses on derivatives during the period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,395</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(522</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(248</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: reclassification adjustment for gains (losses) included in
    the statement of operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,005</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(522</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(248</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(390</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Inventories</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories consisted of the following at September&nbsp;30
(dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Raw materials</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,816</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Work in process</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,249</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Finished goods</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,067</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>48,132</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Property, Plant and Equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property, plant and equipment consisted of the following at
September&nbsp;30 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Land</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Building and improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,361</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,358</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Furniture and fixtures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,246</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Construction in progress</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,094</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&nbsp;&#151; accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,650</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,444</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Accounts Payable and Accrued Liabilities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts payable and accrued liabilities consisted of the
following at September&nbsp;30 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable&nbsp;&#151; trade</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,324</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,835</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rebate and commissions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable and accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>58,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Debt</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The long-term debt consisted of the following at
September&nbsp;30 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Term loans, due 2011</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,187</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    8.25%&nbsp;Notes, due 2012</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12% Holdco Notes, due 2013</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage note, due 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,905</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>965</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sub-total long term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>304,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355,057</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&nbsp;&#151; current portion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total long term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>302,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>351,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Debt</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Credit Facility</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our wholly owned subsidiary&#146;s, Aearo Company&nbsp;I
(&#147;ACI&#148;), debt structure includes up to an aggregate of
$175.0&nbsp;million under its Credit Agreement with various
banks comprised of (i)&nbsp;a secured term loan facility
</DIV>

<P align="center" style="font-size: 10pt;">F-18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
consisting of loans providing for up to $125.0&nbsp;million of
term loans (collectively the &#147;Term Loans&#148;) with a
portion of the Term Loans denominated in Euros, (ii)&nbsp;a
secured revolving credit facility (&#147;Revolving Credit
Facility&#148;) providing for up to $50.0&nbsp;million of
revolving loans for general corporate purposes, and
(iii)&nbsp;effective April&nbsp;28, 2005, an uncommitted
incremental term loan facility of up to $75.0&nbsp;million for
acquisitions (collectively, the &#147;Senior Bank
Facilities&#148;). The amounts outstanding on the Term Loans and
Revolving Credit Facility at September&nbsp;30, 2005, were
approximately $123.2 and $0&nbsp;million, respectively. The
Revolving Credit Facility provides for the issuance of letters
of credit in an aggregate face amount of up to
$15.0&nbsp;million. ACI had approximately $1.4&nbsp;million and
$1.6&nbsp;million of letters of credit outstanding at
September&nbsp;30, 2004 and September&nbsp;30, 2005,
respectively. The Term Loans amortize and interest is paid
quarterly over a seven-year period. Amounts repaid or prepaid in
respect of the Term Loans may not be re-borrowed. Loans and
letters of credit under the Revolving Credit Facility will be
available until the Revolving Loan Maturity Date, which is
April&nbsp;7, 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;28, 2005, ACI amended its Credit Agreement, dated
as of April&nbsp;7, 2004, among Aearo Technologies Inc. and
Aearo Corporation as guarantors, the other guarantors named
therein, various lenders, Bear Stearns Corporate Lending Inc.,
as Syndication Agent, National City Bank of Indiana and Wells
Fargo Bank, N.A. as Co-Documentation Agents and Deutsche Bank
AG, New York Branch, as Administrative Agent. The amendment,
among other things, allowed ACI to make, prior to
September&nbsp;30, 2005, up to $35.0&nbsp;million of cash
distributions to Aearo Technologies, Inc. to redeem, pro rata,
outstanding preferred shares and to pay accrued dividends on the
preferred shares. In addition, the amendment permits Aearo
Corporation to issue and sell up to $100.0&nbsp;million of notes
over time for the purpose of redeeming outstanding preferred
shares and to pay accrued dividends on the preferred shares as
well as to pay cash dividends. On May&nbsp;7, 2005, ACI
distributed $35.0&nbsp;million to Aearo Corporation which, in
turn, distributed $35.0&nbsp;million to Aearo Technologies Inc.,
which was used to make a partial redemption of its preferred
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Proceeds of loans made under the uncommitted term loan
facilities may be drawn from time to time and used to finance
permitted acquisitions (or to refinance outstanding revolving
loans used to finance permitted acquisitions). Amounts drawn
under the incremental term loan facilities will comprise new
tranches under the term loan and/or one or more increases to the
existing tranche under the term loan, in minimum incremental
amounts of $10.0&nbsp;million and up to a maximum of
$75.0&nbsp;million. The final maturity date of any incremental
term loan will be no earlier than the term loan maturity date.
The weighted average life to maturity for any incremental term
loan will be no shorter than the weighted average life to
maturity for the term loan. The covenants in respect of, and the
prepayments provisions applicable to, each incremental term loan
facility will be the same as those in respect of and applicable
to the term loan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At ACI&#146;s option, the interest rates per annum applicable to
the Senior Bank Facilities are either (a)&nbsp;an adjusted rate
based on LIBOR plus a margin of 2.75% in the case of New Term
Loans and revolving loans or (b)&nbsp;the Base Rate, as defined,
plus a margin of 1.75% in the case of New Term Loans and
revolving loans. The Base Rate is the higher of (i)&nbsp;the
rate which is
<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>
of 1% in excess of the overnight Federal Funds Rate and
(ii)&nbsp;the Prime Lending Rate. ACI 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 ACI&#146;s leverage ratio, and a 0.25%
facing fee relating to the issuance of letters of credit.
Effective December&nbsp;31, 2004, ACI received a 0.25% reduction
in the interest rate paid on its Term Loans for meeting certain
financial covenants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the terms of the Senior Bank Facilities, ACI is required
to comply with a number of affirmative and negative covenants.
Among other restrictions, ACI must satisfy certain financial
covenants and ratios, including interest coverage ratios,
leverage ratios, and limits on the amount of permitted capital
acquisitions. The Senior Bank Facilities also impose limitations
on certain business activities of ACI. The Senior Bank
Facilities restrict, among other things, the incurrence of
additional indebtedness, creation of certain liens, the payment
of dividends on ACI&#146;s common stock, sales of certain assets
and limitations on transactions with
</DIV>

<P align="center" style="font-size: 10pt;">F-19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
affiliates. As of September&nbsp;30, 2005, ACI was in compliance
with the covenants of the Senior Bank Facilities. The Senior
Bank Facilities are unconditionally guaranteed by ACI and
secured by first priority security interests in substantially
all the capital stock and tangible and intangible assets of ACI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September&nbsp;30, 2005, the total balance outstanding of the
Term Loans was $123.2&nbsp;million and interest rates were 6.6%
for the U.S.&nbsp;Dollar Term Loan ($73.9&nbsp;million US
dollars outstanding at September&nbsp;30, 2005) and 4.6% for the
Euro Term Loan (41.0&nbsp;million Euro outstanding at
September&nbsp;30, 2005). For the year ended September&nbsp;30,
2005, the weighted average interest rate paid on Term Loans was
5.4% for US dollar denominated debt and 4.7% for Euro
denominated debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No amounts were outstanding on the Revolving Credit Facility at
September&nbsp;30, 2005 at any time during the year ended
September&nbsp;30, 2005. At September&nbsp;30, 2005,
approximately $48.4&nbsp;million was available for additional
borrowing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September&nbsp;30, 2004, outstanding Term Loans were
$126.0&nbsp;million and interest rates were 4.7% for the
U.S.&nbsp;Dollar Term Loan ($74.6&nbsp;million US dollars
outstanding at September&nbsp;30, 2004) and 4.9% for the Euro
Term Loan (41.4&nbsp;million Euro outstanding at
September&nbsp;30, 2004). For the six months ended
September&nbsp;30, 2004, the weighted average interest rate paid
on Term Loans was 4.3% for US dollar denominated debt and 4.9%
for Euro denominated debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No amounts were outstanding on the Revolving Credit Facility at
September&nbsp;30, 2004. For the year six months ended
September&nbsp;30, 2004, the maximum amount outstanding was
$9.3&nbsp;million outstanding on the Revolving Credit Facility.
The weighted average interest rate on the Revolver Credit
Facility was 5.7%. At September&nbsp;30, 2004, approximately
$48.6&nbsp;million was available for additional borrowing.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Senior Subordinated Notes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, in connection with the Merger, ACI issued
$175.0&nbsp;million aggregate principal amount of senior
subordinated notes due 2012 (the &#147;8.25%&nbsp;Notes&#148;).
The 8.25%&nbsp;Notes bear interest at 8.25%&nbsp;per annum with
interest is paid semiannually each April 15 and October 15.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The terms of the 8.25%&nbsp;Notes contain three separate
redemptions. The first redemption, referred to as the
&#147;Redemption at Specified Prices&#148;, provides for
redemption at ACI&#146;s option, at any time on or after
April&nbsp;15, 2008, in whole or in part, at various redemption
prices declining from 104.125% of the principal amount to par on
and after April&nbsp;15, 2010. The second redemption, referred
to as the &#147;Make Whole Premium&#148;, provides for
redemption, at ACI&#146;s option, at any time prior to
April&nbsp;15, 2008, at a redemption price equal to the
principal amount plus accrued interest plus the &#147;Make Whole
Amount&#148;. The Make Whole Amount is defined as an amount
equal to the present value of (1)&nbsp;the redemption price at
April&nbsp;15, 2008, plus (2)&nbsp;the remaining interest
payments to April&nbsp;15, 2008, computed using a discount rate
equal to the &#147;Treasury Rate&#148; plus 50&nbsp;basis
points. The Treasury Rate is defined as the yield to maturity of
U.S.&nbsp;Treasury Securities with a constant maturity most
nearly equal to the period from the date of redemption to
April&nbsp;15, 2008. The third redemption, referred to as the
&#147;Redemption upon Equity Offering&#148;, provides for
redemption, at ACI&#146;s option, on or prior to April&nbsp;15,
2007, from the net cash proceeds of one or more equity offerings
to redeem up to 35% of the principal amount outstanding on the
8.25%&nbsp;Notes, at a redemption price equal to 108.25%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 8.25%&nbsp;Notes indenture contains affirmative and negative
covenants and restrictions. As of September&nbsp;30, 2005, ACI
was in compliance with the covenants of the indenture. The
8.25%&nbsp;Notes are unconditionally guaranteed on an unsecured
senior subordinated basis by ACI&#146;s domestic subsidiaries.
</DIV>

<P align="center" style="font-size: 10pt;">F-20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>12% Notes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;3, 2005, in connection with the redemption of all
outstanding preferred stock, the Company issued
$54.0&nbsp;million aggregate principal amount of holding company
notes due 2013 (the &#147;12%&nbsp;Notes&#148;). The
12%&nbsp;Notes bear interest at 12.0%&nbsp;per annum with
interest being capitalized quarterly and added to the current
accretion amount of the 12%&nbsp;Notes for the first four years.
After August&nbsp;1, 2009, interest will be payable in cash
quarterly. Interest accretion and payment dates are
February&nbsp;1, May&nbsp;1, August&nbsp;1 and November&nbsp;1
of each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At any time prior to the first anniversary of the initial issue
date, the Company may redeem all or part of the 12%&nbsp;Notes
at a redemption price of 106.0% of the current accretion amount
of the 12%&nbsp;Notes. The 12%&nbsp;Notes may be redeemed during
the twelve-month period beginning on the anniversary of the
initial issuance date occurring in 2006 at 106.0%, in 2007 at
104.0% in 2008 at 102.0% and 2009 and thereafter at 100.0%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 12%&nbsp;Notes indenture contains affirmative and negative
covenants and restrictions similar to those required under the
terms of the Senior Bank Facility and Senior Subordinated Notes
discussed above. In addition, if ACI were to default on either
the Credit Agreement or the 8.25%&nbsp;Notes, the Company would
be in default of the 12%&nbsp;Notes. As of September&nbsp;30,
2005, the Company was in compliance with the covenants of the
12%&nbsp;Notes indenture.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Maturities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of September&nbsp;30, 2005, the scheduled maturity of
indebtedness for each of the next five years and thereafter is
as follows (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,578</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,354</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>345,933</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>355,057</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
ACI is permitted under the Credit Agreement to pay dividends to
its parent, Aearo Corporation, for the purposes of paying cash
interest, when due, on its indebtedness if certain conditions
are met, and to pay up to $1.0&nbsp;million per fiscal year for
expenses in the ordinary course of business. In 2006, there is
no cash interest due on Aearo Corporation&#146;s indebtedness;
accordingly ACI will be prohibited from paying dividends, other
than for ordinary course expenses, unless a consent or waiver of
the Credit Agreement is obtained.
</DIV>

<P align="center" style="font-size: 10pt;">F-21

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Employee Benefit Plans</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company maintains a noncontributory defined benefit cash
balance pension plan. Benefits provided under the plan are
primarily based on years of service and the employee&#146;s
compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following represents information summarizing the
Company&#146;s defined benefit cash balance pension plan based
on valuation dates of September&nbsp;30, 2003, March&nbsp;31,
2004, September&nbsp;30, 2004, and September&nbsp;30, 2005
(dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September 30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Component of net periodic benefit cost</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>670</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,457</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>371</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>824</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected return on plan assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(672</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(332</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(363</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(736</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrecognized prior service cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Recognized actuarial gain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net periodic benefit cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>713</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,545</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Change in benefit obligation</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Benefit obligation at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,031</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>670</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,457</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>371</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>824</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Benefits paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(337</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(581</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(839</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Actuarial (gain)&nbsp;loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(51</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>646</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Benefit obligation at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,684</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,320</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Change in plan assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of plan assets at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,931</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,651</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Actual return on plan assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>705</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(95</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>701</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employer contributions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Benefits paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(337</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(581</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(839</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of plan assets at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,299</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,313</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Reconciliation of funded status</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Funded status</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,581</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,007</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrecognized prior service cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrecognized actuarial loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,195</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net amount recognized</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,067</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,812</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Amounts recognized in statement of financial position</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued benefit liability</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,067</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,812</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Six Months</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Additional information for pension plans with accumulated
    benefit obligations in excess of plan assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Projected benefit obligation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,320</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated benefit obligation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,299</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of plan assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,313</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The weighted average assumptions used in determining net
periodic benefit cost and the projected benefit obligation were
as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="81%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Discount rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.00%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.50%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected long term rate of return of plan assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.00%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.00%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rate of compensation increase</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.00%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.00%</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To develop the expected long-term rate of return on assets
assumption, the Company considered historical returns and future
expectations for returns for each asset class, as well as the
target asset allocation
</DIV>

<P align="center" style="font-size: 10pt;">F-23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
of the pension portfolio. Based on Actuarial Standard of
Practice No.&nbsp;27 and interpretation of this standard, the
FAS&nbsp;87 long-term rate of return on asset assumption must
fall within a &#147;best estimate range&#148;&nbsp;&#151; that
is, a range of returns within which the actual return is more
likely than not to fall. This &#147;best estimate range&#148;
equates to a 20-year compound average return derived using the
outside actuarial firms&#146; proprietary Portfolio Return
calculator (PRC), reflecting the asset allocation of the trust
with appropriate adjustments for investment, trading, management
and administrative expenses that are paid from the trust. For
purposes of determining the 25th&nbsp;to 75th&nbsp;percentile
range, the PRC uses the outside actuarial firms&#146; capital
market assumptions with respect to each class to develop the
probability distribution of returns. The independently developed
rate of 8.00% falls within the 25th&nbsp;and
75th&nbsp;percentiles of 4.96% and 8.61%, respectively. Over the
12&nbsp;year period ended September&nbsp;30, 2005, the returns
on the portfolio, assuming it was invested at the current target
asset allocation in prior periods, would have been a compound
annual average return of 9.1%. Considering this information and
the potential for lower future returns due to the generally
lower interest rate environment, the Company selected an 8.00%
long-term rate of return asset assumption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The weighted average asset allocations at September&nbsp;30,
2004, and 2005, by asset category, were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="81%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    U.S.&nbsp;equity securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    U.S.&nbsp;fixed income securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has a benefits committee that is responsible for
managing the operations and administration of all benefit plans
and related trusts (the &#147;Benefits Committee&#148;). The
Benefits Committee has an investment policy for the pension plan
assets that establishes target asset allocations for the above
asset classes as follows: U.S.&nbsp;equity securities 60%,
U.S.&nbsp;fixed income securities 40%. The target asset
allocation percentages were developed to manage the net impact
of asset and liability changes over time consistent with the
Company&#146;s funding, accounting and benefit policies. The
Benefits Committee&#146;s goal with respect to the asset
allocation percentage is to identify a mix of assets offering
the highest expected return for a given correlation to the
pension plan liabilities. The Benefits Committee periodically
reviews mismatches between the duration of the fixed income
portfolio and the related liabilities. The Benefits Committee is
committed to diversification to reduce the risk of large losses.
From time to time, the Benefits Committee will engage a
specialist to evaluate if the target asset allocation
percentages should be rebalanced.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company expects to contribute $1.5&nbsp;million into its
cash balance plan in fiscal 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,047</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>561</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,070</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,001</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fiscal year 2011&nbsp;&#150; 2015</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,108</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Company has an unfunded, noncontributory
defined benefit pension plan, the Aearo Company Supplemental
Executive Retirement Plan (the SERP Plan), which is also a cash
balance plan. The SERP Plan, effective January&nbsp;1, 1994,
covers certain employees in the United States. The costs to the
Company for the SERP Plan were $0.1&nbsp;million for the year
ended September&nbsp;30, 2003, a minimal amount
</DIV>

<P align="center" style="font-size: 10pt;">F-24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
and $0.1&nbsp;million for the six month periods ended
March&nbsp;31, 2004 and September&nbsp;30, 2004, respectively,
and $0.1&nbsp;million for the year ended September&nbsp;30,
2005. The aggregate liability for the SERP Plan was
$1.0&nbsp;million and $1.1&nbsp;million for the years ended
September&nbsp;30, 2004 and September&nbsp;30, 2005 respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A 401(k) plan, the Aearo Company Employees&#146; 401(k) Savings
Plan, was established as of May&nbsp;1, 1990. Employees normally
scheduled to work a minimum of 1,000&nbsp;hours per year can
join the plan immediately and may contribute up to 60% of their
compensation. The Company contributes amounts equal to 50% of
the employee&#146;s contribution to a maximum of 3% of the
employee&#146;s pay. The costs to the Company for this Plan was
$0.9&nbsp;million for the year ended September&nbsp;30, 2003,
$0.4&nbsp;million and $0.5&nbsp;million for the six month
periods ended March&nbsp;31, 2004 and September&nbsp;30, 2004,
respectively, and $1.0&nbsp;million for the year end
September&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has a deferred compensation plan that allows certain
employees to defer a portion of their cash compensation by
having it contributed to a non-qualified benefit plan. The
Company fully funds the deferred compensation liabilities by
making cash contributions to a trust at the time the salary or
bonus being deferred would otherwise be payable to the employee.
Gains or losses on amounts held in the trust are fully allocable
to participants, who control the types of investments in the
trust. Realized and unrealized holding gains and losses related
to these investments increase or decrease the corresponding
liability to participants, and thus there is no earnings impact
for the Company. The trust investments are considered trading
securities and as such are reported at fair value in other
assets in the consolidated balance sheet, with the liabilities
included in other long term liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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&#146;s contribution to a
maximum of 2% of the employee&#146;s pay. The Company
contributed approximately $0.2&nbsp;million for the year ended
September&nbsp;30, 2003, $0.1&nbsp;million, and
$0.2&nbsp;million for the six month periods ended March&nbsp;31,
2004 and September&nbsp;30, 2004, respectively, and
$0.3&nbsp;million for the year ended September&nbsp;30, 2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Related Party Transactions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, Aearo Technologies Inc., Aearo
Corporation and Aearo Company&nbsp;I entered into a professional
services agreement with Bear Stearns Merchant Manager&nbsp;II,
LLC, or BSMM (the &#147;Successor Agreement&#148;). Under the
terms of the Successor Agreement, Aearo Technologies Inc., Aearo
Corporation and Aearo Company&nbsp;I retained BSMM to provide
certain management consulting and financial advisory services,
for which the Company will pay BSMM an annual advisory fee equal
to the greater of (i)&nbsp;$0.7&nbsp;million and (ii)&nbsp;1.25%
of the Adjusted Consolidated EBITDA (as defined in our credit
facility as in effect on April&nbsp;7, 2004, plus, to the extent
deducted in arriving at Consolidated EBITDA, the aggregate
advisory fee paid under the Successor Agreement and any fees
paid to Vestar Capital Partners or any of its affiliates) by the
Company and its subsidiaries. If Aearo Technologies Inc., Aearo
Corporation or Aearo Company&nbsp;I engages BSMM with respect to
any merger, acquisition, disposition, recapitalization, issuance
of securities, financing or similar transaction, the Company
will pay BSMM a transaction fee to be negotiated between the
parties. If the parties do not agree on a fee, the transaction
fee will be 1.0% of the aggregate enterprise value paid or
provided to Aearo Technologies Inc., Aearo Corporation or Aearo
Company&nbsp;I. BSMM will also be entitled to a fee (a
&#147;Company Sale Fee&#148;) of 0.65% of the aggregate
enterprise value paid to Aearo Technologies Inc. or Aearo
Corporation in a sale of Aearo Technologies Inc. or Aearo
Corporation. The Successor Agreement will terminate on the
earlier of (i)&nbsp;April&nbsp;7, 2014, (ii)&nbsp;the
consummation of a sale of Aearo Technologies Inc., Aearo
Corporation or Aearo Company&nbsp;I, (iii)&nbsp;termination upon
thirty days&#146; written notice by BSMM and (iv)&nbsp;the
consummation of a qualified public offering of Aearo
Technologies Inc. common stock. If not terminated by the
foregoing, upon the tenth anniversary of the date of the
Successor Agreement and the end of each year thereafter, the
term is automatically extended for an additional year unless
terminated by either party at least
</DIV>

<P align="center" style="font-size: 10pt;">F-25

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
30&nbsp;days prior to such year end. Under the Successor
Agreement, Aearo Technologies Inc., Aearo Corporation and Aearo
Company&nbsp;I have agreed to indemnify BSMM for any and all
claims and losses arising out of, or relating, to the
professional services agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to an agreement with Vestar Capital Partners and Cabot
Corporation, dated as of July&nbsp;11, 1995, an annual
management fee was payable by the Company equal to the greater
of (i)&nbsp;$0.4&nbsp;million or (ii)&nbsp;1.25% of the
consolidated net income of the Company and its subsidiaries
before interest, taxes, depreciation and amortization for such
fiscal year (the &#147;Predecessor Agreement&#148;). Payments
under the Predecessor Agreement totaled approximately
$0.6&nbsp;million for the year ended September&nbsp;30, 2003 and
$0.4&nbsp;million for the six months ended March&nbsp;31, 2004.
Payments under the Successor Agreement totaled approximately
$0.3&nbsp;million for the six months ended September&nbsp;30,
2004 and $0.9&nbsp;million for the year ended September&nbsp;30,
2005.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income (loss) before income taxes was as follows (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Domestic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,674</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,067</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,197</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,871</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>37,690</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A summary of provision (benefit) for income taxes was as follows
(dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>U.S.&nbsp;Federal and State</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>94</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,247</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>289</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,247</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,270</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Foreign</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,624</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,260</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,222</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,640</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,482</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,734</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-26

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provision (benefit) for income taxes at the Company&#146;s
effective tax rate differed from the provision (benefit) for
income taxes at the statutory rate as follows (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computed tax expense (benefit) at the expected statutory rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,313</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,072</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,815</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State taxes, net of federal effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign income taxed at different rates</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,174</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>551</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(797</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Permanent items</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(452</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(433</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Decrease in valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,710</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,714</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Post-merger net operating loss carryforward adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,865</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>279</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,734</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year ended September&nbsp;30, 2005, the Company
recorded $1.9&nbsp;million of adjustments to the preliminary
estimate of the deferred tax assets for post merger net
operating losses based on tax returns filed in fiscal year 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Significant components of deferred income taxes are as follows
at September&nbsp;30 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Deferred tax assets (liabilities)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pension and other benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,920</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property, plant and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,429</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,769</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(72,100</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(58,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Derivatives</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>215</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,663</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized foreign currency exchange</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>281</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating loss and credit carryforwards</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,532</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,068</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Subtotal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(52,150</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,093</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,549</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax liability</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,699</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(41,093</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,699</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(45,340</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The valuation allowance at September&nbsp;30, 2004 related to
the uncertainty of realizing the tax benefits of reversing
pre-merger temporary differences and net operating loss
carryforwards. During the year ended September&nbsp;30, 2005,
management determined that based on current domestic operating
results, it is more likely than not that domestic pre-merger net
operating losses would be realized and consequently reversed the
$7.5&nbsp;million valuation allowance, which decreased goodwill
resulting from the Merger. The gross amount of domestic net
operating loss carryforwards, before the tax effect, is
approximately $35.1&nbsp;million as of September&nbsp;30, 2005.
Realization of the deferred tax asset for net operating losses
is dependent on generating sufficient future taxable income in
the United States prior to the expiration of the net operating
losses and
</DIV>

<P align="center" style="font-size: 10pt;">F-27

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
credit carryforwards, which expire on various dates ranging from
2010 to 2021 and are subject to certain limitations on their use
after the Merger.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has excluded undistributed earnings of
$59.8&nbsp;million of nine foreign affiliates from its
calculation of deferred tax liabilities because they will be
permanently invested for the foreseeable future. Should
management decide in the future to repatriate all or a portion
of these undistributed earnings, the Company would then be
required to provide taxes on such amounts.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>11.</B></TD>
    <TD>
    <B>Stockholders&#146; Equity</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Stock Ownership and Stockholders&#146; Agreement</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On April&nbsp;7, 2004, all holders of the capital stock of Aearo
Technologies Inc. entered into and became subject to a
stockholders&#146; agreement that governs certain aspects of its
relationship among its security holders. The stockholders&#146;
agreement, among other things; allows security holders to join,
and allows BSMM and its affiliates to require security holders
to join, in any sale or transfer of shares of common stock or
preferred stock by BSMM to any third party prior to a qualified
public offering of common stock or preferred stock, following
which (when aggregated with all prior such sales or transfers)
BSMM and its affiliates shall have disposed of in excess of a
certain specified percentage of the number of shares of common
stock or preferred stock, as applicable, that BSMM and its
affiliates owned as of the closing of the Merger; restricts the
ability of certain security holders to transfer, assign, sell,
gift, pledge, hypothecate or encumber, or otherwise dispose of,
common stock or preferred stock or all or part of the voting
power associated with common stock or preferred stock, subject
to certain specified exceptions; grants to BSMM the right to
designate members of the board of directors of Aearo
Technologies Inc.; grants to security holders the right to buy
their proportionate percentage of securities offered for sale to
BSMM by Aearo Technologies Inc.; allows Aearo Technologies Inc.
and BSMM to repurchase all or any portion of the common stock
and preferred stock held by directors, employees and consultants
of Aearo Corporation at varying prices upon the termination of
their employment with Aearo Corporation for any reason
(including death or disability); grants demand and piggyback
registration rights to BSMM and allow security holders to
include securities in a registration statement filed by Aearo
Technologies Inc. with respect to an offering of common stock or
preferred stock (i)&nbsp;in connection with the exercise of any
demand rights by BSMM and its affiliates or any other security
holders possessing such rights or (ii)&nbsp;in connection with
which BSMM and its affiliates exercise &#147;piggyback&#148;
registration rights; provides for the payment by Aearo
Technologies Inc. of the fees and expenses associated with the
exercise of registration rights under the stockholders&#146;
agreement; restricts the ability of Aearo Technologies Inc. and
its subsidiaries to enter into certain transactions with BSMM
and its affiliates; and provides for non-operating board members
of our management to vote their shares at the direction of Aearo
Technologies Inc. and to grant Aearo Technologies Inc. a proxy
in respect of their shares; restricts our ability to amend the
certificate of designations governing our series&nbsp;A
preferred stock without the approval of certain of our security
holders; and grant to the security holders of Aearo Technologies
Inc. information rights with respect of Aearo Technologies Inc.
and its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The stockholders&#146; agreement will terminate upon the
earliest to occur of (i)&nbsp;the dissolution of Aearo
Technologies Inc., (ii)&nbsp;the occurrence of any event that
reduces the number of security holders to one, (iii)&nbsp;the
consummation of a qualified initial public offering of Aearo
Technologies Inc.&#146;s common stock and (iv)&nbsp;the transfer
to a person or group other than BSMM and its affiliates of a
number of shares of common stock having the power to elect a
majority of the Aearo Technologies Inc. Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the terms of the stockholders&#146; agreement, the Company
issued 76,168&nbsp;shares of cumulative preferred stock that,
while outstanding, accrued dividends at the rate of 2.5% of the
carrying amount plus unpaid dividends per quarter. Upon a
liquidation, dissolution, or winding up of Aearo Technologies
Inc., each holder would be entitled to receive, after
satisfaction of all indebtedness, prior to any payment in
respect of
</DIV>

<P align="center" style="font-size: 10pt;">F-28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
any common stock, an amount equal to the then applicable
carrying amount plus any accrued, unpaid and compounded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year ended September&nbsp;30, 2005 the Company
redeemed all of its outstanding preferred stock with a carrying
value of $76.2&nbsp;million plus accumulated dividends of
$9.8&nbsp;million with a combination of cash on hand and new
borrowings. The preferred stock has not been retired and is
classified as treasury stock.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Stock Option and Incentive Plans</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the Merger, Aearo Technologies Inc. adopted a
stock incentive plan (&#147;2004 Option Plan&#148;) for the
benefit of certain of its employees and terminated the 1996
Executive Stock Option Plan and the 1997 Stock Option Plan of
the predecessor company. Options to acquire 18.5% of the total
outstanding shares of our ultimate parent&#146;s common stock on
a fully diluted basis were granted under the plan. With respect
to the options, the plan only permits the issuance of
non-qualified options. In addition, common stock representing a
total of 1.5% of the outstanding shares of our ultimate
parent&#146;s common stock on a fully diluted basis was
designated as restricted stock and made available for grant
under the plan to new hires. The number of shares of restricted
stock and the number of options to be issued to each new hire or
employee will be determined by the compensation committee of the
Board of Directors of our ultimate parent based on the
recommendation of the Chief Executive Officer. The option terms
are 10 and 7&nbsp;years except that in certain instances of
termination of employment the options shall expire, or upon the
sale of the Company, the options shall immediately vest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 1996, Aearo Corporation&#146;s Board of Directors adopted the
Executive Stock Option Plan (the &#147;Executive Plan&#148;)
under which non-qualified options to purchase up to
5,000&nbsp;shares of Aearo Corporation&#146;s common stock may
be granted to certain officers and key employees of Aearo
Corporation and its subsidiaries. In July 1997, the
Company&#146;s Board of Directors adopted and the stockholders
subsequently approved the 1997 Stock Option Plan (the &#147;1997
Option Plan&#148;) under which 10,000&nbsp;shares of Aearo
Corporation common stock were reserved for issuance. During the
year ended September&nbsp;30, 2002, an additional
1,800&nbsp;shares were reserved for issuance under the 1997
Option Plan. Under the 1997 Option Plan, non-qualified and
qualified options may be granted to employees, directors and
consultants of Aearo Corporation and its subsidiaries. Options
granted under the Executive Plan and the 1997 Option Plan will
vest and become exercisable upon the earlier of the date on
which a stipulated return (as defined) is achieved by Vestar on
its investment in the Company or the tenth anniversary of the
date of grant. The option term will be 10&nbsp;years, except
that options shall expire in certain instances of termination of
employment and upon the sale of the Company. As of
September&nbsp;30, 2003, options to purchase a total of
3,993&nbsp;shares were outstanding under the Executive Plan and
options to purchase a total of 7,930&nbsp;shares were
outstanding under the 1997 Option Plan. A total of 1,077 options
are available for grant under the Executive Plan and 3,800
options are available for grant under the 1997 Option Plan. In
connection with the Merger, all options issued under both the
Executive Plan and the 1997 Option Plan were cancelled.
</DIV>

<P align="center" style="font-size: 10pt;">F-29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Stock Option Activity</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stock option data for the Executive Plan, the 1997 Option Plan
and the 2004 Option Plan are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding, September&nbsp;30, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>649</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,997</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding, September&nbsp;30, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding, April&nbsp;1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>369,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>156,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding, September&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>525,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,252</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,550</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Forfeited</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,710</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding, September&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>570,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information regarding options
outstanding at September&nbsp;30, 2005:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remaining</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price for</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Covered by</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Currently</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contractual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Currently</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Life</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>394,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>151,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.50</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Commitments and Contingencies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease Commitments</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases certain transportation vehicles, warehouse
facilities, office space, and machinery and equipment under
cancelable and non-cancelable operating leases. Rent expense
under such arrangements totaled $6.0&nbsp;million for the year
ended September&nbsp;30, 2003, $3.1&nbsp;million for each of the
six month periods ended March&nbsp;31, 2004 and
September&nbsp;30, 2004, respectively, and $6.9&nbsp;million for
the year ended
</DIV>

<P align="center" style="font-size: 10pt;">F-30

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
September&nbsp;30, 2005. Future minimum rental commitments under
non-cancelable leases in effect at September&nbsp;30, 2005 are
as follows (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,757</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,249</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,301</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,283</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,955</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,795</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B>Contingencies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Various lawsuits and claims arise against Aearo Company&nbsp;I
in the ordinary course of its business. Most of these lawsuits
and claims are products liability matters that arise out of the
use of safety eyewear and respiratory product lines manufactured
by the Company as well as products purchased for resale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Company&nbsp;I is a defendant in lawsuits by plaintiffs
alleging that they suffer from respiratory medical conditions,
such as asbestosis or silicosis, relating to exposure to
asbestos and silica, and that such conditions result, in part,
from the use of respirators that, allegedly, were negligently
designed or manufactured. The defendants in these lawsuits are
often numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. Many of these claims are covered
by the Asset Transfer Agreement entered into on June&nbsp;13,
1995 by Aearo Company&nbsp;I and Aearo Corporation, on the one
hand, and Cabot Corporation and certain of its subsidiaries (the
&#147;Sellers&#148;), on the other hand (the &#147;1995 Asset
Transfer Agreement&#148;). In the 1995 Asset Transfer Agreement,
so long as Aearo Corporation makes an annual payment of
$0.4&nbsp;million to Cabot, the Sellers agreed to retain, and
Cabot and the Sellers agreed to defend and indemnify Aearo
Corporation and its subsidiaries against, any liability or
obligation relating to or otherwise arising under any proceeding
or other claim against Aearo Corporation and its subsidiaries or
Cabot or their respective affiliates or other parties with whom
any Seller directly or indirectly has a contractual liability
sharing arrangement which sounds in product liability or related
causes of action arising out of actual or alleged respiratory
medical conditions caused or allegedly caused by the use of
respirators or similar devices sold by Sellers or their
predecessors (including American Optical Corporation and its
predecessors) prior to July&nbsp;11, 1995. To date, Aearo
Corporation has elected to pay the annual fee and intends to
continue to do so. In addition, under the terms of the merger
agreement with AC Safety Acquisition Corp. (the &#147;Merger
Agreement&#148;), Aearo Corporation agreed to make the annual
payment to Cabot for a minimum of seven years from April&nbsp;7,
2004 (the &#147;Acquisition Date&#148;). Aearo Corporation and
its subsidiaries could potentially be liable for claims
currently retained by Sellers if Aearo Corporation elects to
cease paying the annual fee or if Cabot and the Sellers no
longer are able to perform their obligations under the 1995
Asset Transfer Agreement. Cabot acknowledged in the Stock
Purchase Agreement that it and Aearo Corporation entered into on
June&nbsp;27, 2003 (providing for the sale by Cabot to Aearo
Corporation of all of the common and preferred stock of Aearo
Corporation owned by Cabot) that the foregoing provisions of the
1995 Asset Transfer Agreement remain in effect. The 1995 Asset
Transfer Agreement does not apply to claims relating to the
business of Eastern Safety Equipment, the stock of which Aearo
Company&nbsp;I acquired in 1996. Claims related to Eastern
Safety Equipment have historically been covered by that
company&#146;s insurers under a reservation of rights.
</DIV>

<P align="center" style="font-size: 10pt;">F-31

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information concerning
respiratory claims filed against Aearo Company&nbsp;I in fiscal
2003, 2004 and 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Silica</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Asbestos</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>October&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004 through</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims at beginning</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,087</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,282</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increases in number of claims</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,409</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,074</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims settled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of claims dismissed without payment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>780</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,232</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ending number of claims</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,714</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,124</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average amount per claims settled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16.99</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>83.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average amount per claims
    closed<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.04</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>72.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    The 1,074 new asbestos claims include 114 claims that allege
    exposure from clothing, which Aearo Company&nbsp;I never
    manufactured.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The difference between average amount for claims
    &#147;settled&#148; versus average amount for claims
    &#147;closed&#148; is that some claims are dismissed or
    withdrawn without having to pay a settlement or any amount. The
    &#147;average amount per claim closed&#148; includes claims
    closed by both settlement and by dismissal without payment while
    the &#147;average amount per claim settled&#148; is for claims
    settled.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the above claims, the Company may agree to pay a
share of the settlement and defense costs in particular cases
even though Aearo Company&nbsp;I is not named as a defendant
because of agreements with prior owners of the brand and/or
because of allegations that Aearo Company&nbsp;I has some risk
of legal liability as a successor (&#147;Additional
Claims&#148;). During fiscal 2005, the Company paid a total of
$1.6&nbsp;million for settlement, administrative and defense
costs resulting in the settlement of 4,325 silica and asbestos
claims that were settled between October&nbsp;1, 2002 and
September&nbsp;30, 2004 involving both claims in which Aearo
Company&nbsp;I was named as a defendant and Additional Claims.
During fiscal 2005 the Company paid a total of $0.7&nbsp;million
for administrative and defense costs involving both claims in
which Aearo Company&nbsp;I was named as a defendant and
Additional Claims. Also in fiscal 2005, in addition to the cases
in the above chart, the Company paid $0.3&nbsp;million to settle
approximately 4,449 claims, involving a still being determined
ratio of claims in which Aearo Company&nbsp;I was named as a
defendant and Additional Claims and therefore the above table
does not reflect the settlement of these claims. In addition,
Aearo Company&nbsp;I may receive the benefit of releases in some
additional cases settled by the AO Defense Group regardless of
whether or not any claim was made against Aearo Company&nbsp;I.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The above information was based on data compiled by a third
party that tracks numbers of cases and settlements on behalf of
the &#147;AO Defense Group&#148; and is believed to be
materially accurate. This information may be subject to future
adjustment in light of new information becoming available. The
AO Defense Group is a voluntary association of current and
former manufacturers of the &#147;AO Safety&#148; brand of
respirators and certain of their insurers in which Aearo
participates and through which all of its settlements have been
handled in the relevant years. Also during fiscal 2005, there
may have been claims settled by and fully funded by the insurers
of Eastern Safety Equipment Co., Inc., a subsidiary of Aearo
which is in the process of winding up its affairs. In addition,
during fiscal 2005 the Company paid $0.1&nbsp;million, net of
insurance proceeds, to settle a safety eyewear product liability
claim.
</DIV>

<P align="center" style="font-size: 10pt;">F-32

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At September&nbsp;30, 2005 and September&nbsp;30, 2004, the
Company has recorded liabilities of approximately
$5.1&nbsp;million and $5.4&nbsp;million, respectively, which
represents reasonable estimates of its probable liabilities for
product liabilities substantially related to asbestos and
silica-related claims as determined by the Company in
consultation with an independent consultant. The
$0.3&nbsp;million reduction in the reserve, net of new accruals
which added to the reserve, since September&nbsp;30, 2004 is
primarily attributed to the payment of $1.6&nbsp;million, as
referenced above, to pay costs attributed to settlement,
administrative and defense costs that had been reached over a
prior two year time period, $0.7&nbsp;million for administrative
and defense costs involving both claims in which Aearo
Company&nbsp;I was named as a defendant and Additional Claims,
the payment of $0.3&nbsp;million, as referenced above, for the
settlement of 4,445 claims during fiscal 2005, and
$0.1&nbsp;million, net of insurance proceeds, to settle a safety
eyewear product liability claim. This reserve is re-evaluated
periodically and additional charges or credits to results of
operations may result as additional information becomes
available. Various factors increase the difficulty in
determining Aearo Company&nbsp;I&#146;s potential liability, if
any, in such claims, including the fact that the defendants in
these lawsuits are often numerous and the claims generally do
not specify the amount of damages sought. Additionally, the
bankruptcy filings of other companies with asbestos and
silica-related litigation could increase the Company&#146;s cost
over time. In light of these and other uncertainties inherent in
making long-term projections, the Company has determined that
the five-year period through fiscal 2010 is the most reasonable
time period for projecting asbestos and silica-related claims
and defense costs. It is possible that the Company may incur
liabilities in an amount in excess of amounts currently
reserved. However, taking into account currently available
information, historical experience, and the 1995 Asset Transfer
Agreement, but recognizing the inherent uncertainties in the
projection of any future events, it is management&#146;s opinion
that these suits or claims should not result in final judgments
or settlements in excess of the Company&#146;s reserve that, in
the aggregate, would have a material effect on the
Company&#146;s financial condition, liquidity or results of
operations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>13.</B></TD>
    <TD>
    <B>Segment Data</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As defined by SFAS&nbsp;No.&nbsp;131, <I>Disclosures about
Segments of an Enterprise and Related Information</I>, the
Company&#146;s three reportable segments are Safety Products,
Safety Prescription Eyewear and Specialty Composites. The Safety
Products segment manufactures and sells hearing protection
devices, communication headsets, non-prescription safety
eyewear, face shields, reusable and disposable respirators, hard
hats and first aid kits. The Safety Prescription Eyewear segment
manufactures and sells prescription eyewear products that are
designed to protect the eyes from the typical hazards
encountered in the industrial work environment. The Safety
Prescription Eyewear segment purchases component parts (lenses
and the majority of its frames) from various suppliers, grinds
and shapes the lenses to the customer&#146;s prescription, and
then assembles the glasses using the customer&#146;s choice of
frame. The Specialty Composites segment manufactures a wide
array of energy-absorbing materials that are incorporated into
other manufacturers&#146; products to control noise, vibration
and shock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net sales to external customers by business segment (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>242,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>127,964</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>318,450</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,337</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,446</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,278</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,524</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>193,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>423,420</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-33

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Profit by business segment and reconciliation to income (loss)
provision for income taxes (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,704</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>62,566</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(58</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,855</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Segment profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,502</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,645</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,931</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,631</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,228</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory purchase accounting adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bond call premium</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring charges</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,549</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,096</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,871</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6,094</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>37,690</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Segment profit is defined as earnings before depreciation,
amortization, interest expense, inventory purchase accounting
adjustment, bond call premium, restructuring and income taxes
and presents the measure used by the chief operating decision
maker to assess segment performance and make decisions about the
allocation of resources to business segments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inter-segment sales of the Specialty Composites segment to the
Safety Products segment totaled $3.2&nbsp;million for the year
ended September&nbsp;30, 2003. Inter-segment sales of the
Specialty Composites segment to the Safety Products segment
totaled $1.5&nbsp;million and $1.3&nbsp;million for the six
months ended March&nbsp;31, 2004 and September&nbsp;30, 2004,
respectively and $3.9&nbsp;million for the year ended
September&nbsp;30, 2005. The inter-segment sales value is
generally determined at fully absorbed inventory cost at
standard rates plus 25%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation by business segment (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March 31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,854</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,705</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>351</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>726</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,931</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,631</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-34

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Identifiable assets by business segment (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>403,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>393,083</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,583</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,989</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,263</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Corporate includes cash and other assets not allocated to
segments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill by business segment (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="79%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>99,591</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>122,191</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Capital expenditures including capital leases by business
segment (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,674</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,396</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Safety Prescription Eyewear</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>156</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Specialty Composites</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,064</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reconciling items</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>869</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,049</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,006</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Reconciling items include corporate expenditures such as
information technology and other shared systems.
</DIV>

<P align="center" style="font-size: 10pt;">F-35

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net sales by principal geographic areas (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>March&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States America</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>187,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,629</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>118,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>255,020</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,444</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,725</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United Kingdom</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,810</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Germany</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,806</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sweden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,703</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,224</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    France</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,242</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,476</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Italy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,438</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,885</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All Others</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,507</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,438</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>316,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>169,579</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>193,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>423,420</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The sales as shown above represent the value of shipments into
the customer&#146;s country of residence. For the year ended
September&nbsp;30, 2003 and the six months ended March&nbsp;31,
2004 and September&nbsp;30, 2004, and the year ended
September&nbsp;30, 2005, no single customer accounted for more
than 5% of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net identifiable assets by principal geographic areas (dollars
in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States of America</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>421,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>374,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,590</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United Kingdom</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,021</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Germany</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>277</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sweden</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    France</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All others</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>896</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Total</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>530,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-36

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>14.</B></TD>
    <TD>
    <B>Quarterly Financial Data (Unaudited)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table contains selected unaudited quarterly
financial data for fiscal years 2004 and 2005 (dollars in
thousands, except per share data):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Predecessor</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap><B>Successor</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="center" nowrap><B>Fiscal Year 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>Fiscal Year 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>First</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Second</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Third</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fourth</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>First</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Second</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Third</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fourth</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>79,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>90,378</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>97,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>95,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>104,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>113,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>109,983</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,280</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,953</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,098</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,030</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restructuring charge</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,536</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,216</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,771</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,454</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,247</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,822</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) available for common stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,459</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,135</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>58.22</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6.43</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>58.22</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(6.43</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.93</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the third quarter of fiscal 2004, the Company recorded a
non-recurring charge of $17.1&nbsp;million resulting from the
write-up of inventory required by SFAS&nbsp;No.&nbsp;141 on the
Acquisition Date and subsequent sale of such inventory.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>15.</B></TD>
    <TD>
    <B>Restructuring</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In fiscal 2001, the Company recorded an unusual charge of
$11.4&nbsp;million related to a restructuring plan announced by
the Company to improve its competitive position and long-term
profitability. The plan included the closure of its Ettlingen,
Germany plant, significantly reorganizing operations at the
Company&#146;s Varnamo, Sweden plant, rationalizing the
manufacturing assets and product mix of its Specialty Composites
business unit and a reduction of products and product lines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2003, the Company reversed $0.3&nbsp;million of reserves
related to the fiscal 2001 restructuring provision. The
adjustment represented a change in estimate of the plan for the
disposal of certain items of inventory and was classified as a
reduction in cost of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the second quarter of 2004, the Company reversed
$1.1&nbsp;million of reserves related to the fiscal 2001
restructuring provision. The adjustment represented a change in
estimate related to amounts for non-cancelable lease obligations
due to the renegotiation of the subject lease that was completed
in the second quarter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table displays the activity and balances of the
restructuring reserve of the predecessor company as of and for
the year ended September&nbsp;30, 2003 and six months ended
March&nbsp;31, 2004 (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Reversals</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Charges</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee termination costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(506</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>224</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lease agreements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(896</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on disposal of assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>691</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,441</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,388</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-37

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>AEARO TECHNOLOGIES INC. AND SUBSIDIARIES</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>September&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>March&nbsp;31,</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Reversals</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Charges</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>2004</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee termination costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(224</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lease agreements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(365</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on disposal of assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(691</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,091</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,297</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>16.</B></TD>
    <TD>
    <B>Valuation and Qualifying Accounts</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For the periods ended September&nbsp;30, 2003, March&nbsp;31,
2004 , September&nbsp;30, 2004 and September&nbsp;30, 2005 (in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Additions</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Provisions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Charged to</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Net Deductions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Beginning</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Charged to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>From</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>End of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Period</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Operations</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Accounts</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Allowances</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended September&nbsp;30, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bad Debt Reserve</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(409</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,358</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Six months ended March&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bad Debt Reserve</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(97</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,494</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Six months ended September&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bad Debt Reserve</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(297</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,334</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended September&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bad Debt Reserve</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(307</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,206</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-38
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="y13794y1379403.gif" alt="(COVER)">
</DIV>

<TABLE width="90%">
<TR><TD style="font-size: 1pt; color: #FFFFFF">AEARO TECHNOLOGIES
PROTECTING PEOPLE, PRODUCTS AND PERFORMANCE</TD>
</TR>
</TABLE>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 2pt;">
<DIV style="width: 67%; border-top: 3.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 3pt;">
<DIV style="width: 67%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 30pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No dealer,
salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2006 (25&nbsp;days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering may be required to
deliver a prospectus. This requirement is in addition to the
dealers&#146; obligation to deliver a prospectus when acting as
an underwriter and with respect to their unsold allotments or
subscriptions.</I>
</DIV>

<DIV align="center" style="font-size: 11pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Page</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#101'>Prospectus Summary</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    1</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#103'>Risk Factors</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    13</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#104'>Use of Proceeds</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    22</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#105'>Dividend Policy</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    23</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#106'>Dilution</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    24</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#107'>Capitalization</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    25</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#108'>Selected Consolidated Historical Financial
    Data</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    26</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#109'>Management&#146;s Discussion and Analysis
    of Financial Condition and Results of Operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    29</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#110'>Industry</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    43</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#111'>Business</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    46</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#112'>Principal and Selling Stockholders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    68</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#113'>Certain Relationships and Related Party
    Transactions</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    70</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#114'>Description of Certain Indebtedness</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    72</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#115'>Description of Capital Stock</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    74</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#116'>Shares Eligible for Future Sale</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    79</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#117'>Material U.S.&nbsp;Federal Income Tax
    Consequences</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    80</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#118'>Underwriting</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    83</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#119'>Legal Matters</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    88</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#120'>Experts</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    88</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#121'>Where You Can Find More Information</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    88</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#122'>Index To Financial Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom">
    F-1</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 67%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 67%; border-top: 3.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 2pt;">
<DIV style="width: 67%; border-top: 3.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 3pt;">
<DIV style="width: 67%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 30pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>shares</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 60pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y13794y1379400.gif" alt="(AEARO TECHNOLOGIES LOGO)">
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 21%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 11pt; margin-top: 10pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PROSPECTUS</B>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 21%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 11pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2006</B>
</DIV>

<DIV align="center" style="font-size: 16pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Bear, Stearns&nbsp;&#38; Co. Inc.</B>
</DIV>

<DIV align="center" style="font-size: 16pt;">
<B>Banc of America Securities LLC</B>
</DIV>

<DIV align="center" style="font-size: 16pt;">
<B>Deutsche Bank Securities</B>
</DIV>

<DIV align="center" style="font-size: 16pt;">
<B>JPMorgan</B>
</DIV>

<DIV align="center" style="font-size: 16pt;">
<B>Morgan Keegan&nbsp;&#38; Company, Inc.</B>
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 67%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 67%; border-top: 3.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Part&nbsp;II</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Information Not Required in Prospectus</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;13.</B></TD>
    <TD>
    <B>Other Expenses of Issuance and Distribution</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by Aearo
Technologies Inc. in connection with the issuance and sale of
the securities being registered. All amounts are estimates
except the SEC registration and NYSE filing fees.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    SEC registration fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,071</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NASD filing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NYSE listing fee*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transfer agent&#146;s fee*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Printing and engraving expenses*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Legal fees and expenses*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting fees and expenses*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Miscellaneous*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be completed by amendment</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;14.</B></TD>
    <TD>
    <B>Indemnification of Directors and Officers</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;145 of the Delaware General Corporation Law
(&#147;DGCL&#148;) provides that 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 or investigative (other than
an action by or in the fight 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&#146; 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. Section&nbsp;145 further provides that a
corporation similarly may indemnify any such person serving in
any such capacity 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 fight of the corporation to procure a judgment
in its favor, against expenses (including attorneys&#146; fees)
actually and reasonably incurred 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
Delaware Court of Chancery or such other 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;102(b)(7) of the DGCL permits a corporation to
include in its certificate of incorporation 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)&nbsp;for any breach of the director&#146;s duty of
loyalty to the corporation or its stockholders, (ii)&nbsp;for
acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii)&nbsp;under
Section&nbsp;174 of the DGCL (relating to unlawful payment of
dividends and
</DIV>

<P align="center" style="font-size: 10pt;">II-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt;">
unlawful stock purchase and redemption) or (iv)&nbsp;for any
transaction from which the director derived an improper personal
benefit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with the provisions of the amended and restated
certificate of incorporation and amended and restated by-laws of
Aearo Technologies Inc., Aearo Technologies Inc. shall
indemnify, to the fullest extent permitted by law, any person
who is or was a party, or is threatened to be made a party to,
any threatened, pending or contemplated action, suit or other
type of proceeding (other than an action by or in our right),
whether civil, criminal, administrative, investigative or
otherwise, and whether formal or informal, by reason of the fact
that such person is or was Aearo Technologies Inc.&#146;s
director, officer or employee or is or was serving at Aearo
Technologies Inc.&#146;s request (as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) against judgments, amounts
paid in settlement, penalties, fines (including an excise tax
assessed with respect to any employee benefit plan) and expenses
(including counsel fees) actually and reasonably incurred in
connection with any such action, suit or other proceeding,
including any appeal thereof, if such person acted in good faith
and in a manner such person reasonably believed to be in, or not
opposed to, Aearo Technologies Inc.&#146;s best interests and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe such person&#146;s conduct was
unlawful. In addition, Aearo Technologies Inc. also carries
insurance on behalf of its directors, officers, employees or
agents that may cover liabilities under the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aearo Technologies Inc. provides its directors and officers with
additional director and officer liability insurance.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;15.</B></TD>
    <TD>
    <B>Recent Sales of Unregistered Securities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Set forth below in chronological order is certain information
regarding securities issued by the Registrant in the last three
years in transactions that were not registered under the
Securities Act, including the consideration, if any, received by
the Registrant for such issuances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1.&nbsp;On March&nbsp;10, 2004, the Registrant issued
100&nbsp;shares of common stock to entities affiliated with BSMB
for an aggregate purchase price of $100.00.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2.&nbsp;On April&nbsp;7, 2004, the Registrant issued
2,015,962&nbsp;shares of common stock, one share of Class&nbsp;A
common stock and 60,377&nbsp;shares of preferred stock to
entities affiliated with BSMB for an aggregate purchase price of
$80,536,620.01.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
3.&nbsp;On April&nbsp;7, 2004, the Registrant issued
266,491&nbsp;shares of common stock and 7,971&nbsp;shares of
preferred stock to certain members of management for an
aggregate purchase price of $10,635,910.00.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
4.&nbsp;On April&nbsp;7, 2004, the Registrant issued
253,247&nbsp;shares of common stock and 7,595&nbsp;shares of
preferred stock to certain sellers under the Merger Agreement
for an aggregate purchase price of $10,127,470.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
5.&nbsp;On April&nbsp;7, 2004, the Registrant issued
47,544&nbsp;shares of restricted common stock to certain members
of management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
6.&nbsp;On July&nbsp;19, 2004, the Registrant issued to certain
members of management and certain employees, Tranche&nbsp;A
Options exercisable for 290,775&nbsp;shares of common stock,
Tranche&nbsp;B Options exercisable for 156,400&nbsp;shares of
common stock and Tranche&nbsp;C Options exercisable for
76,200&nbsp;shares of common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
7.&nbsp;On August&nbsp;23, 2004, the Registrant issued 20,000
shares of restricted stock to Thomas R. D&#146;Amico.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
8.&nbsp;On December&nbsp;14, 2004, the Registrant issued
Tranche&nbsp;A Options exercisable for 4,500&nbsp;shares of
common stock to Nick White.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
9.&nbsp;On January&nbsp;1, 2005, the Registrant issued
Tranche&nbsp;A Options exercisable for 1,500&nbsp;shares of
common stock to Noel Mardsen.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
10.&nbsp;On February&nbsp;10, 2005, the Registrant issued to
certain members of management and certain employees,
Tranche&nbsp;A Options exercisable for 21,400&nbsp;shares of
common stock in the aggregate.
</DIV>

<P align="center" style="font-size: 10pt;">II-2

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the above-described transactions were exempt from
registration (i)&nbsp;pursuant to Section&nbsp;4(2) of the
Securities Act, or Regulation&nbsp;D promulgated thereunder, as
transactions not involving a public offering or (ii)&nbsp;in the
case of restricted stock and stock options, as transactions not
involving a sale of securities. With respect to each transaction
listed above, no general solicitation was made by either the
Registrant or any person acting on its behalf; the securities
sold are subject to transfer restrictions; and the certificates
for the shares contained an appropriate legend stating such
securities have not been registered under the Securities Act and
may not be offered or sold absent, registration or pursuant to
an exemption therefrom.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;16.</B></TD>
    <TD>
    <B>Exhibits and Financial Statement Schedules</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>(a)&nbsp;Exhibits</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger among Aearo Corporation, Aearo
    Technologies Inc. (formerly known as AC Safety Holding Corp.)
    and AC Safety Acquisition Corp. dated March&nbsp;10, 2004
    (Incorporated by reference to Exhibit&nbsp;2.1 of Aearo
    Corporation&#146;s Current Report on Form&nbsp;8-K filed
    April&nbsp;22, 2004 (File No.&nbsp;33-96190)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Certificate of Incorporation of
    Aearo Technologies Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Bylaws of Aearo Technologies Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture, dated as of April&nbsp;7, 2004, among Aearo
    Company&nbsp;I, Cabot Safety Intermediate Corporation, VH
    Industries, Inc. and J.P.&nbsp;Morgan Trust Company, as Trustee
    (Incorporated by reference to Exhibit&nbsp;4.1 of Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Exchange Note (included in Exhibit&nbsp;4.1).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion of Dorsey&nbsp;&#38; Whitney LLP.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement among Aearo Technologies Inc., Aearo
    Corporation, Aearo Company&nbsp;I, the various Lenders party
    thereto, Bear Stearns Corporate Lending, as Syndication Agent,
    National City Bank of Indiana, as Co-Documentation Agent, Wells
    Fargo Bank, N.A., as Co-Documentation Agent, and Deutsche Bank
    AG, New York Branch, as Administrative Agent dated April&nbsp;7,
    2004 (Incorporated by reference to Exhibit&nbsp;10.1 of Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment to Credit Agreement dated as of April&nbsp;28,
    2005 by and among Aearo Technologies Inc., Aearo Corporation,
    Aearo Company&nbsp;I, the various Lenders party thereto, Bear
    Stearns Corporate Lending, as Syndication Agent, National City
    Bank of Indiana, as Co-Documentation Agent, Wells Fargo Bank,
    N.A., as Co-Documentation Agent, and Deutsche Bank AG, New York
    Branch, as Administrative Agent (Incorporated by reference to
    Exhibit&nbsp;10 of Aearo Company&nbsp;I&#146;s Current Report on
    Form&nbsp;8-K filed May&nbsp;4, 2005 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Professional Services Agreement among Aearo Technologies Inc.,
    AC Safety Acquisition Corp., Aearo Company&nbsp;I and Bear
    Stearns Merchant Manager&nbsp;II, LLC dated April&nbsp;7, 2004
    (Incorporated by reference to Exhibit&nbsp;10.1 to Aearo
    Corporation&#146;s Current Report on Form&nbsp;8-K filed
    April&nbsp;22, 2004 (File No.&nbsp;33-96190)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Michael A. McLain
    (Incorporated by reference to Exhibit&nbsp;10.3 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and D. Garrad
    Warren&nbsp;III (Incorporated by reference to Exhibit&nbsp;10.4
    to Aearo Company&nbsp;I&#146;s registration statement on
    Form&nbsp;S-4 filed June&nbsp;18, 2004 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and M. Rand Mallitz
    (Incorporated by reference to Exhibit&nbsp;10.5 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and James M. Phillips
    (Incorporated by reference to Exhibit&nbsp;10.6 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Rahul Kapur
    (Incorporated by reference to Exhibit&nbsp;10.7 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Jeffrey S. Kulka
    (Incorporated by reference to Exhibit&nbsp;10.8 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and James H. Floyd
    (Incorporated by reference to Exhibit&nbsp;10.9 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Technologies Inc. 2004 Stock Incentive Plan (Incorporated
    by reference to Exhibit&nbsp;10.11 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Subscription and Contribution Agreement dated as of
    April&nbsp;7, 2004 among Aearo Technologies Inc., D. Garrad
    Warren&nbsp;III, Jeffrey S. Kulka, and James M. Phillip and
    Carol E. Phillips as Trustee of the James M. Phillips Trust
    dated December&nbsp;19, 2000.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Contribution Agreement dated as of April&nbsp;7, 2004
    among Aearo Technologies Inc., Michael A. McLain, James H.
    Floyd, Rahul Kapur, and M. Rand Mallitz.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stockholders&#146; Agreement dated as of April&nbsp;7, 2004
    among Aearo Technologies Inc. and the holders that are parties
    thereto.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Technologies Inc. Deferred Compensation Plan (Incorporated
    by reference to Exhibit&nbsp;10.10 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of July&nbsp;13, 2004
    between Aearo Technologies Inc. and Thomas R. D&#146;Amico
    (Incorporated by reference to Exhibit&nbsp;10.13 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Management Incentive Plan for Executives other than
    the CEO (Incorporated by reference to Exhibit&nbsp;10.14 to
    Aearo Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for
    the fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Management Incentive Plan for the CEO (Incorporated
    by reference to Exhibit&nbsp;10.15 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Company&nbsp;I Nonqualified Deferred Compensation Plan, as
    amended (Incorporated by reference to Exhibit&nbsp;10.16 to
    Aearo Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for
    the fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Executive Supplemental Severance Pay Policy
    (Incorporated by reference to Exhibit&nbsp;10.17 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Performance Incentive Plan.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    List of Subsidiaries.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Deloitte&nbsp;&#38; Touche LLP.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Dorsey&nbsp;&#38; Whitney LLP (included in
    Exhibit&nbsp;5.1).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Powers of Attorney (included on signature page).</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be filed by Amendment.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">II-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;17.</B></TD>
    <TD>
    <B>Undertakings</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1.&nbsp;The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2.&nbsp;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
the foregoing provisions, 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 Securities Act of 1933 and is therefore
unenforceable. In the event that a claim for indemnification by
the registrant against such 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
3.&nbsp;The undersigned registrant hereby undertakes that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;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&nbsp;430A and contained in a form of
    prospectus filed by the registrant pursuant to
    Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities
    Act of 1933 shall be deemed to be part of this registration
    statement as of the time it was declared effective.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;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.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">II-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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 Indianapolis, State of Indiana, on
the 21st&nbsp;day of November, 2005.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B>AEARO TECHNOLOGIES INC.</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align="left">
    /s/ Michael A. McLain</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Michael A. McLain</TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Chief Executive Officer and President</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Power of Attorney</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Michael
A. McLain and Jeffrey S. Kulka, or either of them, his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities to sign any and
all amendments (including post-effective amendments) to the
registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing
requisite or necessary to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that each said attorney-in-fact and agent or any of them or
their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Michael A. McLain<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>Michael
    A. McLain</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Chief Executive Officer,<BR>
    President and Chairman<BR>
    of the Board of Directors<BR>
    (Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Jeffrey S. Kulka<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>Jeffrey
    S. Kulka</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Senior Vice President,<BR>
    Chief Financial Officer and Secretary<BR>
    (Principal Financial and<BR>
    Accounting Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ John D. Howard<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>John
    D. Howard</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Douglas R. Korn<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>Douglas
    R. Korn</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Nick White<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>Nick
    White</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    /s/ Peter S. Cureton<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV>Peter
    S. Cureton</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    November&nbsp;21, 2005</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Exhibit Index</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Agreement and Plan of Merger among Aearo Corporation, Aearo
    Technologies Inc. (formerly known as AC Safety Holding Corp.)
    and AC Safety Acquisition Corp. dated March&nbsp;10, 2004
    (Incorporated by reference to Exhibit&nbsp;2.1 of Aearo
    Corporation&#146;s Current Report on Form&nbsp;8-K filed
    April&nbsp;22, 2004 (File No.&nbsp;33-96190)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Certificate of Incorporation of
    Aearo Technologies Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Bylaws of Aearo Technologies Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture, dated as of April&nbsp;7, 2004, among Aearo
    Company&nbsp;I, Cabot Safety Intermediate Corporation, VH
    Industries, Inc. and J.P.&nbsp;Morgan Trust Company, as Trustee
    (Incorporated by reference to Exhibit&nbsp;4.1 of Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Exchange Note (included in Exhibit&nbsp;4.1).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion of Dorsey&nbsp;&#38; Whitney LLP.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement among Aearo Technologies Inc., Aearo
    Corporation, Aearo Company&nbsp;I, the various Lenders party
    thereto, Bear Stearns Corporate Lending, as Syndication Agent,
    National City Bank of Indiana, as Co-Documentation Agent, Wells
    Fargo Bank, N.A., as Co-Documentation Agent, and Deutsche Bank
    AG, New York Branch, as Administrative Agent dated April&nbsp;7,
    2004 (Incorporated by reference to Exhibit&nbsp;10.1 of Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment to Credit Agreement dated as of April&nbsp;28,
    2005 by and among Aearo Technologies Inc., Aearo Corporation,
    Aearo Company&nbsp;I, the various Lenders party thereto, Bear
    Stearns Corporate Lending, as Syndication Agent, National City
    Bank of Indiana, as Co-Documentation Agent, Wells Fargo Bank,
    N.A., as Co-Documentation Agent, and Deutsche Bank AG, New York
    Branch, as Administrative Agent (Incorporated by reference to
    Exhibit&nbsp;10 of Aearo Company&nbsp;I&#146;s Current Report on
    Form&nbsp;8-K filed May&nbsp;4, 2005 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Professional Services Agreement among Aearo Technologies Inc.,
    AC Safety Acquisition Corp., Aearo Company&nbsp;I and Bear
    Stearns Merchant Manager&nbsp;II, LLC dated April&nbsp;7, 2004
    (Incorporated by reference to Exhibit&nbsp;10.1 to Aearo
    Corporation&#146;s Current Report on Form&nbsp;8-K filed
    April&nbsp;22, 2004 (File No.&nbsp;33-96190)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Michael A. McLain
    (Incorporated by reference to Exhibit&nbsp;10.3 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and D. Garrad
    Warren&nbsp;III (Incorporated by reference to Exhibit&nbsp;10.4
    to Aearo Company&nbsp;I&#146;s registration statement on
    Form&nbsp;S-4 filed June&nbsp;18, 2004 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and M. Rand Mallitz
    (Incorporated by reference to Exhibit&nbsp;10.5 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and James M. Phillips
    (Incorporated by reference to Exhibit&nbsp;10.6 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Rahul Kapur
    (Incorporated by reference to Exhibit&nbsp;10.7 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and Jeffrey S. Kulka
    (Incorporated by reference to Exhibit&nbsp;10.8 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of March&nbsp;10, 2004
    between AC Safety Acquisition Corp. and James H. Floyd
    (Incorporated by reference to Exhibit&nbsp;10.9 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Technologies Inc. 2004 Stock Incentive Plan (Incorporated
    by reference to Exhibit&nbsp;10.11 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Subscription and Contribution Agreement dated as of
    April&nbsp;7, 2004 among Aearo Technologies Inc., D. Garrad
    Warren&nbsp;III, Jeffrey S. Kulka, and James M. Phillip and
    Carol E. Phillips as Trustee of the James M. Phillips Trust
    dated December&nbsp;19, 2000.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Contribution Agreement dated as of April&nbsp;7, 2004
    among Aearo Technologies Inc., Michael A. McLain, James H.
    Floyd, Rahul Kapur, and M. Rand Mallitz.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stockholders&#146; Agreement dated as of April&nbsp;7, 2004
    among Aearo Technologies Inc. and the holders that are parties
    thereto.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Technologies Inc. Deferred Compensation Plan (Incorporated
    by reference to Exhibit&nbsp;10.10 to Aearo
    Company&nbsp;I&#146;s registration statement on Form&nbsp;S-4
    filed June&nbsp;18, 2004 (File No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Employment Agreement dated as of July&nbsp;13, 2004
    between Aearo Technologies Inc. and Thomas R. D&#146;Amico
    (Incorporated by reference to Exhibit&nbsp;10.13 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Management Incentive Plan for Executives other than
    the CEO (Incorporated by reference to Exhibit&nbsp;10.14 to
    Aearo Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for
    the fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Management Incentive Plan for the CEO (Incorporated
    by reference to Exhibit&nbsp;10.15 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Aearo Company&nbsp;I Nonqualified Deferred Compensation Plan, as
    amended (Incorporated by reference to Exhibit&nbsp;10.16 to
    Aearo Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for
    the fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Executive Supplemental Severance Pay Policy
    (Incorporated by reference to Exhibit&nbsp;10.17 to Aearo
    Company&nbsp;I&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended September&nbsp;30, 2005 (File
    No.&nbsp;333-116676)).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Performance Incentive Plan.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    List of Subsidiaries.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Deloitte&nbsp;&#38; Touche LLP.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Dorsey&nbsp;&#38; Whitney LLP (included in
    Exhibit&nbsp;5.1).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Powers of Attorney (included on signature page).</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be filed by Amendment.</TD>
</TR>

</TABLE>
</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y13794sv1.htm", "description": "ORIGINAL FILING ON FORM S-1", "secsgml_size_bytes": 1524241}]
{"company-data": {"conformed-name": "Aearo Technologies Inc.", "cik": "0001340798", "irs-number": "562443760", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-129880", "film-number": "051220387"}, "business-address": {"street1": "5457 WEST 79TH STREET", "city": "INDIANAPOLIS", "state": "IN", "zip": "46268", "phone": "(317) 692-6666"}, "mail-address": {"street1": "5457 WEST 79TH STREET", "city": "INDIANAPOLIS", "state": "IN", "zip": "46268"}, "former-company": {"former-conformed-name": "AC Safety Holding Corp.", "date-changed": "20051005"}}
AEARO TECHNOLOGIES INC.
As filed with the Securities and Exchange Commission on
November 22, 2005
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AEARO TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3990
(Primary Standard Industrial
Classification Code Number)
56-2443760
(I.R.S. Employer
Identification No.)
5457 West
79
th
Street
Indianapolis, Indiana 46268
(317) 692-6666
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
Jeffrey S. Kulka
Chief Financial Officer, Senior Vice President and
Secretary
5457 West
79
th
Street
Indianapolis, Indiana 46268
(317) 692-6666
(Name, address, including zip code, and telephone number,
including area code, of agent for service or process)
With copies to:
Steven Khadavi, Esq.
Marc D. Jaffe, Esq.
Dorsey & Whitney LLP
Latham & Watkins LLP
250 Park Avenue
885 Third Avenue
New York, New York 10177
New York, NY 10022
(212) 415-9200
(212) 906-1200
Approximate date of commencement of proposed sale to the
public:
As promptly as practicable after the effective date
of this Registration Statement.
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.
o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
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.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Proposed Maximum
Amount of
Title of Each Class of
Amount to be
Offering
Aggregate
Registration
Securities to be Registered
Registered
Price Per Share
Offering Price
(1)(2)
Fee
Common Stock, $0.01 par value per share
$230,000,000
$27,071
(1)
Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule 457(o) under the
    Securities Act of 1933, as amended.
(2)
Includes shares of common stock that the underwriters have the
    option to purchase solely to cover over-allotments, if any.
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 dates as the
Commission, acting pursuant to said Section 8(a), may
determine.
The information
in this prospectus is not complete and may be changed. We may
not and the selling stockholders may not sell these securities
until the Securities and Exchange Commission declares our
registration statement effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
Subject to completion, dated
November 22, 2005
Prospectus
shares
Aearo Technologies Inc.
Common Stock
This is the initial public offering of shares of common stock of
Aearo Technologies Inc. No public market currently exists for
our common stock.
We currently anticipate that the initial public offering price
of our common stock will be between
$                    and
$                    .
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol "AER."
We are
offering                      shares
to be sold in the offering. The selling stockholders identified
in this prospectus are
selling                      shares
of common stock. We will not receive any of the proceeds from
the sale of the shares being sold by the selling stockholders.
Investing in the common stock involves risks that are
described in the "Risk Factors" section beginning on
page 13 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
Per Share
Total
Public Offering Price
$
$
Underwriting Discount
$
$
Proceeds, before expenses, to Aearo Technologies Inc.
$
$
Proceeds, before expenses, to the selling stockholders
$
$
The selling stockholders have granted the underwriters a 30-day
option to purchase up
to                     additional
shares to cover any over-allotments.
Delivery of shares will be made on or
about                     ,
2005.
Joint Book-Running Managers
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Deutsche Bank Securities
JPMorgan
Morgan Keegan & Company, Inc.
The date of this prospectus
is                     ,
2005
HEARING
HEARING & COMMUNICATIONS
EYE, FACE & HEAD
PRESCRIPTION SAFETY EYEWEAR
RESPIRATORY
FALL PROTECTION
PRECISION ELECTRONICS
AVIATION
TRUCKING
INDUSTRIAL/MILITARY OEM
MANUFACTURER AND MARKETER OF PERSONAL PROTECTION EQUIPMENT ENERGY ABSORBING MATERIALS AND
SYSTEMS ARE USED IN A VARIETY OF END MARKETS
PROTECTING PEOPLE, PRODUCTS AND PERFORMANCE
AEARO TECHNOLOGIES
PROSPECTUS SUMMARY
In this prospectus, the words "Aearo," the
"Company," "we," "us," and
"our" refer to Aearo Technologies Inc. (formerly known
as AC Safety Holding Corp.), a Delaware corporation, and its
subsidiaries; "Aearo Corporation" refers to Aearo
Corporation, a Delaware corporation and wholly-owned subsidiary
of Aearo Technologies Inc.; and "Aearo Company" refers
to Aearo Company I, a Delaware corporation and wholly-owned
subsidiary of Aearo Corporation. References to our fiscal year
refer to the twelve months ended September 30 of each year.
The following summary contains basic information about us and
this offering. It likely does not contain all the information
that is important to you. For a more complete understanding of
this offering, we encourage you to read this entire document,
including the financial statements and related notes and the
documents we have referred you to.
Our Company
We are a global leader in the hearing, eye, face, head,
respiratory and fall protection segments of the estimated
$15 billion global personal protection equipment, or PPE,
market. We manufacture and sell technologically-advanced hearing
protection devices, communication headsets, prescription and
non-prescription safety eyewear, face shields, reusable and
disposable respirators, fall protection equipment, hard hats and
other safety products. Our products are sold in more than 70
countries under the well-recognized brand names AOSafety®,
E-A-R®, Peltor® and SafeWaze®. We also provide
engineered system solutions using a wide array of proprietary
energy absorbing composites that control noise, vibration and
shock and are incorporated into other manufacturers'
products. These products are marketed under our brand name
E-A-R® Specialty Composites. We place strong emphasis on
new product development, innovation and protection of
intellectual property. We believe that the strength of our brand
names; our reputation for developing high-quality, innovative
products; our coverage of multiple distribution channels
targeting a wide array of end-users; our broad product offering;
our global reach; and our commitment to providing exceptional
customer service have enabled us to achieve leading market
positions, strong margins and solid growth. Between fiscal year
2003 and fiscal year 2005, our net sales have increased at a
compounded annual growth rate of 15.7%.
Segments
We operate three business segments:
•
Safety Products;
•
Safety Prescription Eyewear; and
•
Specialty Composites.
Through these three segments, we sell a wide range of products
to industrial distributors, as well as into the consumer,
military and construction channels and directly to industrial
companies.
Safety Products Segment (75% of fiscal 2005 net
sales)
The Safety Products segment manufactures and sells products
under the well-known brand names AOSafety®, E-A-R®,
Peltor® and SafeWaze®. These products serve a variety
of end-users, such as those in the construction, manufacturing,
transportation, forestry, textile, mining, military, motor
sports and health care markets. The products are categorized
into:
•
Passive Hearing Protection. Our passive hearing protection
    products consist of disposable and reusable earplugs and passive
    earmuffs. We have been a leader in hearing conservation research
    and development since 1972, when we first introduced the
    cylindrical disposable earplug currently known as the
    E-A-R®
Classic®
. Our product line includes an
    innovative line of reusable earplugs, including our
    UltraFit® plugs, which are reusable and washable, and our
    Flex
TM
line of semiaural banded products which feature articulating
    arms that allow for use in multiple positions and easy storage
    around the neck.
1
•
Communication Headsets with Hearing Protection. In general,
    these headsets are equipped with noise attenuation features that
    are integrated into a variety of technologies, including FM
    radio, two-way radio, Bluetooth and duplex wireless
    communication, that permit the user to engage in a broad array
    of activities while receiving effective hearing protection.
    These products are marketed under the Peltor® brand name
    and primarily serve the military, law enforcement, industrial,
    fire safety and recreational (e.g., hunting and motor sports)
    markets.
•
Eye Protection. We offer a range of non-prescription safety
    eyewear products under the AOSafety® and Peltor®
    brands with a variety of styles, frame colors and lens options.
•
Face and Head Protection. We offer a wide variety of
    use-specific face and head protection products, including face
    shields, visors and hard hats, under both the AOSafety® and
    Peltor® brands.
•
Respiratory Protection. We offer a broad line of disposable dust
    and mist masks, cartridge-equipped quarter, half and full-face
    respirators, and single-use, escape respirators for emergencies
    under the AOSafety® brand.
•
Fall Protection. We offer a full line of fall protection
    equipment, including harnesses, lanyards and self-retracting
    lifelines. We market these products under the AOSafety®
SafeWaze®
brand.
Safety Prescription Eyewear Segment (9% of fiscal
2005 net sales)
Our Safety Prescription Eyewear, or SRx, products are designed
to protect the eyes of workers who require corrective lenses
from the typical hazards encountered in industrial and other
work environments. We grind and shape lenses to the
end-user's prescription, and then assemble the glasses
using the end-user's choice of frame. We manufacture and
sell these products under the AOSafety® brand to a wide
variety of end-user markets, such as utilities, transportation,
industrial manufacturing and federal, state and local
governments.
Specialty Composites Segment (16% of fiscal 2005 net
sales)
Our Specialty Composites segment manufactures a wide array of
energy-absorbing materials that control noise, vibration and
shock and are incorporated into other manufacturers'
products. Specific product applications for Specialty
Composites' materials, technology and engineering expertise
include thermal acoustical systems in business and regional jet
aircraft; protective and performance-enhancing components in
precision electronic equipment; thermal acoustical treatments
for heavy-duty trucks; and treatments to control noise,
vibration and shock in a wide range of industrial and commercial
equipment. Our Specialty Composites segment also produces the
specially formulated foams used in the manufacture of our Safety
Products' earplugs.
Our Industries
Personal Protection Equipment
Personal protection equipment encompasses all articles of
equipment and clothing worn for the purpose of protecting
against bodily injury, including safety eyewear and goggles,
earmuffs and earplugs, respirators, hard hats, fall protection
equipment, gloves, safety clothing and safety shoes. The size of
the global PPE market is approximately $15 billion in
annual sales, and we expect it to continue to grow at its
historical annual growth rate of 3% to 4% per year over the
next several years. Within this global market, we primarily
compete in the approximately $4 billion hearing, eye, face,
head, respiratory and fall protection segments. Historically,
overall demand for personal protection equipment has been
relatively stable due to government and industry regulations,
the diverse end-user customer base and the non-discretionary and
consumable nature of the products. We believe that the primary
factors driving growth of the PPE industry include:
(i) continued regulatory enforcement and compliance;
(ii) increased adoption of product standards; domestically
and internationally; (iii) increased consumer awareness and
demand for safety products; (iv) growth in the construction
market; and (v) increased military and law enforcement
spending.
2
Personal protection products are used in diverse end-markets
that include manufacturing, construction, utilities, public
security and law enforcement, military, motor sports,
do-it-yourself, or DIY, customers and hunters and shooters.
Several of these end-user segments, such as consumer, military
and construction, are growing more rapidly than the industry as
a whole as awareness of safety issues increases.
The PPE market is highly fragmented. Participants in the
industry range in size from small, single-product companies to a
limited number of multinational corporations with multiple
product offerings. Competition is primarily based on product
characteristics (such as design, style and functional
performance), product quality, service, brand name recognition
and, to a lesser extent, price.
Energy Absorbing Composites
We compete, through our Specialty Composites segment, in the
energy absorbing composites industry, which consists of three
broad categories: barriers and absorbers for airborne noise
control, damping and isolation products for vibration and shock
control, and energy control products for vibration, shock
control and comfort management. We believe that growth in this
industry is driven by (i) new products requiring energy
absorbing solutions; (ii) new regulations impacting end
markets; (iii) manufacturing growth in developing markets
such as China; and (iv) increased applications for energy
absorbing materials.
Our Competitive Strengths
Between fiscal years 2003 and 2005, our net sales increased at a
compounded annual growth rate of 15.7%, and for fiscal year
2005, we achieved gross margins of 48.8% and operating income
margins of 14.4%. We believe that our ability to generate these
exceptional growth rates and margins results from the following
competitive strengths:
Global market leader.
We are positioned as one of the few
large, global manufacturers in the highly fragmented PPE market.
Approximately 80% of our net safety products sales are derived
from products in which we estimate we hold the #1
or #2 global market position. For example, we believe we
are the #1 manufacturer of passive hearing protection
equipment, the #1 manufacturer of communication headsets
and the #2 manufacturer of eye protection products in the
world. Additionally, we believe we are #1 in the market for
safety products sold through the U.S. DIY/hardware channel.
Leading global brand names.
We market our broad range of
products primarily under four well-recognized brand names:
E-A-R®, AOSafety®, Peltor® and SafeWaze®.
Our yellow "E-A-R® Classic®" earplug color
is a registered trademark in the United States, Canada, Belgium,
Netherlands and Luxembourg, and customers associate the yellow
color with a brand they have used and trusted since its
introduction in 1972. AOSafety® has its roots in the
American Optical Company, which introduced the first safety
glasses in 1910 and started its Industrial Eyewear Division in
1923. Peltor® was founded in Sweden in the early 1950s and
introduced the first ear muff for hearing protection. Our strong
brand-name recognition stems from our significant investment in
the marketing and promotion of our brands, and our reputation
for manufacturing high quality, innovative products and
providing high levels of customer service. The recognition of
our brands and products facilitates our sales and marketing
efforts and provides a platform for line extensions and new
product launches. We believe that brand recognition and
reliability are key factors in our customers' selection
process as these products prevent personal injury.
Successful history of product innovation.
We have
historically grown and gained market share through the
introduction of new and innovative products. We have
accomplished this by significantly increasing marketing and
research and development resources dedicated to new or improved
product development, which has allowed us to introduce an
increasing number of new or improved products over the last
five years. Notably, we have made recent investments in new
technologies such as application specific integrated circuit and
Bluetooth technology for use in communication headsets, and we
are currently investing in new platforms for active noise
reduction and duplex two-way communication. We have also
invested in China, establishing design, sourcing and sales
capabilities to enable us to sustain and expand our innovation
processes. Our investment is supported by our collaborative new
product development program, whereby our product
3
managers work closely with end-users to address defined problems
and create effective, comfortable and fashionable
high-performance safety products. As a result of our efforts, we
have achieved significant sales growth from new product
introductions. During fiscal 2005, more than one-third of our
combined gross Safety Products and Safety Prescription Eyewear
sales were derived from new or improved products (including line
extensions and existing products sold into new geographies and
channels) introduced since fiscal 2000. We continue to maintain
a strong new product pipeline, with more than 75 new or improved
products (including line extensions and existing products sold
into new geographies and channels) under development.
Leader in energy absorbing composites market.
Between
fiscal years 2002 and 2005, net sales of our Specialty
Composites segment increased at a compounded annual growth rate
of over 20%. We have achieved this growth by focusing on high
growth, value-added segments of the energy absorption industry.
For example, we manufacture damping materials for the hard disk
drive included in electronic products such as Apple
Computer's iPod. We compete primarily on the basis of our
leadership in foam chemistry and the design of integrated
thermal/acoustic systems.
Diverse business mix.
We derive our sales from a wide
range of end markets including the manufacturing, consumer,
military, construction, utility, transportation, government and
telecommunications markets. Over the last several years, we have
specifically targeted the consumer, military and construction
markets, which represented approximately 24% of our fiscal 2005
sales compared to less than 18% of our sales in fiscal 2002. In
addition, for fiscal 2005 our largest customer represented less
than 5% of our net sales, and our top 10 customers represented
less than 25% of net sales. Finally, foreign countries
contributed approximately 40% of our fiscal 2005 net sales.
We have achieved strong geographic diversification through a
focused effort to grow our leading brand names in Europe and
other international markets. As a result, we currently sell our
products in more than 70 countries around the world.
Experienced and motivated management team.
We are led by
an experienced management team with a record of
(i) achieving profitable growth by building global brands;
(ii) driving productivity improvements; (iii) an
intense focus on operating discipline; (iv) introducing
innovative products; (v) maintaining long-term
relationships with customers and suppliers by focusing on
customer service; and (vi) integrating acquisitions. Chief
Executive Officer Michael McLain (along with certain other
senior management team members) joined our company in 1998 and
has been instrumental in implementing operational efficiencies
and continuous profitability enhancements. Our senior management
team has significant experience in the consumer and packaged
goods industries and understands the importance of brand
recognition and customer service to drive growth in a
competitive market. Following this offering, on a fully-diluted
basis, our management team will own
approximately      % of our common
stock.
Our Business Strategy
Invest in technology capabilities.
We achieve growth by
bringing together: (i) our core competencies in the areas
of foam chemistry, optical molding, high speed automation and
the integration of electronics into hearing products;
(ii) our deep understanding of our end-users' needs;
and (iii) our ability to adapt technology to develop new
products. As a result of our efforts, we have developed a
significant body of intellectual property assets, including a
portfolio of over 135 distinct patents with over 30 additional
patents pending. We seek to identify several new technology
development projects, and to capitalize on these opportunities
by investing in our infrastructure and by partnering with
outside development resources. In our Specialty Composites
segment, we will continue to invest in predictive analysis
capabilities that enable us to increase the speed and efficiency
with which we develop solutions.
Grow our share in core industrial end-markets.
We plan to
continue to build our major brands, E-A-R®, AOSafety®,
Peltor® and SafeWaze®, through product innovation and
expansion into emerging markets.
•
Product innovation. We intend to develop new products based on
    demographics (e.g., colorful, patterned earplugs and fashionable
    eyewear to appeal to younger end-users) and for meeting specific
    end-user problems (e.g., metal detectable ear plugs,
    easy-to-remove respiratory masks, push-to-listen ear muffs and
    Bluetooth communication headsets that eliminate cables). We
    continue to maintain a
4
strong new product pipeline, with more than 75 new or improved
    products (including line extensions and existing products sold
    into new geographies and channels) under development.
•
Emerging markets. We have targeted the emerging markets of
    Eastern Europe, Russia and China to drive additional growth. The
    immediate potential within these markets includes sales to large
    multinational companies that implement their safety standards
    globally. To support this effort, we have recently added local
    infrastructure, hired local sales personnel, established
    relationships with local distributors, obtained local
    registrations where required and built local language websites.
    In 2005, we established sales offices in China and Russia, and
    we expect to significantly increase our presence in these
    markets. In the long term, we plan to focus on large locally
    owned enterprises and to work with local governments in
    promoting safety compliance programs.
•
Penetrate new end-markets. We have been expanding our sales
    beyond our traditional industrial and manufacturing base into
    markets that we expect will deliver significantly higher growth
    in the future. Our short term focus includes further penetrating
    the consumer, military and construction channels.
•
Consumer. We are benefiting from the strong continued growth in
    the consumer channel as safety awareness increases among
    consumers and small contractors. Our product quality and our
    experience in product styling, branding and packaging has given
    us a leadership position in the DIY/hardware segment, and we are
    leveraging that position to launch more premium products and
    expand our product lines.
•
Military. As militaries increasingly realize that personal
    protection equipment can improve the operational efficiency of
    troops, they have changed their approach to battlefield safety
    and communication. As a result, the military channel has
    experienced significant growth. We have invested, and continue
    to invest, in R&D and marketing and sales infrastructure
    aimed at the military channel.
•
Construction. This segment is expected to be a source of growth
    because of the projected increase in construction employment and
    the increased regulatory focus on construction safety. We are
    taking numerous steps to increase our market share in this
    channel, including: (i) new product introductions;
    (ii) expansion of our fall protection manufacturing plant
    and warehouse to meet growing demand; (iii) construction of
    a new R&D testing facility; and (iv) expansion of our
    sales, marketing and R&D personnel.
Leverage specialty composites momentum.
We intend to
leverage our technology leadership in thermal/acoustical systems
design and proprietary materials, thin sheet composites and high
performance materials to significantly increase sales in our
Specialty Composites segment. We are currently adding
infrastructure to ensure that we can meet the increasing demand
in each of our focus channels: precision electronics equipment;
business and regional jet aircraft; heavy duty truck; and
industrial OEM. To further benefit from demand in precision
electronics, we have recently established infrastructure in
Shenzhen, China (R&D center, sales office and customer
service). We anticipate that this new China infrastructure will
allow us to capitalize on manufacturing growth in Asia by
providing us with local market presence, greater access to
customers, key supplier contacts and design support capabilities.
Accelerate productivity improvements.
Over the last three
fiscal years, we have achieved manufacturing and logistics cost
savings of approximately $4 million annually and increased
our gross profit margin as a result of disciplined and
productivity-focused management. We continue to focus on our
automated manufacturing processes and other ongoing continuous
improvement projects. We use well-established processes, such as
Kaizen programs, and in 2005 introduced demand flow technology
capabilities. Through external benchmarking, we identify our
manufacturing core competencies and actively outsource other
non-core processes to lower-cost locations. During 2005, we
contracted with a sourcing company in Asia to help us manage
product sourcing and added personnel in China to support this
effort. We initially plan to focus on obtaining improved pricing
on products already being outsourced and then evaluate
opportunities to outsource products currently manufactured
internally.
Pursue a focused acquisition strategy.
The global PPE
market is highly fragmented, comprised of several hundred
manufacturers, most of which are relatively small and
independent. As end-users and distributors are
5
reducing suppliers and acquisition opportunities continue to
arise, there is opportunity for consolidation. Since 1995, we
have successfully completed 11 acquisitions to support growth
and achieve greater operating efficiencies. Our acquisition
strategy is to selectively pursue attractive acquisitions that
enhance our existing product offering or enable us to enter new
segments. We intend to continue to selectively pursue
acquisitions that: (i) consolidate our position in the
hearing protection and safety eyewear markets; (ii) expand
product lines with leading brands in profitable and
higher-growth product categories and (iii) expand our
business in the consumer, military and construction markets.
Our Equity Sponsor
Bear Stearns Merchant Banking, or BSMB, invests private equity
capital in compelling leveraged buyouts, recapitalizations and
growth capital opportunities alongside superior management
teams. BSMB is currently investing its $1.5 billion
institutional private equity fund, Bear Stearns Merchant Banking
Partners II, L.P. and affiliated entities. Since its
inception in 1997, BSMB has been an investor in over 40
portfolio companies across a broad range of industries. In
addition to Aearo, recent investments by BSMB include ACA
Capital Holdings, Balducci's, CamelBak Products, Cavalry
Investments, Hand Innovations, New York & Company,
Packaging Holdings, Reddy Ice, Seven For All Mankind, Stuart
Weitzman and Vitamin Shoppe.
Corporate Information
We are a corporation organized under the laws of the State of
Delaware. Our principal executive office is located at
5457 West 79th Street, Indianapolis, Indiana 46268 and
our telephone number is (317) 692-6666.
6
The Offering
Issuer
Aearo Technologies Inc.
Common stock offered
shares
    by us
shares
    by the selling stockholders
Total offering
shares
Shares of common stock to be outstanding after this
    offering
(1)
shares
Proposed New York Stock Exchange symbol
"AER"
Use of proceeds
We will not receive any proceeds from the sale of shares of
    common stock offered by the selling stockholders. We will use
    the net proceeds from the shares of common stock issued by us to
    repay a portion of the outstanding borrowings under our senior
    credit facility, repurchase all of our outstanding
    12.00% Senior Notes due 2013, or the 12.00% Notes, and
    pay all related fees and expenses. See "Use of
    Proceeds."
Dividend policy
We have not declared or paid any dividends on our common stock
    since the acquisition of our company by Bear Stearns Merchant
    Banking on April 7, 2004. We currently expect to retain
    future earnings, if any, for use in the operation and expansion
    of our business and do not anticipate paying any cash dividends
    in the foreseeable future. Our ability to pay dividends on our
    common stock is limited by the covenants of our senior credit
    facility and the indentures governing our outstanding debt
    securities. See "Dividend Policy."
Risk Factors
You should carefully consider the information under the heading
    "Risk Factors" beginning on page 13, as well as
    the other information contained in this prospectus before
    investing in our common stock.
(1)
The number of shares of common stock to be outstanding after
    this offering is based on shares of common stock outstanding as
    of                     ,
    2005, and excludes:
•
shares
    of common stock issuable upon exercise of outstanding options as
    of                     ,
    2005 at a weighted average exercise price of
    $           per
    share (of which options to
    acquire                      shares
    of common stock were vested as
    of                     ,
    2005); and
•
shares
    of common stock reserved for future grants under our Performance
    Incentive Plan.
7
General Information About This Prospectus
Unless otherwise indicated, the information in this prospectus:
•
assumes an offering price of
    $           per
    share of common stock, which represents the mid-point of the
    range set forth on the cover page of this prospectus;
•
gives effect to the automatic vesting of all outstanding
    unvested restricted common stock upon the completion of this
    offering;
•
assumes no exercise of the underwriters' over-allotment
    option to
    purchase                     additional
    shares of common stock by the selling stockholders; and
•
gives effect to
    a           -for-1
    split of our shares of common stock.
8
Disclosure Regarding Forward-Looking Statements
This prospectus contains "forward-looking statements"
within the meaning of the federal securities laws.
Forward-looking statements include statements concerning our
plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions
relating to acquisitions, business trends and other information
that is not historical information. When used in this
prospectus, the words "estimates,"
"expects," "anticipates,"
"projects," "forecasts," "plans,"
"intends," "believes," "may,"
"should" and variations of these words or similar
expressions are intended to identify forward-looking statements.
All forward-looking statements, including without limitation,
management's examination of historical operating trends,
are based upon our current expectations and various assumptions.
Our expectations, beliefs and projections are expressed in good
faith and we believe there is a reasonable basis for them.
However, there can be no assurance that management's
expectations, beliefs and projections will result or be achieved.
There are a number of risks, uncertainties and other factors,
many of which are outside of our control, that could cause our
actual results to differ materially from the forward-looking
statements contained in this prospectus. Such factors may
include, among other things:
•
personal safety equipment industry trends;
•
general economic and business conditions, particularly an
    economic downturn;
•
competition;
•
implementation of our business strategy;
•
retention of our senior management;
•
availability and retention of qualified personnel;
•
ability to adequately protect our intellectual property;
•
impact from certain product liability claims and environmental
    matters;
•
ability to integrate acquisitions;
•
relationships with our customers;
•
availability and terms of additional capital to fund our
    operations;
•
fluctuations in exchange rates;
•
restrictions imposed by our debt agreements; and
•
the other factors set forth under "Risk Factors."
There may be other factors that could cause our actual results
to differ materially from the results referred to in the
forward-looking statements. All forward-looking statements
attributable to us or persons acting on our behalf apply only as
of the date of this prospectus and are expressly qualified in
their entirety by the cautionary statements included in this
prospectus. We undertake no obligation to publicly update or
revise forward-looking statements to reflect events or
circumstances after the date made or to reflect the occurrence
of unanticipated events.
9
Summary Historical Consolidated Financial and Other Data
On April 7, 2004, we acquired Aearo Corporation and its
subsidiaries for approximately $409.3 million through a
merger of AC Safety Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Aearo Technologies Inc., with and
into Aearo Corporation. The summary historical consolidated
financial data as of and for the year ended September 30,
2003 and as of and for the six months ended March 31, 2004,
or the Predecessor data, reflects the historical basis of
accounting of these operations and the periods from and after
April 1, 2004, or the Successor data, reflect the effects
of purchase accounting for the acquisition of these operations.
Accordingly, the Predecessor data is not comparable to the
results of operations for the periods from and after
April 1, 2004.
The summary historical consolidated financial data as of and for
the year ended September 30, 2003 and as of and for the six
months ended March 31, 2004 are derived from the
consolidated financial statements of predecessor Aearo
Corporation. The summary historical consolidated financial data
as of and for the six months ended September 30, 2004 and
as of and for the year ended September 30, 2005 are derived
from the consolidated financial statements of successor Aearo
Technologies Inc.
You should read the information contained in this table in
conjunction with "Selected Consolidated Historical
Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and our historical consolidated financial
statements and the accompanying notes thereto of Aearo
Technologies Inc. included elsewhere in this prospectus.
10
Predecessor
Successor
Six Months
Six Months
Year Ended
Ended
Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
(dollars in thousands except per share information)
Statement of Operations Data:
Net Sales —
Safety Products
$
242,263
$
127,964
$
146,393
$
318,450
Safety Prescription Eyewear
40,028
20,337
19,503
39,446
Specialty Composites
34,137
21,278
27,365
65,524
Total Net Sales
316,428
169,579
193,261
423,420
Cost of Sales
164,019
(1)
89,056
118,491
(2)
216,710
Gross Profit
152,409
80,523
74,770
206,710
Operating Expenses —
Selling and administrative
101,257
56,835
56,752
131,232
Research and technical service
6,402
3,623
4,028
9,175
Amortization expense
267
242
2,631
5,229
Other charges (income), net
1,737
(506
)
1,545
288
Restructuring charge
—
(1,091
)
(3)
—
—
Operating income
42,746
21,420
9,814
60,786
Interest expense, net
19,587
11,549
15,908
23,096
Income (loss) before income taxes
23,159
9,871
(6,094
)
37,690
Provision (benefit) for income taxes
2,551
1,734
(984
)
10,752
Net income (loss)
20,608
8,137
(5,110
)
26,938
Preferred stock dividend
7,170
3,930
3,836
6,084
Net income (loss) available for common stockholders
$
13,438
$
4,207
$
(8,946
)
$
20,854
Net income (loss) available for common stockholders per
    share
(4)
:
Basic
$
138.84
$
70.81
$
(3.56
)
$
8.28
Diluted
138.84
70.76
(3.56
)
7.92
Weighted average shares
    outstanding
(4)
:
Basic
96,789
59,413
2,513,635
2,518,181
Diluted
96,789
59,454
2,513,635
2,632,520
Other Data:
EBITDA
(5)
$
54,115
$
27,593
$
17,465
$
76,646
Cash flows from operating activities
36,700
9,035
(6,709
)
44,493
Cash flows from investing activities
(22,458
)
(4,994
)
(167,765
)
(6,191
)
Cash flows from financing activities
(25,003
)
(5,240
)
197,662
(35,707
)
Depreciation
11,102
5,931
5,020
10,631
Amortization
267
242
2,631
5,229
Capital expenditures
10,316
5,006
4,521
7,665
As Adjusted
September  30,
2005
(6)
Balance Sheet Data (at period-end):
Cash and cash equivalents
$
7,301
$
5,313
$
27,724
$
30,068
$
Property, plant and equipment
48,869
47,744
54,750
50,444
Goodwill
81,770
85,428
148,050
122,191
Total assets
293,516
297,844
530,677
517,918
Total debt
213,553
211,463
304,481
355,057
Stockholders' equity
18,356
28,168
96,397
36,294
11
(1)
During fiscal 2003, we reversed $0.3 million of reserves
    related to the September 30, 2001 restructuring provision.
    The adjustment represents a change in estimate of the plan for
    the disposal of certain items of inventory. The inventory
    provision of $0.3 million was classified as cost of sales.
(2)
As a result of the merger agreement on April 7, 2004, we
    recorded a non-recurring charge of $17.1 million resulting
    from the write-up of inventory required by Statement of
    Financial Accounting Standards ("SFAS") No. 141,
    Business Combinations, on the merger date and subsequent sale of
    such inventory.
(3)
During the six month period ended March 31, 2004, we
    reversed $1.1 million of reserves related to the
    September 30, 2001 restructuring provision. The adjustment
    represents a change in estimate related to amounts for
    non-cancelable lease obligations due to the renegotiation of the
    subject lease that was completed in the second quarter.
(4)
Does not give effect to the proposed stock split described
    elsewhere in this prospectus.
(5)
EBITDA represents net income (loss) before interest expense,
    net, taxes and depreciation and amortization. For fiscal year
    2003, EBITDA includes $0.7 million of legal expenses
    related to a lawsuit that was settled in 2005, $0.3 million
    of income related to the reversal of excess reserves associated
    with the 2001 restructuring, a $0.7 million management fee
    and $0.2 million of expense related to non-cash charges.
    For fiscal year 2004, EBITDA includes a $17.1 million
    charge related to the write-up of inventory on the merger date
    and subsequent sale of the inventory, a $1.5 million bond
    call premium, $1.2 million of legal expenses related to the
    2005 legal settlement, $1.1 million of income related to
    the reversal of excess reserves associated with the 2001
    restructuring, $1.0 million in management fees and
    $0.3 million of income related to non-cash charges. For
    fiscal year 2005, EBITDA includes $2.3 million of legal
    expenses related to the 2005 legal settlement, a
    $1.0 million management fee and $1.2 million of
    expense related to non-cash charges. EBITDA is presented because
    it is a management tool used to measure and monitor financial
    performance and it is frequently used by securities analysts,
    investors and other interested parties in the evaluation of
    companies in our industry, some of which present EBITDA when
    reporting their results. While we believe EBITDA is a useful
    indicator of our financial performance, it should not be
    considered as a substitute for net income (loss) determined in
    accordance with GAAP as an indicator of operating performance or
    as an alternative to cash flow as a measure of liquidity because
    EBITDA does not include reductions for cash payments for an
    entity's obligation to service its debt, fund its working
    capital, make capital expenditures and acquisitions and pay its
    income taxes. EBITDA is also not a measure of profitability
    because it does not include costs and expenses for depreciation
    and amortization, interest and related expenses and income
    taxes. In addition, investors should be aware that EBITDA may
    not be comparable to similarly titled measures presented by
    other companies and comparisons could be misleading unless all
    companies and analysts calculate this measure in the same
    fashion.
The following table provides a reconciliation of EBITDA to net
    income (loss) for the periods presented above:
Predecessor
Successor
Six Months
Six Months
Year Ended
Ended
Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
EBITDA
$
54,115
$
27,593
$
17,465
$
76,646
Interest expense, net
(19,587
)
(11,549
)
(15,908
)
(23,096
)
Taxes
(2,551
)
(1,734
)
984
(10,752
)
Depreciation and amortization
(11,369
)
(6,173
)
(7,651
)
(15,860
)
Net income (loss)
$
20,608
$
8,137
$
(5,110
)
$
26,938
(6)
The as adjusted balance sheet adjusts the historical data for
    the year ended September 30, 2005 to give effect to this
    offering and the use of proceeds thereof as if they occurred on
    September 30, 2005. The as adjusted financial data is for
    informational purposes only and should not be considered
    indicative of actual results that would have been achieved had
    these events actually been consummated on the dates indicated.
12
RISK FACTORS
You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before investing in our common stock. Any of the
following risks could materially adversely affect our business,
financial condition or results of operations. In such case, you
may lose all or part of your original investment. The risks
described below are not the only risks facing us. Additional
risks and uncertainties not currently known to us or that we
currently deem to be immaterial may also materially and
adversely affect our business, financial condition or results of
operations.
Risks Relating to our Business
If we fail to successfully introduce new products, we may
lose market position and our financial performance may be
negatively impacted.
In many of the markets in which we compete, new products and
product line extensions are frequently introduced. If we fail to
identify emerging consumer and technological trends, to maintain
and improve the competitiveness of our existing products or to
successfully introduce new products on a timely basis, we may
lose market position, which could have a material adverse effect
on our business, financial condition and results of operations.
Continued product development and marketing efforts have all the
risks inherent in the development of new products and line
extensions, including development delays, the failure of new
products and line extensions to achieve anticipated levels of
market acceptance and the cost of failed product introductions.
The markets in which we compete are highly
competitive.
The PPE and energy absorbing composites markets are highly
competitive. Our competitors range in size from small companies
focusing on single products to large multinational corporations
that manufacture and supply many types of products. Our main
competitors vary by region and product. We believe that
participants in this industry 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 our competitors have
greater financial and other resources than we do and may be able
to grow more quickly through strategic acquisitions and may be
able to better respond to changing business and economic
conditions. Our net income could be adversely affected by
competitors' product innovations and increased pricing
pressure. Individual competitors have advantages and strengths
in different sectors of our markets, in different products and
in different areas, including manufacturing and distribution
systems, geographic market presence, customer service and
support, breadth of product, delivery time and price. Some of
our competitors also have greater access to capital and
technological resources and we may not be able to compete
successfully with them.
The energy absorbing composites market is also very competitive
with competitors ranging from smaller companies competing in
single vertical segments to significantly larger companies that
participate in this market but have numerous other product lines
as well. Competitors vary by region and product lines. Our
profitability could be affected by competitor product
innovations, pricing pressures and mergers within this market.
Downturns in the North American and European economies
could significantly reduce the demand for our products.
The level of demand for our products depends on the general
economic conditions of the markets in which we compete. A
general economic decline in North America or Europe could
adversely affect our business, as customers tend to reduce their
purchases of our products during economic downturns.
If we are unable to retain senior executives and other
qualified professionals, our growth may be hindered, which could
negatively impact our results of operations.
Our success depends in part on our ability to attract, hire,
train and retain qualified managerial, sales and marketing
personnel. Competition for these types of personnel is intense.
We may be unsuccessful in
13
attracting and retaining the personnel we require to conduct and
expand our operations successfully. Our results of operations
could be materially and adversely affected if we are unable to
attract, hire, train and retain qualified personnel. Our success
also depends to a significant extent on the continued service of
our management team. The loss of any member of the management
team could have a material adverse effect on our business,
results of operations and financial condition.
We are subject to market risks with respect to industry
pricing of the raw materials we need to manufacture our
products.
We buy and consume a wide variety of raw materials in order to
manufacture our products. We are subject to market risks with
respect to industry pricing of such raw materials and we do not
enter into derivative instruments to manage such risk. If the
costs of these raw materials increase dramatically, it could
have a material adverse effect on our business, results of
operations and financial condition.
Our continued success depends on our ability to protect
our intellectual property. If we are unable to protect our
intellectual property, our sales could be materially and
adversely affected.
Our success depends, in part, on our ability to obtain and
enforce patents, maintain trade-secret protection and operate
without infringing on the proprietary rights of third parties.
We may find it necessary to initiate litigation to protect our
intellectual property. Litigation can be costly and time
consuming. Litigation expenses could be significant. In
addition, we may decide to settle legal claims, including
certain pending claims, despite our beliefs on the probability
of success on the merits, to avoid litigation expenses as well
as the diversion of management resources. While we have been
issued patents and have registered trademarks with respect to
many of our products and technologies, there can be no assurance
that our competitors will not infringe upon our patents or
trademarks, independently develop similar or superior products
or technologies, duplicate any of our designs, trademarks,
processes or other intellectual property or design around any
processes or designs on which we have or may obtain patents or
trademark protection. In addition, it is possible that third
parties may have or acquire other technology or designs that we
may use or desire to use, so that we may need to acquire
licenses to, or to contest the validity of, such third-party
patents or trademarks. Such licenses may not be made available
to us on acceptable terms, if at all, and we may not prevail in
contesting the validity of such third-party rights.
In addition to patent and trademark protection, we also protect
trade secrets, know-how and other confidential information
against unauthorized use by others or disclosure by persons who
have access to them, such as our employees, through contractual
arrangements. These agreements may not provide meaningful
protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how
or other proprietary information. If we are unable to maintain
the proprietary nature of our technologies, our sales could be
materially adversely affected.
We have, and may need to acquire in the future, licenses
permitting us to use certain third-party technologies and
designs in connection with our business. We cannot be certain
that such licenses will continue to be available to us on
favorable terms, if at all. If we cannot acquire or maintain any
necessary license, or if any necessary license is too costly, we
may be prohibited from using certain technologies or designs in
our business, which could have an adverse effect on our
operating results.
Litigation brought by third parties claiming infringement
of their intellectual property rights or trying to invalidate
intellectual property rights owned or used by us may be costly
and time consuming.
We face lawsuits from time to time alleging that our products
infringe on third-party intellectual property, and/or seeking to
invalidate or limit our ability to use our intellectual
property. If we become involved in litigation, we may incur
substantial expense defending these claims and the proceedings
may divert the attention of management, even if we prevail. An
adverse determination in proceedings of this type could subject
us to significant liabilities, allow our competitors to market
competitive products without a license from us, prohibit us from
marketing our products or require us to seek licenses from third
parties that may not be available on commercially reasonable
terms, if at all.
14
Product liability claims could have a material adverse
effect on our operating results.
We face an inherent business risk of exposure to product
liability claims arising from the alleged failure of our
products to prevent the types of personal injury or death
against which they are designed to protect. Any material
uninsured losses due to product liability claims that we
experience could subject us to material losses.
In particular, we are a defendant in lawsuits by plaintiffs
alleging that they suffer from respiratory medical conditions,
such as asbestosis or silicosis, relating to exposure to
asbestos and silica, and that such conditions result, in part,
from the use of respirators that, allegedly, were negligently
designed or manufactured. The defendants in these lawsuits are
often numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. These lawsuits typically allege
that these conditions resulted in part from respirators that
were negligently designed or manufactured. Cabot Corporation has
retained all liabilities, including costs of defending claims,
resulting from respiratory products manufactured prior to our
acquisition of the business in July 1995. Many of these claims
are covered by the Asset Transfer Agreement entered into on
June 13, 1995 by Aearo Company and Aearo Corporation, on
the one hand, and Cabot Corporation and certain of its
subsidiaries, or the Sellers, on the other hand, or the 1995
Asset Transfer Agreement. In the 1995 Asset Transfer Agreement,
so long as Aearo Corporation makes an annual payment of $400,000
to Cabot, the Sellers agreed to retain, and Cabot and the
Sellers agreed to defend and indemnify Aearo Corporation and its
subsidiaries against, any liability or obligation relating to or
otherwise arising under any proceeding or other claim against
Aearo Corporation and its subsidiaries or Cabot or their
respective affiliates or other parties with whom any Seller
directly or indirectly has a contractual liability sharing
arrangement which sounds in product liability or related causes
of action arising out of actual or alleged respiratory medical
conditions caused or allegedly caused by the use of respirators
or similar devices sold by Sellers or their predecessors
(including American Optical Corporation and its predecessors)
prior to July 11, 1995. Nevertheless, we could potentially
be liable for these losses or claims if Cabot Corporation fails
to meet its obligations pursuant to our agreement with them. We
could also be liable if the alleged exposure involved the use of
products manufactured by us after our July 1995 acquisition of
the business. Cabot Corporation is currently handling the
defense of all the cases, and to date we have not incurred any
material costs with respect to these lawsuits. Consistent with
the experience of other companies involved in silica- and
asbestos-related litigation, there has been an increase in the
number of asserted claims that could potentially involve us. We
cannot determine our potential liability, if any, for such
claims, in part because the defendants in these lawsuits are
often numerous and the claims generally do not specify the
amount of damages sought. Additionally, bankruptcy filings of
companies with asbestos- and silica-related litigation could
increase our cost over time. If we are found liable in these
cases and Cabot Corporation fails to meet its obligations
pursuant to our agreement with them, it would have a material
adverse effect on our business.
We could be required to recall or redesign our products if they
prove to be defective. We maintain insurance against product
liability claims (with the exception of asbestosis and silicosis
cases, for which coverage is not commercially available), but it
is possible that our insurance coverage will not continue to be
available on terms acceptable to us or that such coverage will
not be adequate for liabilities actually incurred. A successful
claim brought against us in excess of available insurance
coverage, or any claim or product recall that results in
significant expense or adverse publicity against us, could have
a material adverse effect on our business, operating results and
financial condition.
Environmental, health and safety requirements could expose
us to material obligations and liabilities.
We are subject to federal, state, local and foreign laws,
regulations and ordinances relating to the protection of the
environment, including those governing discharges to air and
water, handling and disposal practices for solid and hazardous
wastes, and occupational health and safety. The consequence for
violating such requirements can be material. We have made and
will continue to make capital and other expenditures to comply
with environmental and health and safety requirements. In
addition, if a release of hazardous substances occurs on or from
our properties or any offsite disposal location where our wastes
have been disposed, or if contamination from prior activities is
discovered at any of our properties or third-party owned
15
properties that we or our predecessors formerly owned or
operated, we may be subject to liability arising out of such
conditions and the amount of such liability could be material.
Liability can include, for example, costs of investigation and
cleanup of the contamination, natural resource damages, damage
to properties and personal injuries. Environmental laws and
regulations are complex, change frequently and have tended to
become more strict over time. If more stringent environmental
laws or regulations are enacted, these future laws could have a
material adverse effect on our results of operations.
Our international operations are subject to various
uncertainties, and a significant reduction in international
sales of our products could have a material adverse effect on
our results of operations.
Our international operations are subject to various political,
economic and other uncertainties which could adversely affect
our business. A significant reduction of our international
business would adversely affect our revenues. We operate
manufacturing, distribution and sales facilities in eight
foreign countries and sell our products in more than 70
countries. Approximately 40% of our fiscal 2005 net sales
were made in foreign countries. These risks include unexpected
changes in regulatory requirements; currency exchange rate
fluctuations; changes in trade policy or tariff regulations;
customs matters; longer payment cycles; higher tax rates and
potentially adverse tax consequences, including restrictions on
repatriating earnings and the threat of "double
taxation"; additional tax withholding requirements;
intellectual property protection difficulties; difficulty in
collecting accounts receivable; complications in complying with
a variety of foreign laws and regulations, many of which
conflict with United States laws; costs and difficulties in
integrating, staffing and managing international operations; and
strains on financial and other systems to properly administer
VAT and other taxes.
In addition, foreign operations involve uncertainties arising
from local business practices, cultural considerations and
international political and trade tensions. If we are unable to
successfully manage the risks associated with expanding our
global business or to adequately manage operational fluctuations
internationally, it could have a material adverse effect on our
business, results of operations or financial condition.
We expect that international sales will continue to
represent a significant percentage of our net sales, which
exposes us to currency exchange rate fluctuations.
Because a significant percentage of our net sales are made in
foreign countries, our results of operations are subject to
risks associated with fluctuations in currency exchange rates.
While many of our selling and distribution costs are denominated
in Canadian and European currencies, a large portion of product
costs are U.S. dollar denominated. As a result, an increase
in the value of the U.S. dollar relative to other
currencies can have a negative impact on our profitability.
Also, our Swedish operations are affected by changes in exchange
rates relative to the Swedish Krona, and an increase in the
value of the Krona relative to other currencies can have a
negative impact on our profitability. We cannot predict whether
the foreign currency exchange risks inherent in doing business
in foreign countries will have a material adverse effect on our
operations and financial results in the future.
We may be unable to successfully execute or effectively
integrate acquisitions, which may adversely affect our results
of operations.
One of our key operating strategies is to selectively pursue
acquisitions. Acquisitions involve a number of risks including
failure of the acquired businesses to achieve the results we
expect, diversion of our management's attention from
operational matters, our inability to retain key personnel of
the acquired businesses, risks associated with unanticipated
events or liabilities, the potential disruption of our existing
business, and customer dissatisfaction or performance problems
with the acquired businesses.
If we are unable to integrate or successfully manage a business
that we may acquire in the future, we may not realize
anticipated cost savings, improved manufacturing efficiencies
and revenue growth. This may result in reduced profitability or
operating losses. In addition, we expect to face competition for
acquisition candidates, which may limit the number of our
acquisition opportunities and may lead to higher acquisition
prices. Moreover, acquisitions of businesses may require
additional debt financing, resulting in additional leverage. The
covenants in our senior credit facility and the indenture
governing our
8
1
/
4
% Senior
Subordinated Notes due 2012, or the
8
1
/
4
% Notes,
may further limit our ability to complete acquisitions. In
16
addition, we may in the future pursue acquisitions of a
significantly larger scale than in the past, in which case these
risks would be intensified. The realization of all or any of the
risks described above could materially and adversely affect our
business, results of operations and financial condition.
We do not have long-term contracts with many of our
customers.
We do not have contracts with many of our customers, and a
significant portion of the customer contracts that we do have,
are not long-term contracts. A significant number of our
customers may terminate their relationships with us at any time,
which could have a material adverse effect on our business,
results of operations and financial condition.
Our results of operations and net sales are dependent on
existing regulations and standards. If these regulations or
standards are changed, our results and sales could be materially
and adversely affected.
Our products are and will continue to be subject to regulation
by various federal, state, local and foreign regulatory
authorities. Our net sales may be materially and adversely
affected by changes in safety regulations and standards covering
industrial workers in the United States, Canada and Europe,
including those of the Occupational Safety and Health
Administration or OSHA, the National Institute for Occupational
Safety and Health, or NIOSH, and the European Committee for
Standardization, or CEN. Our net sales could also be adversely
affected by a reduction in the level of enforcement of such
regulations. Changes in regulations could reduce the demand for
our products or require us to reengineer our products, thereby
creating opportunities for our competitors. If demand for our
products is reduced, our results of operations and net sales
could be materially and adversely affected.
As a public company, we will have to comply with certain
provisions of the Sarbanes-Oxley Act, as well as related rules
implemented by the SEC and the NYSE, which may divert company
and management resources.
As a public company, we will be subject to the reporting
requirements of the Sarbanes-Oxley Act of 2002, as well as
related rules implemented by the SEC and the NYSE. Under
Section 404 of the Sarbanes-Oxley Act, we will be required
to include a report of management on our internal control over
financial reporting in our Annual Report on Form 10-K,
beginning with our Annual Report for the fiscal year ended
September 30, 2007. Our independent registered public
accounting firm must attest to and report on management's
assessment of our internal control over financial reporting and
evaluate the effectiveness of internal control over financial
reporting. Such requirements may place a strain on our people,
systems and resources and will increase our legal and financial
compliance costs and could make some activities more costly and
time consuming. Management's attention may also be diverted
from other business concerns, which could have a material
adverse effect on our business, financial condition and results
of operations.
In connection with the evaluation of disclosure controls and
procedures of our wholly-owned subsidiary, Aearo Company I,
for the fiscal year ended September 30, 2005, management
identified a material weakness in the design of our internal
control over financial reporting in connection with interim
reporting of the tax effects of book and tax bases differences
for complex, non-routine business combinations. This material
weakness caused Aearo Company I to restate its financial results
for the fiscal quarters ended March 31, 2005 and
June 30, 2005. A material weakness is a significant
deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will
not be prevented or detected. If the auditors were to determine
that this deficiency were to still exist, or another new or
related deficiency were to develop, or if we were otherwise
unable to achieve and maintain effective internal controls on a
timely basis, management would not be able to conclude that we
have effective internal control over financial reporting for
purposes of Section 404 of the Sarbanes-Oxley Act. In
addition, our independent registered public accounting firm
would not be able to certify as to the effectiveness of our
internal control over financial reporting when we are required
to obtain this certification beginning in September 2007. This
may subject us to adverse regulatory consequences and could
cause investors to lose confidence in the reliability of our
financial statements, which could result in a decline in our
common stock price.
17
We also expect these rules and regulations may make it more
difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, we
may experience more difficulty attracting and retaining
qualified individuals to serve on our board of directors. We
cannot predict or estimate the amount of additional costs we may
incur as a result of these requirements or the timing of such
costs.
In addition, we currently have only one director that qualifies
as an independent director under the rules of the SEC and the
NYSE and those rules require that we appoint additional
independent directors as needed, so that within one year of the
closing of this offering, a majority of our directors are
independent and all members of our Board committees are
independent. Any failure to appoint additional independent
directors as required by the NYSE would allow the NYSE to
de-list our common stock and could result in adverse publicity
and other sanctions, which could have a material adverse effect
on our results of operations and the market value of our common
stock.
We are a holding company and rely on dividends, interest
and other payments, advances and transfers of funds from our
operating subsidiary and investments to meet our debt service
and other obligations.
We have no direct operations and no significant assets other
than ownership of 100% of the stock of Aearo Corporation, which
in turn has no significant assets other than ownership of 100%
of the stock of Aearo Company. Because we conduct our operations
through our subsidiaries, we depend on those entities for
dividends and other payments to generate the funds necessary to
meet our financial obligations. Our subsidiaries, however, are
separate and distinct legal entities and they will have no
obligation, contingent or otherwise, to make any funds available
to pay those amounts, whether by dividend, distribution, loan or
other payments. Legal and contractual restrictions in agreements
governing current and future indebtedness, as well as the
financial condition and operating requirements of our
subsidiaries, may limit our ability to obtain cash from our
subsidiaries. Our senior credit facility and the indenture
governing our
8
1
/
4
% Notes
significantly restrict Aearo Company and its subsidiaries from
paying cash dividends or making other distributions or loans to
Aearo Corporation. See "Description of Other
Indebtedness — The Senior Credit Facility" and
"Description of Other Indebtedness — The
8
1
/
4
Senior Subordinated Notes due 2012." Subject to limitations
in our senior credit facility, our subsidiaries may also enter
into agreements that contain covenants prohibiting them from
distributing or advancing funds or transferring assets to us
under certain circumstances, including to pay dividends.
We have significant debt and the agreements governing our
indebtedness restrict our ability and the ability of most of our
subsidiaries to engage in some business and financial
transactions. Compliance with these restrictions could harm our
competitive position, and failure to comply with them could
result in an event of default and acceleration of our other
debt.
We have now and, after this offering, will continue to have a
significant amount of indebtedness. On September 30, 2005,
after giving effect to this offering and the use of proceeds
thereof, we would have had total indebtedness of
$           million.
Our senior credit facility and the indenture governing the
8
1
/
4
% Notes,
among other things, restrict our ability and the ability of our
restricted subsidiaries to, among other things:
•
incur additional debt or issue preferred stock;
•
pay dividends and make distributions on, or redeem or
    repurchase, capital stock;
•
issue stock of subsidiaries;
•
make investments;
•
create liens;
•
enter into transactions with affiliates;
•
merge or consolidate; and
•
transfer and sell assets.
18
These restrictions could prevent us from taking actions we
otherwise would want to take, which could have a material and
adverse effect on our business. In addition, our senior credit
facility contains covenants that require us and our restricted
subsidiaries to maintain specified financial ratios and satisfy
other financial condition tests. The failure of Aearo Company to
comply with its obligations under our senior credit facility and
the indenture governing the
8
1
/
4
% Notes
may result in an event of default. A default, if not cured or
waived, may permit acceleration of our other indebtedness. See
"Description of Other Indebtedness — The Senior
Credit Facility" and "Description of Other
Indebtedness — The
8
1
/
4
Senior Subordinated Notes due 2012." We cannot be certain
that we will have funds available to remedy these defaults. If
our indebtedness is accelerated, we cannot be certain that we
will have sufficient funds available to pay the accelerated
indebtedness or that we will have the ability to refinance the
accelerated indebtedness on terms favorable to us or at all.
Risks Relating to the Common Stock and this Offering
There is no existing market for our common stock.
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest will lead to the development of an active trading
market on the New York Stock Exchange or otherwise or how liquid
that market might become. The initial public offering price for
our shares of common stock will be determined by negotiations
among us, the selling stockholders and the representatives of
the underwriters and may not be indicative of the market price
of the common stock that will prevail in the open market
following this offering.
Upon the issuance of additional securities and the
exercise or conversion of outstanding options, the ownership
interests of our stockholders will be diluted. In addition,
future sales or the possibility of future sales of a substantial
amount of our common stock may depress the price of shares of
our common stock.
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
the prevailing market price of our common stock and could impair
our ability to raise capital through future sales of equity
securities. Upon the issuance of additional securities and
options and the exercise of outstanding options, your percentage
ownership may be diluted both in terms of book value and voting
percentage.
In addition, we may issue shares of our common stock or other
securities from time to time as consideration for future
acquisitions and investments. If any such acquisition or
investment is significant, the number of shares of our common
stock that we may issue may in turn be substantial. We may also
grant registration rights covering those shares of our common
stock or other securities in connection with any such
acquisitions and investments.
Upon consummation of this offering, there will
be                      shares
of our common stock outstanding. All shares of common stock sold
in this offering will be freely transferable without restriction
or further registration under the Securities Act of 1933. The
remaining                      shares
of common stock outstanding, including the shares owned by BSMB,
will be restricted securities within the meaning of
Rule 144 under the Securities Act, but will be eligible for
resale subject to applicable volume, manner of sale, holding
period and other limitations of Rule 144. The Company, its
directors and executive officers and substantially all of our
stockholders, including the selling stockholders, have agreed to
a "lock-up" with the underwriters of this offering,
pursuant to which neither we nor they will sell any shares
without the prior consent of Bear, Stearns & Co. Inc.
for 180 days after the date of this prospectus (which
period could be extended by Bear, Stearns  & Co. Inc.,
for an additional 34 days under certain circumstances).
Following the expiration of the applicable lock-up period, all
these shares of our common stock will be eligible for future
sale, subject to the applicable volume, manner of sale, holding
period and other limitations of Rule 144. See "Shares
Eligible for Future Sale" for a discussion of the shares of
common stock that may be sold into the public market in the
future.
19
Our common stock price may be volatile.
Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as general
economic, market or political conditions, could reduce the
market price of our common stock despite our operating
performance. In addition, our operating results could be below
expectations of public market analysts and investors and in
response, the market price of our common stock could decrease
significantly. Accordingly, you may be unable to resell your
shares of our common stock at or above the initial public
offering price. Some companies that have had volatile market
prices for their securities have had securities class action
suits filed against them. If a suit were to be filed against us,
regardless of the outcome, it could result in substantial costs
and a diversion of management's attention and resources.
This could have a material adverse effect on our business,
results of operations and financial condition.
Our common stock price may also fluctuate in response to a
number of events, including:
•
our operating results;
•
future announcements concerning our business;
•
actions of competitors;
•
market and industry perception of our success, or lack thereof,
    in pursuing our strategy;
•
changes in government and environmental laws and regulation;
•
general market, economic and political conditions;
•
developments concerning intellectual property rights;
•
natural disasters, terrorist attacks and acts of war; and
•
actions of stockholders, including sales of shares by our
    directors and executive officers.
Provisions of Delaware law and our organizational
documents may impede or discourage a takeover, which could
deprive our investors of the opportunity to receive a premium
for their shares.
Provisions of our amended and restated certificate of
incorporation and amended and restated by-laws may make it more
difficult for, or prevent a third party from, acquiring control
of us without the approval of our board of directors. These
provisions include:
•
the ability of our board of directors to designate one or more
    series of preferred stock and issue shares of preferred stock
    without stockholder approval;
•
the general inability of stockholders to act by written consent;
    and
•
advance notice requirements for nominating directors or
    introducing other business to be conducted at stockholder
    meetings.
The foregoing factors and others available under Delaware law
could impede a merger, takeover or other business combination or
discourage a potential investor from making a tender offer for
our common stock or effecting any other change of control even
if a change of control would be beneficial to our existing
shareholders, which could reduce the market value of our common
stock. See "Description of Capital Stock."
You will suffer an immediate and substantial dilution in
the net tangible book value of the common stock you
purchase.
Some prior investors have paid substantially less per share than
the price in this offering. The initial offering price is
expected to be substantially higher than the net tangible book
value per share of the outstanding common stock immediately
after this offering. Accordingly, based on an assumed initial
public offering price of
$           per
share (the midpoint of the range set forth on the cover page of
this prospectus),
20
purchasers of common stock in this offering will experience
immediate and substantial dilution of approximately
$           per
share in net tangible book value of the common stock. See
"Dilution."
BSMB and its affiliates may continue to have substantial
control over us after this offering, and could limit your
ability to influence the outcome of matters requiring
shareholder approval and may also acquire businesses that
compete with us.
Upon consummation of this offering, affiliates of BSMB will own
approximately      % of our common
stock. The continued ownership of these shares of common stock
could have the effect of delaying or preventing a change of
control of us or could discourage a potential acquiror from
obtaining control of us, either of which could have an adverse
effect on the market price of our common stock or prevent you
from realizing a gain on your shares of common stock. In
addition, BSMB is in the business of making investments in
companies and may from time to time acquire and hold interests
in businesses that compete directly or indirectly with us. BSMB
may also pursue acquisition opportunities that may be
complementary to our business and as a result, those acquisition
opportunities may not be available to us.
21
USE OF PROCEEDS
We estimate net proceeds from the sale by us of our common
stock, after deducting underwriting discounts and estimated
offering expenses, of approximately
$           million,
which is based on an assumed offering price of
$           per
share of common stock, which represents the mid-point of the
range set forth on the cover page of this prospectus. We intend
to use the net proceeds of this offering to repay
$           million
of outstanding indebtedness under our senior credit facility and
repurchase all of our outstanding 12.00% Notes, including
any premium associated with the repurchase.
Borrowings under our senior credit facility mature on the dates
set forth in, and bear interest in the manner described under,
"Description of Certain Indebtedness — The Senior
Credit Facility." The 12.00% Notes mature on
May 1, 2013 and bear interest at a rate of 12.00% per
annum. The net proceeds from the issuance of the
12.00% Notes were used to pay a dividend to Aearo
Technologies Inc. Aearo Technologies Inc. subsequently used such
proceeds to repurchase all of its outstanding shares of
preferred stock.
Offering expenses include payments to BSMB in connection with
the termination of our professional services agreement in the
amount of
$           million
and
$           million
in other fees and expenses.
In the aggregate, the selling stockholders and their affiliates
will receive approximately
$           million
of the net proceeds of this offering. We will not receive any
proceeds from the sale of common stock by the selling
stockholders.
22
DIVIDEND POLICY
We anticipate that we will retain any future earnings to support
operations and to finance the growth and development of our
business, and we do not expect to pay cash dividends in the
foreseeable future. Any future determination relating to our
dividend policy will be made at the discretion of our board of
directors and will depend on a number of factors, including
future earnings, capital requirements, financial conditions,
future prospects and other factors that the board of directors
may deem relevant. We have never declared or paid cash dividends
on our common stock. Additionally, our senior credit facility
and the instruments governing our outstanding debt securities
restrict the extent to which we, or any of our subsidiaries, may
declare or pay a cash dividend.
Dividends
Aearo Company I is permitted under our senior credit facility to
pay dividends to its parent, Aearo Corporation, for the purposes
of paying cash interest, when due, on its indebtedness if
certain conditions are met, and to pay up to $1.0 million per
fiscal year for expenses in the ordinary course of business. In
2006, there is no cash interest due on Aearo Corporation's
indebtedness; accordingly Aearo Company I will be prohibited
from paying dividends, other than for ordinary course expenses,
unless a consent or waiver of the senior credit facility is
obtained.
23
DILUTION
Dilution is the amount by which:
•
the portion of the offering price paid by the purchasers of our
    common stock in this offering, exceeds
•
the net tangible book value or deficiency per share of our
    common stock after the offering.
Net tangible book value or deficiency per share of our common
stock is determined on any date of determination by subtracting
our total liabilities from our total tangible assets and
dividing the difference by the number of shares of common stock
deemed to be outstanding at that date.
Our net tangible book value as of September 30, 2005 was
approximately
$           million,
or
$           per
share of common stock. After giving effect to our receipt and
intended use of approximately
$           million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering, our as adjusted
net tangible book value as of September 30, 2005 would have
been approximately
$           million
(after adjustment), or
$           per
share of common stock. This represents an immediate increase in
net tangible book value of
$           per
share of our common stock to existing stockholders and an
immediate dilution of
$           per
share of our common stock to new investors purchasing our common
stock in this offering.
The following table illustrates this substantial and immediate
dilution to new investors:
Per Share of
Common Stock
Initial public offering price per share of our common stock
$
Net tangible book value (deficiency) per share as of
    September 30, 2005
$
Increase per share attributable to cash payments made by
    investors in the offering
$
Pro forma as adjusted net tangible book value
    (deficiency) after this offering
$
Dilution in net tangible book value per share to new investors
$
The following table sets forth on a pro forma basis as of
September 30, 2005, assuming no exercise of the
underwriters' over-allotment option:
•
the total number of shares of our common stock owned by our
    existing equity investors and our officers and the total number
    of shares of our common stock to be owned by the new investors
    purchasing our common stock in this offering, as represented by
    our common stock to be sold in this offering;
•
the total consideration paid by the new investors purchasing our
    common stock in this offering; and
•
the average price per share of existing common stock by our
    existing equity investors and our officers and the average price
    per share of our common stock to be paid by new investors
    purchasing our common stock in this offering.
Shares of Common
Stock Purchased
Total Consideration
Average Price
Per Share of
Number
Percent
Amount
Percent
Common Stock
Existing Investors
%
$
%
$
New Investors
%
$
%
$
Total
%
$
%
$
24
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 2005 (i) on an
actual basis and (ii) on an as adjusted basis to give
effect to this offering at an assumed initial public offering
price of
$           per
share, the mid-point of the range set forth on the cover of this
prospectus and the use of proceeds thereof. The information
should be read in conjunction with "Use of Proceeds,"
"Selected Consolidated Historical Financial Data" and
our consolidated historical financial statements and the
accompanying notes thereto included elsewhere in this prospectus.
As of
September 30, 2005
Actual
As Adjusted
(In millions)
Cash and cash equivalents
$
30.1
$
Debt:
Senior credit facility
123.2
Other
    debt
(1)
2.9
8
1
/
4
% senior
    subordinated notes
175.0
12.00% senior notes
54.0
Total debt
355.1
Stockholders' equity:
Preferred stock, par value $0.01 per share;
    actual — (Cumulative dividend of $3,701 at
    September 30, 2004); Authorized and issued —
    76,168 shares; Outstanding 76,168 and 0 shares,
    respectively as
    adjusted,            shares
    authorized,            shares
    issued and outstanding
0.0
Common stock, par value $0.01 per share; actual,
    Authorized — 3,849,999 shares; Issued —
    2,527,801 shares, and Outstanding — 2,527,214 as
    adjusted,            shares
    authorized,            shares
    issued and outstanding
0.0
Paid-in capital
111.6
Accumulated other comprehensive loss
(1.3
)
Stock subscription receivable
(0.1
)
Treasury stock, at cost
(85.9
)
Retained
    earnings
(2)
12.0
Total stockholders' equity
36.3
Total capitalization
$
391.4
$
(1)
Includes mortgage notes and capitalized leases.
(2)
As adjusted retained earnings reflects the write-off of
    $         million
    of deferred financing fees, net of taxes, associated with
    repayment of indebtedness under our senior credit facility and
    the repurchase of our 12.00% Notes, including any premium
    associated with the repurchase.
25
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
On April 7, 2004, we acquired Aearo Corporation and its
subsidiaries for approximately $409.3 million through a
merger of AC Safety Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Aearo Technologies Inc. with and
into Aearo Corporation. The selected historical consolidated
financial data as of and for the years ended September 30,
2003, 2002 and 2001 and as of and for the six months ended
March 31, 2004, or the Predecessor data, reflects the
historical basis of accounting of these operations. The selected
historical consolidated financial data for the periods from and
after April 1, 2004, or the Successor data, reflect the
effects of purchase accounting for the acquisition of these
operations. Accordingly, the Predecessor data is not comparable
to the results of operations for the periods from and after
April 1, 2004.
The summary historical consolidated financial data as of and for
the years ended September 30, 2001, 2002 and 2003 and as of
and for the six months ended March 31, 2004 are derived
from the consolidated financial statements of predecessor Aearo
Corporation. The selected historical consolidated financial data
as of and for the six months ended September 30, 2004 and
as of and for the year ended September 30, 2005 are derived
from the consolidated financial statements of successor Aearo
Technologies Inc.
You should read the information contained in this table in
conjunction with "Summary Consolidated Historical Financial
and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
and our historical consolidated financial statements and the
accompanying notes thereto of Aearo Technologies Inc. included
elsewhere in this prospectus.
26
Predecessor
Successor
Six Months
Six Months
Year
Year Ended September 30,
Ended
Ended
Ended
March 31,
September 30,
September 30,
2001
2002
2003
2004
2004
2005
(dollars in thousands except per share information)
Statement of Operations Data:
Net Sales —
Safety Products
$
206,358
$
208,538
$
242,263
$
127,964
$
146,393
$
318,450
Safety Prescription Eyewear
39,076
40,834
40,028
20,337
19,503
39,446
Specialty Composites
38,428
37,495
34,137
21,278
27,365
65,524
Total Net Sales
283,862
286,867
316,428
169,579
193,261
423,420
Cost of Sales
155,213
(1)
150,397
(2)
164,019
(3)
89,056
118,491
(5)
216,710
Gross Profit
128,649
136,470
152,409
80,523
74,770
206,710
Operating Expenses —
Selling and administrative
87,286
91,903
101,257
56,835
56,752
131,232
Research and technical service
5,162
5,740
6,402
3,623
4,028
9,175
Amortization expense
6,530
6,293
267
242
2,631
5,229
Other charges (income), net
680
1,475
1,737
(506
)
1,545
288
Restructuring charge
9,077
(100
)
—
(1,091
)
(4)
—
—
Operating income
19,914
31,159
42,746
21,420
9,814
60,786
Interest expense, net
23,666
20,055
19,587
11,549
15,908
23,096
Income (loss) before income taxes
(3,752
)
11,104
23,159
9,871
(6,094
)
37,690
Provision (benefit) for income taxes
(1,872
)
1,785
2,551
1,734
(984
)
10,752
Net income (loss)
(1,880
)
9,319
20,608
8,137
(5,110
)
26,938
Preferred stock dividend
11,211
12,679
7,170
3,930
3,836
6,084
Net income (loss) available for common stockholders
$
(13,091
)
$
(3,360
)
$
13,438
$
4,207
$
(8,946
)
$
20,854
Net income (loss) available for common stockholders per
    share
(6)
:
Basic
$
(128.23
)
$
(32.95
)
$
138.84
$
70.81
$
(3.56
)
$
8.28
Diluted
(128.83
)
(32.95
)
138.84
70.76
(3.56
)
7.92
Weighted average shares
    outstanding
(6)
:
Basic
102,888
101,969
96,789
59,413
2,513,635
2,518,181
Diluted
102,888
101,969
96,789
59,454
2,513,635
2,632,520
Other Data:
Depreciation and amortization
$
16,653
$
17,251
$
11,369
$
6,173
$
7,651
$
15,860
Capital expenditures
7,799
9,653
10,316
5,006
4,521
7,665
Balance Sheet Data (at period-end):
Total assets
$
261,302
$
270,169
$
293,516
$
297,844
$
530,677
517,918
Total debt
202,229
195,562
213,553
211,463
304,481
355,057
Stockholder's equity
9,856
21,544
18,356
28,168
96,397
36,294
(1)
On September 30, 2001, we recorded a restructuring charge
    of $11.4 million related to a restructuring plan announced
    by us to improve our competitive position and long-term
    profitability. The plan included the closure of our Ettlingen,
    Germany plant, significantly reorganizing operations at the our
    Varnamo, Sweden plant, rationalizing the manufacturing assets
    and product mix of
27
our Specialty Composites business
    unit and a reduction of products and product lines (see
    Note 15 to our consolidated financial statements included
    elsewhere in this prospectus).
(2)
During fiscal 2002, we reversed
    $0.6 million of reserves related to the September 30,
    2001 restructuring provision. The adjustment represents a change
    in estimate of the plan for the disposal of certain items of
    inventory and the closure of our Ettlingen, Germany plant. The
    inventory provision of $0.5 million was classified as cost
    of sales with the remaining $0.1 million classified as
    operating expenses.
(3)
During fiscal 2003, we reversed
    $0.3 million of reserves related to the September 30,
    2001 restructuring provision. The adjustment represents a change
    in estimate of the plan for the disposal of certain items of
    inventory. The inventory provision of $0.3 million was
    classified as cost of sales.
(4)
During the six month period ended
    March 31, 2004, we reversed $1.1 million of reserves
    related to the September 30, 2001 restructuring provision.
    The adjustment represents a change in estimate related to
    amounts for non-cancelable lease obligations due to the
    renegotiation of the subject lease that was completed in the
    second quarter.
(5)
As a result of the Merger on
    April 7, 2004, we recorded a non-recurring charge of
    $17.1 million resulting from the write-up of inventory
    required by Statement of Financial Accounting Standards
    ("SFAS") No. 141, Business Combinations, on the
    merger date and subsequent sale of such inventory.
(6)
Does not give effect to the
    proposed stock split discussed elsewhere in this prospectus.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
"Selected Consolidated Historical Financial Data," and
the consolidated financial statements of the Company, including
the notes thereto, appearing elsewhere in this prospectus.
Overview
We are a global leader in the hearing, eye, face, head and
respiratory protection segments of the approximately
$15 billion global personal protection equipment, or PPE,
market. We manufacture hearing protection devices, communication
headsets, prescription and non-prescription safety eyewear, face
shields, reusable and disposable respirators, fall protection
equipment, hard hats and first aid kits that enhance the health
and safety of workers. Our products are manufactured and
marketed under the brand names AOSafety®, E-A-R®,
Peltor® and SafeWaze®, which are well known in the PPE
market. We also manufacture a wide array of energy-absorbing
materials that are incorporated into other manufacturers'
products to control noise, vibration and shock. These products
are marketed under our brand name E-A-R® Specialty
Composites.
We are committed to be the PPE market leader with value-added
products and global, leading brands. We believe that the
strength of our brand names, our reputation for developing and
providing high-quality, innovative products, our intensive
coverage of multiple distribution channels targeting a wide
array of end-users, our broad product offering, and our
commitment to providing a high level of customer service have
enabled us to achieve leading positions in market segments in
which we compete.
We sell our products in more than 70 countries and approximately
40% of our sales are made outside of the United States.
Accordingly, our businesses are affected by levels of industrial
activity and economic conditions in the U.S. and in other
countries where our products are sold and by the relationship of
the U.S. dollar to other currencies.
The PPE market is driven in part by the introduction and
continued adherence to increased governmental safety standards
for the health and safety of workers. Within the United States
and Europe, we anticipate that regulators will continue to
enforce compliance as well as introduce new safety standards.
The PPE market is also highly competitive and therefore requires
dedication to the introduction of new products and product line
extensions as well as productivity improvements.
In recent years we have focused on initiatives intended to
foster share growth in our core markets through superior product
innovation, differentiated "go-to-market" strategies
and improved emerging market penetration. In addition, we seek
to accelerate the penetration of non-industrial end markets such
as consumer, military and construction.
We have used selective acquisitions, in targeted markets or
product lines, to enhance our strategies. Over the past nine
years we have made eleven acquisitions, with the most recent
being the March 2003 acquisition of the SafeWaze brand name,
which brought the fall protection product line and greater
access to the construction channel.
On March 10, 2004, Aearo Corporation entered into a Merger
Agreement (the "Merger Agreement") with Aearo
Technologies Inc. (formerly known as AC Safety Holding Corp.)
and its subsidiary, AC Safety Acquisition Corp., that closed on
April 7, 2004 (the "Merger"). Prior to the
Merger, Aearo Technologies Inc. did not have any operations.
Pursuant to the terms of the Merger Agreement, AC Safety
Acquisition Corp. merged with and into Aearo Corporation with
Aearo Corporation surviving the Merger as a wholly-owned
subsidiary of Aearo Technologies Inc. The aggregate purchase
price was $409.3 million, including fees and expenses. The
Merger was financed with $303.7 million of new debt
consisting of $175.0 million of
8
1
/
4
% Notes
and a $125.0 million senior credit facility,
$3.7 million of assumed debt, $4.3 million of cash and
$101.3 million of equity. Aearo Corporation accounted for
the Merger in accordance with SFAS No. 141,
"Business Combinations", and allocated the purchase
price to assets and liabilities based on their fair values.
Aearo Corporation's new basis of accounting was pushed down
to Aearo Company, therefore, the historical
29
financial information of predecessor Aearo Corporation is not
comparable to the financial information of successor Aearo
Technologies Inc. for periods after March 31, 2004.
Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. GAAP requires the use of estimates, judgments,
assumptions and subjective interpretations of accounting
principles that affect the reported amounts of assets,
liabilities, revenues and expenses. We believe our use of
estimates and underlying accounting assumptions adhere to GAAP
and are consistently applied. We revise our estimates and
assumptions as new information becomes available.
We believe the following policies involve a higher degree of
judgment and/or complexity.
Basis of Presentation
— The Merger was
accounted for as a business combination in accordance with
SFAS No 141, "Business Combinations". The
purchase price was allocated to assets and liabilities based on
their fair values as determined by management and resulted in a
new basis of accounting as of April 1, 2004. Due to the new
basis of accounting, historical financial information of
predecessor Aearo Corporation is not comparable to the financial
information of successor Aearo Technologies Inc. for the periods
after March 31, 2004.
Income Taxes
— We account for income taxes in
accordance with SFAS No. 109, "Accounting for
Income Taxes", which requires deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between book and tax bases of recorded
assets and liabilities. SFAS No. 109 also requires
deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. Realization of the deferred tax
asset for net operating losses is dependent on generating
sufficient future taxable income in the United States prior to
the expiration of the net operating losses and credit
carryforwards, which expire over various periods ranging from
2010 to 2021 and are subject to certain limitations on their use
after the Merger. Deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
currently enacted tax rates. At September 30, 2004, our
deferred tax asset for domestic net operating losses was
partially offset by a valuation allowance of $7.5 million.
During the period ended September 30, 2005, management
determined that based on current domestic operating results, it
is more likely than not that domestic net operating losses will
be realized and consequently reversed the $7.5 million
valuation allowance. Since the valuation allowance related to
our predecessor's net operating losses, goodwill was
reduced for this reversal.
Product Liabilities
— We have established
reserves for potential product liabilities that arise out of the
use of our products. A significant amount of judgment is
required to quantify our ultimate exposure in these matters and
the reserve is estimated based on currently available
information and historical claims experience. Reasonable
estimates of our probable product liabilities substantially
related to asbestos and silica-related claims are determined by
us based on data provided by a third party and past cases and
settlements. We have determined that the five year period
through 2010 is the most reasonable time period for projective
asbestos and silica-related claims and defense costs. From time
to time, we may seek the assistance of an independent consultant
to assess the adequacy of the reserve. While we believe that the
current level of reserve is adequate, changes in the future
could impact these determinations.
Pension Plan
— The valuation of our pension
plan requires the use of assumptions and estimates that are used
to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates,
investment returns, projected salary increases and mortality
rates. The actuarial assumptions used in our pension reporting
are reviewed annually and compared with external benchmarks and
internal operating trends to assure that they accurately account
for future pension obligations. Changes in assumptions and
future investment returns could potentially have a material
impact on our pension expense and funding requirements.
30
Revenue Recognition and Allowance for Doubtful
Accounts
— We recognize revenue when title and
risk transfer to the customer, which is generally when the
product is shipped to customers. At the time revenue is
recognized, certain provisions may also be recorded including
pricing discounts and incentives. We offer our customers three
types of incentive programs: a sales rebate/volume discount
program, a marketing incentive program and a co-operative
advertising program. The sales rebate/volume discount program is
based on achieved volume levels along with growth incentives
over the prior year's sales dollars. Rebate obligations are
estimated based on current sales levels and are recorded as a
reduction of revenue when sales to the customer make progress
towards the required sales level. The marketing incentive
program provides qualifying customers that achieve specified
volume levels with funds to assist the customers with marketing
our products. The funds provided to the qualifying customers are
recorded as a reduction of revenue when sales to the customer
make progress towards the required sales level. The co-operative
advertising program provides funds to specific customers to
advertise our products. The qualifying customers provide
specific documentation of the advertising to us to assure that
the benefit received is comparable to other arms length
advertising expenditures undertaken by us. The amount of
co-operative advertising charged to selling and administrative
expenses for the years ended September 30, 2003, 2004 and
2005 were $1.7 million, $1.9 million and
$2.6 million, respectively.
An allowance for doubtful accounts is generally recorded based
on a percentage of aged receivables. However, management
judgment is involved with the final determination of the
allowance based on several factors including specific analysis
of a customer's credit worthiness, historical bad debt
experience, changes in payment history and general economic and
market trends.
Cost of Goods Sold
— Cost of goods sold
includes all costs to manufacture our products including raw
materials, which include inbound freight and import duties,
direct labor, plant supervision, maintenance labor and parts,
quality control, receiving, purchasing, production planning,
manufacturing supplies, scrap, rework, utilities, depreciation,
property taxes, sales and use taxes and insurance.
Selling and Administrative Expenses
— Selling
and administrative expenses include salaries and benefits for
selling, marketing, customer service, finance and human
resources personnel, direct marketing expenses, trade show
expenses, commissions, selling expenses, bad debts, advertising,
travel and entertainment, office supplies, recruiting,
relocation, legal expenses, accounting fees, consulting and
warehousing, shipping and handling expenses incurred after the
point of manufacture.
Goodwill and Impairment of Long-Lived Assets
—
SFAS No. 142, "Goodwill and Other Intangible
Assets," requires that goodwill no longer be amortized, and
instead, be tested for impairment on a periodic basis. In
testing for a potential impairment of goodwill,
SFAS No. 142 requires us to individually allocate and
assign the carrying value of assets and liabilities (including
goodwill and intangible assets) to specific reporting units or
business segments, estimate the fair value of the reporting
units or business segments, and determine goodwill and
indefinite life intangible impairment by comparing the estimated
fair value to the assigned carrying value. The process of
evaluating the potential impairment is highly subjective and
requires significant judgment at many points during the
analysis. We evaluate long-lived assets, including other finite
life intangible assets, of identifiable reporting units for
impairment when events or changes in circumstances indicate, in
management's judgment, that the carrying value of such
assets may not be recoverable. Cash flows used in the potential
impairment evaluation are based on management's estimates
and assumptions. Changes in business conditions could
potentially require future adjustments to asset valuations.
Results of Operations
The following discussion provides a comparison of the results of
operations for the successor company for the fiscal year ended
September 30, 2005 and that of the predecessor company on a
combined basis for the fiscal year ended September 30, 2004
with the historical results of operations of the predecessor
company for the fiscal year ended September 30 2003. The
discussion is provided for comparative purposes only, but the
value of such comparison may be limited. The combined results of
operations for the fiscal year ended September 30, 2004
include the results of operations of the predecessor company for
the six months ended March 31, 2004, combined with the
results of operations of the successor company for the six
months ended
31
September 30, 2004. The combined financial information for
the year ended September 30, 2004 is merely additive and
does not give proforma effect to the Merger transaction. Our
results of operations after March 31, 2004 are not
comparable to the results of operations of the predecessor
company for the periods prior to April 1, 2004.
The following table sets forth the major components of the
Company's consolidated statements of operations expressed
as a percentage of net sales.
Years Ended September 30,
2003
2004
(1)
2005
Net sales:
Safety Products
76.6
%
75.6
%
75.2
%
Safety Prescription Eyewear
12.6
11.0
9.3
Specialty Composites
10.8
13.4
15.5
Total net sales
100.0
100.0
100.0
Cost of sales
51.8
57.2
51.2
Gross profit
48.2
42.8
48.8
Selling and administrative
32.0
31.3
31.0
Research and technical service
2.1
2.1
2.2
Amortization expense
0.0
0.8
1.2
Other charges (income), net
0.6
0.3
0.1
Restructuring charge
0.0
(0.3
)
—
Operating income
13.5
%
8.6
%
14.4
%
(1)
Reflects a new basis of accounting subsequent to April 7,
    2004 due to the Merger.
Fiscal 2005 Compared to Fiscal 2004
Net sales in the year ended September 30, 2005 increased
16.7% to $423.4 million from $362.8 million in the
year ended September 30, 2004. The increase in net sales
was primarily driven by organic growth in the Safety Products
and Specialty Composites segments and foreign currency
translation. The weakness of the U.S. dollar favorably
impacted net sales by $7.7 million. The Safety Products
segment net sales in the year ended September 30, 2005
increased 16.0% to $318.5 million from $274.4 million
in the year ended September 30, 2004. The increase in net
sales resulted from a 13.4% increase in organic growth and a
2.6% increase due to foreign currency translation. Organic sales
growth for the Safety Products segment, defined as net sales
less the impact of foreign currency translation and
acquisitions, has increased for thirteen consecutive quarters.
We attribute this growth to an improved economy and our ability
to generate market share gains enabled by our breath of product
offerings, complemented by successful introductions of new
products. The Safety Prescription Eyewear segment net sales in
the year ended September 30, 2005 decreased slightly to
$39.4 million from $39.8 million in the year ended
September 30, 2004. Specialty Composites' net sales in
the year ended September 30, 2005 increased 34.7% to
$65.5 million from $48.6 million in the year ended
September 30, 2004. The increase was primarily driven by
market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets.
Gross profit for the year ended September 30, 2005
increased 33.1% to $206.7 million from $155.3 million
for the year ended September 30, 2004. Gross profit for
fiscal 2004 was adversely affected by a non-recurring charge of
$17.1 million resulting from the write-up of inventory
required by SFAS No. 141 on the merger date and
subsequent sale of such inventory. Gross profit as a percentage
of sales for the year ended September 30, 2005 was 48.8% as
compared to 47.5% for the year ended September 30, 2004
with fiscal year 2004 calculated by excluding the effects of the
purchase accounting adjustment. The improvement in the gross
profit percentage, to the highest gross profit percentage in our
history, is primarily due to the favorable impacts of higher
manufacturing volumes in our plants covering our manufacturing
costs, favorable
32
product mix, productivity improvements and the impact of foreign
currency translation. Our gross profit may not be comparable to
the gross profit of other entities who record shipping and
handling expenses as a component of cost of sales. The Safety
Products segment gross profit in the year ended
September 30, 2005, increased 20.8% to $161.1 million
from $133.4 million, when excluding the effects of the
purchase accounting adjustment, in the year ended
September 30, 2004. The increase in gross profit is
primarily due to the favorable impacts of higher manufacturing
volumes in our plants covering our manufacturing costs due to an
improved economy and our ability to successfully introduce new
products, favorable product mix, productivity improvements and
the impact of foreign currency translation. The Safety
Prescription Eyewear segment gross profit in the year ended
September 30, 2005, decreased slightly to
$17.8 million from $18.5 million in the year ended
September 30, 2004, when excluding the effects of the
purchase accounting adjustment, primarily as a result of the
slight decline in sales volume and the mix in sales of our
products. The Specialty Composites' segment gross profit in
the year ended September 30, 2005 increased
$9.0 million, or 47.8%, to $27.8 million from
$18.8 million in the year ended September 30, 2004,
when excluding the effects of the purchase accounting
adjustment. The increase was primarily driven by market share
gains and an improving economy driving volume increases in the
precision electronics, truck, aircraft and industrial markets.
Productivity and improved manufacturing absorption, due to a
higher level of production in Specialty's plants, also
favorably impacted gross profit.
Operating expenses for the year ended September 30, 2005
increased 17.6% to $145.9 million from $124.1 million
for the year ended September 30, 2004. The increase in
operating expenses was primarily driven by increases in selling
and administrative, research and technical services expenses,
amortization expense, and an absence of income as a result of
the prior year's partial reversal of a prior period's
restructuring provision. Selling and administrative expenses
included higher levels of variable selling expenses, as well as
increased marketing expenses to support new product launches and
our global brands. Selling and administrative expenses as a
percentage of net sales improved to 31.0% in the year ended
September 30, 2005 as compared to 31.3% for the year ended
September 30, 2004. The increase in selling and
administrative expenses included approximately $1.6 million
due to foreign currency translation, $1.7 million due to
variable selling expenses, as well as $2.0 million in
increased marketing expenses to support new product launches and
build brand support. Amortization expense increased
approximately $2.3 million due to the fair value allocation
of purchase price to finite lived intangible assets required by
SFAS No. 141 due to the Merger. The restructuring
provision adjustment of $1.1 million of income in the year
ended September 30, 2004 was the result of a change in
estimate relating to non-cancelable leases. The decrease in
other charges (income), net of $0.8 million was primarily
attributed to the bond call premium of $1.5 million paid as
a result of the Merger that was expensed in the year ended
September 30, 2004.
Operating income for the year ended September 30, 2005
increased 94.9% to $60.8 million from $31.2 million
for the year ended September 30, 2004. Operating income in
2004 included a non-recurring charge of $17.1 million
resulting from the write-up of inventory and a $1.7 million
increase in depreciation and amortization for identifiable
assets written up to fair value as required by
SFAS No. 141 on the merger date. Operating income in
the year ended September 30, 2005 includes additional
amortization expense of approximately $2.4 million due to
the fair value allocation of purchase price to finite lived
intangible assets required by SFAS No. 141 due to the
Merger. Excluding the effects of the purchase accounting
adjustments for both years, operating income increased by
$14.2 million and as a percentage of net sales for the year
ended September 30, 2005 increased to 15.2% from 13.8% for
the year ended September 30, 2004.
Interest expense, net, for the year ended September 30,
2005 decreased to $23.1 million from $27.5 million for
the year ended September 30, 2004. Interest expense for the
year ended September 30, 2004 included the write-off of
approximately $3.9 million for deferred financing fees
related to the redemption of the 12.50% senior subordinated
notes and the repayment of our old senior bank facilities. In
addition, we incurred an incremental 30 days of interest of
$1.0 million on the 12.50% senior subordinated notes
between the call date for the 12.50% senior subordinated
notes and the redemption date. Net of the write-off of deferred
financing fees and the incremental senior subordinated notes
interest, the interest expense for the year ended
September 30, 2005 increased $0.5 million due to the
higher level of borrowings under our new credit facility, the
8
1
/
4
% senior
subordinated notes and the 12.00% Notes.
33
The provision for income taxes for the year ended
September 30, 2005 was $10.8 million compared to
$0.8 million for the year ended September 30, 2004.
The effective tax rate for the year ended September 30,
2005 and 2004 was different from the statutory rate due to the
mix of income between our foreign and domestic subsidiaries.
Generally, the foreign tax rates of our foreign subsidiaries are
lower than the domestic statutory rate. In addition, for the
year ended September 30, 2005, a benefit was recorded to
adjust estimated post-merger net operating loss carryforwards.
Fiscal 2004 Compared to Fiscal 2003
Net sales in the year ended September 30, 2004 increased
14.7% to $362.8 million from $316.4 million in the
year ended September 30, 2003. The increase in net sales
was primarily driven by organic growth in the Safety Products
and Specialty Composites segments, the impact of the SafeWaze
acquisition on March 14, 2003 and foreign currency
translation. The weakness of the U.S. dollar and the
SafeWaze acquisition favorably impacted net sales by
$11.6 million and $4.5 million, respectively. The
Safety Products segment net sales in the year ended
September 30, 2004 increased 13.2% to $274.4 million
from $242.3 million in the year ended September 30,
2003. The increase in net sales resulted from a 6.7% increase in
organic growth, a 4.6% increase due to foreign currency
translation and a 1.9% increase due to the acquisition of
SafeWaze. Organic sales growth for the Safety Products segment,
defined as net sales less the impact of foreign currency
translation and acquisitions, has increased for nine consecutive
quarters. We attribute this growth to an improved economy and
our ability to successfully introduce new products into the
markets it serves. The Safety Prescription Eyewear segment net
sales in the year ended September 30, 2004 decreased
slightly to $39.8 million from $40.0 million in the
year ended September 30, 2003. Specialty Composites'
net sales in the year ended September 30, 2004 increased
42.5% to $48.6 million from $34.1 million in the year
ended September 30, 2003. The increase was primarily driven
by market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets. The Company tracks measures such as computer
and electronic production data and truck build rates to gauge
the momentum in the Specialty Composites segment which has been
experiencing positive sales trends in the last five quarters.
Gross profit for the year ended September 30, 2004
increased 1.9% to $155.3 million from $152.4 million
for the year ended September 30, 2003. Gross profit for
2004 was adversely affected by a non-recurring charge of
$17.1 million resulting from the write-up of inventory
required by SFAS No. 141 on the merger date and
subsequent sale of such inventory. Excluding the effects of the
purchase accounting adjustment, gross profit as a percentage of
net sales for the year ended September 30, 2004 was 47.5%
as compared to 48.2% for the year ended September 30, 2003.
The slight decline in the gross profit percentage, exclusive of
the non-recurring charge, is primarily due to unfavorable
product mix partially offset by productivity improvements and
the impact of foreign currency translation. The Safety Products
segment gross profit in the year ended September 30, 2004,
excluding the effects of the purchase accounting adjustment,
increased 9.8% to $133.4 million from $120.0 million
in the year ended September 30, 2003. The increase in gross
profit is primarily due to an improvement in sales volume due to
an improved economy, our ability to successfully introduce new
products into the markets we serve, and the favorable impact of
foreign currency translation. The Safety Prescription Eyewear
segment gross profit in the year ended September 30, 2004,
excluding the effects of the purchase accounting adjustment,
decreased slightly to $18.5 million from $18.9 million
in the year ended September 30, 2003, primarily a result of
the slight decline in sales volume and the mix in sales of our
products. Specialty Composites' gross profit in the year
ended September 30, 2004, excluding the effects of the
purchase accounting adjustment, increased 61.5% to
$18.8 million from $11.7 million in the year ended
September 30, 2003. The increase was primarily driven by
market share gains and an improving economy driving volume
increases in the precision electronics, truck, aircraft and
industrial markets, aided by productivity and improved
manufacturing absorption.
Operating expenses for the year ended September 30, 2004
increased 13.1% to $124.1 million from $109.7 million
for the year ended September 30, 2003. The increase in
operating expenses was primarily driven by an increase in
selling and administrative, research and technical services
expenses and amortization expense, partially offset by the
restructuring provision adjustment and other charges, net.
Selling and
34
administrative expenses included approximately $1.1 million
of expenses due to the acquisition of SafeWaze,
$3.2 million due to foreign currency translation,
$1.7 million due to variable selling expenses, as well as
increased marketing expenses to support new product launches and
build brand support. Selling and administrative expenses as a
percentage of net sales improved to 31.3% in the year ended
September 30, 2004 as compared to 32.0% for the year ended
September 30, 2003. Depreciation and amortization expense
increased approximately $1.7 million due to the fair value
allocation of purchase price to tangible assets and finite lived
intangible assets required by SFAS No. 141 due to the
Merger. The restructuring provision adjustment of
$1.1 million of income was the result of a change in
estimate relating to non-cancelable leases. The decrease in
other charges, net was attributed to a reduction in foreign
currency transaction expenses partially offset by the bond call
premium of $1.5 million as a result of the Merger.
Operating income for the year ended September 30, 2004
decreased 26.9% to $31.2 million from $42.7 million
for the year ended September 30, 2003. Operating income in
2004 included a non-recurring charge of $17.1 million
resulting from the write-up of inventory and the
$1.7 million increase in depreciation and amortization as
required by SFAS No. 141 on the merger date due to
purchase accounting. Excluding the effects of the purchase
accounting adjustment, operating income increased by
$7.3 million and as a percentage of net sales for the year
ended September 30, 2004 increased to 13.8% from 13.5% for
the year ended September 30, 2003.
Interest expense, net, for the year ended September 30,
2004 increased to $27.5 million from $19.6 million for
the year ended September 30, 2003. Interest expense for the
year ended September 30, 2004 included the write-off of
approximately $3.9 million for deferred financing fees
related to the redemption of the 12.50% senior subordinated
notes and the repayment of our old senior bank facilities. In
addition, we incurred an incremental 30 days of interest of
$1.0 million on the 12.50% senior subordinated notes
between the call date for the 12.50% senior subordinated
notes and the redemption date. The balance of the increase is
due to the higher level of borrowings under our senior credit
facility and the
8
1
/
4
% senior
subordinated notes.
The provision for income taxes for the year ended
September 30, 2004 was $0.8 million compared to
$2.6 million for the year ended September 30, 2003.
The effective tax rate for the year ended September 30,
2004 and 2003 was different from the statutory rate due to the
mix of income between our foreign and domestic subsidiaries. Our
foreign subsidiaries had taxable income in their foreign
jurisdictions while our domestic subsidiaries have net operating
loss carry-forwards for income tax purposes. Due to the
uncertainty of realizing these tax benefits at
September 30, 2004, the tax benefits for net operating
losses were partially offset by a valuation allowance.
Effects of Changes in Exchange Rates
In general, our results of operations are affected by changes in
exchange rates. Subject to market conditions, we price our
products in Europe and Canada in local currency. While many of
our selling and distribution costs are also denominated in these
currencies, a large portion of product costs are
U.S. Dollar denominated. As a result, a decline in the
value of the U.S. Dollar relative to other currencies can
have a favorable impact on our profitability, and an increase in
the value of the U.S. Dollar relative to these other
currencies can have a negative effect on our profitability. Our
Peltor® operations are also affected by changes in exchange
rates relative to the Swedish Krona. In contrast to the above, a
decline in the value of the Krona relative to other currencies
can have a favorable impact on our profitability and an increase
in the value of the Krona relative to other currencies can have
a negative impact on our profitability. From time to time we
will utilize forward foreign currency contracts and other
hedging instruments to mitigate the effects of changes in
foreign currency rates on profitability.
Effects of Inflation
In recent years, inflation has been modest and has not had a
material impact upon our results of operations.
35
Liquidity and Capital Resources
Our business is affected by macroeconomic activity, mainly
manufacturing output in developed nations. In addition,
significant changes in product mix and volume can impact our
liquidity and capital resources in both the short term and long
term. We believe that our disciplined approach to cost control,
our diversification into consumer and other channels and the
available capacity on our revolving credit facility will enable
us to maintain adequate liquidity and capital resources in an
economic downturn. The introduction of new products is likely to
continue to favorably impact liquidity and capital resources in
periods of economic growth, although there are no guarantees
that this trend will continue in the future.
Our sources of funds have consisted primarily of operating cash
flow and debt financing. Our uses of these funds consists
principally of debt service, capital expenditures, dividends and
acquisitions.
As of September 30, 2005, our debt structure included:
(a) $175.0 million of
8
1
/
4
% Notes,
which are publicly held and redeemable at the option of Aearo
Company, in whole or in part at various redemption prices,
(b) up to an aggregate of $175.0 million under the
senior credit facility comprised of (i) a secured term loan
facility consisting of loans providing for up to
$125.0 million of term loans (collectively, the "Term
Loans") with a portion of the Term Loans denominated in
Euros and (ii) a secured revolving credit facility
("Revolving Credit Facility") providing for up to
$50.0 million of revolving loans for general corporate
purposes (effective April 28, 2005, the senior credit
facility also has an uncommitted incremental term loan facility
of up to $75.0 million for acquisitions (collectively, the
"Senior Bank Facilities")) and
(c) $54.0 million in aggregate principal amount of
12.00% Notes due 2013. Since the date of the consummation
of the Merger, our debt has been negatively impacted by
$0.1 million related to the fluctuation of the Euro
relative to the U.S dollar as of September 30, 2005. We do
not plan to take any measure to minimize the foreign exchange
impact of our Euro denominated debt. The amounts outstanding on
the Term Loans were approximately $123.2 million at
September 30, 2005. There were no amounts outstanding under
the Revolving Credit Facility at September 30, 2005. The
Revolving Credit Facility provides for the issuance of letters
of credit in an aggregate face amount of up to
$15.0 million. We had approximately $1.6 million of
letters of credit outstanding at September 30, 2005. The
Term Loans amortize quarterly over a seven-year period. Amounts
repaid or prepaid in respect of the Term Loans may not be
re-borrowed. Loans and letters of credit under the Revolving
Credit Facility will be available until the Revolving Loan
Maturity Date, which is April 7, 2010. The Term Loans
mature on April 7, 2011. Effective December 31, 2004,
we received a 0.25% reduction in the interest rate paid on the
Term Loans for meeting certain financial covenants. We were in
compliance with all financial covenants and restrictions as of
September 30, 2005.
On April 28, 2005, Aearo Company amended the existing
credit agreement to allow it to make, prior to
September 30, 2005, up to $35.0 million of cash
distributions to Aearo Corporation for the purpose of paying
cash dividends to Aearo Technologies Inc., its parent, to be
used by Aearo Technologies Inc. primarily to repurchase, pro
rata, its outstanding preferred shares and to pay accrued
dividends on the preferred shares. In addition, the amendment,
among other things, (i) increased the amount of the
incremental term loan commitment from $60.0 million to
$75.0 million (ii) eliminated the termination date for
the incremental term loan commitment and (iii) allowed for
incremental term loans in Euros.
On May 5, 2005, Aearo Company's Board of Directors
declared and paid a cash dividend of $35.0 million to Aearo
Company's parent, Aearo Corporation, the sole holder of all
issued and outstanding shares of Aearo Company's common
stock. Aearo Corporation then paid a cash dividend to Aearo
Technologies Inc., Aearo Company's ultimate parent and sole
holder of all issued and outstanding shares of Aearo
Corporation's common stock. Aearo Technologies Inc. then
used the proceeds from the dividend to make a partial repurchase
of its preferred stock. Aearo Company used available cash to
fund the dividend.
On August 3, 2005, Aearo Corporation issued and sold
$54.0 million in aggregate principal amount of
12.00% Notes. In connection with the sale, Aearo
Corporation's Board of Directors declared and paid a cash
dividend of $54.0 million to its parent, Aearo Technologies
Inc., the sole holder of all issued and outstanding shares of
Aearo Corporation's common stock. Aearo Technologies Inc.
then used the proceeds from the dividend to repurchase all
remaining outstanding shares of its preferred stock.
36
We typically make capital expenditures related primarily to the
maintenance and improvement of manufacturing facilities. Our
principal source of cash to fund these capital requirements is
cash from operations. We spent $7.7 million and
$9.5 million, respectively, for capital expenditures for
the years ended September 30, 2005 and 2004, respectively.
We anticipate spending approximately $13.0 million for
capital expenditures in the fiscal year ending
September 30, 2006, which is expected to be funded by
operating cash flows.
Our net cash provided by operating activities for the year ended
September 30, 2005 totaled $44.5 million as compared
to $2.3 million for the year ended September 30, 2004.
The increase of $42.2 million was primarily due to a
$9.3 million increase related to the increase in net income
adjusted for cash and non-cash charges (depreciation, inventory
purchase accounting adjustment, amortization, deferred taxes and
other), combined with a $32.9 million increase related to
the net changes in assets and liabilities. Our net changes in
assets and liabilities were primarily driven by increases in
cash from receivables and inventory, accounts payable and
accrued liabilities and other, net.
Net cash used for investing activities was $6.2 million for
the year ended September 30, 2005 as compared to
$172.8 million for the year ended September 30, 2004.
The decrease in net cash used by investing activities is
primarily attributed to the non-recurrence of merger activities
in 2005. Investments were only made for routine capital
purchases.
Net cash used for financing activities for the year ended
September 30, 2005 was $35.7 million compared with
$192.4 million for the year ended September 30, 2004.
The change is primarily due to the non-recurrence of significant
refinancings of new debt in 2005, other than the
12.00% Notes, the proceeds of which were used to redeem
preferred stock.
We maintain a non-contributory defined benefit cash balance
pension plan. We utilize an outside actuarial firm to estimate
pension expense and funding based on various assumptions
including the discount rate and the expected long-term rate of
return on plan assets. To develop the expected long-term rate of
return on assets assumption, we considered historical returns
and future expectations for returns for each asset class, as
well as the target asset allocation of the pension portfolio.
Based on Actuarial Standard of Practice No. 27 and
interpretation of this standard, the SFAS No. 87
long-term rate of return on asset assumption must fall within a
"best estimate range" — that is, a range of
returns within which the actual return is more likely than not
to fall. This "best estimate range" equates to a
20-year compound average return derived using the outside
actuarial firms' proprietary Portfolio Return calculator,
or PRC, reflecting the asset allocation of the trust with
appropriate adjustments for investment, trading, management and
administrative expenses that are paid from the trust. For
purposes of determining the 25th to 75th percentile
range, the PRC uses the outside actuarial firms' capital
market assumptions with respect to each class to develop the
probability distribution of returns. The independently developed
rate of 8.00% falls within the 25th and
75th percentiles of 4.96% and 8.61%, respectively. The
discount rate was lowered to 5.5% for the fiscal year ended
September 30, 2005 from 6.0% for the fiscal year ended
September 30, 2004. We base the discount rate on the AA
Corporate bond yields. The estimated impact of a 1% change in
the discount rate results in a $0.1 million impact on
annual pension expense.
The variability of asset returns and discount rates may have
either a favorable or unfavorable impact on pension expense and
the funded status of the pension plan. Under minimum funding
rules, no additional pension contributions were required to be
made in fiscal 2005. The following benefit payments, which
reflect expected future service, as appropriate, are expected to
be paid (in thousands of dollars):
Fiscal year 2006
$
1,047
Fiscal year 2007
561
Fiscal year 2008
753
Fiscal year 2009
1,070
Fiscal year 2010
1,001
Fiscal year 2011 – 2015
7,108
37
We have a substantial amount of indebtedness. We rely on
internally generated funds, and to the extent necessary, on
borrowings under our senior credit facility (subject to certain
customary drawing conditions) to meet our liquidity needs. We
anticipate that operating cash flow will be adequate to meet
operating, capital expenditures and debt service requirements
for the next several years, although there can be no assurances
that existing levels of sales and normalized profitability, and
therefore cash flow, will be maintained.
Product Liability Claims
We are a defendant in lawsuits by plaintiffs alleging that they
suffer from respiratory medical conditions, such as asbestosis
or silicosis, relating to exposure to asbestos and silica, and
that such conditions result, in part, from the use of
respirators that, allegedly, were negligently designed or
manufactured. The defendants in these lawsuits are often
numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. Many of these claims are covered
by the Asset Transfer Agreement entered into on June 13,
1995 by Aearo Company and Aearo Corporation, on the one hand,
and Cabot Corporation and certain of its subsidiaries, or the
Sellers, on the other hand, or the 1995 Asset Transfer
Agreement. In the 1995 Asset Transfer Agreement, so long as
Aearo Corporation makes an annual payment of $400,000 to Cabot,
the Sellers agreed to retain, and Cabot and the Sellers agreed
to defend and indemnify Aearo Corporation and its subsidiaries
against, any liability or obligation relating to or otherwise
arising under any proceeding or other claim against Aearo
Corporation and its subsidiaries or Cabot or their respective
affiliates or other parties with whom any Seller directly or
indirectly has a contractual liability sharing arrangement which
sounds in product liability or related causes of action arising
out of actual or alleged respiratory medical conditions caused
or allegedly caused by the use of respirators or similar devices
sold by Sellers or their predecessors (including American
Optical Corporation and its predecessors) prior to July 11,
1995. To date, Aearo Corporation has elected to pay the annual
fee and intends to continue to do so. In addition, under the
terms of the Merger Agreement with AC Safety Acquisition Corp.,
Aearo Corporation agreed to make the annual payment to Cabot for
a minimum of seven years from the date of the consummation of
the Merger. Aearo Corporation and its subsidiaries could
potentially be liable for claims currently retained by Sellers
if Aearo Corporation elects to cease paying the annual fee or if
Cabot and the Sellers are no longer able to perform their
obligations under the 1995 Asset Transfer Agreement. Cabot
acknowledged in a stock purchase agreement that it and Aearo
Corporation entered into on June 27, 2003 (providing for
the sale by Cabot to Aearo Corporation of all of the common and
preferred stock of Aearo Corporation owned by Cabot) that the
foregoing provisions of the 1995 Asset Transfer Agreement remain
in effect. The 1995 Asset Transfer Agreement does not apply to
claims relating to the business of Eastern Safety Equipment, the
stock of which Aearo Company acquired in 1996.
38
The following table sets forth information concerning
respiratory claims filed against Aearo Company I in fiscal
2003, 2004 and 2005.
Silica
Asbestos
October 1,
October 1,
October 1,
October 1,
Through
2003 through
2004 through
Through
2003 through
2004 through
September 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2003
2004
2005
2003
2004
2005
Number of claims at beginning
135
6,629
11,087
564
4,143
4,282
Increases in number of claims
6,529
4,586
2,409
3,862
152
1,074
(1)
Number of claims settled
13
0
2
245
1
0
Number of claims dismissed without payment
22
128
780
38
12
1,232
Ending number of claims
6,629
11,087
12,714
4,143
4,282
4,124
Average amount per claims settled
$
24.36
N/A
$
16.99
$
83.24
$
0
$
0
Average amount per claims
    closed
(2)
$
9.05
$
0
$
0.04
$
72.06
$
0
$
0
(1)
The 1,074 new asbestos claims include 114 claims that allege
    exposure from clothing, which Aearo Company I never
    manufactured.
(2)
The difference between average amount for claims
    "settled" versus average amount for claims
    "closed" is that some claims are dismissed or
    withdrawn without having to pay a settlement or any amount. The
    "average amount per claim closed" includes claims
    closed by both settlement and by dismissal without payment,
    while the "average amount per claim settled" is for
    claims settled.
In addition to the above claims, we may agree to pay a share of
the settlement and defense costs in particular cases even though
we are not named as a defendant because of agreements with prior
owners of the brand and/or because of allegations that we have
some risk of legal liability as a successor ("Additional
Claims"). During fiscal 2005, we paid a total of
$1.6 million for settlement, administrative and defense
costs resulting in the settlement of 4,325 silica and asbestos
claims that were settled between October 1, 2002 and
September 30, 2004 involving both claims in which we were
named as a defendant and Additional Claims. During fiscal 2005,
we paid a total of $0.7 million for administrative and
defense costs involving both claims in which we were named as a
defendant and Additional Claims. Also in fiscal 2005, in
addition to the cases in the above chart, we paid
$0.3 million to settle approximately 4,449 claims,
involving a still being determined ratio of claims in which
Aearo Company I was named as a defendant and Additional
Claims and therefore the above table does not reflect the
settlement of these claims. In addition, we may receive the
benefit of releases in some additional cases settled by the AO
Defense Group regardless of whether or not any claim was made
against it.
The above information was based on data compiled by a third
party that tracks numbers of cases and settlements on behalf of
the "AO Defense Group" and is believed to be
materially accurate. This information may be subject to future
adjustment in light of new information becoming available. The
AO Defense Group is a voluntary association of current and
former manufacturers of the "AO Safety" brand of
respirators and certain of their insurers in which we
participate and through which all of our settlements have been
handled in the relevant years. Also, during fiscal 2005, there
may have been claims settled by and fully funded by the insurers
of Eastern Safety Equipment Co., Inc., a subsidiary of Aearo
Company which is in the process of winding up its affairs.
At September 30, 2005 and September 30, 2004, we
recorded liabilities of approximately $5.1 million and
$5.4 million, respectively, which represent reasonable
estimates of our probable liabilities for product liabilities
substantially related to asbestos and silica-related claims as
determined by us in consultation with an independent consultant.
The $0.3 million reduction in the reserve, net of new
accruals which added to the reserve, since September 30,
2004 is primarily attributed to the payment of
$1.6 million, as referenced above, to pay costs attributed
to settlement, administrative and defense costs that had been
reached over a two year
39
time period, $0.7 million for administrative and defense
costs involving both claims in which we were named as a
defendant and Additional Claims, the payment of
$0.3 million, as referenced above, for the settlement of
4,445 claims during fiscal 2005, and $0.1 million, net of
insurance proceeds, to settle a safety eyewear product liability
claim. This reserve is re-evaluated periodically and additional
charges or credits to results of operations may result as
additional information becomes available. Various factors
increase the difficulty in determining our potential liability,
if any, in such claims, including the fact that the defendants
in these lawsuits are often numerous and the claims generally do
not specify the amount of damages sought. Additionally, the
bankruptcy filings of other companies with asbestos and
silica-related litigation could increase our cost over time. In
light of these and other uncertainties inherent in making
long-term projections, the Company has determined that the
five-year period through fiscal 2010 is the most reasonable time
period for projecting asbestos and silica-related claims and
defense costs. It is possible that we may incur liabilities in
an amount in excess of amounts currently reserved. However,
taking into account currently available information, historical
experience, and the 1995 Asset Transfer Agreement, but
recognizing the inherent uncertainties in the projection of any
future events, it is management's opinion that these suits
or claims should not result in final judgments or settlements in
excess of our reserve that, in the aggregate, would have a
material effect on our financial condition, liquidity or results
of operations.
Contractual Obligations
We have the following minimum commitments under contractual
obligations as of September 30, 2005:
2011
2006
2007 – 2009
2010 – 2011
and After
Total
Capital lease obligations
$
353
$
631
$
122
$
—
$
1,106
Operating lease obligations
5,757
8,800
4,383
1,855
20,795
Mortgage obligations
2,048
—
—
—
2,048
Purchase obligations
5,994
10,972
6,138
1,545
24,649
Respiratory commitment
400
800
800
200
2,200
Deferred compensation
—
—
—
3,422
3,422
Long term debt and interest
21,702
43,403
56,163
435,203
556,471
Total
$
36,254
$
64,606
$
67,606
$
442,225
$
610,691
The amounts for long term debt above include both interest and
principal payments. We paid approximately $4.2 million for
taxes worldwide in fiscal 2005 and do not anticipate significant
changes to our tax obligations in 2006. We had approximately
$1.6 million of letters of credit outstanding as of
September 30, 2005 and do not anticipate significant
changes to our outstanding letters of credit in the future. We
plan to fund approximately $1.5-$2.2 million per year for
pension obligations over the next 5 years. The above
contribution level was determined by considering many factors
such as the funded status of the plan, the long term rate of
return on plan assets of 8%, the duration of plan liabilities,
workforce characteristics and changes to the plan features. The
goal of the funding strategy is to achieve full funding while
minimizing the year to year volatility of contribution payments.
The deferred compensation plan is fully funded by investments
made in a rabbi trust.
40
We expect to have the following minimum commitments under
contractual obligations as of September 30, 2005 after
giving effect to this offering and the use of proceeds thereof:
2011
2006
2007 – 2009
2010 – 2011
and After
Total
Capital lease obligations
$
$
$
$
$
Operating lease obligations
Mortgage obligations
Purchase obligations
Respiratory commitment
Long term debt and interest
Total
$
$
$
$
$
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements or financing
arrangements involving variable interest entities.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to changes in foreign
currencies, interest rates and commodity pricing. We use
derivatives to mitigate the impact of changes in foreign
currencies and interest rates. All derivatives are for purposes
other than trading. We account for derivatives pursuant to
SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. We have
formally documented our hedging relationships, including
identification of hedging instruments and the hedge items, as
well as our risk management objectives.
Foreign Currency Risk
Our results of operations are subject to risks associated with
operating in foreign countries, including fluctuations in
currency exchange rates. While many of our selling and
distribution costs are denominated in Canadian and European
currencies, a large portion of product costs are
U.S. Dollar denominated. As a result, a decline in the
value of the U.S. Dollar relative to other currencies can
have a favorable impact on our profitability and an increase in
the value of the U.S. Dollar relative to these other
currencies can have a negative effect on our profitability. Our
Swedish operations are also affected by changes in exchange
rates relative to the Swedish Krona. A decline in the value of
the Krona relative to other currencies can have a favorable
impact on our profitability and an increase in the value of the
Krona relative to other currencies can have a negative impact on
our profitability.
To mitigate the effects of changes in foreign currency rates on
results of operations and cash flows, we execute two hedging
programs, one for transaction exposures, and the other for cash
flow exposures in foreign operations. For the year ended
September 30, 2003, the impact on earnings for trade
activities was a net gain of $0.3 million. For the year
ended September 30, 2004 the impact on earnings for trade
activities was a net loss of $0.5 million. For the year
ended September 30, 2005, the impact on earnings for trade
activities was minimal.
In order to implement the transaction hedging program, we
utilize forward foreign currency contracts for up to 30-day
terms to protect against the adverse effects that exchange rate
fluctuations may have on the foreign-currency-denominated trade
activities (receivables, payables and cash) of foreign
subsidiaries. These contracts have not been designated as hedges
under SFAS No. 133 and, accordingly, the gains and
losses on both the derivative and foreign-currency-denominated
trade activities are recorded as transaction adjustments in
results of operations. The impact on results of operations was a
loss of approximately $0.6 million, a loss of approximately
$0.2 million and a gain of approximately $1.0 million
for the years ended September 30, 2005, 2004 and 2003,
respectively. In regard to our cash flow hedging program, we
comply with SFAS No. 133 which requires that
derivative instruments be recorded in the balance sheet as
either an asset
41
or liability measured at its fair value. During the year ended
September 30, 2005, we entered into 36 new forward foreign
currency contract derivatives that are designed to protect us
against exchange rate movement during fiscal 2006. As result of
the new forward currency contracts, we have recorded a
derivative payable of $0.6 million at September 30,
2005. For the years ended September 30, 2004 and 2003, we
reclassified into earnings losses of $0.8 million and
$2.0 million, respectively, resulting from the exercise of
forward foreign currency contracts. All forward foreign currency
contracts were determined to be highly effective whereby no
ineffectiveness was recorded in earnings. In addition, we limit
the foreign exchange impact on the balance sheet with debt
denominated in Euros. We estimate that a hypothetical 1% adverse
change in foreign currency exchange rates relative to the
U.S. Dollar would impact net income by $0.4 million
for our consolidated operating results.
Interest Rates
We are exposed to market risk from changes in interest rates.
From time to time we will utilize interest rate instruments to
reduce the impact of either increases or decreases in interest
rates on our floating rate debt.
We had approximately $30.5 million of variable rate debt
protected under an interest rate cap arrangement, which expired
December 31, 2004. The approximate fair value of the cap at
September 30, 2004 was $0.1 million. We did not elect
hedge accounting treatment for the interest rate cap as defined
under SFAS No. 133 and, as a result, fair value
adjustments were charged directly to other charges (income),
net. During the twelve months ended September 30, 2004
there was a $0.1 million gain in earnings.
Management is of the opinion that it is well positioned to
manage interest rate exposures in the short term. We continue to
monitor interest rate movements and have mitigated the risks of
potential interest rate fluctuations through the use of the
aforementioned interest rate instruments. We estimate that a
hypothetical 1% increase in interest rates would increase
interest expense by $1.2 million.
Commodity Risk
We are subject to market risks with respect to industry pricing
in paper and crude oil as it relates to various commodity items.
We are also exposed to market risks for electricity, fuel oil
and natural gas consumed in our operations. Items with potential
risk of price volatility are paperboard, packaging films,
nylons, resins, propylene, ethylene, plasticizer and freight. We
manage pricing exposures on larger volume commodities such as
polycarbonate, polyols and polyvinyl chloride via price
negotiations utilizing alternative supplier competitive pricing.
We source some products and parts from Far East sources where
resource availability, competition, and infrastructure stability
has provided a favorable purchasing environment. We do not enter
into derivative instruments to manage commodity risks.
42
INDUSTRY
Personal Protection Equipment
Overview
The personal protection equipment market includes equipment and
clothing worn for protection against bodily injury. Products
include earmuffs and earplugs, communication headsets for noisy
environments, safety eyewear and goggles, respirators, fall
protection equipment, head protection equipment, protective
clothing, gloves, footwear and other products. The global PPE
market is approximately $15 billion in annual sales. Within
this global market, we compete primarily in the approximately
$4 billion segment of the market represented by hearing,
eye, face, head, respiratory and fall protection products.
Personal protection products are used primarily in the following
end-markets:
•
Manufacturing.
To protect workers from plant hazards such
    as industrial noise, dangerous gases, flying particles that may
    cause eye injuries and acidic, caustic and high temperature
    materials.
•
Construction.
To protect workers from the risk of falling
    while working at heights, heavy falling objects, airborne dust
    and debris and construction equipment noise.
•
Telecommunications, gas and electricity.
To protect
    workers from electrical shock and acidic and caustic chemicals.
•
Public safety and military.
To prevent bodily harm, and
    to protect the eyes and ears during the use of firearms,
    explosives and other weaponry.
•
Consumer.
To protect consumers in home improvement and
    maintenance projects.
Growth Drivers
Historically, overall demand for personal protection equipment
has been relatively stable due to government and industry
regulations, a diverse end-user customer base and the
non-discretionary and consumable nature of the products. The
factors outlined below are the primary growth drivers of the PPE
industry:
•
Increased regulatory standards and enforcement.
The
    enforcement of safety regulations and an increased commitment to
    worker safety are key drivers of growth in the PPE industry.
    Regulatory and industry agencies such as OSHA, NIOSH and
    American National Standards Institute establish standards and/or
    enforce regulations with regard to worker safety. These
    regulatory bodies are active in updating and establishing new
    regulatory standards and enforcing those standards through
    strict compliance measures. Most regulatory changes tend to
    increase PPE use by better defining the requirements for
    compliance programs or by requiring PPE use against a new or
    formerly underestimated hazard. Evolving industry regulations
    represent opportunities for PPE innovators to drive growth.
•
Increased global adoption of workplace safety standards.
Emerging markets represent a significant opportunity for
    growth in the PPE industry. Emerging markets such as China,
    Russia and Eastern Europe are experiencing significant growth in
    manufacturing and plant employment and rapid infrastructure
    improvements. At the same time, multinational companies are
    implementing their global safety standards in each of their
    locations, thereby increasing the focus on worker safety and
    increasing local pressure to keep up with Western safety
    standards and business practices. This trend is creating
    opportunities for PPE manufacturers to increase sales
    internationally.
•
Increased awareness of the benefits of workplace safety.
Companies are realizing that the economic costs of a robust
    worker safety program are relatively small in relation to their
    overall maintenance, repair and overhaul budgets and the cost of
    regulatory fines, lost productivity and potential worker
    compensation lawsuits.
43
•
Improving compliance through product comfort and fashion
    appeal.
PPE manufacturers are increasingly focused on
    product comfort and ergonomics as a means to increase PPE usage.
    Comfortable, well-fitting products help overcome worker
    reluctance to use PPE products and therefore appeal to the
    safety managers who are concerned with improving regulatory
    compliance and who typically make PPE purchasing decisions.
    Fashion and style have also become key growth drivers,
    especially for safety glasses. The development of more stylish
    and fashionable products has driven demand for safety eyewear by
    appealing to a broader audience and increasing usage.
•
Growing opportunities in the consumer segment.
The
    consumer market is a growing segment of the PPE marketplace as
    more consumers become aware of the benefits provided by personal
    protection equipment and are attracted to consumer-oriented
    styles and branding. PPE in the consumer marketplace is used by
    small contractors and DIY consumers during projects such as
    construction, painting, woodworking, remodeling and refurbishing
    and lawn and garden work and during active outdoor activities
    where there are high noise or airborne particle levels.
•
Projected growth in the PPE construction market.
The
    approximately $300 million U.S. construction PPE
    market, including fall protection equipment, has become an
    important growth category as employment growth, regulatory
    changes and disaster rebuilding efforts take effect. According
    to the U.S. Bureau of Labor Statistics, construction
    employment grew from 5.3 million in 1995 to
    7.0 million in 2004 and is expected to continue to grow
    over the next five years. In addition, the industry's
    relatively poor track record for worker safety has drawn
    increased scrutiny and heightened safety standards from
    regulatory agencies.
•
Increasing military opportunities.
As leading militaries
    fundamentally reformulate battlefield requirements, there is an
    increasing opportunity for PPE products that improve operational
    efficiency and better protect the soldier. While militaries are
    reviewing a wide range of possibilities, several key focus areas
    include protecting soldiers from loud noises such as explosions;
    protecting their eyes while improving their visual acuity; and
    enabling significantly improved communication capability on the
    battlefield. Notably, the U.S. military has increased its
    purchase of headsets and associated equipment as it searches for
    technologies, such as tactical and active noise reduction
    headsets, that improve battlefield communication while reducing
    the risk of hearing loss.
Industry Participants and Basis for Competition
The global PPE market is highly fragmented. Participants in the
industry include small, single-product companies, larger
multi-segment safety companies such as us, Bacou-Dalloz, Mine
Safety Appliances, Ansell and Norcross, as well as several
multinational corporations with product offerings generally
limited to products adjacent to their core business. Competition
is primarily based on product characteristics (such as design,
style and functional performance), product quality, service,
brand name recognition and, to a lesser extent, price.
Competition in the PPE industry occurs at several levels:
(i) the regulatory level where industry standards are
adopted; (ii) the distributor level where products are
sold; (iii) the purchaser level where safety managers
determine product specifications; and (iv) the end-user
level where workers select specific products for use.
•
Regulatory level.
As noted above, the PPE Industry is
    defined by government regulations set by agencies such as OSHA
    in the U.S. and the CEN in the European Union. New regulations
    and changes in regulations result in new opportunities, and
    larger competitors work closely with regulatory agencies to help
    define these new regulatory standards. Products are required by
    law to meet standards and pass specified, rigorous testing
    protocols before they are introduced to the market; larger PPE
    manufactures typically benefit from this market dynamic, as they
    tend to have superior research and development capabilities and
    experience in product certification.
•
Distributor level.
In general, the industry's
    products are sold through industrial and safety products
    distributors. These distributors focus on offering a
    comprehensive product range from dependable manufacturers with
    well know brand names. As a result, distributors generally look
    to partner with
44
manufacturers that can offer a range of products with recognized
    brand names and a reputation for product quality and superior
    service records. Distributors often are reluctant to change
    suppliers in order to avoid having to repeat the specification
    process with their customers.
•
Purchaser level.
Safety directors, plant managers or site
    managers typically make the purchase decisions at the company
    level. Generally, the purchase decisions are based on
    (i) product compliance with applicable safety standards and
    end-user specific needs and (ii) the likelihood that
    workers will use the product. Frequently, multiple products are
    provided to end-users to help ensure compliance. Only a few of
    the larger PPE manufacturers have the sales force and dedicated
    resources to work directly with end users to pair products with
    end-users' specific needs, train them on the proper use of
    the products and help them manage their safety supply chain.
•
End-user level.
Plant and shop floor workers select the
    products to be used based on fit, comfort, style and brand.
    End-users typically prefer equipment with premium brands that
    have a reputation for style, quality and comfort while providing
    the necessary level of protection.
Energy Absorbing Composites
We compete, through our Specialty Composites division, in the
energy absorbing composites industry, which develops and
produces materials that reduce, control or eliminate excess
noise, vibration and thermal energy.
Energy absorbing composites are used primarily in the following
end-markets:
•
Precision Electronics Equipment.
Advanced energy-control
    materials and technology for the design of quiet, durable and
    accurate precision electronic devices.
•
Business/ Regional Jet Aircraft.
Highly customized
    solutions designed to control the interior levels of noise,
    vibration and thermal conditions in order to increase passenger
    comfort and improve operational efficiency.
•
Heavy Duty Truck.
Design solutions for truck
    manufacturers to meet regulatory pass-by noise standards and
    thermal under hood and in-cabin requirements.
•
Industrial OEM.
Thermal/acoustic solutions to
    manufacturers in a wide range of industries including
    applications for marine, power generators, garage door openers,
    pumps, compressors and electrical systems.
The primary factors driving growth include: (i) new
products that require unique energy absorbing solutions such as
new consumer electronics; (ii) new regulations impacting
the markets served such as new emission and "no-idle"
laws in the trucking market; (iii) manufacturing growth in
developing markets such as China; and (iv) increased
applications for energy absorbing materials. Over the next
several years, key end markets such as precision electronics and
business and regional jets are expected to grow significantly
due to trends in consumer electronics and the recovery of the
aerospace market.
The global energy absorbing composites market is highly
fragmented, with few participants serving all the primary
end-markets or geographies.
Companies in this industry compete on the basis of engineering
services, solution package characteristics (functional
performance and installation ease), product quality, service,
reputation and price. Industrial OEM product designers generally
base their purchasing decisions on (i) the extent to which
the solution meets design goals, including noise, vibration,
shock or thermal performance along with government, industry or
environmental regulations and (ii) the overall installed
cost, including purchased components and installation
considerations. Due to the technical nature of the solutions in
most end markets, solutions are developed directly with customer
design engineers. This fosters a direct channel sales approach
and creates a significant barrier to entry.
45
BUSINESS
We are a global leader in the hearing, eye, face, head,
respiratory and fall protection segments of the estimated
$15 billion global personal protection equipment, or PPE,
market. We manufacture hearing protection devices, communication
headsets, prescription and non-prescription safety eyewear, face
shields, hard hats, reusable and disposable respirators, fall
protection equipment and other safety products. Our products are
marketed in over 70 countries under the well-recognized brand
names AOSafety®, E-A-R®, Peltor® and
SafeWaze®. We also manufacture a wide array of
energy-absorbing materials that are incorporated into other
manufacturers' products to control noise, vibration and
thermal energy. These products are marketed under our brand name
E-A-R® Specialty Composites. We believe that the strength
of our brand names, our reputation for developing and providing
high-quality, innovative products, our intensive coverage of
multiple distribution channels targeting a wide array of
end-users, our broad product offering, and our commitment to
providing exceptional customer service have enabled us to
achieve leading positions in the market segments in which we
compete. For the year ended September 30, 2005, our net
sales were $423.4 million.
Segments
We operate three business segments:
•
Safety Products;
•
Safety Prescription Eyewear; and
•
Specialty Composites.
Through these three segments we sell a wide range of products to
industrial distributors, as well as into the consumer, military
and construction channels and directly to industrial companies.
Please see Note 13 to our consolidated financial statements
included elsewhere in this prospectus for more detailed
financial information regarding our business segments as well as
sales by principal geographic area.
Safety Products Segment
The Safety Products segment manufactures hearing protection
devices, communication headsets, non-prescription safety
eyewear, face shields, hard hats, reusable and disposable
respirators, fall protection equipment and other safety
equipment. These products are sold under our AOSafety®,
E-A-R®, Peltor® and SafeWaze® brand names.
The following is a summary of Safety Product's major
categories and product lines:
Hearing Protection:
Our hearing protection category
includes passive hearing protection products as well as
communication headsets with hearing protection. Our hearing
protection category generated gross sales (which we define as
net sales plus freight revenue, cash discounts and rebates) of
$207.5 million during our fiscal year ended
September 30, 2005.
Passive Hearing Protection.
Passive hearing protection
products are used in work environments where high noise levels
could lead to hearing loss. Our passive hearing protection
products primarily consist of disposable and reusable earplugs
and passive earmuffs. We have been a leader in hearing
conservation research and development since 1972, when we first
introduced the cylindrical disposable earplug. We believe that
we are the #1 global competitor in passive hearing
protection.
The earplug's low expense and easy application are among
the key factors in making it the most popular product used in
the hearing protection market. The majority of earplugs are made
of scientifically formulated polyvinyl chloride, or PVC, and
polyurethane, or PU, foams. The earplug market is segmented into
disposable and reusable. The disposable earplug market is
further segmented into "roll-down" plugs and
"push-in" plugs. Roll-down earplugs are designed to be
"rolled down" (i.e., compressed) before being inserted
into the ear, at which point they slowly "recover" to
fill the ear canal, thereby providing the desired protection.
Push-in earplugs, which are not compressed before insertion,
combine the easy use and fit benefits of a reusable
46
earplug with the cost and comfort advantages of a disposable
earplug. Reusable earplugs, while initially more expensive than
disposables, offer savings over the long term.
We offer a wide range of products for each of the disposable,
reusable and earmuff product categories. Our E-A-R®
Classic® disposable earplug is the market leader due to its
unique slow-recovery characteristics that provide superior fit,
protection and comfort. Its yellow color is a registered
trademark in the United States, Canada, Belgium, Netherlands and
Luxembourg. Our disposable earplugs are available corded and
uncorded and in a variety of packaging options. In the reusable
earplug segment, we offer our patented E-A-R®
UltraFit® and E-A-R® Express® products. The
E-A-R® Express® product features a polyurethane pod
and a short plastic stem to facilitate sanitary and easy
insertion of the plug into the ear. We also offer the
"Flex"
tm
line of "semi-aural" banded products, featuring
articulating arms that allow for use in multiple positions and
for easy storage around the neck.
In the military channel, we sell the E-A-R® Combat
Arms
tm
earplug. Its patented design, specially developed for the armed
forces and law enforcement personnel, allows wearers to hear
low-level sounds critical to mission safety (e.g., conversation,
footsteps and rifle bolts) while the plugs' filters are
engineered to provide instant protection from high level noises
(e.g., weapons fire and explosions). Combat
Arms
tm
has been sold to the U.S., Canadian, French, British and
Australian militaries.
We also manufacture, assemble and sell a broad line of passive
earmuffs under the E-A-R® and Peltor® brand names.
These headsets provide effective and comfortable hearing
protection in a variety of noise environments, can be worn
over-the-head, under-the-chin or attached to a helmet and are
made of durable, lightweight non-conductive plastic. We believe
that our Peltor Optime Series is the #1 selling earmuff
line in the world.
Communication Headsets with Hearing Protection.
We offer
a rapidly growing full line of technology-driven hearing and
communication headset solutions. We believe that we are
the #1 competitor in Europe and the #2 competitor in
North America in communication headsets.
Communication headsets are technologically advanced, premium
priced products that are designed to offer a variety of
communication and/or entertainment solutions while ensuring
reliable hearing protection. In general, these products are
equipped with noise attenuation features that are integrated
into a variety of technologies like FM radio, two-way radio,
Bluetooth and duplex wireless communication to permit the user
to engage in a broad array of activities while receiving
effective hearing protection. For example, tactical headsets are
designed for impulse noise environments to protect against
harmful loud noises such as gunfire or explosions, while at the
same time amplifying low decibel ambient sounds. These products
primarily serve the military, law enforcement, industrial, fire
safety and recreational (e.g., hunting and motor sports) markets.
The communication headsets market is primarily driven by new
technologies and product developments that expand end-user
applications. We believe we have led the adaptation of
entertainment functions, such as AM/ FM radio, for use with
electronic ear muffs. Employers, particularly in Europe,
increasingly regard these as tools to reduce worker monotony and
improve productivity. These products are also used in the
consumer channel in air travel, while mowing the lawn or
undertaking DIY projects. In addition, we are pursuing
developments in active noise reduction, or ANR, technology and
wireless duplex technology (simultaneous multi-user
communication) in military headsets are believed to
significantly increase the safety and efficiency of military
personnel while enabling them to communicate more effectively in
battlefield situations. The U.S. military has increased its
purchase of communication headsets and related material by 300%
in the last three years as it re-thinks its communication needs.
We entered the communication headset market in 1996 with our
acquisition of Peltor Communications. Peltor has over
50 years of experience in the communications field and is
widely considered the leader in communication headset and
passive earmuffs in Europe. We strengthened our North American
communication headset footprint in 2000 with the acquisition of
Norhammer, Peltor's North American master distributor.
Through our Peltor® brand, we have a long-standing
reputation for developing sophisticated, high quality products
with maximum user comfort, performance, protection and design
aesthetics. This reputation
47
has positioned the Peltor® brand at the higher end of the
market. Our leading products include: the WorkTunes® and FM
Radio
tm
family of products, which have become increasingly popular
across a range of industrial and consumer applications due to
enhanced aesthetics and easy-to-use controls; the Ground
Mechanic® headset, featuring the PowerCom and
LiteCom
tm
product lines, which allow airline ramp crews to maintain
constant communication with the cockpit crew; and the
Peltor®
PTL
tm
("Push to Listen") over-the-head earmuff, which allows
normal communication at the touch of a button while still
providing protection from loud noises.
Eye, Face and Head Protection:
Our eye, face and head
protection category includes non-prescription eye protection as
well as face and head protection products. Our eye, face and
head protection products generated gross sales of
$73.4 million during our fiscal year ended
September 30, 2005.
Non-Prescription Eye Protection.
Non-prescription eye
protection is used in work environments where a number of
hazards present a danger to the eyes, including dust, flying
particles, metal fragments, chemicals, extreme glare and optical
radiation. The basic categories of eyewear protection products
are non-prescription, or "plano" eyewear and goggles.
Plano eyewear accounts for the majority of our sales in this
category and encompasses a full range of protective needs,
including visitor spectacles, over-the-glass, single lens and
dual lens products. Within these categories are a variety of
styles, frame colors and lens options that include a number of
adjustability and comfort features. Many of these AOSafety®
and Peltor® products feature our proprietary
DX
tm
coating, combining the benefits of chemical and scratch
resistance with anti-fog properties. Flywear®,
Maxim
tm
,
X-Series
tm
,
Metaliks®,
Fuel
tm
,
X-Factor® and
X.Sport
tm
eyewear offer modern sport styling with numerous comfort
features.
Nuvo
tm
eyewear has the classic dual lens look redesigned for
today's worker. Our Lexa® eyewear line blends a
wrapping, single lens with a lightweight, frameless design.
Virtua
tm
offers stylish eyewear at an economical price. Visitor
spectacles and over-the-glass products are represented by our
Seepro® and Tourguard® models.
We also sell a broad line of goggles, which are typically
required 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, we offer a variety of
vented and non-vented goggles with varying fields of view
including Dust
GoggleGear
tm
for Lexa®, Splash
GoggleGear
tm
for Lexa® and Centurion®, all under the AOSafety®
brand.
In order to optimize our cost of product, we will either
manufacture or import our non-prescription eye protection
products from Asia. During fiscal year 2005, we imported
approximately 40% of these products.
Face and Head Protection.
Face and head protection are
used in work environments where a number of hazards present a
danger to the face and head, including flying particles, metal
fragments, chemicals, extreme glare, dust, optical radiation and
items dropped from above. The basic categories of face and head
protection are faceshields and hard hats.
Faceshields are designed to protect against heat, splash and
flying particles and are worn in conjunction with other
protective equipment, such as plano eyewear and respirators. We
offer a wide variety of use specific faceshields under both the
AOSafety® and Peltor® brands. The patented AO
TuffMaster® line of faceshields is one of the leading
brands in the market.
We also sell a broad line of hard hats, including
"bump" caps, full-brim hats and traditional hard hats,
featuring four or six point suspension, ratchet adjustment, and
a wide selection of colors and custom imprinting. The XLR8®
line of hard hats represents the latest design and functionality
under the AOSafety® brand.
Other Safety:
Our other safety category includes
respiratory and fall protection products as well as other safety
equipment. Our other safety category generated gross sales of
$49.5 million during our fiscal year ended
September 30, 2005.
Respiratory Protection.
We offer a broad line of
respiratory protection products in North America primarily
focused on the U.S. consumer channel.
48
Respiratory protection products are used to protect against the
harmful effects of contamination and pollution caused by dust,
gases, fumes, sprays and other contaminants. The respiratory
market can be segmented into the following product categories:
disposable masks; air-purifying respirators; self-contained
breathing apparatuses; and airline respirators.
We offer a broad line of disposable dust and mist masks;
cartridge-equipped quarter, half and full-face respirators; and
"escape" respirators (a single-use respirator for
emergencies) under the AOSafety® brand. We focus on product
innovation by improving ease of use, convenience and comfort.
Our leadership in design and innovation is manifested in our
product offerings, including the QuickLatch® 8000 series
half mask respirator and the QuickFit® full face mask
respirator, each featuring a patented on-and-off latching system
that can be accomplished with just one hand. The
QuickLatch® 8000 line is increasing penetration in the
industrial and retail paint channels.
Fall Protection.
We entered the fall protection market in
2003 with the acquisition of SafeWaze, Inc. We offer a line of
fall protection equipment under the AOSafety®
SafeWaze® brand name. Based on management beliefs regarding
competitors in the North America construction market, we
estimate that we currently hold the #3 position in the
North American construction market, with growing market share in
the industrial and consumer markets.
Fall protection consists of equipment used to protect workers
operating at heights, and primarily serves the construction,
industrial and consumer markets. Types of equipment are
traditionally broken up into two categories: soft goods and hard
goods. Soft goods consist of the items a worker wears up to and
including an anchor point device such as harnesses, lanyards,
self-retracting lifelines, miscellaneous anchoring devices and
hardware. Hard goods refer mainly to engineered, permanent
anchor points systems traditionally built into structures. We
focus mainly on the soft goods market. Our products are
specifically designed to not only protect a worker if a fall
occurs, but to allow maximum comfort, maneuverability and
ergonomic safety while in use.
Safety Prescription Eyewear Segment
The Safety Prescription Eyewear, or SRx, segment manufactures
and sells products under the AOSafety® brand name that are
designed to protect the eyes of workers who require corrective
lenses from the typical hazards encountered in the industrial
and other work environments. We purchase component parts, lenses
and the majority of our frames from various suppliers. We grind
and shape the lenses to the end-user's prescription, and
then assemble the glasses using the end-user's choice of
frame. We view our ability to provide individual attention to
each patient through Company-employed, as well as independently
contracted eye-care professionals, as an essential part of our
SRx business. These products serve a wide variety of end-user
markets such as utilities, transportation, industrial
manufacturing and federal, state and local governments.
Specialty Composites Segment
Our Specialty Composites segment manufactures a wide array of
energy-absorbing composites that control noise, vibration and
shock and are incorporated into other manufacturers'
products to control noise, vibration and shock. These materials
are used in applications such as noise and vibration damping for
precision electronics, integrated acoustical systems for
business and regional jet aircraft, thermal insulation and
damping for heavy duty trucks and vibration and noise control
for industrial products.
Our success in this specialized industry is based on our ability
to leverage our two main core competencies: (1) our
proprietary computer design know-how, which positions us as a
design partner with industrial OEM customers to create
integrated thermal, acoustic and shock solutions; and
(2) our unique ability to design specialized
high-performance materials such as PU, PVC and thermoplastic
elastomers, or TPE's, for a variety of end uses, including:
Tufcote® acoustical products; Confor® for cushioning
and shock protection; ISODAMP® for reduction of mechanical
vibration; ISOLOSS® for LCD gasketing; and VersaDamp®
for shock protection. Specialty Composites also produces the
specially formulated foams used in the manufacture of Safety
Products' earplugs.
49
Specialty Composites' marketing efforts are aimed at four
key strategic segments worldwide: aircraft, precision electronic
equipment, heavy-duty trucks and industrial original equipment
manufacturing, or OEM.
Aircraft Market.
We provide integrated thermal acoustic
systems for aircraft manufacturers and refurbishers worldwide.
We have integrated a full suite of computer assisted design
software to create integrated thermal/acoustic solutions
primarily for business and regional jets. These highly
customized solutions are designed to control the interior levels
of noise, vibration and thermal conditions in a weight-efficient
manner, allowing aircraft OEMs to produce aircraft that have
desirable passenger comfort and operational efficiency
characteristics and that meet FAA regulations.
Precision Electronic Equipment Market.
This global market
has increasingly focused on compact portable devices that
require durability and lower noise levels. Our design expertise
and proprietary energy absorbing materials and technology are
critical to enterprise and consumer electronics product
development, helping in the design of quieter, more rugged and
higher speed devices. Among the key applications for which we
have developed proprietary solutions are noise/vibration
reduction and shock protection for hard disk drives in portable
and desk top computers, hand held portable devices, data servers
and data storage arrays.
Heavy-Duty Truck Market.
We provide design solutions for
truck manufacturers to meet regulatory pass-by noise standards
and acoustical and thermal underhood and in-cabin requirements.
We design light-weight integrated systems for the truck market
that include: damped or resilient gaskets and seals that absorb
the vibration between body parts; specialty foam seating that
reduces the level of vibration that the operator feels; cabin
interior liners and floor and door panel damping that reduce the
noise level and provide thermal insulation of the cabin; and
under hood barrier/absorber to reduce noise emission to the
surroundings.
Industrial OEM Market.
Our energy-control technology
base, broad product line and depth of engineering experience
enable us to provide highly effective, targeted solutions to
manufacturers in a wide range of industries. Our engineered
systems provide cost-effective acoustical and thermal solutions
that include noise control treatments for pumps, power
generators and compressors; vibration damping for garage door
openers and laboratory centrifuges; shock protection for
personal protection apparel; and high performance sealing
solutions for electrical control boxes and electrical systems.
Our Competitive Strengths
Between fiscal years 2003 and 2005, our net sales increased at a
compounded annual growth rate of 15.7%, and for fiscal year
2005, we achieved gross margins of 48.8% and operating income
margins of 14.4%. We believe that our ability to generate these
exceptional growth rates and margins results from the following
competitive strengths:
Global market leader.
We are positioned as one of the few
large, global manufacturers in the highly fragmented PPE market.
Approximately 80% of our net safety products sales are derived
from products in which we estimate we hold the #1
or #2 global market position. For example, we believe we
are the #1 manufacturer of passive hearing protection
equipment, the #1 manufacturer of communication headsets
and the #2 manufacturer of eye protection products in the
world. Additionally, we believe we are #1 in the market for
safety products sold through the U.S. DIY/hardware channel.
Leading global brand names.
We market our broad range of
products primarily under four well-recognized brand names:
E-A-R®, AOSafety®, Peltor® and SafeWaze®.
Our yellow "E-A-R® Classic®" earplug color
is a registered trademark in the United States, Canada, Belgium,
Netherlands and Luxembourg, and customers associate the yellow
color with a brand they have used and trusted since its
introduction in 1972. AOSafety® has its roots in the
American Optical Company, which introduced the first safety
glasses in 1910 and started its Industrial Eyewear Division in
1923. Peltor® was founded in Sweden in the early 1950s and
introduced the first ear muff for hearing protection. Our strong
brand-name recognition stems from our significant investment in
the marketing and promotion of our brands, and our reputation
for manufacturing high quality, innovative products and
providing high levels of customer service. The recognition of
our brands and products facilitates our sales and marketing
efforts and provides a platform for line extensions and
50
new product launches. We believe that brand recognition and
reliability are key factors in our customers' selection
process as these products prevent personal injury.
Successful history of product innovation.
We have
historically grown and gained market share through the
introduction of new and innovative products. We have
accomplished this by significantly increasing marketing and
research and development resources dedicated to new or improved
product development, which has allowed us to introduce an
increasing number of new or improved products over the last five
years. Notably, we have made recent investments in new
technologies such as application specific integrated circuit and
Bluetooth technology for use in communication headsets, and we
are currently investing in new platforms for active noise
reduction and duplex two-way communication. We have also
invested in China, establishing design, sourcing and sales
capabilities to enable us to sustain and expand our innovation
processes. Our investment is supported by our collaborative new
product development program, whereby our product managers work
closely with end-users to address defined problems and create
effective, comfortable and fashionable high-performance safety
products. As a result of our efforts, we have achieved
significant sales growth from new product introductions. During
fiscal 2005, more than one-third of our combined gross Safety
Products and Safety Prescription Eyewear sales were derived from
new or improved products (including line extensions and existing
products sold into new geographies and channels) introduced
since fiscal 2000. We continue to maintain a strong new product
pipeline, with more than 75 new or improved products (including
line extensions and existing products sold into new geographies
and channels) under development.
Leader in energy absorbing composites market.
Between
fiscal years 2002 and 2005, net sales of our Specialty
Composites segment increased at a compounded annual growth rate
of over 20%. We have achieved this growth by focusing on high
growth, value-added segments of the energy absorption industry.
For example, we manufacture damping materials for the hard disk
drive included in electronic products such as Apple
Computer's iPod. We compete primarily on the basis of our
leadership in foam chemistry and the design of integrated
thermal/acoustic systems.
Diverse business mix.
We derive our sales from a wide
range of end markets including the manufacturing, consumer,
military, construction, utility, transportation, government and
telecommunications markets. Over the last several years, we have
specifically targeted the consumer, military and construction
markets, which represented approximately 24% of our fiscal 2005
sales compared to less than 18% of our sales in fiscal 2002. In
addition, for fiscal 2005 our largest customer represented less
than 5% of our net sales, and our top 10 customers represented
less than 25% of net sales. Finally, foreign countries
contributed approximately 40% of our fiscal 2005 net sales.
We have achieved strong geographic diversification through a
focused effort to grow our leading brand names in Europe and
other international markets. As a result, we currently sell our
products in more than 70 countries around the world.
Experienced and motivated management team.
We are led by
an experienced management team with a record of
(i) achieving profitable growth by building global brands;
(ii) driving productivity improvements (iii) an
intense focus on operating discipline; (iv) introducing
innovative products; (iv) maintaining long-term
relationships with customers and suppliers by focusing on
customer service; and (v) integrating acquisitions. Chief
Executive Officer Michael McLain (along with certain other
senior management team members) joined our company in 1998 and
has been instrumental in implementing operational efficiencies
and continuous profitability enhancements. Our senior management
team has significant experience in the consumer and packaged
goods industries and understands the importance of brand
recognition and customer service to drive growth in a
competitive market. Following this offering, on a fully-diluted
basis, our management team will own
approximately      % of our common
stock.
Our Business Strategy
Invest in technology capabilities.
We achieve growth by
bringing together: (i) our core competencies in the areas
of foam chemistry, optical molding, high speed automation and
the integration of electronics into hearing products;
(ii) our deep understanding of our end-users' needs;
and (iii) our ability to adapt technology to develop new
products. As a result of our efforts, we have developed a
significant body of intellectual property assets, including a
portfolio of over 135 distinct patents with over 30 additional
patents
51
pending. We seek to identify several new technology development
projects, and to capitalize on these opportunities by investing
in our infrastructure and by partnering with outside development
resources. In our Specialty Composites segment, we will continue
to invest in predictive analysis capabilities that enable us to
increase the speed and efficiency with which we develop
solutions.
Grow our share in core industrial end-markets.
We plan to
continue to build our major brands, E-A-R®, AOSafety®,
Peltor® and SafeWaze®, through product innovation and
expansion into emerging markets.
•
Product innovation. We intend to develop new products based on
    demographics (e.g., colorful, patterned earplugs and fashionable
    eyewear to appeal to younger end-users) and for meeting specific
    end-user problems (e.g., metal detectable ear plugs,
    easy-to-remove respiratory masks, push-to-listen ear muffs and
    Bluetooth communication headsets that eliminate cables). We
    continue to maintain a strong new product pipeline, with more
    than 75 new or improved products (including line extensions and
    existing products sold into new geographies and channels) under
    development.
•
Emerging markets. We have targeted the emerging markets of
    Eastern Europe, Russia and China to drive additional growth. The
    immediate potential within these markets includes sales to large
    multinational companies that implement their safety standards
    globally. To support this effort, we have recently added local
    infrastructure, hired local sales personnel and established
    relationships with local distributors, obtained local
    registrations where required, and built local language websites.
    In 2005, we established sales offices in China and Russia, and
    we expect to significantly increase our presence in these
    markets. In the long term, we plan to focus on large locally
    owned enterprises and to work with local governments in
    promoting safety compliance programs.
Penetrate new end-markets.
We have been expanding our
sales beyond our traditional industrial and manufacturing base
into markets that we expect will deliver significantly higher
growth in the future. Our short term focus includes further
penetrating the consumer, military and construction channels.
•
Consumer. We are benefiting from the strong continued growth in
    the consumer channel as safety awareness increases among
    consumers and small contractors. Our product quality and our
    experience in product styling, branding and packaging has given
    us a leadership position in the DIY/hardware segment, and we are
    leveraging that position to launch more premium products and
    expand our product lines
•
Military. As militaries increasingly realize that personal
    protection equipment can improve the operational efficiency of
    troops, they have changed their approach to battlefield safety
    and communication. As a result, the military channel has
    experienced significant growth. We have invested and continue to
    invest in R&D and marketing and sales infrastructure aimed
    at the military channel.
•
Construction. This segment is expected to be a source of growth
    because of the projected increase in construction employment and
    the increased regulatory focus on construction safety. We are
    taking numerous steps to increase our market share in this
    channel, including: (i) new product introductions;
    (ii) expansion of our fall protection manufacturing plant
    and warehouse to meet growing demand; (iii) construction of
    a new R&D testing facility; and (iv) expansion of our
    sales, marketing and R&D personnel.
Leverage specialty composites momentum.
We intend to
leverage our technology leadership in thermal/acoustical systems
design and proprietary materials, thin sheet composites and high
performance materials to significantly increase sales in our
Specialty Composites segment. We are currently adding
infrastructure to ensure that we can meet the increasing demand
in each of our focus channels: precision electronics equipment;
business and regional jet aircraft; heavy duty truck; and
industrial OEM. To further benefit from demand in precision
electronics, we have recently established infrastructure in
Shenzhen, China (R&D center, sales office and customer
service). We anticipate that this new China infrastructure will
allow us to capitalize on manufacturing growth in Asia by
providing us with local market presence, greater access to
customers, key supplier contacts and design support capabilities.
52
Accelerate productivity improvements.
Over the last three
fiscal years, we have achieved manufacturing and logistics cost
savings of approximately $4 million annually and increased
our gross profit margin as a result of disciplined and
productivity-focused management. We continue to focus on our
automated manufacturing processes and other ongoing continuous
improvement projects. We use well-established processes, such as
Kaizen programs, and in 2005 introduced demand flow technology
capabilities to the Company. Through external benchmarking, we
identify our manufacturing core competencies and actively
outsource other non-core processes to lower-cost locations.
During 2005, we contracted with a sourcing company in Asia to
help us manage product sourcing and added personnel in China to
support this effort. We initially plan to focus on obtaining
improved pricing on products already being outsourced and then
evaluate opportunities to outsource products currently
manufactured internally.
Pursue a focused acquisition strategy.
The global PPE
market is highly fragmented, comprised of several hundred
manufacturers, most of which are relatively small and
independent. As end-users and distributors are reducing
suppliers and acquisition opportunities continue to arise, there
is opportunity for consolidation. Since 1995, we have
successfully completed 11 acquisitions to support growth and
achieve greater operating efficiencies. Our acquisition strategy
is to selectively pursue attractive acquisitions that enhance
our existing product offering or enable us to enter new
segments. We intend to continue to selectively pursue
acquisitions that: (i) consolidate our position in the
hearing protection and safety eyewear markets; (ii) expand
product lines with leading brands in profitable and
higher-growth product categories and (iii) expand our
business in the consumer, military and construction markets.
Sales and Marketing
We divide our sales and marketing force into our three business
segments:
Safety Products Segment
Within Safety Products, sales are managed through four channels:
North American Distribution; Consumer; Europe and International.
Each of these channels has its own sales force and its own
distinct yet synergistic sales strategy.
North American Distribution.
This is the largest channel
for Safety Products and is comprised of the U.S. and Canada.
Approximately 1,000 North American distributors and dealers are
served by 31 sales managers, six national account managers,
55 sales agents dedicated to the construction channel and
four dedicated military/law enforcement sales managers. In
addition, we also employ three internal sales agents. Currently,
approximately 225 of our distributors qualify for our
Dialog
tm
rebate program. Participation in the
Dialog
tm
program requires minimum annual purchase levels and offers
growth and volume rebates. The program also offers customers
cooperative advertising and marketing incentives for developing
marketing programs that promote our products.
Consumer.
Under the AOSafety® brand name, we are
North America's leading supplier of personal safety
products to the Consumer/ DIY segment. Within the Consumer/ DIY
marketplace, AOSafety® is the primary personal safety
products brand carried by The Home Depot, Sears, Lowe's
Home Improvement Warehouse and other retailers. Our sales in
this channel are managed by a corporate sales force of six
regional sales managers supported by independent rep agencies.
Europe.
We have a significant presence in Europe with
sales offices in the U.K., Sweden, Norway, Germany, France and
Italy with a total of 63 sales persons. We sell through
over 1,000 industrial distributors and organize our sales effort
by country.
International.
International sales are managed by 14
sales representatives located in Australia, New Zealand,
Shanghai, Singapore, Miami (covering the Caribbean and Central
America), Mexico, Brazil and Dubai (covering the Middle East,
South Africa and Indianapolis, Indiana).
53
Safety Prescription Eyewear Segment (SRx)
Our SRx segment employs 39 of its own sales persons to sell our
products throughout North America. Approximately 85% of our
safety prescription eyewear are sold directly to more than
10,000 customers, including a majority of the industrial
companies in the Fortune 500. The remainder of our SRx
products are sold through the industrial distribution channel
and directly to eye-care professionals.
Specialty Composites Segment
We have a Specialty Composites sales and marketing team of
21 professionals, as well as independent manufacturers
representatives and select distributors to identify global sales
opportunities in target markets. Once such applications have
been identified, our marketing, sales and technical staffs work
closely with customer product development teams to provide the
customer with cost-effective, integrated solutions. Specialty
Composites' marketing efforts are aimed at four key
strategic segments worldwide: precision electronic equipment,
aircraft, heavy-duty trucks and industrial OEM.
Research and Development
We place a strong emphasis on new product development and
innovation. We employ over 60 R&D scientists, engineers
and technologists.
Safety Products Segment
Since its inception in 1972, our ultimate predecessor, the
former E-A-R® (Energy Absorbing Resins) Division of Cabot
Corporation, has been a leader in the development of technology
for understanding noise, measuring noise and hearing loss, and
in the development of products and programs to encourage hearing
protection and conservation. To maintain that leadership
position, and in order to test the efficacy of our hearing
protection products, we own and operate a National Voluntary
Laboratory Accreditation Program laboratory in the United
States. We also operate sound chambers and testing facilities in
the United States and Sweden that measure the performance of our
materials and designs. With these and other capabilities, we
believe we continue to be a leader in the development of both
passive hearing products and communication headsets. Similarly,
we believe that we have been a pioneer and leader in the
development and testing of safety eyewear, maintaining and
operating extensive facilities for the design and testing of
these products. Many of our research and development personnel
are recognized experts in the safety products industry and are
members of various committees of standard-setting organizations.
We are making a significant investment in research and
development in the Safety Products segment. This includes
investing in outside consultants to adapt existing technology to
communication headsets primarily for military applications. In
addition, we recently established a research and development
operation in China to support our consumer headset and eyewear
products.
Safety Prescription Eyewear Segment
This segment shares resources with the Safety Products segment
in the areas of coating technology, automation and manufacturing
process improvements. This segment works extensively with
outside suppliers for the development of frames, lenses and
coatings.
Specialty Composites Segment
Specialty Composites' research and development efforts
focus on developing proprietary materials and enhancing existing
products in order to meet customer needs identified by our
marketing, sales and technical staffs. Products such as
VersaDamp® thermoplastic elastomers, Confor®
energy-absorbing foams and products to meet no-idle trucking
regulations and FAA requirements on burn-through have been
developed as a result of these efforts. R&D has been a key
factor driving sales growth in an increasing number of
applications across all markets served by Specialty Composites.
54
Over the last two years, we have invested in computer modeling
capabilities and personnel. Our use of statistical energy
analysis, finite element analysis and sound quality has created
a competitive advantage by enabling us to develop faster and
more accurate design solutions for our customers.
Raw Materials and Suppliers
We buy and consume a wide variety of raw materials, component
parts, office supplies, and maintenance and repair parts.
Significant categories include corrugated paper products,
polyethylene packaging films, chemicals, eyewear frames and
optical lenses. The chemical category includes plastic resins
and includes polycarbonates, propionates, polyols, plasticizers,
substrates, pre-polymers, isocyanates and adhesives. The eyewear
frames are for both the non-prescription and SRx products.
We have a diverse base of material suppliers and are subject to
market risks with respect to industry pricing in paper and crude
oil as it relates to various commodity items. Items with
potential risk of price volatility include paperboard, packaging
films, nylons, resins, propylene, ethylene, plasticizer and
freight. We manage pricing pressure exposure on large volume
commodities such as polycarbonate, polyols and polyvinyl
chloride via price negotiations utilizing alternative supplier
competitive pricing. However, where appropriate, we will use a
single source for supply of certain items. In addition, based on
the material, availability of supply, level of quality and the
technical difficulty to produce, we will use a major and minor
source to insure continued best pricing and a ready back up
supply. We do not enter into derivative instruments to manage
commodity risk.
Our commodity pricing and negotiating strategy is to consolidate
suppliers where applicable, leverage competitive pricing,
identify alternate lower cost materials and work with existing
suppliers to reduce costs through engineering and innovation.
Although we outsource the production of less than 25% of our
assembled parts and products to various manufacturers, we have
found resource availability, abundant supplier competition and
infrastructure stability in the Far East to provide favorable
supply opportunities.
Manufacturing Operations
Our core manufacturing strengths include: foam casting, molding
and fabricating for Specialty Composites' products
(including the foam used in the manufacture of earplugs);
proprietary high-speed assembly and packaging of earplugs;
optical quality plastic injection molding and coating; automated
eyewear assembly and packaging; precision molding for hearing
attenuation; assembly, grinding, polishing and coating of
prescription eyewear; and automated earmuff and wire bending
assembly.
Approximately 75% of our cost of goods sold is associated with
internally manufactured products that we sell, and the balance
is externally sourced or contract manufactured. We have
implemented a strategy of sourcing or utilizing contract
manufacturers where we have limited competences and there is a
clear cost advantage. We are working with a limited number of
contract manufacturers in the United States, Mexico and Eastern
Europe to assemble and/or manufacture products. We use selected
Asian suppliers for some product lines to complement our product
lines. We expect to continue to use contract manufacturers where
appropriate to remain competitive and maximize profit margins.
All of our manufacturing sites have implemented a number of
initiatives including lean manufacturing concepts and an
extensive Kaizen event schedule. During 2005, we introduced
Demand Flow Technology, or DFT, and developed our first pilot
line at our Southbridge, Massachusetts location. Our plan is to
implement DFT at all of our manufacturing locations. Our
continuous improvement efforts continue to result in significant
improvements in the areas of safety, quality, cost, and customer
service.
Consistent across all of our manufacturing operations is an
emphasis on using world class manufacturing standards to produce
high-quality products. Currently, the majority of our
manufacturing facilities have been awarded ISO 9002 or
ISO 9001 certification, indicating that we have achieved
and sustained a high degree of quality and consistency with
respect to our products. We have also attained QS 9000
certification for the Specialty Composites operations in
Indianapolis and Newark, and our operations in Sweden have
achieved
55
ISO 14001 certification. We believe that ISO certification
is an increasingly important selling feature both domestically
and internationally, as certain customers require ISO
certification from all their vendors.
Safety Products Segment
We believe our Indianapolis, Indiana plant is one of the largest
earplug manufacturing facilities in the world. It fabricates,
molds, assembles and packages hundreds of millions of pairs of
earplugs annually, utilizing automated, high-speed assembly and
packaging equipment. The plant's high-speed robotic
facility facilitates low cost, high-volume, and short supply
chain production techniques.
The Southbridge, Massachusetts facility is our largest
manufacturing site and manufactures a wide variety of personal
protection equipment, including respiratory devices, reusable
earplugs and ear-muffs, head and face products and a broad
offering of safety eyewear products.
Our principal international manufacturing operations are located
in Poynton, England and Varnamo, Sweden. The Poynton facility
serves customers in Western Europe, producing and packaging
earplugs and other hearing and eyewear products. The Varnamo,
Sweden plant is the principal Peltor® manufacturing
location supplying finished goods and components to our
customers and subsidiaries.
Safety Prescription Eyewear Segment
Our SRx manufacturing facilities generally possess lens
surfacing, edging, grinding and coating machinery capable of
handling glass, plastic and polycarbonate lenses. Following
manufacture, the lenses are then fitted into frames and shipped
to customers.
SRx production operations are comprised of two facilities
located in the United States, one in Canada and one in England.
The U.S. locations are in Indiana and Oklahoma and both
locations include customer service. In Canada, the Mississauga,
Ontario plant fabricates prescription eyewear and, together with
a small customer service operation in Montreal, produces SRx
products for the Canadian market. In Poynton, England, we have a
small plant that performs edging and assembly operations and
serves primarily the U.K. and French markets. These facilities
currently manufacture and distribute approximately 500,000 pairs
of safety prescription glasses annually.
Specialty Composites Segment
Specialty Composites' products are manufactured in
Indianapolis, Indiana, and Newark, Delaware. The Indianapolis
plant supplies specially formulated foam for PVC earplugs,
manufactures and fabricates sheet and roll polyvinyl chloride
and polyurethane materials. This facility also houses technical
support functions, including research and development,
applications engineering, sales and marketing administration,
quality assurance and customer service support. The Newark,
Delaware facility manufactures polyurethane foams and houses our
proprietary, thin sheet foam casting line, which permits the
casting of both sheet and composite materials, including facings
and substrates, in a single pass-through line. Product
development for this facility is onsite.
Distribution Operations
We fill virtually all of our domestic orders and certain
segments of our international orders through our distribution
center located in Indianapolis, Indiana, which has bar-code
scanning capabilities to assure rapid turn-around time and high
service levels for customer orders. A key feature of the
distribution center is the ability to ship a single customer
order with multiple products, thus achieving a high fill rate,
which minimizes backorders and maximizes customer satisfaction.
Our products are generally shipped within several days from the
receipt of a purchase order. As a result, backlog is not
material to our business.
Service from road carriers is readily available in Indianapolis,
with competitive pricing for both inbound and outbound business.
In addition, we make direct customer shipments from Concord,
North Carolina and Newark, Delaware (Specialty Composites).
European orders are filled from distribution facilities near
56
Manchester, U.K. and in Varnamo, Sweden. During 2005, we
initiated a distribution facility agreement with a third party
in Australia to better serve our growing customer base in the
region.
China Operations
During 2005, we expanded operations to Mainland China. Functions
operating within China include Sales, Customer Service,
Engineering, and Purchasing. The expansion to China helps us
provide better service to our existing customers in this portion
of the world and positions us to further expand our global
market.
Also during 2005, a partnership agreement was established with a
major Chinese sourcing company to achieve Asia procurement
savings. This company has over two decades of experience in
sourcing from China; it focuses on select clients and provides
sourcing capability from China/ Asia. With over 300 locally
based personnel for purchasing, quality control and logistics
management, we believe that this partnership will shorten our
supply chain and generate substantial material savings.
Competition
The global PPE market is highly fragmented. We estimate that
there are several hundred 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. We believe 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. From a competitive standpoint, we believe we are
currently well situated, primarily because of our brands'
size and our broad product offerings, to compete in this
fragmented industry. We enjoy certain economies of scale that
are not available to smaller competitors and our advanced
distribution center further facilitates timely and accurate
deliveries.
Several manufacturers compete in noise and vibration control,
but few if any of our Specialty Composites segment's
competitors offer the complete range of technology and
energy-control materials as we do. Thus we are able to
differentiate ourselves by leveraging our technology,
engineering and wide ranges of proprietary products into energy
control solutions or systems that add value to customers'
products. In markets where technology is of particular value we
are able to command better margins due to our product solution
and positioning. There are however market segments in which we
compete where price is still a significant factor. We believe
that participants in this market generally compete on the basis
of design capability, solution package characteristics
(functional performance and installation ease), product quality,
service, reputation and installed cost.
Employees
As of September 30, 2005, we had 1,659 full-time
employees, of whom 1,053 were primarily engaged in
manufacturing, 403 in sales, marketing, customer service and
distribution, 66 in research and development and 137 in general
and administrative. We believe our employee relations are good.
We have one domestic U.S. facility that employs union
members. This facility, located in Plymouth, Indiana, employs 61
members of the International Union of Electronic, Electrical,
Salaried, Maritime and Furniture Workers (out of a total of 74
employees), and our relations with these union members are fully
satisfactory. The union contract expires on June 27, 2007.
Patents and Trademarks
We own and have obtained licenses to various domestic and
foreign patents, patent applications and trademarks related to
our products, processes and business. We place significant value
on our trademark for the color yellow for earplugs in the United
States, Canada, Belgium, Netherlands and Luxembourg and on our
overall patent portfolio. However, no single patent or patent
application that we own is material to us. Our patents expire at
various times in the future not exceeding 20 years.
57
Government Regulation
As a manufacturer of safety products, we are subject to
regulation by numerous governmental bodies. Principal among the
federal regulatory agencies in the United States of America are
the following: (i) OSHA, which regulates the occupational
usage of all PPE; (ii) the Environmental Protection Agency,
which regulates labeling of hearing protection devices;
(iii) the Mine Safety and Health Administration, which
regulates safety in mines; and (iv) NIOSH, which certifies
respirators. These agencies generally mandate that our products
meet standards established by private groups, such as ANSI. Our
products are also subject to foreign laws and regulations. In
particular, they must comply with the Canadian Standards
Association, European Committee for Standardization and
Standards Australia in order to be sold in these markets. Our
products are also subject to the Export Administration
Regulation administered by the Department of Commerce, and
certain products are subject to the International Traffic in
Arms Regulations administered by the Department of State. We
believe we are in compliance in all material respects with the
regulations and standards of these governmental bodies.
Environmental, Health and Safety Matters
We are subject to various evolving federal, state, local and
foreign environmental, health and safety 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. We
believe that we are in substantial compliance with all such laws
and regulations. We have an active program to ensure
environmental compliance and achievement of environmental goals
and objectives. We will continue to implement environmental
management systems at our manufacturing facilities. The
consequence for violating these laws and regulations can be
material. We have made and will continue to make capital and
other expenditures to comply with environmental and health and
safety requirements. In addition, certain environmental laws and
regulations impose joint and several strict liability on
responsible parties, including past and present owners and
operators of sites, to clean up, or contribute to the cost of
cleaning up, sites at which hazardous wastes or materials were
disposed or released. For example, if a release of hazardous
substances occurs on or from our properties or any offsite
disposal location where our wastes have been disposed, or if
contamination from prior activities is discovered at any of our
properties or third-party owned properties that we or our
predecessors formerly owned or operated, we may be subject to
liability arising out of such conditions and the amount of such
liability could be material. Liability can include, among other
things, for example, costs of investigation and cleanup of the
contamination, natural resource damages, property damage to
properties and personal injuries. Environmental laws and
regulations are complex, change frequently and have tended to
become more strict over time. If more stringent environmental
laws or regulations are enacted, these future laws could have a
material adverse effect on our results of operations.
Properties
We own and/or lease facilities in the United States, Canada,
Europe and China. The following table sets forth the location of
each, its square footage and the principal function as of
September 30, 2005.
Approximate
Location
Square Feet
Function
SAFETY PRODUCTS
Southbridge, Massachusetts
198,984
Manufacturing/Administration
Indianapolis,
    Indiana
(1)
226,794
Distribution/Customer Service
Indianapolis,
    Indiana
(2)
81,540
Manufacturing/Corporate Headquarters
Concord, North Carolina
17,500
Manufacturing/Distribution/Customer Service
Poynton,
    England
(3)
74,331
Sales/Manufacturing/Distribution/Customer Service
Varnamo,
    Sweden
(2)
144,130
Sales/Manufacturing/Distribution/Customer Service
Ettlingen, Germany
14,661
Sales/Customer Service
58
Approximate
Location
Square Feet
Function
Paris, France
1,894
Sales Office
Milan, Italy
(*
)
Sales Office
Barrie, Ontario, Canada
4,768
Manufacturing/Distribution/Customer Service
Oslo, Norway
6,300
Sales/Distribution/Customer Service
Joinville-le-Pont, France
10,200
Sales/Distribution/Customer Service
Shanghai, China
(*
)
Sales Office
SAFETY PRESCRIPTION EYEWEAR
Chickasha, Oklahoma
35,000
Manufacturing/Customer Service
Plymouth, Indiana
9,500
Manufacturing/Customer Service
Mississauga, Ontario, Canada
12,300
Manufacturing/Customer Service
Montreal, Quebec, Canada
1,800
Customer Service
Newport News, Virginia
1,400
Customer Service
SPECIALTY COMPOSITES
Indianapolis,
    Indiana
(2)
155,800
Manufacturing/Distribution/Customer Service
Newark,
    Delaware
(2)
79,650
Manufacturing/Distribution
Newark, Delaware
61,642
Warehouse/Distribution
Shenzhen, China
1,850
Sales/Customer Service/Administration
(1)
This facility also serves as an international distribution
    center.
(2)
We own this facility. (All other facilities are leased.)
(3)
This facility's primary function is manufacturing safety
    products.
(*) Less than 1,000 square feet.
We believe that our facilities are suitable for our operations
and provide sufficient capacity to meet our current
requirements. We believe that we will be able to renew each of
our leases upon their respective expiration dates on
commercially reasonable terms. In addition, we believe that we
will be able to lease suitable additional or replacement space
on commercially reasonable terms.
Legal Proceedings
In addition to the matters described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — Product Liability Claims," various
lawsuits and claims arise against us in the ordinary course of
our business. Most of these lawsuits and claims are product
liability matters that arise out of the use of safety eyewear
and respiratory product lines we manufacture as well as products
purchased for resale.
59
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect
to our current directors and executive officers and certain
other key employees and their ages as of November 1, 2005.
In accordance with our amended and restated bylaws, within one
year after the closing of this offering we will restructure the
composition of our board so that a majority of the members of
our board of directors will be "independent" as such
term is defined in Rule 10A-3(b)(i) under the Exchange Act
and under NYSE Rule 303(A):
Name
Age
Position
Michael A.
    McLain
(1)
55
Chief Executive Officer, President, and Chairman of the Board of
    Directors
Jeffrey S. Kulka
48
Senior Vice President, Chief Financial Officer and Secretary
James H. Floyd
50
President, Aearo Europe, Managing Director, International
M. Rand Mallitz
63
President, Specialty Composites
D. Garrad (Gary) Warren, III
53
President, North American Safety Products Group
James M. Phillips
53
Senior Vice President, Human Resources
Rahul Kapur
54
Senior Vice President, Corporate Development and Chief Strategy
    Officer
Thomas R. D'Amico
49
Senior Vice President, Operations and Research and Development
John D. Howard
53
Director
Douglas R.
    Korn
(1)(2)
43
Director, Chairman of Audit Committee
Nick White
60
Director
Peter S.
    Cureton
(2)
31
Director
(1)
Member of Compensation Committee
(2)
Member of Audit Committee
Michael A. McLain
has been President, Chief Executive
Officer and Director of the Company since February 1998.
Effective May 30, 2001, he was named Chairman of the Board
of Directors. Prior to joining the Company, he was President and
Chief Executive Officer of DowBrands, Inc., a large manufacturer
of household consumer products. Mr. McLain is a Director of
Gold Toe Brands, Inc., Little Rapids Corporation and Timex, Inc.
He currently serves as chairman of the International Safety
Equipment Association's Board of Trustees.
Jeffrey S. Kulka,
Senior Vice President, Chief Financial
Officer and Secretary joined the Company in March 1997 as
Corporate Controller. Prior to joining Aearo, he spent ten years
with Augat Inc. in a variety of assignments including divisional
controllerships and business development in domestic and
international settings.
James H. Floyd,
President, Aearo Europe, Managing
Director, Aearo International, joined Aearo in April 1998. Prior
to 1998, he was responsible for global logistics and packaging
functions at DowBrands. He began his career at Procter and
Gamble where he worked for seven years.
M. Rand Mallitz,
President, E-A-R® Specialty
Composites, joined the Company in January 1992. In December
1999, he was promoted to Vice President Aearo, Senior Vice
President Specialty Composites. In 2004, he was promoted to
President of E-A-R® Specialty Composites. Prior to joining
the Company, Mr. Mallitz was CEO/ President of Roth Office
Products.
60
D. Garrad (Gary) Warren,
III joined the Company in
November 1999 and currently serves as President, North American
Safety Products Group. Prior to that, Mr. Warren was Senior
Vice President, Sales and Customer Development for International
Home Foods in Parsippany, New Jersey.
Thomas R. D'Amico
joined the Company in July 2004
and currently serves as Senior Vice President, Operations and
Research & Development. Prior to joining Aearo, from
2001 through 2004, Mr. D'Amico was Senior Vice
President of Global Manufacturing, Quality, and Procurement for
Diebold, Inc. in North Canton, Ohio and from 1996 through 2001,
was Executive Vice President of Operations for the Genie
Division of Overhead Door Corporation in Alliance, Ohio.
James M. Phillips,
Senior Vice President, Human Resources
joined the Company in May 1998. He worked for Dow Chemical
Company for more than 20 years and has worked in
recruiting, training and compensation for many diverse divisions
of Dow.
Rahul Kapur
joined the Company in April 1998 as Vice
President of Corporate Development. He currently is Senior Vice
President of Corporate Development and Chief Strategy Officer.
Mr. Kapur joined DowBrands in 1985 in New Product
Development and held various positions in Marketing and
Strategic Development, including Director of Marketing for
Europe. He began his career with Richardson Vicks and Unilever.
John D. Howard
is a Senior Managing Director of Bear,
Stearns & Co. Inc. and group head of BSMB. Prior to
joining Bear Stearns, Mr. Howard was co-Chief Executive
Officer of Vestar Capital Partners Inc., a private investment
firm specializing in management buyouts. Mr. Howard is
currently a Director of Aeropostale, Inc., New York &
Company, Inc., Seven For All Mankind, LLC, Stuart Weitzman
Holdings, LLC, Sutton Place Group, LLC, The John Henry Company
and Vitamin Shoppe Industries Inc.
Douglas R. Korn
is a Senior Managing Director of Bear,
Stearns & Co. Inc. and an Executive Vice President of
BSMB. Prior to joining Bear Stearns, Mr. Korn was a
Managing Director of Eos Partners, L.P., an investment
partnership. Mr. Korn is currently a Director of Reddy Ice
Group, Inc. and Vitamin Shoppe Industries Inc.
Nick White
was appointed to the Board of Directors in
November 2004. Mr. White held various executive level
positions with Wal-Mart Stores, Inc. over a 28 year period.
He was a member of Wal-Mart's Executive Committee during
his last fifteen years with the company. Mr. White is
currently the President and CEO of White and Associates
Consulting Firm.
Peter S. Cureton
was appointed to the Board of Directors
in February 2005. Mr. Cureton is a Vice President of Bear,
Stearns & Co. Inc. and BSMB. Prior to joining Bear
Stearns, Mr. Cureton was an Associate at Wellspring Capital
Management LLC, a private equity firm.
Committees of the Board of Directors
Our board of directors has standing compensation and audit
committees. Upon the closing of this offering, we will create a
nominating and corporate governance committee.
Compensation Committee.
The members of our compensation
committee currently are Messrs. McLain and Korn. Upon the
closing of this offering, we intend to increase the size of our
compensation committee by one and to nominate an independent
director to the committee. Within 90 days from the closing
of this offering, we intend to nominate a second independent
director to our compensation committee to replace
Mr. McLain. We will add a third new independent member
within one year of the closing of this offering to replace
Mr. Korn so that all of our compensation committee members
will be independent as such term is defined under NYSE Manual
Rule 303(A). Our compensation committee:
•
reviews and approves the compensation and benefits for our
    employees, directors and consultants;
•
administers our employee benefit plans, authorizes and ratifies
    stock option grants and other incentive arrangements; and
•
authorizes employment and related agreements.
61
Audit Committee.
The members of our audit committee
currently are Messrs. Cureton and Korn. Upon the closing of
this offering, we intend to increase the size of our audit
committee by one and nominate an independent director to our
audit committee. Within 90 days from the closing of this
offering, we intend to nominate a second independent director to
our audit committee to replace Mr. Cureton, who will step
down from the audit committee. We will add a third new
independent member within one year of the closing of this
offering to replace Mr. Korn so that all of our audit
committee members will be independent, as such term is defined
in Rule 10A-3(b)(i) under the Exchange Act and under
NYSE Manual Rule 303(A). We anticipate that one of the new
nominees to the audit committee will serve as the audit
committee's financial expert. Our audit committee is
responsible for:
•
the annual appointment of our registered public accounting firm;
•
reviewing the scope of, and approving, all audit and non-audit
    services and related fees of our registered public accounting
    firm; and
•
reviewing with the registered public accounting firm, among
    other matters, accounting principles we will use in financial
    reporting, internal auditing procedures and the adequacy of our
    internal auditing procedures, including control over financial
    reporting.
Nominating and Corporate Governance Committee.
Upon the
closing of this offering, we will create a nominating and
corporate governance committee. The composition of our
nominating and corporate governance committee has not yet been
determined but will comply with NYSE rules regarding
independence. Upon the closing of this offering, among other
functions, the principal duties and responsibilities of our
nominating and corporate governance committee will be to:
•
identify candidates qualified to become board members,
    consistent with criteria approved by the board;
•
recommend the candidates identified be selected as nominees for
    the next annual meeting of shareholders;
•
develop and recommend to the board a set of corporate governance
    principles applicable to the corporation; and
•
oversee the evaluation of the board and management.
Code of Ethics
We have adopted a code of ethics that applies to all of our
Board members and to all of our employees, including our Chief
Executive Officer, Chief Financial Officer, Controller and other
finance executives. The Code of Ethics is available on our
website at www.aearo.com. If we make substantive amendments to
the Code of Ethics or grant any waiver, including any implicit
waiver, from a provision of the Code of Ethics applicable to our
Chief Executive Officer, Chief Financial Officer or Controller,
we will make a public disclosure of the nature of such amendment
or waiver.
Executive Compensation
The compensation of executive officers of the Company is
determined by the Board of Directors. 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 serving at
the end of fiscal
62
2005 (the "Named Executive Officers") for services
rendered to the Company in all capacities (including service as
an officer or director) in fiscal 2005.
Summary Compensation Table
Annual Compensation
Fiscal
Other
Year
Salary
Bonus
Compensation
Michael A. McLain
2005
$
568,545
$
499,279
$
86,303
(1)
Chief Executive Officer, President and Chairman of the Board of
    Directors
D. Garrad Warren, III
2005
$
297,510
$
209,100
$
70,973
(2)
President, North American Safety Products Group
Thomas R. D'Amico
2005
$
232,553
$
162,680
$
108,642
(3)
Senior Vice President, Operations and R&D
James H. Floyd
2005
$
256,140
$
179,951
$
36,938
(4)
President, Aearo Europe, Managing Director, International
M. Rand Mallitz
2005
$
231,015
$
162,763
$
33,889
(5)
President, Specialty Composites
(1)
Includes contributions made on behalf of Mr. McLain to the
    Company's 401(k) Savings Plan ($6,450) and to the
    Company's Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr. McLain's behalf to the Company's Supplemental
    Executive Retirement Plan ($66,732).
(2)
Includes contributions made on behalf of Mr. Warren to the
    Company's 401(k) Savings Plan ($6,450) and to the
    Company's Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr. Warren's behalf to the Company's Supplemental
    Executive Retirement Plan ($22,989). Also includes interest
    earned on 221 deferred preferred stock units held in
    Mr. Warren's account under the 2004 Aearo Technologies
    Inc. Deferred Compensation Plan ($28,413). The deferred
    preferred stock units were redeemed in May 2005 (91 units)
    and August 2005 (130 units).
(3)
Includes contributions made on behalf of Mr. D'Amico
    to the Company's 401(k) Savings Plan ($8,179) and to the
    Company's Cash Balance Plan ($6,600). Includes expenses
    recognized by the Company for unfunded accruals made on
    Mr. D'Amico's behalf to the Company's
    Supplemental Executive Retirement Plan ($4,413). Includes a
    sign-on bonus ($70,000) and relocation expenses ($19,450).
(4)
Includes contributions made on behalf of Mr. Floyd to the
    Company's 401(k) Savings Plan ($6,350) and to the
    Company's Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr. Floyd's behalf to the Company's Supplemental
    Executive Retirement Plan ($17,467).
(5)
Includes contributions made on behalf of Mr. Mallitz to the
    Company's 401(k) Savings Plan ($6,726) and to the
    Company's Cash Balance Plan ($13,121). Also includes
    expenses recognized by the Company for unfunded accruals made on
    Mr. Mallitz's behalf to the Company's
    Supplemental Executive Retirement Plan ($14,042).
The following table sets forth information concerning the number
and value of unexercised options to purchase Aearo Technologies
Inc.'s Common Stock held by the Named Executive Officers at
the end of fiscal 2005. None of the Named Executive Officers
exercised any options during fiscal 2005.
Number of Shares
Value of Outstanding
Covered by Options
In-the-money Options
Shares
at Fiscal Year-end
At Fiscal Year-end
(1)
Acquired
Value
Name
On Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
Michael A. McLain
—
—
32,550
97,150
$
823,575
$
2,536,475
D. Garrad Warren, III
—
—
11,370
33,830
287,655
882,895
James H. Floyd
—
—
11,010
32,790
278,340
885,360
M. Rand Mallitz
—
—
6,780
20,120
171,420
524,680
Thomas R. D'Amico
—
—
6,412
16,963
170,198
455,177
63
(1)
There was no public market for Aearo Technologies Inc.'s
    capital stock as of September 30, 2005. Accordingly, these
    values have been calculated on the basis of an assumed fair
    market value of $39 per share as established by the Aearo
    Technologies Inc. Board of Directors.
Director Compensation
The members of the Company's Board of Directors receive
compensation to recognize their contributions for their service
to the Company. The type and amount of compensation is split
into two groups. The first group is the Independent Group that
consists of members not employed by the Company or its major
shareholders (i.e. BSMB and Vestar Capital Partners). The second
group, the Affiliated Group, would consist of those members
either employed by the Company or its major shareholders of the
Company. The Directors in the Independent Group receive $20,000
annually for their service as Directors and an additional
$1,000 per meeting for physical attendance or $500 per
meeting for phone attendance plus reimbursement of expenses. The
Affiliated Group serves without compensation.
Employment Agreements
In connection with the Merger, AC Safety Acquisition Corp.
entered into employment agreements with the following 7 senior
executives: Michael McLain, D. Garrad Warren III, M. Rand
Mallitz, James M. Phillips, Rahul Kapur, Jeffrey S. Kulka and
James H. Floyd. We entered into an employment agreement with
Thomas R. D'Amico upon the commencement of his employment
with us in July 2004. Under each agreement, the applicable
executive will receive (i) a base salary that will
initially be equal to the base salary received by such executive
prior to the Merger and will be subject to annual review each
year beginning with fiscal year 2005, (ii) an annual bonus
that will be based on the achievement by Aearo Company and Aearo
Technologies Inc. of certain performance targets and
(iii) certain employee benefits under health and welfare
plans and participation in incentive, savings and retirement
plans that, for the period beginning on the consummation of the
Merger and ending on the second anniversary of the consummation
of the Merger will be no less favorable in the aggregate than
those currently provided.
Each employment agreement provides the applicable executive with
severance benefits equal to two times the executive's base
salary if termination occurs within the first two years and one
and a half times base salary if termination occurs after two
years (two and a half times and two times, respectively, in the
case of Michael McLain) plus the executive's target bonus
in the event such executive is terminated without cause or such
executive terminates his employment for good reason, in each
case, within five years from the date of the closing of the
Merger. In the event an executive's employment terminates
for any other reason, such executive will only be entitled to
amounts required by law to be paid, including a payout of such
executive's annual base salary through the date of
termination.
Each employment agreement also contains a covenant not to
compete and a non-solicitation and non-interference provision
with respect to employees and customers.
Deferred Compensation Plans
Aearo Plan.
We currently maintain a deferred compensation
plan for certain of our employees and directors. The plan is a
non-qualified plan savings plan under the IRS code that provides
executive officers the opportunity to defer the receipt of base
salary and/or bonus. The total amount of Aearo assets and
obligations outstanding under the plan was approximately
$3.4 million as of September 30, 2005.
2004 Aearo Technologies Inc. Plan.
On April 7, 2004,
Aearo Technologies Inc. adopted the 2004 Deferred Compensation
Plan. A limited group of executives of Aearo Technologies Inc.
were credited with a transaction bonus under the plan as of that
date. The bonus amounts credited under the plan were credited to
a deferred compensation account in each participant's name
and deemed to be invested in a combination of common stock units
and preferred stock units. Stock units do not have voting or
dividend rights. However, upon the payment of a stock or cash
dividend, participants will have dividend equivalent rights. In
the event of a stock dividend, the dividend equivalents will be
credited in the form of additional preferred or common stock
units, as applicable. In the event of a cash dividend, each
participant will be entitled to a cash payment from
64
Aearo Technologies Inc. in an amount equal to the aggregate cash
dividend that would have been paid on the preferred or common
units, as applicable, credited to the participant's
deferred compensation account on the dividend record date as if
those units had actually been shares outstanding. The amounts
credited to the participant's deferred compensation account
generally become payable upon the first to occur of the
participant's termination of employment or certain
liquidity or other events set forth in the Aearo Technologies
Inc. 2004 Deferred Compensation Plan. Stock units will be paid
in an equal number of shares of common or preferred stock, as
applicable.
Employee Stock and Other Benefit Plans
Stock Incentive Plan.
In connection with the Merger,
Aearo Technologies Inc. adopted a Stock Incentive Plan for the
benefit of certain of its employees. Options to acquire 18.5% of
the total outstanding shares of our common stock on a fully
diluted basis were granted under the plan. With respect to the
options, the plan only permits the issuance of non-qualified
options. In addition, common stock representing a total of 1.5%
of the outstanding shares of our common stock on a fully diluted
basis was designated as restricted stock and made available for
grant under the plan for new hires and for incentives for
existing employees, of which 20,000 shares have been
granted under the plan. The number of shares of restricted stock
and the number of options to be issued to each new hire or
existing employee will be determined by the Compensation
Committee of the Board of Directors of Aearo Technologies Inc.
based on the recommendation of the Chief Executive Officer.
There were no option grants to any of our Named Executive
Officers in the twelve months ended September 30, 2005.
Performance Incentive Plan
Concurrently with the closing of this offering, we will adopt
the Performance Incentive Plan to provide an additional means
through the grant of awards to attract, motivate, retain and
reward selected employees and other eligible persons. Employees,
officers, directors and consultants that provide services to us
or one of our subsidiaries may be selected to receive awards
under the plan.
Our compensation committee will have the authority to administer
the plan. The administrator of the plan will have broad
authority to:
•
select participants and determine the types of awards that they
    are to receive;
•
determine the number of shares that are to be subject to awards
    and the terms and conditions of awards, including the price (if
    any) to be paid for the shares or the award;
•
cancel, modify or waive our rights with respect to, or modify,
    discontinue, suspend or terminate any or all outstanding awards,
    subject to any required consents;
•
construe and interpret the terms of the plan;
•
accelerate or extend the vesting or exercisability or extend the
    term of any or all outstanding awards;
•
subject to the other provisions of the plan, make certain
    adjustments to an outstanding award and authorize the
    conversion, succession or substitution of an award; and
•
allow the purchase price of an award or shares of our common
    stock to be paid in the form of cash, check or electronic funds
    transfer, by the delivery of already-owned shares of our common
    stock or by a reduction of the number of shares deliverable
    pursuant to the award, by services rendered by the recipient of
    the award, by notice and third party payment or cashless
    exercise on such terms as the administrator may authorize, or
    any other form permitted by law.
A total
of                      shares
of our common stock will be authorized for issuance with respect
to awards granted under the plan. Any shares subject to awards
that are not paid or exercised before they expire or are
terminated, as well as shares used to pay the purchase or
exercise price of awards or related tax withholding obligations,
will become available for other award grants under the plan. As
of the date of this prospectus, the plan has not yet been
adopted.
65
Awards under the plan may be in the form of incentive or
nonqualified stock options, stock appreciation rights,
restricted stock, stock bonuses and other forms of awards
granted or denominated in our common stock or units of our
common stock. Awards under the plan generally will not be
transferable other than by will or the laws of descent and
distribution, except that the plan administrator may authorize
certain transfers for tax or estate planning purposes.
Restricted stock awards can be issued for nominal or the minimum
lawful consideration. Stock options must have an exercise price
that is at least equal to the fair market value of our common
stock, or 110% of fair market value of our common stock for
incentive stock option grants to any 10% owner of our common
stock, on the date of grant. These and other awards may also be
issued solely or in part for services. Awards are generally paid
in cash or shares of our common stock. The plan administrator
may provide for the deferred payment of awards and may determine
the terms applicable to deferrals.
As is customary in incentive plans of this nature, the number
and kind of shares available under the plan and any outstanding
awards, as well as the exercise or purchase prices of awards,
will be subject to adjustment in the event of certain
reorganizations, mergers, combinations, recapitalizations, stock
splits, stock dividends or other similar events that change the
number or kind of shares outstanding, and extraordinary
dividends or distributions of property to the stockholders. In
no case (except due to an adjustment referred to above or any
re-pricing that may be approved by our stockholders) will any
adjustment be made to a stock option or stock appreciation right
award under the plan (by amendment, cancellation and re-grant,
exchange or other means) that would constitute a re-pricing of
the per-share exercise or base price of the award.
Each award granted under our plan will generally become fully
vested, exercisable, and/or payable, as applicable, upon a
"Change in Control Event" if the award will not be
assumed or substituted for or otherwise continued after the
event. The term Change in Control Event is defined in the plan
and generally includes:
•
stockholder approval of our dissolution or liquidation;
•
certain changes in a majority of the membership of our board of
    directors over a period of two years or less;
•
the acquisition of more than 30% of our outstanding voting
    securities by any person other than a person who held more than
    30% of our outstanding voting securities as of the date that the
    plan was approved, affiliates of BSMB, a company benefit plan,
    or one of their affiliates, successors, heirs, relatives or
    certain donees or certain other affiliates; and
•
a merger, consolidation, reorganization (other than with an
    affiliate) or similar corporate transactions, or a sale or other
    transfer of all or substantially all of our assets, after which
    our stockholders do not own more than 50% of the outstanding
    voting securities of the resulting entity after such event.
Our board of directors may amend or terminate the plan at any
time, but no such action will affect any outstanding award in
any manner materially adverse to a participant without the
consent of the participant. Plan amendments will be submitted to
stockholders for their approval as required by applicable law or
any applicable listing agency. The plan is not
exclusive — our board of directors and compensation
committee may grant stock and performance incentives or other
compensation, in stock or cash, under other plans or authority.
The plan will terminate
on                     .
However, the plan administrator will retain its authority until
all outstanding awards are exercised or terminated. The maximum
term of options, SARs and other rights to acquire common stock
under the plan is ten years after the initial date of the award.
Compensation Committee Interlocks and Insider
Participation
Our Compensation Committee makes all executive officer
compensation decisions and submits them to our Board of
Directors for final review and approval. The Compensation
Committee is comprised of Michael A. McLain and Douglas R. Korn.
In addition, no member of our Compensation Committee serves as a
66
member of the board of directors or compensation committee of
any entity that has one or more executive officers serving as a
member of our Board of Directors or Compensation Committee.
Management Incentive Plan
On an annual basis we provide performance-based compensation
awards to executive officers and key employees as part of a
management incentive plan. Such compensation awards are a
function of individual performance and consolidated corporate
results. Business unit performance also is a factor in
determining compensation awards with respect to key employees
who are not executive officers. The specified qualitative and
quantitative criteria employed by our Board of Directors in
determining bonus awards varies for each individual and from
year to year.
Supplemental Severance Pay Policy.
We have adopted a
severance pay policy providing key employees with salary
continuation in the event of a termination. Termination
resulting from cause, retirement, death and disability are not
eligible. Subject to our discretion, the policy generally
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 twelve months.
401(k) Plan.
We have adopted a savings plan which is
qualified under Section 401(a) and 401(k) of the Internal
Revenue Service Code. All of our employees in the United States
normally scheduled to work a minimum of 1,000 hours per
year are eligible to participate in the savings plan effective
with their hire date. For each employee who elects to
participate in the savings plan and makes a contribution
thereto, we will make a matching contribution. We match 50.0% of
the first 6.0% of compensation contributed. The maximum
contribution for any participant for any year is 60.0% of such
participant's eligible compensation, not to exceed the
401(k) plan elective deferral limit set forth by the IRS.
Contributions to the savings plan will be invested, as the
employee directs, in a variety of investment options.
Pension Plans
We have adopted a Cash Balance Pension Plan. Under this plan, we
will provide participants with annual credits of 4.0% of
eligible compensation up to the Social Security Wage Base as set
forth annually by the Social Security Administration and
Department of Health and Human Services. An additional annual
credit of 4.0% of eligible compensation from the Social Security
Wage Base up to the Qualified Plan Compensation Limit set forth
by the IRS is provided. All balances in the accounts of
participants will be credited with interest based on the prior
year's U.S. Treasury bill rate. At retirement,
participants eligible for benefits may receive their account
balance in a lump sum or on a monthly basis with the monthly
distribution determined to have an equivalent actuarial value.
Additionally, we have adopted a Supplemental Executive
Retirement Plan, which is a non-qualified plan under the IRS
Code, and which provides unfunded deferred compensation benefits
to certain individuals whose salary exceeds the Qualified Plan
Compensation Limit set forth by the IRS. Pursuant to the plan,
participants are credited annually with amounts representing 8%
of compensation in excess of the Qualified Plan Compensation
Limit.
The following table sets forth, for the Named Executive
Officers, the estimated annual benefits payable upon retirement
at normal retirement age, from both the qualified and
non-qualified pension plans assuming in each case that such
officer elects payment over time rather than in a lump sum:
Annual
Benefits
Payable
Michael A. McLain
$
110,876
D. Garrad Warren, III
$
53,815
Thomas R. D'Amico
$
40,273
James H. Floyd
$
62,607
M. Rand Mallitz
$
29,174
67
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of
September 30, 2005 regarding beneficial ownership of our
common stock before and after completion of this offering, and
shows the number of shares and percentage owned by (i) each
person known to beneficially own more than 5% of our common
stock before and after completion of this offering,
(ii) each of our named executive officers, (iii) the
other employee selling stockholders, (iv) each member of
our board of directors and (v) all of our executive
officers and members of our board of directors as a group. As of
September 30, 2005, there were 57 holders of record of
our common stock.
The amounts and percentages of common stock beneficially owned
are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under
the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or
shares "voting power," which includes the power to
vote or to direct the voting of such security, or
"investment power," which includes the power to
dispose of or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities
of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person
may be deemed a beneficial owner of securities as to which he
has no economic interest.
The column below titled "Shares to be Sold in this
Offering" represents the shares of common stock being sold
in this offering by entities or funds affiliated with BSMB, our
equity sponsor, and by the other selling stockholders identified
below. Additional information with respect to our equity sponsor
and employee selling stockholders and their relationships with
our company is provided under the captions
"Management" and "Certain Relationships and
Related Party Transactions."
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Shares Beneficially
Shares Beneficially
Owned After This
Owned After This
Shares Beneficially
Offering Assuming
Offering Assuming
Owned Prior to
No Exercise of the
Exercise in Full of the
This Offering
Shares to be
Over-Allotment Option
Over-Allotment Option
Sold in This
Number
%
Offering
Number
%
Number
%
Bear Stearns Merchant
    Capital II, L.P.
(1)
Vestar Equity Partners,
    L.P.
(2)
Michael A. McLain
James H. Floyd
Rahul Kapur
D. Garrad Warren III
M. Rand Mallitz
James M. Phillips
Jeffrey S. Kulka
Thomas A. D'Amico
John D.
    Howard
(3)
Douglas R.
    Korn
(3)
Nick White
Peter S. Cureton
Directors and Executive Officers as a group
(1)
Includes shares of common stock owned by each of Bear Stearns
    Merchant Banking Partners II, L.P., Bear Stearns Merchant
    Banking Investors II, L.P., Bear Stearns MB-PSERS II,
    L.P., The BSC Employee Fund V, L.P. and The BSC Employee
    Fund VI, L.P. Bear
68
Stearns Merchant Capital II,
    L.P. is the general partner of each of these entities. Bear
    Stearns Merchant Capital II, L.P. and each of the foregoing
    entities is an affiliate of Bear, Stearns & Co. Inc.
    and has an address at 383 Madison Avenue, New York, New
    York 10179.
(2)
Vestar Equity Partners, L.P. has an
    address at 245 Park Avenue, 41st Floor, New York, NY
    10167.
(3)
Each of Messrs. Howard and
    Korn may be deemed the beneficial owner of the shares of common
    stock owned by Bear Stearns Merchant Capital II, L.P. set
    forth in note (1) above due to their status as senior
    managing directors of Bear Stearns & Co. Inc. and group
    head and executive vice president, respectively, of Bear Stearns
    Merchant Banking. Each such person disclaims beneficial
    ownership of any such shares, except for any pecuniary interest
    therein.
69
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Stockholder Support Agreement
On March 10, 2004, Aearo Technologies Inc. entered into a
stockholder support agreement with AC Safety Acquisition
Corp. and Vestar Equity Partners, L.P. The stockholder support
agreement contains, among other things, the following provisions
with respect to Vestar and its affiliates:
•
a prohibition on sales, dispositions, pledges and other
    transfers on shares of Aearo Corporation capital stock;
•
a non-solicitation and non-interference provision with respect
    to Aearo's current employees, certain former employees and
    customers, suppliers, licensees and other business
    relations; and
•
an agreement not to acquire or otherwise render services to
    certain of our competitors prior to March 10, 2006.
Professional Services Agreement
On April 7, 2004, Aearo Technologies Inc., Aearo
Corporation and Aearo Company entered into a professional
services agreement with Bear Stearns Merchant Manager II,
LLC, or BSMM (the "Professional Services Agreement").
Under the terms of the Professional Services Agreement, Aearo
Technologies Inc., Aearo Corporation and Aearo Company retained
BSMM to provide certain management consulting and financial
advisory services, for which Aearo Corporation will pay BSMM an
annual advisory fee equal to the greater of (i) $700,000
and (ii) 1.25% of the Adjusted Consolidated EBITDA (as
defined in our senior credit facility as in effect on
April 7, 2004, plus, to the extent deducted in arriving at
Consolidated EBITDA, the aggregate advisory fee paid under the
Successor Agreement and any fees paid to Vestar Capital Partners
or any of its affiliates). If Aearo Technologies Inc., Aearo
Corporation or Aearo Company engages BSMM with respect to any
merger, acquisition, disposition, recapitalization, issuance of
securities, financing or similar transaction, Aearo Corporation
will pay BSMM a transaction fee to be negotiated between the
parties. If the parties do not agree on a fee, the transaction
fee will be 1.0% of the aggregate enterprise value paid or
provided to Aearo Technologies Inc., Aearo Corporation or Aearo
Company. BSMM will also be entitled to a fee (a "Company
Sale Fee") of 0.65% of the aggregate enterprise value paid
to Aearo Technologies Inc. or Aearo Corporation in a sale of
Aearo Technologies Inc. or Aearo Corporation. The Professional
Services Agreement will terminate on the earlier of
(i) April 7, 2014, (ii) the consummation of a
sale of Aearo Technologies Inc., Aearo Corporation or Aearo
Company, (iii) termination upon thirty days' written
notice by BSMM and (iv) the consummation of a qualified
public offering of Aearo Technologies Inc. common stock. If not
terminated by the foregoing, upon the tenth anniversary of the
date of the Professional Services Agreement and the end of each
year thereafter, the term is automatically extended for an
additional year unless terminated by either party at least
30 days prior to such year end. Under the Professional
Services Agreement, Aearo Technologies Inc., Aearo Corporation
and Aearo Company have agreed to indemnify BSMM for any and all
claims and losses arising out of, or relating, to the
professional services agreement.
Since September 30, 2004, we have paid approximately
$1.0 million to BSMM pursuant to the Professional Services
Agreement. In connection with this offering, we will pay an
additional
$          to
BSMM and the Professional Services Agreement will thereafter be
terminated.
Stockholders' Agreement
On April 7, 2004, all holders of our capital stock entered
into and became subject to a stockholders' agreement that
governs certain aspects of our relationship with our security
holders. The stockholders' agreement, among other things:
•
allows security holders to join, and allows BSMM and its
    affiliates to require security holders to join, in any sale or
    transfer of shares of common stock or preferred stock by BSMM to
    any third party prior to a qualified public offering of common
    stock or preferred stock, following which (when aggregated with
    all prior such sales or transfers) BSMM and its affiliates shall
    have disposed of in excess of a
70
certain specified percentage of the number of shares of common
    stock or preferred stock, as applicable, that BSMM and its
    affiliates owned as of April 7, 2004;
•
restricts the ability of certain security holders to transfer,
    assign, sell, gift, pledge, hypothecate or encumber, or
    otherwise dispose of, common stock or preferred stock or all or
    part of the voting power associated with common stock or
    preferred stock, subject to certain specified exceptions;
•
grants to BSMM the right to designate members of our board of
    directors;
•
grants to security holders the right to buy their proportionate
    percentage of securities offered for sale to BSMM by us;
•
allows us and BSMM to repurchase all or any portion of the
    common stock and preferred stock held by directors, employees
    and consultants of Aearo Corporation at varying prices upon the
    termination of their employment with Aearo Corporation for any
    reason (including death or disability);
•
grants demand and piggyback registration rights to BSMM and
    allows security holders to include securities in a registration
    statement filed by us with respect to an offering of common
    stock or preferred stock (i) in connection with the
    exercise of any demand rights by BSMM and its affiliates or any
    other security holders possessing such rights or (ii) in
    connection with an offering by us which BSMM and its affiliates
    exercise "piggyback" registration rights;
•
provides for the payment by us of the fees and expenses
    associated with the exercise of registration rights under the
    stockholders' agreement;
•
restricts our ability to enter into certain transactions with
    BSMM and its affiliates; and
•
provides for non-operating board members of our management to
    vote their shares at the direction of the Company and to grant
    us a proxy in respect of their shares; and
•
grants to our security holders information rights with respect
    of the Company.
In connection with this offering, we intend to terminate the
stockholders' agreement.
Indebtedness of Management
In the past, certain members of management were issued loans by
us, the proceeds of which were used to purchase company stock.
All outstanding indebtedness bore interest at a rate of
2.73% per annum and all such indebtedness was subsequently
repaid in connection with our acquisition of Aearo Corporation
on April 7, 2004. The following table set forth the largest
aggregate amount of indebtedness outstanding at any time.
Amount of
Name
Indebtedness
M. McLain
$
669,660
M. Rand Mallitz
$
97,830
R. Kapur
$
150,000
J. Floyd
$
150,000
J. Phillips
$
75,000
D. Garrad Warren, III
$
270,000
71
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Senior Credit Facility
On April 7, 2004, Aearo Corporation entered into a senior
secured senior credit facility, which was amended on
April 28, 2005. Aearo Company is the borrower under the
senior credit facility and such facility is unconditionally
guaranteed by Aearo Technologies Inc., Aearo Corporation and
Aearo Company's domestic subsidiaries. Bear Stearns
Corporate Lending Inc. is syndication agent, National City Bank
of Indiana and Wells Fargo Bank, N.A. are co-documentation
agents and Deutsche Bank AG, New York Branch is
administration agent. The senior credit facility is comprised of:
•
a $125.0 million term loan facility, with a portion
    denominated in Euros; and
•
a revolving credit facility providing for up to
    $50.0 million of borrowings.
In addition, the agreement provides for uncommitted incremental
term loan facilities of up to $75.0 million or the
equivalent amount in Euros.
Amounts under the committed term loan facility were only drawn
at the closing of the consummation of the Merger, and term loan
amounts repaid or prepaid may not be re-borrowed. The maturity
date of the term loan is April 7, 2011. Until
September 30, 2010, the term loan will amortize quarterly
in an amount equal to 1% of the initial principal amount. After
September 30, 2010, the remaining principal will be paid in
two quarterly amounts.
Amounts drawn under the revolving credit facility may be
borrowed, repaid and re-borrowed until the final maturity date.
The final maturity date under the revolving credit facility is
April 7, 2010. A portion of the revolving credit facility
will be available for the issuance of stand-by and trade letters
of credit. Maturities for letters of credit will not exceed
twelve months, renewable annually thereafter. As of
September 30, 2005, we did not have any outstanding
borrowings under the revolving credit facility excluding
$1.6 million of letters of credit.
At our option, the interest rates applicable to the term loans
(other than incremental term loans) and the loans under the
revolving senior credit facility will be set at a margin over
the base rate or the Eurodollar rate. The margins applicable to
the incremental term loans will be determined at the time we
draw under any such facility. The base rate is either the
administrative agent's announced prime lending rate or the
overnight Federal Funds rate plus 0.50%, whichever is higher.
8
1
/
4
% Senior
Subordinated Notes due 2012
Aearo Company issued $175.0 million aggregate principal
amount
8
1
/
4
% Senior
Subordinated Notes due 2012 under an indenture dated
April 7, 2005. Interest is payable semiannually on April 15
and October 15 of each year.
The senior subordinated notes are unsecured subordinated
obligations of Aearo Company and are:
•
subordinated in right of payment to all of Aearo Company's
    existing and future senior indebtedness;
•
equal in right of payment with any of Aearo Company's
    existing and future senior subordinated indebtedness; and
•
senior in right of payment to Aearo Company's future
    subordinated indebtedness, if any.
Aearo Company's senior subordinated notes include customary
covenants that restrict, among other things, the ability to
incur additional debt, pay dividends or make certain other
restricted payments, incur liens, merge or sell all or
substantially all of the assets or enter into various
transactions with affiliates. Prior to April 15, 2007,
Aearo Company may redeem up to 35% of the aggregate principal
amount of the senior subordinated notes at a redemption price of
108.25% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption, with funds raised in
specified equity offerings. In addition, prior to April 15,
2008, the senior subordinated notes are redeemable, in whole or
in part, at Aearo Company's option, at a redemption price
equal to 100% of the principal amount thereof plus a make-whole
premium. At
72
any time on or after April 15, 2008, the senior
subordinated notes are redeemable at Aearo Company's
option, at a premium declining to par in 2010. Aearo
Company's senior subordinated notes are guaranteed, fully,
jointly and severally, and unconditionally, on a senior
subordinated basis by its domestic subsidiaries. The senior
subordinated notes are not guaranteed by us or by Aearo
Corporation.
12.00% Senior Notes due 2013
Aearo Corporation issued $54 million aggregate principal
amount 12.00% senior notes due 2013 under an indenture
dated August 3, 2005. Pursuant to the terms of the purchase
agreement with the buyer of such notes, Aearo Corporation is
permitted to issue an additional $46 million aggregate
principal amount of such notes, subject to certain terms and
conditions contained in the purchase agreement, at any time
prior to August 3, 2006. Interest is payable on the
12.00% Notes quarterly on February 1, May, 1,
August 1 and November 1 of each year.
The 12.00% Notes are unsecured subordinated obligations of
Aearo Corporation and are:
•
subordinated in right of payment to all of Aearo Company's
    existing and future senior indebtedness and senior subordinated
    indebtedness;
•
equal in right of payment with any of Aearo Corporation's
    existing and future senior indebtedness; and
•
senior in right of payment to Aearo Corporation's future
    subordinated indebtedness, if any.
Aearo Corporation's 12.00% Notes include customary
covenants that restrict, among other things, the ability to
incur additional debt, pay dividends or make certain other
restricted payments, incur liens, merge or sell all or
substantially all of the assets or enter into various
transactions with affiliates. Prior to August 3, 2006,
Aearo Corporation may redeem all or any part of the aggregate
principal amount of the 12.00% Notes at a redemption price
of 106% of the principal amount thereof, plus accrued and unpaid
interest to the date of redemption, with funds raised in
specified equity offerings. At any time on or after
August 3, 2006, the senior notes are redeemable at Aearo
Corporation's option, at a premium declining to par in 2009.
We will repay all amounts outstanding under the
12.00% Notes with the proceeds from this offering.
73
DESCRIPTION OF CAPITAL STOCK
The following is a description of the terms of our amended and
restated certificate of incorporation and amended and restated
by-laws, the forms of which have been filed with the Securities
and Exchange Commission as exhibits to the registration
statement of which this prospectus is part and which will become
effective upon the consummation of this offering.
Authorized Capitalization
Upon the closing of this offering, our authorized capital stock
will consist of:
•
shares
    of common stock, par value $0.01 per share, all such shares
    will be designated common stock; and
•
shares
    of preferred stock, par value $0.01 per share.
After this
offering,                      shares
of our common stock and no shares of our preferred stock will be
issued and outstanding.
Common Stock
All shares of common stock to be outstanding upon completion of
this offering will be validly issued, fully paid and
nonassessable.
Dividends.
Holders of shares of our common stock will be
entitled to receive dividends and other distributions in cash,
stock or property of ours as may be declared by our board of
directors from time to time out of our assets or funds legally
available for dividends or other distributions.
Rights Upon Liquidation.
In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share in our
assets remaining after payment of all debts and other
liabilities, subject to the liquidation preference of any
outstanding preferred stock.
Voting Rights.
Shares of our common stock carry one vote
per share. Except as otherwise required by law, holders of our
common stock are not entitled to vote on any amendment to our
amended and restated certificate of incorporation that relates
solely to the terms of one or more outstanding series of
preferred stock if the holders of the affected shares are
entitled to vote on the amendment. Holders of shares of our
common stock will not be entitled to cumulative voting rights.
Except as otherwise required by the Delaware General Corporation
Law and our amended and restated certificate of incorporation
and amended and restated by-laws, action requiring stockholder
approval may be taken by a vote of the holders of a majority of
the common stock at a meeting at which a quorum is present. See
"— Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Restated Certificate of Incorporation and
Amended and Restated By-laws."
Other Rights.
Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
Preferred Stock
Our amended and restated certificate of incorporation provides
that we may issue up
to                      shares
of our preferred stock in one or more series as may be
determined by our board of directors.
74
Our board of directors has broad discretionary authority with
respect to the rights of issued series of our preferred stock
and may take several actions without any vote or action of the
holders of our common stock, including:
•
determining the number of shares to be included in each series;
•
fixing the designation, powers, preferences and relative rights
    of the shares of each series and any qualifications, limitations
    or restrictions with respect to each series, including
    provisions related to dividends, conversion, voting, redemption
    and liquidation, which may be superior to those of our common
    stock; and
•
increasing or decreasing the number of shares of any series.
The board of directors may authorize, without approval of
holders of our common stock, the issuance of preferred stock
with voting and conversion rights that could adversely affect
the voting power and other rights of holders of our common
stock. For example, our preferred stock may rank prior to our
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be
convertible into shares of our common stock.
Our preferred stock could be issued quickly with terms designed
to delay or prevent a change in the control of our company or to
make the removal of our management more difficult. This could
have the effect of discouraging third party bids for our common
stock or may otherwise adversely affect the market price of our
common stock.
We believe that the ability of our board of directors to issue
one or more series of our preferred stock will provide us with
flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of our preferred stock, as well as
shares of our common stock, will be available for issuance
without action by our common stockholders, unless such action is
required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
Although our board of directors has no intention at the present
time of doing so, it could issue a series of our preferred stock
that could, depending on the terms of such series, be used to
implement a stockholder rights plan or otherwise impede the
completion of a merger, tender offer or other takeover attempt
of our company. Our board of directors could issue preferred
stock having terms that could discourage an acquisition attempt
through which an acquirer may be able to change the composition
of the board of directors, including a tender offer or other
transaction that some, or a majority, of our stockholders might
believe to be in their best interest or in which stockholders
might receive a premium for their stock over the then best
current market price.
Anti-Takeover Effects of Various Provisions of Delaware Law
and Our Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws
Provisions of the Delaware General Corporation Law, our amended
and restated certificate of incorporation and amended and
restated by-laws contain provisions that may have some
anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in
a premium over the market price for the shares held by
stockholders.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General
Corporation Law. Subject to specific exceptions,
Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with
75
an "interested stockholder" for a period of three
years after the time the person became an interested
stockholder, unless:
•
the business combination, or the transaction in which the
    stockholder became an interested stockholder, is approved by our
    board of directors prior to the time the interested stockholder
    attained that status;
•
upon consummation of the transaction that resulted in the
    stockholder becoming an interested stockholder, the interested
    stockholder owned at least 85% of the voting stock of the
    corporation outstanding at the time the transaction commenced,
    excluding those shares owned by persons who are directors and
    also officers and by employee stock plans in which employee
    participants do not have the right to determine confidentially
    whether shares held subject to the plan will be tendered in a
    tender or exchange offer; or
•
at or after the time a person became an interested stockholder,
    the business combination is approved by our board of directors
    and authorized at an annual or special meeting of stockholders
    by the affirmative vote of at least two-thirds of the
    outstanding voting stock that is not owned by the interested
    stockholder.
"Business combinations" include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, in
general an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or
within three years did own, 15% or more of the shares of the
corporation's outstanding voting stock. These restrictions
could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to us and,
therefore, may discourage attempts to acquire us.
In addition, provisions of our amended and restated certificate
of incorporation and amended and restated by-laws, which are
summarized in the following paragraphs, may have an
anti-takeover effect.
Quorum Requirements; Removal of Directors.
Our amended
and restated certificate of incorporation provides for a minimum
quorum of one-third in voting power of the outstanding shares of
our capital stock entitled to vote, except that a minimum quorum
of a majority in voting power of the outstanding shares of our
capital stock entitled to vote is necessary to hold a vote for
any director in a contested election, the removal of a director
or the filling of a vacancy on our board of directors. Our
amended and restated by-laws provide that directors may be
removed only for cause by the affirmative vote of at least a
majority in voting power of the outstanding shares of our
capital stock entitled to vote generally in the election of
directors.
No Cumulative Voting.
The Delaware General Corporation
Law provides that stockholders are denied the right to cumulate
votes in the election of directors unless our amended and
restated certificate of incorporation provides otherwise. Our
amended and restated certificate of incorporation does not
expressly address cumulative voting.
No Stockholder Action by Written Consent; Calling of Special
Meeting of Stockholders.
Our amended and restated
certificate of incorporation prohibits stockholder action by
written consent. It and our amended and restated by-laws also
provide that special meetings of our stockholders may be called
only by (1) the chairman of our board of directors or
(2) our board of directors or (3) our board of
directors upon a request by holders of at least 50% in voting
power of all the outstanding shares entitled to vote at that
meeting.
Advance Notice Requirements for Stockholder Proposals and
Director Nominations.
Our amended and restated by-laws
provide that stockholders seeking to bring business before or to
nominate candidates for election as directors at an annual
meeting of stockholders must provide timely notice of their
proposal in writing to the corporate secretary. To be timely, a
stockholder's notice must be delivered or mailed and
received at our principal executive offices not less
than 90 nor more than 120 days in advance of the
anniversary date of the immediately preceding annual meeting of
stockholders.
Our amended and restated by-laws also specify requirements as to
the form and content of a stockholder's notice. These
provisions may impede stockholders' ability to bring
matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
Stockholder
76
nominations for the election of directors at a special meeting
must be received by our corporate secretary by the later of
10 days following the day on which notice of the date of
the special meeting was mailed or public disclosure of the date
of the special meeting was made or 90 days prior to the
date that meeting is proposed to be held and not more than
120 days prior to such meeting.
Limitations on Liability and Indemnification of Officers and
Directors.
The Delaware General Corporation Law authorizes
corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary
damages for breaches of directors' fiduciary duties as
directors. Our amended and restated certificate of incorporation
includes a provision that eliminates the personal liability of
directors to us or our stockholders for monetary damages for
breaches of their fiduciary duty as directors to the fullest
extent permitted by the Delaware General Corporation Law.
Our amended and restated by-laws provide that we must indemnify
our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law and that such indemnitees
shall generally also be entitled to an advancement of expenses.
We are also expressly authorized to, and do, carry
directors' and officers' insurance for our directors,
officers and certain employees for some liabilities. We believe
that these indemnification provisions and insurance are useful
to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in
our amended and restated by-laws may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Authorized but Unissued Shares.
Our authorized but
unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred
stock could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
Supermajority Provisions.
The Delaware General
Corporation Law provides generally that the affirmative vote of
a majority in voting power of the outstanding shares entitled to
vote is required to amend a corporation's certificate of
incorporation, unless the certificate of incorporation requires
a greater percentage. Our amended and restated certificate of
incorporation provides that the following provisions in the
amended and restated certificate of incorporation may be amended
only by a vote of two-thirds or more in voting power of all the
outstanding shares of our capital stock entitled to vote:
•
the prohibition on stockholder action by written consent;
•
the ability to call a special meeting of stockholders being
    vested solely in (1) the chairman of our board of
    directors, (2) our board of directors and (3) our
    board of directors upon a request by holders of at least 50% in
    voting power of all the outstanding shares entitled to vote at
    that meeting;
•
the provisions requiring that our business and affairs be
    managed by or under the direction of our board of directors;
•
the provisions relating to the classification of our board of
    directors;
•
the provisions relating to the size of our board of directors;
•
the provisions relating to the filling of vacancies on our board
    of directors;
77
•
the provisions relating to the quorum requirements at
    stockholder meetings for the transaction of business and at
    stockholder meetings regarding votes for any director in a
    contested election, the removal of a director, or the filling of
    a vacancy on our board of directors by our stockholders;
•
the provisions relating to advance notice requirements for
    stockholder proposals and director nominations;
•
the limitation on the liability of our directors to us and our
    stockholders;
•
the provisions granting authority to our board of directors to
    amend or repeal our amended and restated by-laws without a
    stockholder vote, as described below in more detail;
•
the provisions granting stockholders representing no less than
    two-thirds of the voting power of our capital stock the
    authority to amend our amended and restated by-laws, as
    described below in more detail; and
•
the supermajority voting requirements listed above.
Our amended and restated certificate of incorporation grants our
board of directors the authority to amend and repeal our amended
and restated by-laws without a stockholder vote in any manner
not inconsistent with the laws of the State of Delaware or our
amended and restated certificate of incorporation. In addition,
our amended and restated certificate of incorporation provides
that our amended and restated by-laws may be amended by
stockholders representing no less than two-thirds of the voting
power of all the outstanding shares of our capital stock
entitled to vote.
Listing
We intend to apply to list our common stock on the New York
Stock Exchange under the trading symbol "AER".
Transfer Agent and Registrar
will
be the transfer agent and registrar for our shares of common
stock.
78
SHARES ELIGIBLE FOR FUTURE SALE
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities.
Upon completion of this
offering,                      shares
of common stock will be outstanding. Of these shares, the shares
of common stock sold in this offering will be freely tradable
without restriction or further registration under the Securities
Act, except for any shares which may be acquired by an affiliate
of ours as that term is defined in Rule 144 under the
Securities Act, which will be subject to the resale limitations
of Rule 144. The
remaining                      shares
of common stock outstanding will be restricted securities, as
that term is defined in Rule 144, and may in the future be
sold without restriction under the Securities Act to the extent
permitted by Rule 144 or any applicable exemption 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 its, his or her shares of common stock for at least one
year from the date such securities were acquired from us or an
affiliate of ours 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 then-outstanding shares of common
stock (approximately shares immediately after this offering) and
the average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person. Sales under
Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current
public information about us. Under Rule 144, however, a
person who has held restricted securities for a minimum of two
years from the later of the date of such securities were
acquired from us or an affiliate of ours and who is not, and for
the three months prior to the sale of such restricted securities
has not been, an affiliate of ours, is free to sell such shares
of common stock without regard to the volume, manner-of-sale and
the other limitations contained in Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete
discussion thereof.
Commencing 180 days after the date of this prospectus,
approximately                      outstanding
restricted securities will be eligible for sale under
Rule 144 subject to applicable volume limitations, manner
of sale and notice requirements.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or any securities convertible into or
exchangeable or exercisable for any such shares, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Bear, Stearns & Co. Inc. for a period of 180 days
after the date of this prospectus, subject to specified
exceptions.
Our officers, directors and all existing stockholders have
agreed, subject to specified exceptions, that they will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, shares of our common stock or any
securities convertible into or exchangeable or exercisable for
any such securities, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement without, in each case, the prior written
consent of Bear, Stearns & Co. Inc. for a period of
180 days after the date of this prospectus.
Prior to this offering, there has been no established market for
our common stock, and no predictions can be made about the
effect, if any, that market sales of shares of common stock or
the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, the actual
sale of, or the perceived potential for the sale of, common
stock in the public market may have an adverse effect on the
market price for the common stock.
79
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of certain material U.S. federal
income tax considerations related to the ownership and
disposition of our common stock that may be relevant to you if
you acquire our common stock pursuant to this offering. This
summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury
regulations promulgated under the Code and administrative and
judicial interpretations of the Code, all as of the date of this
prospectus and all of which are subject to change, possibly with
retroactive effect. The Internal Revenue Service is referred to
as "IRS" in this summary.
This summary discusses only the federal income tax consequences
to the initial investors who purchase our common stock pursuant
to this offering and does not discuss the tax consequences
applicable to subsequent purchasers of our common stock. This
summary deals only with common stock held as capital assets
within the meaning of Section 1221 of the Code. It does not
discuss all of the tax considerations that may be relevant to
holders of our common stock in light of their particular
circumstances or to holders of common stock subject to special
rules, such as financial institutions, regulated investment
companies, holders subject to the alternative minimum tax,
insurance companies, pension funds, tax exempt organizations,
expatriates, partnerships or pass through entities, dealers in
securities or currencies, traders who elect to mark to market
their securities or persons holding the common stock as part of
a hedging or constructive sale transaction,
"straddle," conversion transaction, or other
integrated transaction, or foreign currency effects on holders
of the common stock whose functional currency is not the
U.S. dollar. We have not requested a ruling from the IRS on
the tax consequences of owning or disposing of our common stock.
As a result, the IRS could disagree with portions of this
discussion. Persons considering the purchase of our common stock
should consult with their own tax advisors about the application
of the U.S. federal income tax laws to their particular
situations as well as any tax considerations under other
U.S. federal tax laws (such as estate and gift tax laws),
or the laws of any state, local or foreign jurisdiction.
As used in this prospectus, the term
"U.S. Holder" means a beneficial owner of common
stock that is, for U.S. federal income tax purposes:
•
a citizen or individual resident of the United States;
•
a corporation, or other entity treated as a corporation for
    U.S. federal income tax purposes, created in or under the
    laws of the United States or of any political subdivision
    thereof;
•
an estate the income of which is subject to U.S. federal
    income taxation regardless of its source; or
•
a trust if a court within the United States is able to exercise
    primary supervision over the administration of the trust and one
    or more U.S. persons have the authority to control all
    substantial decisions of the trust, or a trust that has a valid
    election in effect under applicable U.S. Treasury
    regulations to be treated as a U.S. person.
As used in this prospectus, the term
"Non-U.S. Holder" means a beneficial owner of
common stock that is an individual, corporation, trust or estate
that is not a U.S. Holder.
If an entity treated as a partnership for U.S. federal
income tax purposes holds shares of common stock, the tax
treatment of a partner will generally depend on the status of
the partner and upon the activity of the partnership. If you are
a partner of a partnership holding shares of common stock, we
suggest you consult your own tax advisor.
Distributions to U.S. Holders
If distributions are paid on the shares of our common stock,
these distributions generally will constitute dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, and will
constitute a tax-free return of capital that is applied against
your tax basis in the common stock to the extent these
distributions exceed those earnings and profits. Distributions
in excess of our current and accumulated earnings and profits and
80
your tax basis in the common stock will be treated as a gain
from the sale or exchange of the common stock, the treatment of
which is discussed below. For the tax years 2003 through 2008,
non-corporate U.S. Holders are generally subject to a
maximum tax rate on dividends equal to 15%, which corresponds to
the maximum tax rate for long-term capital gains. However, under
current legislation for tax years beginning after
December 31, 2008, dividends will be taxed at the same rate
as other items of ordinary income, which will exceed the tax
rate for long-term capital gains.
Distributions to Non-U.S. Holders
Dividends paid to a Non-U.S. Holder that are not
effectively connected with the conduct of a U.S. trade or
business of the Non-U.S. Holder generally will be subject
to U.S. federal withholding tax at a 30% rate or, if an
income tax treaty applies and certain certification requirements
described below are satisfied, a lower rate specified by the
treaty. Non-U.S. Holders should consult their tax advisors
regarding their entitlement to benefits under a relevant tax
treaty.
Withholding generally is imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings
and profits to cause the distribution to be a dividend for
U.S. federal income tax purposes. However, we may elect to
withhold on less than the gross amount of the distribution if we
determine that the distribution is not paid out of our current
or accumulated earnings and profits, based on our reasonable
estimates.
A Non-U.S. Holder eligible for a reduced rate of
U.S. federal withholding tax under a tax treaty may obtain
a refund of any excess amounts withheld by filing an appropriate
claim for a refund together with the required information with
the IRS.
Dividends that are effectively connected with a
Non-U.S. Holder's conduct of a trade or business
within the United States and, if a tax treaty applies,
attributable to a Non-U.S. Holder's
U.S. permanent establishment, are exempt from
U.S. federal withholding tax if the Non-U.S. Holder
furnishes to us or our paying agent the appropriate IRS form and
other applicable requirements are met. However, dividends exempt
from U.S. federal withholding tax because they are
"effectively connected" or attributable to a
U.S. permanent establishment under an applicable tax treaty
are subject to U.S. federal income tax on a net income
basis at the regular graduated U.S. federal income tax
rates. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or
a lower rate specified by an applicable tax treaty.
Gain on Disposition of Common Stock by U.S. Holders
A U.S. Holder will recognize gain or loss on the sale or
exchange of our common stock to the extent of the difference
between the amount realized on such sale or exchange and the
U.S. Holder's adjusted tax basis in such shares. Such
gain or loss generally will constitute long-term capital gain or
loss if the U.S. Holder has held such shares for more than
one year. Non-corporate U.S. Holders are subject to a
maximum tax rate of 15% on long-term capital gain (increased to
20% for years after 2008).
Gain on Disposition of Common Stock by
Non-U.S. Holders
A Non-U.S. Holder generally will not be subject to
U.S. federal income tax with respect to gain recognized on
a sale or other disposition of our common stock unless one of
the following applies:
•
the gain is effectively connected with a
    Non-U.S. Holder's conduct of a trade or business
    within the United States and, if a tax treaty applies, the gain
    is attributable to a Non-U.S. Holder's
    U.S. permanent establishment. In such case, the
    Non-U.S. Holder will, unless an applicable tax treaty
    provides otherwise, generally be taxed on its net gain derived
    from the sale at regular graduated U.S. federal income tax
    rates, and in the case of a foreign corporation, may also be
    subject to the branch profits tax described above;
•
a Non-U.S. Holder who is an individual holds our common
    stock as a capital asset, is present in the United States for
    183 or more days in the taxable year of the sale or other
    disposition, and certain
81
other conditions are met. In such a case, the
    Non-U.S. Holder will be subject to a flat 30% tax on the
    gain derived from the sale, which may be offset by certain
    U.S. capital losses; or
•
we are or have been a "United States real property holding
    corporation" (a "USRPHC") for U.S. federal
    income tax purposes at any time during the shorter of the
    five-year period ending on the date of the sale or other
    disposition and the period such Non-U.S. Holder held our
    common stock (the shorter period hereinafter referred to as the
    "lookback period"); provided that if our common stock
    is regularly traded on an established securities market, this
    rule will generally not cause any gain to be taxable unless the
    Non-U.S. Holder owned more than 5% of our common stock at
    some time during the lookback period. We do not believe that we
    are a USRPHC and do not expect to become one in the future.
    However, we could become a USRPHC as a result of future changes
    in assets or operations.
Information Reporting and Backup Withholding Tax
Under certain circumstances, U.S. Treasury regulations
require information reporting and backup withholding on certain
payments on common stock.
A U.S. Holder may be subject to information reporting and
backup withholding (currently at a rate of 28%) with respect to
dividends on, and the proceeds from the sale or redemption of,
common stock, unless such U.S. Holder (a) is an entity
that is exempt from withholding (including, among others,
corporations and certain tax-exempt organizations) and when
required, demonstrates this fact, or (b) provides the payor
with its correct taxpayer identification number
("TIN"), which, for an individual, is ordinarily his
or her social security number, and otherwise complies with
applicable requirements of the backup withholding rules.
Dividends on common stock paid to a Non-U.S. Holder will
generally be exempt from backup withholding, provided the
Non-U.S. Holder meets applicable certification requirements
or otherwise establishes an exemption. We must report annually
to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that Non-U.S. Holder and the
U.S. federal withholding tax withheld with respect to those
dividends.
Under Treasury regulations, payments on the sale or redemption
of our common stock effected through a foreign office of a
broker to its customer generally are not subject to information
reporting or backup withholding. However, if the broker is a
U.S. person, a controlled foreign corporation, a foreign
person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified
three-year period, a foreign partnership with significant
U.S. ownership, or a U.S. branch of a foreign bank or
insurance company, then information reporting (but not backup
withholding) will be required, unless the broker has in its
records documentary evidence that the beneficial owner of the
payment is not a U.S. person or is otherwise entitled to an
exemption, and other applicable certification requirements are
met. Information reporting and backup withholding generally will
apply to sale or redemption payments effected at a
U.S. office of any U.S. or foreign broker, unless the
broker has in its records documentary evidence that the
beneficial owner of the payment is not a U.S. person or is
otherwise entitled to an exemption, and other applicable
certification requirements are met.
Backup withholding does not represent an additional income tax.
Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against the
holder's U.S. federal income tax liability and may
entitle the holder to a refund, provided that the required
information or returns are timely furnished by the holder to the
IRS.
82
UNDERWRITING
We and the selling stockholders intend to offer the shares
through the underwriters. Subject to the terms and conditions in
an underwriting agreement among us, the selling stockholders and
Bear, Stearns & Co. Inc., Banc of America Securities
LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities
Inc. and Morgan Keegan & Company, Inc., we and the
selling stockholders have agreed to sell to the underwriters,
and the underwriters severally have agreed to purchase from us
and the selling stockholders, the number of shares of common
stock listed opposite their names below.
Underwriter
Number of Shares
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Deutsche Bank Securities Inc.
J.P. Morgan Securities Inc.
Morgan Keegan & Company, Inc.
Total
The underwriters have agreed to purchase all of the shares sold
under the underwriting agreement if any of these shares are
purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting
agreement may be terminated.
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 and liabilities incurred in
connection with the directed share program referred to below, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officer's certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Affiliates of Bear, Stearns & Co. Inc. that are selling
stockholders in this offering purchased their securities in the
ordinary course of their business. At the time of purchase of
their securities, those entities had no agreements or
understandings, directly or indirectly, with any person to
distribute those securities.
Commissions and Discounts
The underwriters have advised us that they propose initially to
offer the shares to the public at the public offering price on
the cover page of this prospectus and to dealers at that price
less a concession not in excess of
$           per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$           per
share to other dealers. After the public offering, the public
offering price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount, proceeds before expenses to us and
proceeds to the selling stockholders. The information assumes
either no exercise or full exercise by the underwriters of their
option to purchase up to  additional shares to cover
over-allotments.
Without
With
Per Share
Option
Option
Public offering price
$
$
$
Underwriting discount
$
$
$
Proceeds, before expenses, to Aearo Technologies Inc.
$
$
$
Proceeds, before expenses, to the selling stockholders
$
$
$
83
The expenses of this offering, excluding the underwriting
discount and commissions and related fees, are estimated at
$                     million
and are payable by us. The underwriters have agreed to reimburse
us for certain of our expenses associated with this offering.
Over-Allotment Option
The selling stockholders have granted the underwriters an option
exercisable for 30 days from the date of this prospectus to
purchase a total of up
to                     additional
shares at the public offering price less the underwriting
discount. The underwriters may exercise this option solely to
cover any over-allotments, if any, made in connection with this
offering. To the extent the underwriters exercise this option in
whole or in part, each will be obligated, subject to conditions
contained in the underwriting agreement, to purchase a number of
additional shares approximately proportionate to that
underwriter's initial commitment amount reflected in the
above table.
Directed Share Program
The underwriters have reserved for sale, at the initial public
offering price, up to five percent of the shares of our common
stock being offered for sale in this offering for our employees
and their families and other persons associated with us who
express an interest in purchasing these shares of common stock
in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent
these persons purchase reserved shares. Any reserved shares not
purchased by these persons will be offered by the underwriters
to the general public on the same terms as the other shares
offered in this offering.
United Kingdom
Each of the underwriters has represented and agreed that:
•
it has not made or will not make an offer of shares to the
    public in the United Kingdom within the meaning of
    section 102B of the Financial Services and Markets Act 2000
    (as amended) ("FSMA") except to legal entities which
    are authorized or regulated to operate in the financial markets
    or, if not so authorized or regulated, whose corporate purpose
    is solely to invest in securities or otherwise in circumstances
    which do not require the publication by the company of a
    prospectus pursuant to the Prospectus Rules of the Financial
    Services Authority;
•
it has only communicated or caused to be communicated and will
    only communicate or cause to be communicated an invitation or
    inducement to engage in investment activity (within the meaning
    of section 21 of FSMA) to persons who have professional
    experience in matters relating to investments falling within
    Article 19(5) of the Financial Services and Markets Act
    2000 (Financial Promotion) Order 2005 or in circumstances in
    which section 21 of FSMA does not apply to the company; and
•
it has complied with, and will comply with all applicable
    provisions of FSMA with respect to anything done by it in
    relation to the shares in, from or otherwise involving the
    United Kingdom.
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
"Relevant Member State"), each underwriter has
represented and agreed that with effect from and including the
date on which the Prospectus Directive is implemented in that
Relevant Member State (the "Relevant Implementation
Date") it has not made and will not make an offer of shares
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in
84
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of shares to the public in that Relevant Member
State at any time:
•
to legal entities which are authorized or regulated to operate
    in the financial markets or, if not so authorized or regulated,
    whose corporate purpose is solely to invest in securities;
•
to any legal entity which has two or more of (1) an average
    of at least 250 employees during the last financial year;
    (2) a total balance sheet of more than
€
43,000,000 and
    (3) an annual net turnover of more than
€
50,000,000, as
    shown in its last annual or consolidated accounts; or
•
in any other circumstances which do not require the publication
    by the issuer of a prospectus pursuant to Article 3 of the
    Prospectus Directive.
For the purposes of this provision, the expression an
"offer of shares to the public" in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression "Prospectus Directive" means
Directive 2003/71/ EC and includes any relevant implementing
measure in each Relevant Member State.
No Sales of Similar Securities
We, each of our executive officers, directors, each holder of
our common stock including the selling stockholders, subject to
certain exceptions, have agreed with the underwriters not to
dispose of or hedge any of our shares of common stock for
180 days after the date of this prospectus without first
obtaining the written consent of Bear, Stearns & Co.
Inc.. The 180-day "lock-up" period during which we and
our executive officers, directors, each holder of our common
stock including the selling stockholders are restricted from
engaging in transactions in our common stock is subject to
extension such that, in the event that either (i) during
the last 17 days of the "lock-up" period, we
issue an earnings or financial results release or material news
or a material event relating to us occurs, or (ii) prior to
the expiration of the "lock-up" period, we announce
that we will release earnings or financial results during the
16-day period beginning on the last day of the
"lock-up" period, then in either case the expiration
of the "lock-up" period will be extended until the
expiration of the 18-day period beginning on the issuance of the
earnings or financial results release or the occurrence of the
material news or material event, as applicable, unless Bear,
Stearns & Co. Inc. waives, in writing, such an
extension. See "Shares Eligible for Future Sale".
Quotation on the New York Stock Exchange
We intend to apply to list our common stock on the New York
Stock Exchange under the symbol "AER".
Price Stabilization, Short Positions
Until the distribution of the shares is completed, SEC rules may
limit the underwriters from bidding for and purchasing our
common stock. However, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the
price of our common stock during and after this offering.
If the underwriters over-allot or otherwise create a short
position in our common stock in connection with this offering,
i.e., if they sell more shares than are listed on the cover of
this prospectus, the underwriters may reduce that short position
by purchasing shares in the open market. The underwriters may
also elect to reduce any short position by exercising all or
part of the option to purchase up
to                     additional                      shares
to cover over-allotments described above. The underwriters may
also sell shares in excess of the option to purchase up
to                     additional
shares to cover over-allotments, creating a naked short
position. A naked short position can only be closed out by
buying shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that
there could be downward pressure on the price of the shares in
the open market after pricing that could adversely affect
investors who purchase in this offering. In addition, the
underwriters may impose penalty bids, under which selling
85
concessions allowed to syndicate members or other broker-dealers
participating in this offering are reclaimed if shares of our
common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or
otherwise. These transactions to stabilize or maintain the
market price may cause the price of our common stock to be
higher than it might be in the absence of such transactions. The
imposition of a penalty bid may also affect the price of our
common stock to the extent that it discourages resales.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters makes any representation that we or they will
engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
Other Relationships
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us.
They have received customary fees and commissions for these
transactions.
Prior to this offering, entities affiliated with Bear Stearns
Merchant Banking, an affiliate of Bear, Stearns & Co.
Inc., owned approximately 80.1% of our outstanding common stock.
Following this offering and assuming full exercise of the option
to purchase up
to                     additional
shares to cover over-allotments by the underwriters, entities
affiliated with Bear Stearns Merchant Banking will own
approximately      % of our then
outstanding common stock.
On April 7, 2004 Aearo Company issued in a private
placement $175.0 million aggregate principal amount
8
1
/
4
% Notes
due 2012, for which Bear, Stearns & Co. Inc. and
Deutsche Bank Securities Inc., two of the underwriters in this
offering, were the initial purchasers and received customary
fees with respect thereto.
On April 7, 2004, we entered into a senior credit facility
with a syndicate of lenders including affiliates of Bear,
Stearns & Co. Inc. and Deutsche Bank Securities Inc.,
two of the underwriters in this offering. Aearo Company is the
borrower under the senior credit facility and such facility is
unconditionally guaranteed by us, Aearo Corporation and Aearo
Company's domestic subsidiaries. On April 28, 2005, we
amended this senior credit facility and paid the lenders
customary fees in connection therewith. In connection with this
offering, we will repay
$                     million
of outstanding indebtedness under our senior credit facility.
See "Description of Certain Indebtedness — The
Senior Credit Facility".
Professional Services Agreement
We, Aearo Corporation, Aearo Company and Bear Stearns Merchant
Manager II, LLC, an entity affiliated with Bear Stearns
Merchant Banking and Bear, Stearns & Co. Inc. are
parties to a professional services agreement, pursuant to which
Bear Stearns Merchant Manager II, LLC provides management
consulting and financial advisory services, for which Aearo
Corporation pays Bear Stearns Merchant Manager II, LLC an
annual advisory fee equal to the greater of (i) $700,000
and (ii) 1.25% of the Adjusted Consolidated EBITDA (as
defined in our senior credit facility as in effect on
April 7, 2004, plus, to the extent deducted in arriving at
Consolidated EBITDA, the aggregate advisory fee paid under the
professional services agreement and any fees paid to Vestar
Capital Partners or any of its affiliates). The agreement is
more fully described above under "Certain Relationships and
Related Transactions — Professional Services
Agreement." Since September 30, 2004, we have paid
approximately $1.0 million to Bear, Stearns Merchant
Manager II, LLC pursuant to the agreement. In connection
with this offering, we will pay an additional
$                     to
Bear, Stearns Merchant Manager II, LLC and the agreement
will thereafter be terminated.
Stockholders Agreement
We, entities affiliated with Bear Stearns Merchant Banking and
our other stockholders are party to a stockholders agreement,
more fully described under "Certain Relationships and
Related Transactions — Stockholders'
Agreement," pursuant to which our stockholders have agreed,
among other things, to grant to
86
Bear Stearns Merchant Manager II, LLC the right to
designate members of our board of directors. Upon consummation
of this offering the stockholders agreement will be terminated.
Qualified Independent Underwriter
Bear, Stearns & Co. Inc. is a member of the National
Association of Securities Dealers, Inc., or "NASD".
Under Rule 2720 of the NASD Conduct Rules, we are
considered an affiliate of Bear, Stearns & Co. Inc.
since the parent company of this entity beneficially owns
through its affiliate, Bear Stearns Merchant Capital II,
L.P., 80.1% of our common stock outstanding as of the date of
this prospectus. In addition, affiliates of Bear,
Stearns & Co. Inc. are selling stockholders and
collectively will receive more
than      % of the net proceeds from
the sale of common stock in this offering. Under Rule 2720,
when an NASD member participates in the underwriting of an
affiliate's equity securities, the public offering price
per share can be no higher than that recommended by a
"qualified independent underwriter" meeting certain
standards.                     is
assuming the responsibilities of acting as the qualified
independent underwriter in pricing this offering and conducting
due diligence. The initial public offering price of the shares
of our common stock will be no higher than the price recommended
by                     ,
which will not receive any additional compensation in connection
with its acting as a qualified independent underwriter.
Discretionary Shares
The underwriters will not allocate shares to discretionary
accounts without the prior specific written approval of the
customers. The underwriters will not allocate shares to
discretionary accounts in excess of 5% of the total number of
shares in this offering.
Pricing of This Offering
Prior to this offering, there has been no public market for our
shares of common stock. Consequently, the initial public
offering price for our shares of common stock was determined by
negotiations between us and the representatives of the
underwriters. Among the factors considered in these negotiations
were prevailing market conditions, our financial information,
market valuations of other companies that we and the
representatives of the underwriters believe to be comparable to
us, estimates of our business potential, the present state of
our development and other factors deemed relevant.
Electronic Prospectus
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The lead
managers may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
87
LEGAL MATTERS
The validity of the issuance of the shares of common stock
offered hereby will be passed upon for us by Dorsey &
Whitney LLP, New York, NY. Certain legal maters relating to this
offering will be passed upon for the underwriters by
Latham & Watkins LLP, New York, NY.
EXPERTS
The financial statements included in this prospectus have been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report
appearing herein, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the
SEC regarding this offering. This prospectus, which is part of
the registration statement, does not contain all of the
information included in the registration statement, and you
should refer to the registration statement and its exhibits to
read that information. As a result of the effectiveness of the
registration statement, we will be subject to the informational
reporting requirements of the Exchange Act of 1934 and, under
that Act, we will file reports, proxy statements and other
information with the SEC. You may read and copy the registration
statement, the related exhibits and the reports, proxy
statements and other information we file with the SEC at the
SEC's public reference facilities maintained by the SEC at
100 F Street, N.E., Room 1580, Washington, DC
20549. You can also request copies of those documents, upon
payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The SEC also maintains
an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file
with the SEC. The site's Internet address is www.sec.gov.
Certain information about our company may also be obtained from
our website at www.aearo.com.
You may also request a copy of these filings, at no cost, by
writing or telephoning us at:
Aearo Technologies Inc.
5457 West
79
th
Street
Indianapolis, Indiana 46268
(317) 692-6666
We intend to furnish holders of the shares of common stock
offered in this offering with annual reports containing audited
consolidated financial statements together with a report by our
independent registered public accounting firm.
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities.
Market data and other statistical information used throughout
this prospectus are based on independent industry publications,
government publications, reports by market research firms or
other published independent sources. Some data is also based on
our good faith estimates, which are derived from our review of
internal surveys, as well as the independent sources listed
above. We believe these sources are reliable but we have not
independently verified the information obtained from them.
88
INDEX TO FINANCIAL STATEMENTS
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
Page
Report of Independent Registered Public
    Accounting Firm
F-2
As of September 30, 2005 and September 30, 2004:
Consolidated Balance Sheets
F-3
For the years ended September 30, 2005, the six month
    periods ended March 31, 2004 and September 30, 2004
    and the year ended September 30, 2003:
Consolidated Statements of Operations
F-4
Consolidated Statements of
    Stockholders' Equity
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial
    Statements
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Aearo Technologies
Inc.:
We have audited the accompanying consolidated balance sheet of
Aearo Technologies Inc. and subsidiaries
("Aearo — Successor") as of
September 30, 2005 and 2004, and the related consolidated
statements of operations, stockholders' equity and cash
flows for the year ended September 30, 2005 and for the
period from April 1, 2004 (date of inception) through
September 30, 2004. We have also audited the accompanying
consolidated statements of operations, stockholders' equity
and cash flows of Aearo Corporation and subsidiaries
("Aearo — Predecessor"), a wholly-owned
subsidiary of Aearo — Successor, for the six months
ended March 31, 2004 and for the year ended
September 30, 2003. Aearo — Successor and
Aearo — Predecessor are collectively referred to as
the "Company". These financial statements are the
responsibility of management of the Company. Our responsibility
is to express opinions on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, 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 opinions.
In our opinion, such consolidated financial statements referred
to above of Aearo — Successor present fairly, in all
material respects, the financial position of Aearo —
Successor at September 30, 2005 and 2004, and the results
of their operations and their cash flows for the year ended
September 30, 2005 and for the period from April 1,
2004 (date of inception) through September 30, 2004, in
conformity with accounting principles generally accepted in the
United States of America, and in our opinion, the consolidated
financial statements referred to above of Aearo —
Predecessor present fairly, in all material respects, the
results of operations and cash flows of Aearo —
Predecessor for the six months ended March 31, 2004 and the
year ended September 30, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
November 21, 2005
F-2
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Amounts)
September 30,
September 30,
2004
2005
ASSETS
Current Assets:
Cash and cash equivalents
$
27,724
$
30,068
Accounts receivable (net of allowance for doubtful accounts of
    $1,334 and $1,206, respectively)
54,159
61,998
Inventories
40,849
48,132
Deferred and prepaid expenses
4,146
9,061
Total current assets
126,878
149,259
Long Term Assets:
Property, plant and equipment, net
54,750
50,444
Goodwill
148,050
122,191
Other intangible assets, net
185,855
180,787
Other assets
15,144
15,237
Total assets
$
530,677
$
517,918
LIABILITIES
Current Liabilities:
Current portion of long-term debt
$
1,639
$
3,432
Accounts payable and accrued liabilities
46,730
58,632
Accrued interest
6,996
7,723
U.S. and foreign income taxes
1,648
1,888
Total current liabilities
57,013
71,675
Long Term Liabilities:
Long term debt
302,842
351,625
Deferred income taxes
59,699
45,340
Other liabilities
14,726
12,984
Total liabilities
434,280
481,624
Commitments and Contingent
    Liabilities
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value — (Cumulative
    dividend of $3,701 at September 30, 2004) Authorized and
    issued — 76,168 shares; Outstanding 76,168 and
    0 shares, respectively
1
1
Common stock, $.01 par value —
    Authorized — 3,849,999 shares;
25
25
Issued — 2,517,999 and 2,527,801 shares, respectively,
    and Outstanding — 2,517,999 and 2,527,214 shares,
    respectively
—
—
Paid in capital
101,584
111,642
Stock subscription receivable
—
(129
)
Treasury stock, at cost
—
(85,959
)
Accumulated earnings (deficit)
(5,110
)
12,039
Accumulated other comprehensive loss
(103
)
(1,325
)
Total stockholders' equity
96,397
36,294
Total liabilities and stockholders' equity
$
530,677
$
517,918
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Predecessor
Successor
Year
Six Months
Six Months
Year
Ended
Ended
Ended
Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Net sales
$
316,428
$
169,579
$
193,261
$
423,420
Cost of sales
164,289
89,056
118,491
216,710
Restructuring
(270
)
—
—
—
Gross profit
152,409
80,523
74,770
206,710
Selling and administrative
101,257
56,835
56,752
131,232
Research and technical services
6,402
3,623
4,028
9,175
Amortization expense
267
242
2,631
5,229
Other charges (income), net
1,737
(506
)
1,545
288
Restructuring
—
(1,091
)
—
—
Operating income
42,746
21,420
9,814
60,786
Interest income
(146
)
(53
)
(33
)
(100
)
Interest expense
19,733
11,602
15,941
23,196
Income (loss) before income taxes
23,159
9,871
(6,094
)
37,690
Provision (benefit) for income taxes
2,551
1,734
(984
)
10,752
Net income (loss)
20,608
8,137
(5,110
)
26,938
Preferred stock dividend
7,170
3,930
3,836
6,084
Net income (loss) available for common stockholders
$
13,438
$
4,207
$
(8,946
)
$
20,854
Basic net income (loss) available for common stockholders per
    share
$
138.84
$
70.81
$
(3.56
)
$
8.28
Diluted net income (loss) available for common stockholders per
    share
$
138.84
$
70.76
$
(3.56
)
$
7.92
Weighted average shares and equivalents:
Basic
96,789
59,413
2,513,635
2,518,181
Diluted
96,789
59,454
2,513,635
2,632,520
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Accumulated
Preferred
Common
Stock
Accumulated
Other
Comprehensive
Paid In
Treasury
Subscription
Earnings
Comprehensive
Income
Shares
Amount
Shares
Amount
Capital
Stock
Receivable
(Deficit)
Loss
Total
(Loss)
Balance, October 1, 2002
45,000
101,913
$
1
$
33,614
$
$
(1,360
)
$
6,825
$
(17,536
)
$
21,544
Redemption of stock
(22,500
)
(42,500
)
(33,614
)
—
(892
)
—
(34,506
)
Accrued interest on shareholder notes
(39
)
—
—
(39
)
Foreign currency translation adjustment
—
—
—
—
9,079
9,079
$
9,079
Unrealized loss on derivative instruments
—
—
—
—
(390
)
(390
)
(390
)
Net minimum pension liability adjustment
—
2,060
2,060
2,060
Net income
—
—
—
20,608
—
20,608
20,608
Comprehensive income
—
—
—
—
—
$
31,357
Balance, September 30, 2003
22,500
59,413
1
—
—
(1,399
)
26,541
(6,787
)
18,356
Net income
—
—
—
8,137
—
8,137
8,137
Accrued interest on shareholder notes
(18
)
(18
)
Foreign currency translation adjustment
1,688
1,688
1,688
Net minimum pension liability adjustment
4
4
4
Comprehensive income
$
9,829
Balance, March 31, 2004
22,500
59,413
$
1
$
—
$
—
$
(1,417
)
$
34,678
$
(5,094
)
$
28,167
Capital contribution
76,168
$
1
2,517,999
$
25
$
101,584
$
—
$
—
$
—
$
—
$
101,610
Foreign currency translation adjustment
—
—
—
—
(103
)
(103
)
$
(103
)
Net loss
—
—
—
(5,110
)
—
(5,110
)
(5,110
)
Comprehensive loss
—
—
—
—
—
—
$
(5,213
)
Balance, September 30, 2004
76,168
1
2,517,999
25
101,584
—
—
(5,110
)
$
(103
)
$
96,397
Vesting of restricted stock
40
—
40
Tax benefit of stock options exercised
100
—
100
Shares issued for exercise of stock options
9,802
129
—
129
Stock subscription receivable
(129
)
—
(129
)
Dividend on preferred stock
9,789
(9,789
)
—
Redemption of preferred stock
(85,954
)
—
(85,954
)
Common stock repurchased
(5
)
—
(5
)
Foreign currency translation adjustment
—
—
(871
)
(871
)
$
(871
)
Unrealized gain on derivative instruments, net of tax of $215
—
—
(351
)
(351
)
(351
)
Net income
—
26,938
—
26,938
26,938
Comprehensive income
—
—
—
$
25,716
Balance, September 30, 2005
76,168
$
1
2,527,801
$
25
$
111,642
$
(85,959
)
$
(129
)
$
12,039
$
(1,325
)
$
36,294
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Predecessor
Successor
Year
Six Months
Six Months
Year
Ended
Ended
Ended
Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Cash Flows from Operating
    Activities:
Net income (loss)
$
20,608
$
8,137
$
(5,110
)
$
26,938
Adjustments to reconcile net income (loss) to cash provided by
    operating activities —
Depreciation
11,102
5,931
5,020
10,631
Amortization of intangible assets and deferred financing costs
1,775
2,283
7,231
6,145
Inventory purchase accounting adjustment
—
—
17,067
—
Restructuring adjustment
(270
)
(1,091
)
—
—
Deferred income taxes
(986
)
(15
)
1,026
5,584
Other, net
356
682
152
646
Changes in assets and liabilities — (net of effects of
    acquisitions)
Accounts receivable
1,067
(1,113
)
(54,060
)
(8,080
)
Inventories
(443
)
(3,464
)
(40,657
)
(7,814
)
Income taxes payable
805
(1,454
)
1,574
217
Accounts payable and accrued liabilities
4,620
(3,221
)
46,512
11,381
Prepaid and deferred assets
(3,707
)
1,065
(4,151
)
(142
)
Other assets
(2,983
)
(432
)
(5,020
)
(1,137
)
Other liabilities
4,756
1,727
23,707
124
Net cash provided by (used for) operating activities
36,700
9,035
(6,709
)
44,493
Cash Flows from Investing
    Activities:
Additions to property, plant and equipment
(9,886
)
(5,006
)
(4,521
)
(6,313
)
Cash paid for acquisitions, net of cash
(12,600
)
—
(163,287
)
—
Other
28
12
43
122
Net cash used by investing activities
(22,458
)
(4,994
)
(167,765
)
(6,191
)
Cash Flows from Financing
    Activities:
Capital infusion
—
—
101,610
—
(Repayment of) proceeds from revolving credit facility
11,650
3,950
(15,600
)
—
Repayment of old credit facility
(12,826
)
(8,949
)
(78,711
)
—
Proceeds from new credit facility
—
—
125,000
—
Issuance of senior subordinate notes
15,000
Issuance of Holdco note
54,000
Repayment of new credit facility
—
—
(611
)
(1,274
)
Repayment of 12.50% senior subordinated notes
—
—
(98,000
)
—
Proceeds from 8.25% senior subordinated notes
—
—
175,000
—
Debt issue costs
(3,990
)
—
(10,834
)
(1,913
)
Redemption of common and preferred stock
(34,506
)
—
(14,305
)
(85,954
)
Repayment of capital lease obligations
(224
)
(122
)
(128
)
(269
)
Repayment of long term debt
(107
)
(119
)
(54
)
(297
)
Net cash provided by (used for) financing activities
(25,003
)
(5,240
)
197,642
(35,707
)
Effect of Exchange Rate on
    Cash
3,582
(789
)
4,556
(251
)
Increase (Decrease) in
    Cash and Cash Equivalents
(7,179
)
(1,988
)
27,724
2,344
Cash and Cash Equivalents,
    Beginning of Period
14,480
7,301
—
27,724
Cash and Cash Equivalents,
    End of Period
$
7,301
$
5,313
$
27,724
$
30,068
Non-Cash Investing and
    Financing Activities:
Plant, property and equipment
$
1,352
Preferred stock dividend
9,789
Capital Lease Obligations
$
430
$
—
$
—
$
—
Cash Paid For:
Interest
$
18,096
$
8,862
$
6,472
$
21,853
Income Taxes
$
1,444
$
3,254
$
1,453
$
4,205
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Presentation
Aearo Technologies Inc. (formerly AC Safety Holding Corp.), a
Delaware corporation ("Aearo"), and its wholly owned
subsidiaries, (hereafter referred to as "we",
"our", or the "Company") manufactures and
sells products under the brand names: AOSafety®,
E-A-R®, Peltor® and
SafeWaze
tm.
These products are sold through three reportable segments, which
are Safety Products, Safety Prescription Eyewear and Specialty
Composites. The Safety Products segment manufactures and sells
hearing protection devices, non-prescription safety eyewear,
face shields, reusable and disposable respirators, hard hats and
first aid kits under the brand names: AOSafety®,
E-A-R®, and Peltor®. The Safety Prescription Eyewear
segment manufactures and sells prescription eyewear products
that are designed to protect the eyes from the typical hazards
encountered in the industrial work environment. The
Company's Safety Prescription Eyewear segment purchases
component parts (lenses and the majority of its frames) from
various suppliers, grinds and shapes the lenses to the
customer's prescription, and then assembles the glasses
using the customer's choice of frame. The Specialty
Composites segment manufactures and sells a wide array of
energy-absorbing materials that are incorporated into other
manufacturers' products to control noise, vibration and
shock.
On March 10, 2004, Aearo Corporation entered into a merger
agreement ("Merger Agreement") with Aearo Technologies
Inc. and its subsidiary, AC Safety Acquisition Corp. that closed
on April 7, 2004 (the "Merger"). Pursuant to the
terms of the Merger Agreement, on April 7, 2004
("Acquisition Date"), AC Safety Acquisition Corp.
merged with and into Aearo Corporation with Aearo Corporation
surviving the Merger as a wholly-owned subsidiary of Aearo
Technologies Inc. Prior to the Merger, Aearo Technologies Inc.
did not have any operating activities. The aggregate purchase
price was approximately $409.3 million, including fees and
expenses. The Merger was financed with approximately
$303.7 million of new debt as discussed in Note 6,
$3.7 million of assumed debt, $4.3 million of cash and
$101.3 million of equity.
The Merger was a business combination under
SFAS No. 141,
Business Combinations
.
Accordingly, the results of operations subsequent to the
Acquisition Date are presented on a different basis of
accounting than the results of operations prior to the
Acquisition Date, and therefore, are not directly comparable.
The sale was accounted for as if it had occurred on
March 31, 2004, as management determined that results of
operations were not significant and no material transactions
occurred during the period from April 1, 2004 to
April 7, 2004. The periods prior to April 7, 2004 for
Aearo Corporation are referred to as predecessor financial
statements and the periods after April 7, 2004 for Aearo
Technologies Inc. are referred to as successor financial
statements.
The purchase price is allocated to the Company's net
tangible and intangible assets and liabilities based upon
estimated fair values as of the date of the Merger. The
adjustment made to deferred tax liabilities and goodwill in
fiscal 2005 reflect the adjustment of the purchase price
allocation to identifiable intangible assets and the related
deferred tax liabilities for differences between book and tax
bases of those assets as a result of finalizing the book bases
of certain assets. The allocation included a $17.1 million
fair value adjustment to inventory as of March 31, 2004
which was charged to cost of goods sold during the three month
period ended June 30, 2004. The inventory adjustment above
was based on the guidance for assigning amounts to inventory in
accordance with paragraph 37(c) of SFAS No. 141,
which requires inventory to be valued at
F-7
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
estimated selling prices less a reasonable profit allowance for
the selling effort. The purchase price was allocated as follows
(dollars in thousands):
Working capital
$
60,376
Fixed assets
55,139
Other assets and liabilities
16,073
Deferred tax liabilities
(41,384
)
Finite lived intangible asset
74,104
Indefinite lived intangible assets
114,300
Goodwill
130,736
Purchase price
$
409,344
The following unaudited pro forma financial information is
presented as if the Merger had been completed as of the
beginning of each period presented. The pro forma amounts
include certain adjustments, including increases in
depreciation, amortization and interest expense based on the
allocation of purchase price to tangible and intangible assets
and the issuance of additional debt (dollars in thousands):
Year Ended
September 30,
Six Months Ended
2003
March 31, 2004
Sales
$
316,428
$
169,579
Income before provision for income taxes
20,930
11,444
Net income
18,296
8,862
2.
Significant Accounting Policies
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America. All significant
intercompany balances and transactions have been eliminated in
consolidation. The significant accounting policies of the
Company are described below.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizes revenue when title and risk transfer to
the customer, which is generally when the product is shipped to
customers. At the time revenue is recognized, certain provisions
may also be recorded including pricing discounts and incentives.
The Company offers its customers three types of incentive
programs: a sales rebate/volume discount program, a marketing
incentive program and a co-operative advertising program. The
sales rebate/volume discount program is based on achieved volume
levels along with growth incentives over the prior year's
sales dollars. Rebate obligations are estimated based on current
sales levels and are recorded as a reduction of revenue when
sales to the customer make progress towards the required sales
level. The marketing incentive program provides qualifying
customers that achieve specified volume levels funds to assist
the customers with marketing the Company's products. The
funds provided to the qualifying customers are recorded as a
reduction of revenue when sales to the customer make
F-8
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
progress towards the required sales level. The co-operative
advertising program provides funds to specific customers to
advertise the Company's products. The qualifying customers
provide specific documentation of the advertising to the Company
to assure that the benefit received is comparable to other arms
length advertising expenditures undertaken by the Company. The
amount of co-operative advertising charged to selling and
administrative expenses for the years ended September 30,
2003, 2004 and 2005 were $1.7 million, $1.9 million
and $2.6 million, respectively.
An allowance for doubtful accounts is generally recorded based
on a percentage of aged receivables. However, management
judgment is involved with the final determination of the
allowance based on several factors including specific analysis
of a customer's credit worthiness, historical bad debt
experience, changes in payment history and general economic and
market trends.
Advertising
The Company expenses the costs of advertising as incurred. These
expenses, including co-operative advertising, were approximately
$7.3 million, $4.3 million, $4.9 million and
$10.9 million for the years ended September 30, 2003,
the six months ended March 31, 2004 and September 30,
2004 and the year ended September 30, 2005, respectively.
Cost of Goods Sold
Cost of goods sold includes all costs to manufacture the
Company's products including raw materials, which include
inbound freight and import duties, direct labor, plant
supervision, maintenance labor and parts, quality control,
receiving, purchasing, production planning, manufacturing
supplies, scrap, rework, utilities, depreciation, property
taxes, sales and use taxes and insurance.
Selling and Administrative Expenses
Selling and administrative expenses include salaries and
benefits for selling, marketing, customer service, finance and
human resources personnel, direct marketing expenses, trade show
expenses, commissions, selling expenses, bad debts, advertising,
travel and entertainment, office supplies, recruiting,
relocation, legal expenses, accounting fees, consulting and
warehousing and logistics expenses incurred after the point of
manufacture.
Cash Equivalents
The Company considers all time deposits and short-term
investments with an original maturity of three months or less to
be cash equivalents. Substantially all cash is on hand with one
bank.
Marketable Securities
The Company has acquired certain investment securities for the
purpose of funding its obligations under deferred compensation
plans. The Company's investments in marketable securities
are classified as trading securities and are carried at fair
value under SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities.
The investments
are included in other assets in the consolidated balance sheet.
Foreign Currency Translation and Transactions
Foreign Currency Translation:
Assets and liabilities of the Company's foreign
subsidiaries are translated at period-end exchange rates. Income
and expenses are translated at the approximate average exchange
rate during the period. Foreign currency translation adjustments
are recorded as a separate component of stockholders'
equity.
F-9
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Foreign Currency Transactions:
Foreign currency gains and losses arising from transactions by
any of the Company's subsidiaries are reflected in net
income (loss). For the year ended September 30, 2003 the
accompanying consolidated statements of operations include
approximately $0.3 million of transaction gains included in
other charges (income), net. For each of the six month periods
ended March 31, 2004 and September 30, 2004 the
accompanying consolidated statements of operations include
approximately $0.3 million, and $0.2 million,
respectively, of transaction losses included in other charges
(income), net. For the year ended September 30, 2005 the
accompanying consolidated statements of operations included a
minimal amount of transaction gains in other charges (income),
net.
To mitigate the effects of changes in foreign currency rates on
operating results related to trade accounts receivable and trade
accounts payable denominated in foreign currencies, the Company
enters into forward foreign currency contracts. Gains and losses
related to contracts designated as hedges of trade accounts
receivable and trade accounts payable denominated in foreign
currencies are accrued as exchange rates change and are
recognized in the accompanying consolidated statements of
operations as transaction (gains) and losses and included
in other charges (income), net. As of September 30, 2004
and 2005, relative to these exposures, the Company had forward
foreign currency contracts open in the following amounts:
September 30, 2004
September 30, 2005
Amount
Amount
Currency
(000s)
Contract Position
(000s)
Contract Position
British Pound
$
1,036
Sell
$
2,778
Buy
Canadian Dollar
260
Sell
348
Sell
Norwegian Krona
2,648
Sell
8,780
Sell
Swedish Krona
73,125
Buy
121,140
Buy
Swiss Franc
54
Sell
—
—
Euro
7,750
Sell
9,272
Sell
Danish Krona
3,599
Sell
3,572
Sell
As of September 30, 2004 and 2005, the Company had less
than $0.1 million and $0.3 million of unrealized
losses in other charges (income) associated with the above
forward foreign currency contract commitments, respectively.
In addition, the Company enters into forward foreign currency
contracts to hedge a portion of anticipated sales denominated in
Euro and Canadian Dollar to mitigate the impact of the effects
of changes in foreign currency rates on operating results
related to cash flows from foreign operations. Gains and losses
on these derivative hedge contracts are deferred in other
comprehensive income and recognized as an adjustment to the
other charges (income), net when contracts settle. For the year
ended September 30, 2003 the accompanying consolidated
statements of operations include approximately $0.6 million
of transaction losses included in other charges (income), net.
For each of the six month periods ended March 31, 2004 and
September 30, 2004 the accompanying consolidated statements
of operations include approximately $0.3 million, and
$0.2 million, respectively, of transaction losses included
in other charges (income), net. For the year ended
September 30, 2005 the accompanying consolidated statements
of operations included no transaction gains or losses in other
charges (income), net.
There were thirty six open forward foreign currency contracts to
hedge anticipated revenues and costs as of September 30,
2005. The Company does not enter into forward foreign contracts
for trading purposes.
F-10
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Inventories
Inventories are stated at the lower of cost or market, cost
being determined using the first-in, first-out
(FIFO) method. Our excess and obsolete reserves are
determined by historical sales data and, in the case of new
products, by future demand forecasts.
Property, Plant and Equipment
Property, plant and equipment is 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. Expenses for maintenance and repairs totaled
approximately $2.4 million for the year ended
September 30, 2003, $1.2 million and $1.3 million
for each of the six month periods ended March 31, 2004 and
September 30, 2004, respectively, and $2.8 million for
the year ended September 30, 2005.
Property, plant, equipment, and the related estimated useful
lives are as follows:
Asset Classification
Estimated Useful Life
Buildings
25-40 years
Leasehold improvements
2-15 years
Machinery and equipment
3-10 years
Furniture and fixtures
3-10 years
Upon the sale or retirement of assets, the cost and related
accumulated depreciation are removed from the consolidated
financial statements, and any resultant gain or loss is
recognized.
Income Taxes
Deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of
assets and liabilities using currently enacted tax rates.
Research and Technical Services
The Company engages in research and development through the
normal course of its business and expenses all costs as incurred
to its statement of operations.
Goodwill and Intangible Assets
Under the provisions of SFAS No. 142,
Goodwill and
Other Intangible Assets
, goodwill and intangible assets that
have indefinite useful lives are not amortized but are tested at
least annually for impairment. Intangible assets that have
finite useful lives are amortized over their useful lives and
reviewed for impairment at each reporting date. The following
presents a summary of goodwill and intangible assets at
September 30, 2004 and 2005 (dollars in thousands):
Gross
Accumulated
Carrying
September 30, 2004
Amount
Amortization
Additions
Amount
Trademarks
$
114,300
$
—
$
—
$
114,300
Customer Relationship List
73,000
(2,433
)
—
70,567
Patents
719
(122
)
82
679
Other
385
(76
)
—
309
Total Intangibles
$
188,404
$
(2,631
)
$
82
$
185,855
F-11
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Gross
Accumulated
Carrying
September 30, 2005
Amount
Amortization
Additions
Amount
Trademarks
$
114,300
$
—
$
—
$
114,300
Customer Relationship List
73,000
(7,299
)
—
65,701
Patents
801
(377
)
162
586
Other
385
(185
)
—
200
Total Intangibles
$
188,486
$
(7,861
)
$
162
$
180,787
The weighted average life of patents is 4 years,
non-compete agreements and other is 5 years and customer
relationships is 15 years. Trademarks have indefinite lives.
Estimate of Aggregate Amortization Expense
Year ending September 30, 2006
$
5,121
Year ending September 30, 2007
5,010
Year ending September 30, 2008
4,900
Year ending September 30, 2009
4,910
Year ending September 30, 2010
4,902
The following presents the changes in the carrying amount of
goodwill for the six month period ended September 30, 2004
and the year ended September 30, 2005 (dollars in
thousands):
Six Months
Year
Ended
Ended
September 30,
September 30,
2004
2005
Beginning balance
$
—
$
148,050
Merger transaction
147,445
(16,709
)
Reversal of deferred income tax valuation allowance
—
(7,549
)
Translation adjustment
605
(1,601
)
Ending balance
$
148,050
$
122,191
Of the goodwill resulting from the Merger, $6.8 million is
deductible for tax purposes as a result of carryover tax basis
and the remaining amount is not deductible for tax purposes.
Impairment
The Company accounts for long-lived and certain intangible
assets in accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets
, and
SFAS No. 142. The Company continually reviews its
long-lived tangible and intangible assets for events or changes
in circumstances that 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 assets over their remaining lives can be
recovered through projected undiscounted future cash flows. The
amount of impairment, if any, is measured based on projected
discounted future cash flows using a discount rate reflecting
the Company's average cost of funds. During the year ended
September 30, 2003, as a result of normal product/equipment
obsolescence and productivity or capacity enhancement projects,
the Company wrote off approximately $0.3 million of
manufacturing assets. During each of the six month periods ended
March 31, 2004 and September 30, 2004, the Company
wrote off $0.1 million of manufacturing assets,
respectively. During the year ended September 30, 2005, the
Company wrote off $0.5 million of manufacturing assets.
F-12
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
Amortization of deferred financing costs is included in interest
expense and aggregated $1.4 million for the year ended
September 30, 2003. Deferred financing amortization was
approximately $1.9 million and $0.7 million for each
of the six month periods ended March 31, 2004 and
September 30, 2004, respectively. In addition, the six
month periods ended September 30, 2004 included
approximately $3.9 million of interest expense for the
write-off of deferred financing costs related to the Senior Bank
Facility and the 12.50% Notes. Deferred financing
amortization was approximately $1.1 million for the year
ended September 30, 2005.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments
,
the Company has determined the estimated fair value of its
financial instruments using appropriate market information and
valuation methodologies. Considerable judgment is required to
develop the estimates of fair value; thus, the estimates are not
necessarily indicative of the amounts that could be realized in
a current market exchange. The Company's financial
instruments consist of a combination of cash and cash
equivalents, accounts receivable, accounts payable, Senior
Subordinated Notes, bank debt (including Term Loans, the
Revolving Credit Facility and other debt) and interest rate
instruments. The carrying value of these assets and liabilities
is a reasonable estimate of their fair value at
September 30, 2004 and 2005.
The Company had approximately $30.5 million of variable
rate debt protected under an interest rate cap arrangement at a
strike price of 1.13% LIBOR, which expired December 31,
2004. The approximate fair value of the cap at
September 30, 2004 was $0.1 million. The Company had
not elected hedge accounting treatment for the interest rate cap
as defined under SFAS No. 133 and, as a result, fair
value adjustments were charged directly to other charges
(income), net. No amounts were recorded to income or expense
related to the interest rate cap for the six months ended
March 31, 2004, approximately $0.1 million was
recorded as income during the six months ended
September 30, 2004 and no amounts were recorded to income
or expense for the year ended September 30, 2005.
The Company also uses financial instruments in the form of
forward foreign currency contracts. Current market prices were
used to estimate the fair value of the forward foreign currency
contracts. The fair value of these financial instruments was
$0.4 million loss net of a tax benefit of $0.2 million.
The future value of the forward foreign currency contracts and
the related currency positions are subject to offsetting market
risk resulting from foreign currency exchange rate volatility.
The counter-parties to these contracts are substantial and
creditworthy financial institutions. Neither the risks of
counter-party non-performance nor the economic consequences of
counter-party non-performance associated with these contracts
are considered by the Company to be material.
Accounting for Stock-based Compensation
The Company accounts for stock-based compensation under the
recognition and measurement principles of Accounting Principals
Board ("APB") Opinion No. 25,
Accounting for
Stock Issued to Employees
. Accordingly, no compensation
expense for stock options has been recognized as all options
granted had an exercise price equal to or above the price of the
underlying common stock. The Company does recognize compensation
expense related to restricted stock awards and amortizes the
expense over the vesting period based on the estimated value of
the stock at the date of grant.
F-13
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table illustrates the effect on net income (loss)
if the Company had applied the fair value recognition provisions
of SFAS No. 123,
Accounting for Stock-Based
Compensation
, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure
, to stock-based employee
compensation (dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Net income (loss) available for common stockholders as reported
$
13,438
$
4,207
$
(8,946
)
$
20,854
Stock-based compensation expense recorded under APB No. 25,
    net of tax
—
—
—
—
Stock-based compensation expense determined under fair value
    based method, net of tax
(147
)
(67
)
(26
)
(82
)
Pro forma net income (loss) available for common stockholders
$
13,291
$
4,140
$
(8,972
)
$
20,772
Pro forma net income (loss) available for common stockholders
    per share:
Basic
$
138.84
$
70.81
$
(3.56
)
$
8.28
Diluted
$
138.84
$
70.81
$
(3.56
)
$
8.07
The fair value of each option grant was estimated on the grant
date using the Black-Scholes pricing model with the following
weighted average assumptions:
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Risk-free interest rate
4.71%
4.35%
4.08%
4.09%
Expected life of options granted
10 years
10 years
9.6 years
8.5 years
Expected volatility of underlying stock
0%
0%
0%
0%
Dividend yield
0%
0%
0%
0%
F-14
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Net Income (Loss) Available for Common Stockholders Per
    Share
Net income (loss) available for common stockholders per share is
based on the weighted average number of shares outstanding
during the period. The following table is a reconciliation of
the common shares for the basic and diluted per share
computations:
Predecessor
Successor
Year
Six Months
Six Months
Year
Ended
Ended
Ended
Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Weighted-average common shares outstanding, basic
96,789
59,413
2,513,635
2,518,181
Effect of dilutive employee stock options
—
—
—
151,565
Weighted-average common shares outstanding, diluted
96,789
59,454
2,513,635
2,632,520
Employee stock options of 11,923, 11,923, 525,585 and 176,550
are not included in the calculation of diluted earnings per
share due to their anti-dilutive impact for the year ended
September 30, 2003, the six months ended March 31,
2004, the six months ended September 30, 2004 and the year
ended September 30, 2005, respectively.
Shipping and Handling Costs
Shipping and handling costs include payments to third parties
for the delivery of products to customers, as well as internal
salaries and overhead costs incurred to store, move and prepare
finished products for shipment. Shipping and handling costs are
included with selling and administrative expenses in the
accompanying consolidated statement of operations and totaled
$18.3 million for the year ended September 30, 2003
and $9.6 million for the six month periods ended
March 31, 2004 and September 30, 2004, respectively
and $22.0 million for the year ended September 30,
2005. The Company recovers a portion of its shipping and
handling costs from its customers and records this recovery in
net sales.
The Company's gross profit may not be comparable to the
gross profit of other entities who record shipping and handling
expenses as a component of cost of sales.
Accounting for Derivative Instruments and Hedging
    Activities
The Company accounts for derivatives in accordance with the
provisions of SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities
, as amended
and interpreted. SFAS No. 133 requires that every
derivative instrument be recorded in the consolidated balance
sheet as either an asset or a liability measured at its fair
value.
The Company has formally documented its hedging relationships,
including identification of the hedging instruments and the
hedge items, as well as its risk management objectives and
strategies for undertaking each hedge transaction. From time to
time, the Company enters into forward foreign currency contracts
to mitigate the effects of changes in foreign currency rates on
profitability and enters into interest rate derivative
agreements to hedge its variable interest rate risk. These
derivatives are cash flow hedges as defined by
SFAS No. 133. For all qualifying and highly effective
cash flow hedges, the changes in the fair value of the
derivatives are recorded in other comprehensive income (loss).
Amounts accumulated in other comprehensive income (loss) will be
reclassified as earnings when the related product sales affect
earnings for forward foreign currency contracts or when related
interest payments affect earnings for interest rate derivatives.
At September 30, 2003 the Company had Canadian Dollar
forward foreign currency contracts and no interest
F-15
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
rate derivatives as defined under SFAS No. 133. For
the year ended September 30, 2003, the Company reclassified
into earnings net losses of $2.0 million, resulting from
the exercise of forward foreign currency contracts for cash flow
hedges. For the six month periods ended March 31, 2004 and
September 30, 2004, the Company reclassified into earnings
net losses of $0.5 million and $0.3 million,
respectively, resulting from the exercise of forward foreign
currency contracts. All forward foreign currency contracts were
determined to be highly effective whereby no ineffectiveness was
recorded in earnings. For the year ended September 30,
2005, the Company did not enter into any forward foreign
currency contracts for cash flow hedges.
The Company entered into an interest rate collar arrangement in
October 2001 to protect $25.0 million of the outstanding
variable rate term loan debt from future interest rate
volatility through September 30, 2003. The collar floor was
set at 2% LIBOR (London Interbank Offering Rate) and capped at
6.25% LIBOR. The collar was not designated as a hedge under
SFAS No. 133, and accordingly, the fair value gains or
losses were charged to earnings. Approximately $0.2 million
was expensed during the fiscal year ended September 30,
2003.
The Company had approximately $30.5 million of variable
rate debt protected under an interest rate cap arrangement at a
strike price of 1.13% LIBOR, which expired December 31,
2004. The approximate fair value of the cap at
September 30, 2004 was $0.1 million. The Company had
not elected hedge accounting treatment for the interest rate cap
as defined under SFAS No. 133 and, as a result, fair
value adjustments were charged directly to other charges
(income), net. No amounts were recorded to income or expense
related to the interest rate cap for the six months ended
March 31, 2004, approximately $0.1 million was
recorded as income during the six months ended
September 30, 2004 and no amounts were recorded to income
or expense for the year ended September 30, 2005.
The Company also executes forward foreign currency contracts for
up to 30 day terms to protect against the adverse effects
that exchange rate fluctuations may have on the
foreign-currency-denominated trade activities (receivables,
payables and cash) of foreign subsidiaries. These contracts have
not been designated as hedges under SFAS No. 133, and
accordingly, the gains and losses on both the derivative and
foreign-currency-denominated trade activities are recorded as
transaction adjustments in current earnings. For the year ended
September 30, 2003 the impact on earnings for trade
activities was a net gain of $0.3 million. For the six
months ended March 31, 2004 and September 30, 2004,
the impacts on earnings for trade activities were a net loss of
$0.4 million and $0.1 million, respectively. For the
year ended September 30, 2005 there was no impact on
earnings for trade activities.
On June 30, 2005, the FASB issued Derivatives
Implementation Group ("DIG") B39, "Application of
Paragraph 13(b) to Call Options That are Exercisable Only
by the Debtor", which provides an explicit scope exception
to the provisions of paragraph 13(b) of
SFAS No. 133 when the right to accelerate a repayment
can only be exercise by the debtor (issuer/borrower). The
Company adopted DIG B39 on April 1, 2005. Prior to the
adoption of DIG B39, the Company determined under the provisions
of DIG B16, "Calls and Puts in Debt Instruments", that
the embedded call option in the Company's Senior
Subordinated Notes was not clearly and closely related to the
debt host contract, and therefore, required bifurcation. The
carrying values of the derivative asset and liability were
$2.0 million at September 30, 2004. Prior to the
adoption of DIG B39, the Company had recorded $0.2 million
loss in other (income) charges, net for the mark to market
revaluation of the embedded call option and $0.2 million
for the reduction of interest due to the amortization of the
corresponding liability during 2005. Upon the adoption of DIG
B39, the Company reversed a derivative asset of approximately
$1.8 million and the corresponding liability that was
previously recorded.
New Accounting Pronouncements
In December 2004, the FASB enacted SFAS No. 123R,
Share-Based Payment,
which replaces
SFAS No. 123,
Accounting for Stock-Based
Compensation,
and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS No. 123R requires the measurement of all employee
share-based payments
F-16
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to employees, including grants of employee stock options, using
a fair-value-based method and the recording of such expense in
our results of operations. The accounting provisions of
SFAS No. 123R will be adopted by the Company beginning
on October 1, 2005. The Company anticipates that this will
impact net income by approximately $0.1 million.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
,
(SFAS 154). SFAS 154 replaces APB Opinion No. 20,
Accounting Changes
, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements.
SFAS 154 requires that a voluntary change
in accounting principle be applied retrospectively with all
prior period financial statements presented on the new
accounting principle, unless it is impracticable to do so.
SFAS 154 also provides that a correction of errors in
previously issued financial statements should be termed a
"restatement." The new standard is effective for
accounting changes and correction of errors beginning
October 1, 2005. The Company does not expect that the
adoption of SFAS 154 will have a material impact on our
consolidated financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4
, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This statement is effective
October 1, 2005. The Company has determined that the effect
of SFAS No. 151 on its financial position, results of
operations and cash flows will be minimal.
3.
Other Comprehensive Income
The following table presents the reclassification amounts
related to unrealized holding gains and losses presented in the
statement of stockholders' equity for the year ended
September 30, 2003, the six month periods ended
March 31, 2004 and September 30, 2004, and the year
ended September 30, 2005.
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Unrealized holding losses on derivatives during the period
$
(2,395
)
$
(522
)
$
(248
)
$
(351
)
Less: reclassification adjustment for gains (losses) included in
    the statement of operations
(2,005
)
(522
)
(248
)
—
Total
$
(390
)
$
—
$
—
$
(351
)
4.
Inventories
Inventories consisted of the following at September 30
(dollars in thousands):
2004
2005
Raw materials
$
9,302
$
10,816
Work in process
12,087
11,249
Finished goods
19,460
26,067
Total
$
40,849
$
48,132
F-17
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
5.
Property, Plant and Equipment
Property, plant and equipment consisted of the following at
September 30 (dollars in thousands):
2004
2005
Land
$
2,483
$
2,464
Building and improvements
15,803
18,361
Machinery and equipment
28,686
32,358
Furniture and fixtures
5,714
5,246
Construction in progress
7,084
7,665
Gross property, plant and equipment
59,770
66,094
Less — accumulated depreciation
5,020
15,650
Net property, plant and equipment
$
54,750
$
50,444
6.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the
following at September 30 (dollars in thousands):
2004
2005
Accounts payable — trade
$
20,971
$
27,324
Accrued liabilities:
Employee compensation and benefits
13,239
15,835
Rebate and commissions
5,412
7,597
Other
7,108
7,876
Accounts payable and accrued liabilities
$
46,730
$
58,632
7.
Debt
The long-term debt consisted of the following at
September 30 (dollars in thousands):
2004
2005
Term loans, due 2011
126,045
123,187
8.25% Notes, due 2012
175,000
175,000
12% Holdco Notes, due 2013
—
54,000
Mortgage note, due 2006
2,000
1,905
Other
1,436
965
Sub-total long term debt
304,481
355,057
Less — current portion
1,639
3,432
Total long term debt
$
302,842
$
351,625
Debt
Credit Facility
Our wholly owned subsidiary's, Aearo Company I
("ACI"), debt structure includes up to an aggregate of
$175.0 million under its Credit Agreement with various
banks comprised of (i) a secured term loan facility
F-18
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
consisting of loans providing for up to $125.0 million of
term loans (collectively the "Term Loans") with a
portion of the Term Loans denominated in Euros, (ii) a
secured revolving credit facility ("Revolving Credit
Facility") providing for up to $50.0 million of
revolving loans for general corporate purposes, and
(iii) effective April 28, 2005, an uncommitted
incremental term loan facility of up to $75.0 million for
acquisitions (collectively, the "Senior Bank
Facilities"). The amounts outstanding on the Term Loans and
Revolving Credit Facility at September 30, 2005, were
approximately $123.2 and $0 million, respectively. The
Revolving Credit Facility provides for the issuance of letters
of credit in an aggregate face amount of up to
$15.0 million. ACI had approximately $1.4 million and
$1.6 million of letters of credit outstanding at
September 30, 2004 and September 30, 2005,
respectively. The Term Loans amortize and interest is paid
quarterly over a seven-year period. Amounts repaid or prepaid in
respect of the Term Loans may not be re-borrowed. Loans and
letters of credit under the Revolving Credit Facility will be
available until the Revolving Loan Maturity Date, which is
April 7, 2010.
On April 28, 2005, ACI amended its Credit Agreement, dated
as of April 7, 2004, among Aearo Technologies Inc. and
Aearo Corporation as guarantors, the other guarantors named
therein, various lenders, Bear Stearns Corporate Lending Inc.,
as Syndication Agent, National City Bank of Indiana and Wells
Fargo Bank, N.A. as Co-Documentation Agents and Deutsche Bank
AG, New York Branch, as Administrative Agent. The amendment,
among other things, allowed ACI to make, prior to
September 30, 2005, up to $35.0 million of cash
distributions to Aearo Technologies, Inc. to redeem, pro rata,
outstanding preferred shares and to pay accrued dividends on the
preferred shares. In addition, the amendment permits Aearo
Corporation to issue and sell up to $100.0 million of notes
over time for the purpose of redeeming outstanding preferred
shares and to pay accrued dividends on the preferred shares as
well as to pay cash dividends. On May 7, 2005, ACI
distributed $35.0 million to Aearo Corporation which, in
turn, distributed $35.0 million to Aearo Technologies Inc.,
which was used to make a partial redemption of its preferred
stock.
Proceeds of loans made under the uncommitted term loan
facilities may be drawn from time to time and used to finance
permitted acquisitions (or to refinance outstanding revolving
loans used to finance permitted acquisitions). Amounts drawn
under the incremental term loan facilities will comprise new
tranches under the term loan and/or one or more increases to the
existing tranche under the term loan, in minimum incremental
amounts of $10.0 million and up to a maximum of
$75.0 million. The final maturity date of any incremental
term loan will be no earlier than the term loan maturity date.
The weighted average life to maturity for any incremental term
loan will be no shorter than the weighted average life to
maturity for the term loan. The covenants in respect of, and the
prepayments provisions applicable to, each incremental term loan
facility will be the same as those in respect of and applicable
to the term loan.
At ACI's option, the interest rates per annum applicable to
the Senior Bank Facilities are either (a) an adjusted rate
based on LIBOR plus a margin of 2.75% in the case of New Term
Loans and revolving loans or (b) the Base Rate, as defined,
plus a margin of 1.75% in the case of New Term Loans and
revolving loans. The Base Rate is the higher of (i) the
rate which is
1
/
2
of 1% in excess of the overnight Federal Funds Rate and
(ii) the Prime Lending Rate. ACI 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 ACI's leverage ratio, and a 0.25%
facing fee relating to the issuance of letters of credit.
Effective December 31, 2004, ACI received a 0.25% reduction
in the interest rate paid on its Term Loans for meeting certain
financial covenants.
Under the terms of the Senior Bank Facilities, ACI is required
to comply with a number of affirmative and negative covenants.
Among other restrictions, ACI must satisfy certain financial
covenants and ratios, including interest coverage ratios,
leverage ratios, and limits on the amount of permitted capital
acquisitions. The Senior Bank Facilities also impose limitations
on certain business activities of ACI. The Senior Bank
Facilities restrict, among other things, the incurrence of
additional indebtedness, creation of certain liens, the payment
of dividends on ACI's common stock, sales of certain assets
and limitations on transactions with
F-19
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
affiliates. As of September 30, 2005, ACI was in compliance
with the covenants of the Senior Bank Facilities. The Senior
Bank Facilities are unconditionally guaranteed by ACI and
secured by first priority security interests in substantially
all the capital stock and tangible and intangible assets of ACI.
At September 30, 2005, the total balance outstanding of the
Term Loans was $123.2 million and interest rates were 6.6%
for the U.S. Dollar Term Loan ($73.9 million US
dollars outstanding at September 30, 2005) and 4.6% for the
Euro Term Loan (41.0 million Euro outstanding at
September 30, 2005). For the year ended September 30,
2005, the weighted average interest rate paid on Term Loans was
5.4% for US dollar denominated debt and 4.7% for Euro
denominated debt.
No amounts were outstanding on the Revolving Credit Facility at
September 30, 2005 at any time during the year ended
September 30, 2005. At September 30, 2005,
approximately $48.4 million was available for additional
borrowing.
At September 30, 2004, outstanding Term Loans were
$126.0 million and interest rates were 4.7% for the
U.S. Dollar Term Loan ($74.6 million US dollars
outstanding at September 30, 2004) and 4.9% for the Euro
Term Loan (41.4 million Euro outstanding at
September 30, 2004). For the six months ended
September 30, 2004, the weighted average interest rate paid
on Term Loans was 4.3% for US dollar denominated debt and 4.9%
for Euro denominated debt.
No amounts were outstanding on the Revolving Credit Facility at
September 30, 2004. For the year six months ended
September 30, 2004, the maximum amount outstanding was
$9.3 million outstanding on the Revolving Credit Facility.
The weighted average interest rate on the Revolver Credit
Facility was 5.7%. At September 30, 2004, approximately
$48.6 million was available for additional borrowing.
Senior Subordinated Notes
On April 7, 2004, in connection with the Merger, ACI issued
$175.0 million aggregate principal amount of senior
subordinated notes due 2012 (the "8.25% Notes").
The 8.25% Notes bear interest at 8.25% per annum with
interest is paid semiannually each April 15 and October 15.
The terms of the 8.25% Notes contain three separate
redemptions. The first redemption, referred to as the
"Redemption at Specified Prices", provides for
redemption at ACI's option, at any time on or after
April 15, 2008, in whole or in part, at various redemption
prices declining from 104.125% of the principal amount to par on
and after April 15, 2010. The second redemption, referred
to as the "Make Whole Premium", provides for
redemption, at ACI's option, at any time prior to
April 15, 2008, at a redemption price equal to the
principal amount plus accrued interest plus the "Make Whole
Amount". The Make Whole Amount is defined as an amount
equal to the present value of (1) the redemption price at
April 15, 2008, plus (2) the remaining interest
payments to April 15, 2008, computed using a discount rate
equal to the "Treasury Rate" plus 50 basis
points. The Treasury Rate is defined as the yield to maturity of
U.S. Treasury Securities with a constant maturity most
nearly equal to the period from the date of redemption to
April 15, 2008. The third redemption, referred to as the
"Redemption upon Equity Offering", provides for
redemption, at ACI's option, on or prior to April 15,
2007, from the net cash proceeds of one or more equity offerings
to redeem up to 35% of the principal amount outstanding on the
8.25% Notes, at a redemption price equal to 108.25%.
The 8.25% Notes indenture contains affirmative and negative
covenants and restrictions. As of September 30, 2005, ACI
was in compliance with the covenants of the indenture. The
8.25% Notes are unconditionally guaranteed on an unsecured
senior subordinated basis by ACI's domestic subsidiaries.
F-20
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
12% Notes
On August 3, 2005, in connection with the redemption of all
outstanding preferred stock, the Company issued
$54.0 million aggregate principal amount of holding company
notes due 2013 (the "12% Notes"). The
12% Notes bear interest at 12.0% per annum with
interest being capitalized quarterly and added to the current
accretion amount of the 12% Notes for the first four years.
After August 1, 2009, interest will be payable in cash
quarterly. Interest accretion and payment dates are
February 1, May 1, August 1 and November 1
of each year.
At any time prior to the first anniversary of the initial issue
date, the Company may redeem all or part of the 12% Notes
at a redemption price of 106.0% of the current accretion amount
of the 12% Notes. The 12% Notes may be redeemed during
the twelve-month period beginning on the anniversary of the
initial issuance date occurring in 2006 at 106.0%, in 2007 at
104.0% in 2008 at 102.0% and 2009 and thereafter at 100.0%.
The 12% Notes indenture contains affirmative and negative
covenants and restrictions similar to those required under the
terms of the Senior Bank Facility and Senior Subordinated Notes
discussed above. In addition, if ACI were to default on either
the Credit Agreement or the 8.25% Notes, the Company would
be in default of the 12% Notes. As of September 30,
2005, the Company was in compliance with the covenants of the
12% Notes indenture.
Maturities
As of September 30, 2005, the scheduled maturity of
indebtedness for each of the next five years and thereafter is
as follows (dollars in thousands):
Amount
2006
$
3,432
2007
1,578
2008
1,510
2009
1,354
2010
1,250
Thereafter
345,933
$
355,057
ACI is permitted under the Credit Agreement to pay dividends to
its parent, Aearo Corporation, for the purposes of paying cash
interest, when due, on its indebtedness if certain conditions
are met, and to pay up to $1.0 million per fiscal year for
expenses in the ordinary course of business. In 2006, there is
no cash interest due on Aearo Corporation's indebtedness;
accordingly ACI will be prohibited from paying dividends, other
than for ordinary course expenses, unless a consent or waiver of
the Credit Agreement is obtained.
F-21
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
8.
Employee Benefit Plans
The Company maintains a noncontributory defined benefit cash
balance pension plan. Benefits provided under the plan are
primarily based on years of service and the employee's
compensation.
The following represents information summarizing the
Company's defined benefit cash balance pension plan based
on valuation dates of September 30, 2003, March 31,
2004, September 30, 2004, and September 30, 2005
(dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Component of net periodic benefit cost
Service cost
$
1,510
$
670
$
670
$
1,457
Interest cost
833
371
402
824
Expected return on plan assets
(672
)
(332
)
(363
)
(736
)
Unrecognized prior service cost
9
—
—
—
Recognized actuarial gain
63
4
—
—
Net periodic benefit cost
$
1,743
$
713
$
709
$
1,545
F-22
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Predecessor
Successor
Six Months
Six Months
Year
Ended
Ended
Ended
March 31,
September 30,
September 30,
2004
2004
2005
Change in benefit obligation
Benefit obligation at beginning of period
$
13,031
$
13,684
$
14,232
Service cost
670
670
1,457
Interest cost
371
402
824
Benefits paid
(337
)
(581
)
(839
)
Actuarial (gain) loss
(51
)
57
646
Benefit obligation at end of period
$
13,684
$
14,232
$
16,320
Change in plan assets
Fair value of plan assets at beginning of period
$
8,931
$
9,299
$
9,651
Actual return on plan assets
705
(95
)
701
Employer contributions
—
1,028
1,800
Benefits paid
(337
)
(581
)
(839
)
Fair value of plan assets at end of period
$
9,299
$
9,651
$
11,313
Reconciliation of funded status
Funded status
$
(4,385
)
$
(4,581
)
$
(5,007
)
Unrecognized prior service cost
—
—
—
Unrecognized actuarial loss
—
514
1,195
Net amount recognized
$
(4,385
)
$
(4,067
)
$
(3,812
)
Amounts recognized in statement of financial position
Accrued benefit liability
$
(4,385
)
$
(4,067
)
$
(3,812
)
Six Months
Year
Ended
Ended
September 30,
September 30,
2004
2005
Additional information for pension plans with accumulated
    benefit obligations in excess of plan assets
Projected benefit obligation
$
14,232
$
16,320
Accumulated benefit obligation
13,464
15,299
Fair value of plan assets
9,651
11,313
The weighted average assumptions used in determining net
periodic benefit cost and the projected benefit obligation were
as follows:
2004
2005
Discount rate
6.00%
5.50%
Expected long term rate of return of plan assets
8.00%
8.00%
Rate of compensation increase
4.00%
4.00%
To develop the expected long-term rate of return on assets
assumption, the Company considered historical returns and future
expectations for returns for each asset class, as well as the
target asset allocation
F-23
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of the pension portfolio. Based on Actuarial Standard of
Practice No. 27 and interpretation of this standard, the
FAS 87 long-term rate of return on asset assumption must
fall within a "best estimate range" — that
is, a range of returns within which the actual return is more
likely than not to fall. This "best estimate range"
equates to a 20-year compound average return derived using the
outside actuarial firms' proprietary Portfolio Return
calculator (PRC), reflecting the asset allocation of the trust
with appropriate adjustments for investment, trading, management
and administrative expenses that are paid from the trust. For
purposes of determining the 25th to 75th percentile
range, the PRC uses the outside actuarial firms' capital
market assumptions with respect to each class to develop the
probability distribution of returns. The independently developed
rate of 8.00% falls within the 25th and
75th percentiles of 4.96% and 8.61%, respectively. Over the
12 year period ended September 30, 2005, the returns
on the portfolio, assuming it was invested at the current target
asset allocation in prior periods, would have been a compound
annual average return of 9.1%. Considering this information and
the potential for lower future returns due to the generally
lower interest rate environment, the Company selected an 8.00%
long-term rate of return asset assumption.
The weighted average asset allocations at September 30,
2004, and 2005, by asset category, were as follows:
2004
2005
U.S. equity securities
62%
62%
U.S. fixed income securities
37%
38%
Cash and cash equivalents
1%
0%
100%
100%
The Company has a benefits committee that is responsible for
managing the operations and administration of all benefit plans
and related trusts (the "Benefits Committee"). The
Benefits Committee has an investment policy for the pension plan
assets that establishes target asset allocations for the above
asset classes as follows: U.S. equity securities 60%,
U.S. fixed income securities 40%. The target asset
allocation percentages were developed to manage the net impact
of asset and liability changes over time consistent with the
Company's funding, accounting and benefit policies. The
Benefits Committee's goal with respect to the asset
allocation percentage is to identify a mix of assets offering
the highest expected return for a given correlation to the
pension plan liabilities. The Benefits Committee periodically
reviews mismatches between the duration of the fixed income
portfolio and the related liabilities. The Benefits Committee is
committed to diversification to reduce the risk of large losses.
From time to time, the Benefits Committee will engage a
specialist to evaluate if the target asset allocation
percentages should be rebalanced.
The Company expects to contribute $1.5 million into its
cash balance plan in fiscal 2006.
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid (dollars in
thousands):
Fiscal year 2006
$
1,047
Fiscal year 2007
561
Fiscal year 2008
753
Fiscal year 2009
1,070
Fiscal year 2010
1,001
Fiscal year 2011 – 2015
7,108
In addition, the Company has an unfunded, noncontributory
defined benefit pension plan, the Aearo Company 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 the SERP Plan were $0.1 million for the year
ended September 30, 2003, a minimal amount
F-24
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and $0.1 million for the six month periods ended
March 31, 2004 and September 30, 2004, respectively,
and $0.1 million for the year ended September 30,
2005. The aggregate liability for the SERP Plan was
$1.0 million and $1.1 million for the years ended
September 30, 2004 and September 30, 2005 respectively.
A 401(k) plan, the Aearo Company Employees' 401(k) Savings
Plan, was established as of May 1, 1990. Employees normally
scheduled to work a minimum of 1,000 hours per year can
join the plan immediately and may contribute up to 60% of their
compensation. The Company contributes amounts equal to 50% of
the employee's contribution to a maximum of 3% of the
employee's pay. The costs to the Company for this Plan was
$0.9 million for the year ended September 30, 2003,
$0.4 million and $0.5 million for the six month
periods ended March 31, 2004 and September 30, 2004,
respectively, and $1.0 million for the year end
September 30, 2005.
The Company has a deferred compensation plan that allows certain
employees to defer a portion of their cash compensation by
having it contributed to a non-qualified benefit plan. The
Company fully funds the deferred compensation liabilities by
making cash contributions to a trust at the time the salary or
bonus being deferred would otherwise be payable to the employee.
Gains or losses on amounts held in the trust are fully allocable
to participants, who control the types of investments in the
trust. Realized and unrealized holding gains and losses related
to these investments increase or decrease the corresponding
liability to participants, and thus there is no earnings impact
for the Company. The trust investments are considered trading
securities and as such are reported at fair value in other
assets in the consolidated balance sheet, with the liabilities
included in other long term liabilities.
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. The Company
contributed approximately $0.2 million for the year ended
September 30, 2003, $0.1 million, and
$0.2 million for the six month periods ended March 31,
2004 and September 30, 2004, respectively, and
$0.3 million for the year ended September 30, 2005.
9.
Related Party Transactions
On April 7, 2004, Aearo Technologies Inc., Aearo
Corporation and Aearo Company I entered into a professional
services agreement with Bear Stearns Merchant Manager II,
LLC, or BSMM (the "Successor Agreement"). Under the
terms of the Successor Agreement, Aearo Technologies Inc., Aearo
Corporation and Aearo Company I retained BSMM to provide
certain management consulting and financial advisory services,
for which the Company will pay BSMM an annual advisory fee equal
to the greater of (i) $0.7 million and (ii) 1.25%
of the Adjusted Consolidated EBITDA (as defined in our credit
facility as in effect on April 7, 2004, plus, to the extent
deducted in arriving at Consolidated EBITDA, the aggregate
advisory fee paid under the Successor Agreement and any fees
paid to Vestar Capital Partners or any of its affiliates) by the
Company and its subsidiaries. If Aearo Technologies Inc., Aearo
Corporation or Aearo Company I engages BSMM with respect to
any merger, acquisition, disposition, recapitalization, issuance
of securities, financing or similar transaction, the Company
will pay BSMM a transaction fee to be negotiated between the
parties. If the parties do not agree on a fee, the transaction
fee will be 1.0% of the aggregate enterprise value paid or
provided to Aearo Technologies Inc., Aearo Corporation or Aearo
Company I. BSMM will also be entitled to a fee (a
"Company Sale Fee") of 0.65% of the aggregate
enterprise value paid to Aearo Technologies Inc. or Aearo
Corporation in a sale of Aearo Technologies Inc. or Aearo
Corporation. The Successor Agreement will terminate on the
earlier of (i) April 7, 2014, (ii) the
consummation of a sale of Aearo Technologies Inc., Aearo
Corporation or Aearo Company I, (iii) termination upon
thirty days' written notice by BSMM and (iv) the
consummation of a qualified public offering of Aearo
Technologies Inc. common stock. If not terminated by the
foregoing, upon the tenth anniversary of the date of the
Successor Agreement and the end of each year thereafter, the
term is automatically extended for an additional year unless
terminated by either party at least
F-25
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
30 days prior to such year end. Under the Successor
Agreement, Aearo Technologies Inc., Aearo Corporation and Aearo
Company I have agreed to indemnify BSMM for any and all
claims and losses arising out of, or relating, to the
professional services agreement.
Pursuant to an agreement with Vestar Capital Partners and Cabot
Corporation, dated as of July 11, 1995, an annual
management fee was payable by the Company equal to the greater
of (i) $0.4 million or (ii) 1.25% of the
consolidated net income of the Company and its subsidiaries
before interest, taxes, depreciation and amortization for such
fiscal year (the "Predecessor Agreement"). Payments
under the Predecessor Agreement totaled approximately
$0.6 million for the year ended September 30, 2003 and
$0.4 million for the six months ended March 31, 2004.
Payments under the Successor Agreement totaled approximately
$0.3 million for the six months ended September 30,
2004 and $0.9 million for the year ended September 30,
2005.
10.
Income Taxes
Income (loss) before income taxes was as follows (dollars in
thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Domestic
$
12,128
$
2,674
$
(6,067
)
$
19,217
Foreign
11,031
7,197
(27
)
18,473
Income (loss) before income taxes
$
23,159
$
9,871
$
(6,094
)
$
37,690
A summary of provision (benefit) for income taxes was as follows
(dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
U.S. Federal and State
Current
$
620
$
94
$
(3,247
)
$
289
Deferred
—
—
—
4,981
620
94
(3,247
)
5,270
Foreign
Current
1,148
1,624
2,034
4,260
Deferred
783
16
229
1,222
1,932
1,640
2,263
5,482
Total
$
2,551
$
1,734
$
(984
)
$
10,752
F-26
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provision (benefit) for income taxes at the Company's
effective tax rate differed from the provision (benefit) for
income taxes at the statutory rate as follows (dollars in
thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Computed tax expense (benefit) at the expected statutory rate
$
7,875
$
3,313
$
(2,072
)
$
12,815
State taxes, net of federal effects
85
36
44
753
Foreign income taxed at different rates
(1,174
)
551
914
(797
)
Permanent items
125
(452
)
130
(433
)
Decrease in valuation allowance
(4,710
)
(1,714
)
—
—
Post-merger net operating loss carryforward adjustment
—
—
—
(1,865
)
Other, net
350
—
—
279
Provision (benefit) for income taxes
$
2,551
$
1,734
$
(984
)
$
10,752
During the year ended September 30, 2005, the Company
recorded $1.9 million of adjustments to the preliminary
estimate of the deferred tax assets for post merger net
operating losses based on tax returns filed in fiscal year 2005.
Significant components of deferred income taxes are as follows
at September 30 (dollars in thousands):
Deferred tax assets (liabilities)
2004
2005
Pension and other benefits
$
1,947
$
1,920
Property, plant and equipment
(3,429
)
(2,769
)
Intangible assets
(72,100
)
(58,003
)
Derivatives
—
215
Inventory
1,242
1,663
Unrealized foreign currency exchange
(32
)
281
Net operating loss and credit carryforwards
17,761
13,532
Accrued expenses and other
2,461
2,068
Subtotal
(52,150
)
(41,093
)
Valuation allowance
(7,549
)
—
Total deferred tax liability
$
(59,699
)
$
(41,093
)
Current deferred tax assets
$
—
$
4,247
Long term deferred tax liabilities
(59,699
)
(45,340
)
The valuation allowance at September 30, 2004 related to
the uncertainty of realizing the tax benefits of reversing
pre-merger temporary differences and net operating loss
carryforwards. During the year ended September 30, 2005,
management determined that based on current domestic operating
results, it is more likely than not that domestic pre-merger net
operating losses would be realized and consequently reversed the
$7.5 million valuation allowance, which decreased goodwill
resulting from the Merger. The gross amount of domestic net
operating loss carryforwards, before the tax effect, is
approximately $35.1 million as of September 30, 2005.
Realization of the deferred tax asset for net operating losses
is dependent on generating sufficient future taxable income in
the United States prior to the expiration of the net operating
losses and
F-27
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
credit carryforwards, which expire on various dates ranging from
2010 to 2021 and are subject to certain limitations on their use
after the Merger.
The Company has excluded undistributed earnings of
$59.8 million of nine foreign affiliates from its
calculation of deferred tax liabilities because they will be
permanently invested for the foreseeable future. Should
management decide in the future to repatriate all or a portion
of these undistributed earnings, the Company would then be
required to provide taxes on such amounts.
11.
Stockholders' Equity
Stock Ownership and Stockholders' Agreement
On April 7, 2004, all holders of the capital stock of Aearo
Technologies Inc. entered into and became subject to a
stockholders' agreement that governs certain aspects of its
relationship among its security holders. The stockholders'
agreement, among other things; allows security holders to join,
and allows BSMM and its affiliates to require security holders
to join, in any sale or transfer of shares of common stock or
preferred stock by BSMM to any third party prior to a qualified
public offering of common stock or preferred stock, following
which (when aggregated with all prior such sales or transfers)
BSMM and its affiliates shall have disposed of in excess of a
certain specified percentage of the number of shares of common
stock or preferred stock, as applicable, that BSMM and its
affiliates owned as of the closing of the Merger; restricts the
ability of certain security holders to transfer, assign, sell,
gift, pledge, hypothecate or encumber, or otherwise dispose of,
common stock or preferred stock or all or part of the voting
power associated with common stock or preferred stock, subject
to certain specified exceptions; grants to BSMM the right to
designate members of the board of directors of Aearo
Technologies Inc.; grants to security holders the right to buy
their proportionate percentage of securities offered for sale to
BSMM by Aearo Technologies Inc.; allows Aearo Technologies Inc.
and BSMM to repurchase all or any portion of the common stock
and preferred stock held by directors, employees and consultants
of Aearo Corporation at varying prices upon the termination of
their employment with Aearo Corporation for any reason
(including death or disability); grants demand and piggyback
registration rights to BSMM and allow security holders to
include securities in a registration statement filed by Aearo
Technologies Inc. with respect to an offering of common stock or
preferred stock (i) in connection with the exercise of any
demand rights by BSMM and its affiliates or any other security
holders possessing such rights or (ii) in connection with
which BSMM and its affiliates exercise "piggyback"
registration rights; provides for the payment by Aearo
Technologies Inc. of the fees and expenses associated with the
exercise of registration rights under the stockholders'
agreement; restricts the ability of Aearo Technologies Inc. and
its subsidiaries to enter into certain transactions with BSMM
and its affiliates; and provides for non-operating board members
of our management to vote their shares at the direction of Aearo
Technologies Inc. and to grant Aearo Technologies Inc. a proxy
in respect of their shares; restricts our ability to amend the
certificate of designations governing our series A
preferred stock without the approval of certain of our security
holders; and grant to the security holders of Aearo Technologies
Inc. information rights with respect of Aearo Technologies Inc.
and its subsidiaries.
The stockholders' agreement will terminate upon the
earliest to occur of (i) the dissolution of Aearo
Technologies Inc., (ii) the occurrence of any event that
reduces the number of security holders to one, (iii) the
consummation of a qualified initial public offering of Aearo
Technologies Inc.'s common stock and (iv) the transfer
to a person or group other than BSMM and its affiliates of a
number of shares of common stock having the power to elect a
majority of the Aearo Technologies Inc. Board of Directors.
Under the terms of the stockholders' agreement, the Company
issued 76,168 shares of cumulative preferred stock that,
while outstanding, accrued dividends at the rate of 2.5% of the
carrying amount plus unpaid dividends per quarter. Upon a
liquidation, dissolution, or winding up of Aearo Technologies
Inc., each holder would be entitled to receive, after
satisfaction of all indebtedness, prior to any payment in
respect of
F-28
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
any common stock, an amount equal to the then applicable
carrying amount plus any accrued, unpaid and compounded.
During the year ended September 30, 2005 the Company
redeemed all of its outstanding preferred stock with a carrying
value of $76.2 million plus accumulated dividends of
$9.8 million with a combination of cash on hand and new
borrowings. The preferred stock has not been retired and is
classified as treasury stock.
Stock Option and Incentive Plans
In connection with the Merger, Aearo Technologies Inc. adopted a
stock incentive plan ("2004 Option Plan") for the
benefit of certain of its employees and terminated the 1996
Executive Stock Option Plan and the 1997 Stock Option Plan of
the predecessor company. Options to acquire 18.5% of the total
outstanding shares of our ultimate parent's common stock on
a fully diluted basis were granted under the plan. With respect
to the options, the plan only permits the issuance of
non-qualified options. In addition, common stock representing a
total of 1.5% of the outstanding shares of our ultimate
parent's common stock on a fully diluted basis was
designated as restricted stock and made available for grant
under the plan to new hires. The number of shares of restricted
stock and the number of options to be issued to each new hire or
employee will be determined by the compensation committee of the
Board of Directors of our ultimate parent based on the
recommendation of the Chief Executive Officer. The option terms
are 10 and 7 years except that in certain instances of
termination of employment the options shall expire, or upon the
sale of the Company, the options shall immediately vest.
In 1996, Aearo Corporation's Board of Directors adopted the
Executive Stock Option Plan (the "Executive Plan")
under which non-qualified options to purchase up to
5,000 shares of Aearo Corporation's common stock may
be granted to certain officers and key employees of Aearo
Corporation and its subsidiaries. In July 1997, the
Company's Board of Directors adopted and the stockholders
subsequently approved the 1997 Stock Option Plan (the "1997
Option Plan") under which 10,000 shares of Aearo
Corporation common stock were reserved for issuance. During the
year ended September 30, 2002, an additional
1,800 shares were reserved for issuance under the 1997
Option Plan. Under the 1997 Option Plan, non-qualified and
qualified options may be granted to employees, directors and
consultants of Aearo Corporation and its subsidiaries. Options
granted under the Executive Plan and the 1997 Option Plan will
vest and become exercisable upon the earlier of the date on
which a stipulated return (as defined) is achieved by Vestar on
its investment in the Company or the tenth anniversary of the
date of grant. The option term will be 10 years, except
that options shall expire in certain instances of termination of
employment and upon the sale of the Company. As of
September 30, 2003, options to purchase a total of
3,993 shares were outstanding under the Executive Plan and
options to purchase a total of 7,930 shares were
outstanding under the 1997 Option Plan. A total of 1,077 options
are available for grant under the Executive Plan and 3,800
options are available for grant under the 1997 Option Plan. In
connection with the Merger, all options issued under both the
Executive Plan and the 1997 Option Plan were cancelled.
F-29
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock Option Activity
Stock option data for the Executive Plan, the 1997 Option Plan
and the 2004 Option Plan are as follows:
Weighted
Average
Number
Exercise
of Shares
Price
Outstanding, September 30, 2002
15,920
$
649
Forfeited
(3,997
)
800
Outstanding, September 30, 2003
11,923
$
600
Outstanding, April 1, 2004
Granted
369,185
$
10.00
Granted
156,400
17.50
Outstanding, September 30, 2004
525,585
$
12.23
Granted
33,800
$
10.00
Granted
24,700
39.00
Exercised
(5,252
)
10.00
Exercised
(4,550
)
17.50
Forfeited
(3,710
)
10.00
Outstanding, September 30, 2005
570,573
$
13.25
The following table sets forth information regarding options
outstanding at September 30, 2005:
Weighted
Weighted
Average
Number
Weighted
Average
Exercise
of Shares
Number
Average
Remaining
Price for
Weighted
Covered by
Exercise
Currently
Exercise
Contractual
Currently
Average
Options
Price
Exercisable
Price
Life
Exercisable
Fair Value
394,023
$
10.00
86,087
$
10.00
8.27
$
10.00
$
3.18
151,850
17.50
34,550
17.50
8.80
17.50
—
24,700
39.00
—
39.00
9.96
39.00
13.50
Commitments and Contingencies
12.     Lease Commitments
The Company leases certain transportation vehicles, warehouse
facilities, office space, and machinery and equipment under
cancelable and non-cancelable operating leases. Rent expense
under such arrangements totaled $6.0 million for the year
ended September 30, 2003, $3.1 million for each of the
six month periods ended March 31, 2004 and
September 30, 2004, respectively, and $6.9 million for
the year ended
F-30
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
September 30, 2005. Future minimum rental commitments under
non-cancelable leases in effect at September 30, 2005 are
as follows (dollars in thousands):
2006
$
5,757
2007
3,250
2008
3,249
2009
2,301
2010
2,283
Thereafter
3,955
Total
$
20,795
Contingencies
Various lawsuits and claims arise against Aearo Company I
in the ordinary course of its business. Most of these lawsuits
and claims are products liability matters that arise out of the
use of safety eyewear and respiratory product lines manufactured
by the Company as well as products purchased for resale.
Aearo Company I is a defendant in lawsuits by plaintiffs
alleging that they suffer from respiratory medical conditions,
such as asbestosis or silicosis, relating to exposure to
asbestos and silica, and that such conditions result, in part,
from the use of respirators that, allegedly, were negligently
designed or manufactured. The defendants in these lawsuits are
often numerous, and include, in addition to manufacturers and
distributors of respirators, manufacturers, distributors and
installers of sand (used in sand blasting), asbestos and
asbestos-containing products. Many of these claims are covered
by the Asset Transfer Agreement entered into on June 13,
1995 by Aearo Company I and Aearo Corporation, on the one
hand, and Cabot Corporation and certain of its subsidiaries (the
"Sellers"), on the other hand (the "1995 Asset
Transfer Agreement"). In the 1995 Asset Transfer Agreement,
so long as Aearo Corporation makes an annual payment of
$0.4 million to Cabot, the Sellers agreed to retain, and
Cabot and the Sellers agreed to defend and indemnify Aearo
Corporation and its subsidiaries against, any liability or
obligation relating to or otherwise arising under any proceeding
or other claim against Aearo Corporation and its subsidiaries or
Cabot or their respective affiliates or other parties with whom
any Seller directly or indirectly has a contractual liability
sharing arrangement which sounds in product liability or related
causes of action arising out of actual or alleged respiratory
medical conditions caused or allegedly caused by the use of
respirators or similar devices sold by Sellers or their
predecessors (including American Optical Corporation and its
predecessors) prior to July 11, 1995. To date, Aearo
Corporation has elected to pay the annual fee and intends to
continue to do so. In addition, under the terms of the merger
agreement with AC Safety Acquisition Corp. (the "Merger
Agreement"), Aearo Corporation agreed to make the annual
payment to Cabot for a minimum of seven years from April 7,
2004 (the "Acquisition Date"). Aearo Corporation and
its subsidiaries could potentially be liable for claims
currently retained by Sellers if Aearo Corporation elects to
cease paying the annual fee or if Cabot and the Sellers no
longer are able to perform their obligations under the 1995
Asset Transfer Agreement. Cabot acknowledged in the Stock
Purchase Agreement that it and Aearo Corporation entered into on
June 27, 2003 (providing for the sale by Cabot to Aearo
Corporation of all of the common and preferred stock of Aearo
Corporation owned by Cabot) that the foregoing provisions of the
1995 Asset Transfer Agreement remain in effect. The 1995 Asset
Transfer Agreement does not apply to claims relating to the
business of Eastern Safety Equipment, the stock of which Aearo
Company I acquired in 1996. Claims related to Eastern
Safety Equipment have historically been covered by that
company's insurers under a reservation of rights.
F-31
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth information concerning
respiratory claims filed against Aearo Company I in fiscal
2003, 2004 and 2005.
Silica
Asbestos
October 1,
October 1,
October 1,
October 1,
Through
2003 through
2004 through
Through
2003 through
2004 through
September 30,
September 30,
September 30,
September 30,
September 30,
September 30,
2003
2004
2005
2003
2004
2005
Number of claims at beginning
135
6,629
11,087
564
4,143
4,282
Increases in number of claims
6,529
4,586
2,409
3,862
152
1,074
(1)
Number of claims settled
13
0
2
245
1
0
Number of claims dismissed without payment
22
128
780
38
12
1,232
Ending number of claims
6,629
11,087
12,714
4,143
4,282
4,124
Average amount per claims settled
$
24.36
N/A
$
16.99
$
83.24
$
0
$
0
Average amount per claims
    closed
(2)
$
9.05
$
0
$
0.04
$
72.06
$
0
$
0
(1)
The 1,074 new asbestos claims include 114 claims that allege
    exposure from clothing, which Aearo Company I never
    manufactured.
(2)
The difference between average amount for claims
    "settled" versus average amount for claims
    "closed" is that some claims are dismissed or
    withdrawn without having to pay a settlement or any amount. The
    "average amount per claim closed" includes claims
    closed by both settlement and by dismissal without payment while
    the "average amount per claim settled" is for claims
    settled.
In addition to the above claims, the Company may agree to pay a
share of the settlement and defense costs in particular cases
even though Aearo Company I is not named as a defendant
because of agreements with prior owners of the brand and/or
because of allegations that Aearo Company I has some risk
of legal liability as a successor ("Additional
Claims"). During fiscal 2005, the Company paid a total of
$1.6 million for settlement, administrative and defense
costs resulting in the settlement of 4,325 silica and asbestos
claims that were settled between October 1, 2002 and
September 30, 2004 involving both claims in which Aearo
Company I was named as a defendant and Additional Claims.
During fiscal 2005 the Company paid a total of $0.7 million
for administrative and defense costs involving both claims in
which Aearo Company I was named as a defendant and
Additional Claims. Also in fiscal 2005, in addition to the cases
in the above chart, the Company paid $0.3 million to settle
approximately 4,449 claims, involving a still being determined
ratio of claims in which Aearo Company I was named as a
defendant and Additional Claims and therefore the above table
does not reflect the settlement of these claims. In addition,
Aearo Company I may receive the benefit of releases in some
additional cases settled by the AO Defense Group regardless of
whether or not any claim was made against Aearo Company I.
The above information was based on data compiled by a third
party that tracks numbers of cases and settlements on behalf of
the "AO Defense Group" and is believed to be
materially accurate. This information may be subject to future
adjustment in light of new information becoming available. The
AO Defense Group is a voluntary association of current and
former manufacturers of the "AO Safety" brand of
respirators and certain of their insurers in which Aearo
participates and through which all of its settlements have been
handled in the relevant years. Also during fiscal 2005, there
may have been claims settled by and fully funded by the insurers
of Eastern Safety Equipment Co., Inc., a subsidiary of Aearo
which is in the process of winding up its affairs. In addition,
during fiscal 2005 the Company paid $0.1 million, net of
insurance proceeds, to settle a safety eyewear product liability
claim.
F-32
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At September 30, 2005 and September 30, 2004, the
Company has recorded liabilities of approximately
$5.1 million and $5.4 million, respectively, which
represents reasonable estimates of its probable liabilities for
product liabilities substantially related to asbestos and
silica-related claims as determined by the Company in
consultation with an independent consultant. The
$0.3 million reduction in the reserve, net of new accruals
which added to the reserve, since September 30, 2004 is
primarily attributed to the payment of $1.6 million, as
referenced above, to pay costs attributed to settlement,
administrative and defense costs that had been reached over a
prior two year time period, $0.7 million for administrative
and defense costs involving both claims in which Aearo
Company I was named as a defendant and Additional Claims,
the payment of $0.3 million, as referenced above, for the
settlement of 4,445 claims during fiscal 2005, and
$0.1 million, net of insurance proceeds, to settle a safety
eyewear product liability claim. This reserve is re-evaluated
periodically and additional charges or credits to results of
operations may result as additional information becomes
available. Various factors increase the difficulty in
determining Aearo Company I's potential liability, if
any, in such claims, including the fact that the defendants in
these lawsuits are often numerous and the claims generally do
not specify the amount of damages sought. Additionally, the
bankruptcy filings of other companies with asbestos and
silica-related litigation could increase the Company's cost
over time. In light of these and other uncertainties inherent in
making long-term projections, the Company has determined that
the five-year period through fiscal 2010 is the most reasonable
time period for projecting asbestos and silica-related claims
and defense costs. It is possible that the Company may incur
liabilities in an amount in excess of amounts currently
reserved. However, taking into account currently available
information, historical experience, and the 1995 Asset Transfer
Agreement, but recognizing the inherent uncertainties in the
projection of any future events, it is management's opinion
that these suits or claims should not result in final judgments
or settlements in excess of the Company's reserve that, in
the aggregate, would have a material effect on the
Company's financial condition, liquidity or results of
operations.
13.
Segment Data
As defined by SFAS No. 131,
Disclosures about
Segments of an Enterprise and Related Information
, the
Company's three reportable segments are Safety Products,
Safety Prescription Eyewear and Specialty Composites. The Safety
Products segment manufactures and sells hearing protection
devices, communication headsets, non-prescription safety
eyewear, face shields, reusable and disposable respirators, hard
hats and first aid kits. The Safety Prescription Eyewear segment
manufactures and sells prescription eyewear products that are
designed to protect the eyes from the typical hazards
encountered in the industrial work environment. The Safety
Prescription Eyewear segment purchases component parts (lenses
and the majority of its frames) from various suppliers, grinds
and shapes the lenses to the customer's prescription, and
then assembles the glasses using the customer's choice of
frame. The Specialty Composites segment manufactures a wide
array of energy-absorbing materials that are incorporated into
other manufacturers' products to control noise, vibration
and shock.
Net sales to external customers by business segment (dollars in
thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31
September 30,
September 30,
2003
2004
2004
2005
Safety Products
$
242,263
$
127,964
$
146,393
$
318,450
Safety Prescription Eyewear
40,028
20,337
19,503
39,446
Specialty Composites
34,137
21,278
27,365
65,524
Total
$
316,428
$
169,579
$
193,261
$
423,420
F-33
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Profit by business segment and reconciliation to income (loss)
provision for income taxes (dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Safety Products
$
50,670
$
23,704
$
30,962
$
62,566
Safety Prescription Eyewear
462
(57
)
(58
)
161
Specialty Composites
2,713
2,855
5,160
13,918
Segment profit
53,845
26,502
36,064
76,645
Depreciation
11,102
5,931
5,020
10,631
Amortization of intangibles
267
242
2,631
5,228
Inventory purchase accounting adjustment
—
—
17,067
—
Bond call premium
—
—
1,532
—
Restructuring charges
(270
)
(1,091
)
—
—
Interest, net
19,587
11,549
15,908
23,096
Income (loss) before income taxes
$
23,159
$
9,871
$
(6,094
)
$
37,690
Segment profit is defined as earnings before depreciation,
amortization, interest expense, inventory purchase accounting
adjustment, bond call premium, restructuring and income taxes
and presents the measure used by the chief operating decision
maker to assess segment performance and make decisions about the
allocation of resources to business segments.
Inter-segment sales of the Specialty Composites segment to the
Safety Products segment totaled $3.2 million for the year
ended September 30, 2003. Inter-segment sales of the
Specialty Composites segment to the Safety Products segment
totaled $1.5 million and $1.3 million for the six
months ended March 31, 2004 and September 30, 2004,
respectively and $3.9 million for the year ended
September 30, 2005. The inter-segment sales value is
generally determined at fully absorbed inventory cost at
standard rates plus 25%.
Depreciation by business segment (dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Safety Products
$
8,978
$
4,854
$
3,945
$
8,705
Safety Prescription Eyewear
707
351
356
632
Specialty Composites
1,417
726
719
1,294
Total
$
11,102
$
5,931
$
5,020
$
10,631
F-34
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Identifiable assets by business segment (dollars in thousands):
September 30,
2004
2005
Safety Products
$
403,649
$
393,083
Safety Prescription Eyewear
24,269
15,583
Specialty Composites
55,768
57,989
Corporate
46,991
51,263
Total
$
530,677
$
517,918
Corporate includes cash and other assets not allocated to
segments.
Goodwill by business segment (dollars in thousands):
Year Ended
September 30,
2005
Safety Products
$
99,591
Safety Prescription Eyewear
4,100
Specialty Composites
18,500
Total
$
122,191
Capital expenditures including capital leases by business
segment (dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
Safety Products
$
8,888
$
3,674
$
3,733
$
5,396
Safety Prescription Eyewear
379
196
125
156
Specialty Composites
619
267
473
1,064
Reconciling items
430
869
190
1,049
Total
$
10,316
$
5,006
$
4,521
$
7,665
Reconciling items include corporate expenditures such as
information technology and other shared systems.
F-35
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Net sales by principal geographic areas (dollars in thousands):
Predecessor
Successor
Six Months Ended
Year Ended
Year Ended
September 30,
March 31,
September 30,
September 30,
2003
2004
2004
2005
United States America
$
187,106
$
100,629
$
118,232
$
255,020
Canada
22,965
12,444
14,711
32,725
United Kingdom
15,562
8,810
9,460
18,938
Germany
11,859
6,806
7,128
16,714
Sweden
15,392
7,703
8,233
20,224
France
9,967
8,242
6,636
15,476
Italy
7,044
2,438
2,846
6,885
All Others
46,533
22,507
26,015
57,438
Total
$
316,428
$
169,579
$
193,261
$
423,420
The sales as shown above represent the value of shipments into
the customer's country of residence. For the year ended
September 30, 2003 and the six months ended March 31,
2004 and September 30, 2004, and the year ended
September 30, 2005, no single customer accounted for more
than 5% of sales.
Net identifiable assets by principal geographic areas (dollars
in thousands):
September 30,
2004
2005
United States of America
$
421,566
$
374,464
Canada
11,630
12,590
United Kingdom
35,473
33,021
Germany
222
277
Sweden
60,017
93,625
France
1,294
3,045
All others
475
896
Total
$
530,677
$
517,918
F-36
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
14.
Quarterly Financial Data (Unaudited)
The following table contains selected unaudited quarterly
financial data for fiscal years 2004 and 2005 (dollars in
thousands, except per share data):
Predecessor
Successor
Fiscal Year 2004
Fiscal Year 2005
First
Second
Third
Fourth
First
Second
Third
Fourth
Net sales
$
79,201
$
90,378
$
97,126
$
96,135
$
95,761
$
104,478
$
113,198
$
109,983
Cost of sales
41,776
47,280
68,144
50,347
48,705
52,928
58,124
56,953
Gross profit
37,425
43,098
28,982
45,788
47,056
51,550
55,074
53,030
Restructuring charge
—
(1,091
)
—
—
—
—
—
—
Income (loss) before income taxes
3,335
6,536
(13,216
)
7,122
6,614
9,294
12,011
9,771
Net income (loss)
2,683
5,454
(14,247
)
9,137
5,018
7,211
8,887
5,822
Net income (loss) available for common stockholders
748
3,459
(16,135
)
7,189
3,021
5,164
7,293
5,376
Basic earnings per share
$
12.59
$
58.22
$
(6.43
)
$
2.86
$
1.20
$
2.05
$
2.90
$
2.13
Diluted earnings per share
$
12.59
$
58.22
$
(6.43
)
$
2.86
$
1.20
$
2.05
$
2.87
$
1.93
In the third quarter of fiscal 2004, the Company recorded a
non-recurring charge of $17.1 million resulting from the
write-up of inventory required by SFAS No. 141 on the
Acquisition Date and subsequent sale of such inventory.
15.
Restructuring
In fiscal 2001, the Company recorded an unusual charge of
$11.4 million related to a restructuring plan announced by
the Company to improve its competitive position and long-term
profitability. The plan included the closure of its Ettlingen,
Germany plant, significantly reorganizing operations at the
Company's Varnamo, Sweden plant, rationalizing the
manufacturing assets and product mix of its Specialty Composites
business unit and a reduction of products and product lines.
During 2003, the Company reversed $0.3 million of reserves
related to the fiscal 2001 restructuring provision. The
adjustment represented a change in estimate of the plan for the
disposal of certain items of inventory and was classified as a
reduction in cost of sales.
During the second quarter of 2004, the Company reversed
$1.1 million of reserves related to the fiscal 2001
restructuring provision. The adjustment represented a change in
estimate related to amounts for non-cancelable lease obligations
due to the renegotiation of the subject lease that was completed
in the second quarter.
The following table displays the activity and balances of the
restructuring reserve of the predecessor company as of and for
the year ended September 30, 2003 and six months ended
March 31, 2004 (dollars in thousands):
September 30,
September 30,
2002
Reversals
Charges
2003
Employee termination costs
$
730
$
—
$
(506
)
$
224
Lease agreements
2,352
—
(896
)
1,456
Loss on disposal of assets
700
—
(9
)
691
Other
47
—
(30
)
17
Total
$
3,829
$
—
$
(1,441
)
$
2,388
F-37
AEARO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
September 30,
March 31,
2003
Reversals
Charges
2004
Employee termination costs
$
224
$
—
$
(224
)
$
—
Lease agreements
1,456
(1,091
)
(365
)
—
Loss on disposal of assets
691
—
(691
)
—
Other
17
—
(17
)
—
Total
$
2,388
$
(1,091
)
$
(1,297
)
$
—
16.
Valuation and Qualifying Accounts
For the periods ended September 30, 2003, March 31,
2004 , September 30, 2004 and September 30, 2005 (in
thousands):
Additions
Balance at
Provisions
Charged to
Net Deductions
Balance at
Beginning
Charged to
Other
From
End of
of Period
Operations
Accounts
Allowances
Period
Year ended September 30, 2003
Bad Debt Reserve
$
1,524
$
243
$
—
$
(409
)
$
1,358
Six months ended March 31, 2004
Bad Debt Reserve
1,358
233
—
(97
)
1,494
Six months ended September 30, 2004
Bad Debt Reserve
1,494
137
—
(297
)
1,334
Year ended September 30, 2005
Bad Debt Reserve
1,334
179
—
(307
)
1,206
F-38
AEARO TECHNOLOGIES
PROTECTING PEOPLE, PRODUCTS AND PERFORMANCE
No dealer,
salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
Until                     ,
2006 (25 days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering may be required to
deliver a prospectus. This requirement is in addition to the
dealers' obligation to deliver a prospectus when acting as
an underwriter and with respect to their unsold allotments or
subscriptions.
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
13
Use of Proceeds
22
Dividend Policy
23
Dilution
24
Capitalization
25
Selected Consolidated Historical Financial
    Data
26
Management's Discussion and Analysis
    of Financial Condition and Results of Operations
29
Industry
43
Business
46
Principal and Selling Stockholders
68
Certain Relationships and Related Party
    Transactions
70
Description of Certain Indebtedness
72
Description of Capital Stock
74
Shares Eligible for Future Sale
79
Material U.S. Federal Income Tax
    Consequences
80
Underwriting
83
Legal Matters
88
Experts
88
Where You Can Find More Information
88
Index To Financial Statements
F-1
shares
Common Stock
PROSPECTUS
,
2006
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Deutsche Bank Securities
JPMorgan
Morgan Keegan & Company, Inc.
Part II
Information Not Required in Prospectus
Item 13.
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by Aearo
Technologies Inc. in connection with the issuance and sale of
the securities being registered. All amounts are estimates
except the SEC registration and NYSE filing fees.
SEC registration fee
$
27,071
NASD filing fee
23,500
NYSE listing fee*
Transfer agent's fee*
Printing and engraving expenses*
Legal fees and expenses*
Accounting fees and expenses*
Miscellaneous*
Total
$
*
To be completed by amendment
Item 14.
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law
("DGCL") provides that 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 or investigative (other than
an action by or in the fight 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. Section 145 further provides that a
corporation similarly may indemnify any such person serving in
any such capacity 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 fight of the corporation to procure a judgment
in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred 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
Delaware Court of Chancery or such other 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.
Section 102(b)(7) of the DGCL permits a corporation to
include in its certificate of incorporation 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 omission not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (relating to unlawful payment of
dividends and
II-1
unlawful stock purchase and redemption) or (iv) for any
transaction from which the director derived an improper personal
benefit.
In accordance with the provisions of the amended and restated
certificate of incorporation and amended and restated by-laws of
Aearo Technologies Inc., Aearo Technologies Inc. shall
indemnify, to the fullest extent permitted by law, any person
who is or was a party, or is threatened to be made a party to,
any threatened, pending or contemplated action, suit or other
type of proceeding (other than an action by or in our right),
whether civil, criminal, administrative, investigative or
otherwise, and whether formal or informal, by reason of the fact
that such person is or was Aearo Technologies Inc.'s
director, officer or employee or is or was serving at Aearo
Technologies Inc.'s request (as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) against judgments, amounts
paid in settlement, penalties, fines (including an excise tax
assessed with respect to any employee benefit plan) and expenses
(including counsel fees) actually and reasonably incurred in
connection with any such action, suit or other proceeding,
including any appeal thereof, if such person acted in good faith
and in a manner such person reasonably believed to be in, or not
opposed to, Aearo Technologies Inc.'s best interests and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was
unlawful. In addition, Aearo Technologies Inc. also carries
insurance on behalf of its directors, officers, employees or
agents that may cover liabilities under the Securities Act.
Aearo Technologies Inc. provides its directors and officers with
additional director and officer liability insurance.
Item 15.
Recent Sales of Unregistered Securities
Set forth below in chronological order is certain information
regarding securities issued by the Registrant in the last three
years in transactions that were not registered under the
Securities Act, including the consideration, if any, received by
the Registrant for such issuances.
1. On March 10, 2004, the Registrant issued
100 shares of common stock to entities affiliated with BSMB
for an aggregate purchase price of $100.00.
2. On April 7, 2004, the Registrant issued
2,015,962 shares of common stock, one share of Class A
common stock and 60,377 shares of preferred stock to
entities affiliated with BSMB for an aggregate purchase price of
$80,536,620.01.
3. On April 7, 2004, the Registrant issued
266,491 shares of common stock and 7,971 shares of
preferred stock to certain members of management for an
aggregate purchase price of $10,635,910.00.
4. On April 7, 2004, the Registrant issued
253,247 shares of common stock and 7,595 shares of
preferred stock to certain sellers under the Merger Agreement
for an aggregate purchase price of $10,127,470.
5. On April 7, 2004, the Registrant issued
47,544 shares of restricted common stock to certain members
of management.
6. On July 19, 2004, the Registrant issued to certain
members of management and certain employees, Tranche A
Options exercisable for 290,775 shares of common stock,
Tranche B Options exercisable for 156,400 shares of
common stock and Tranche C Options exercisable for
76,200 shares of common stock.
7. On August 23, 2004, the Registrant issued 20,000
shares of restricted stock to Thomas R. D'Amico.
8. On December 14, 2004, the Registrant issued
Tranche A Options exercisable for 4,500 shares of
common stock to Nick White.
9. On January 1, 2005, the Registrant issued
Tranche A Options exercisable for 1,500 shares of
common stock to Noel Mardsen.
10. On February 10, 2005, the Registrant issued to
certain members of management and certain employees,
Tranche A Options exercisable for 21,400 shares of
common stock in the aggregate.
II-2
Each of the above-described transactions were exempt from
registration (i) pursuant to Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as
transactions not involving a public offering or (ii) in the
case of restricted stock and stock options, as transactions not
involving a sale of securities. With respect to each transaction
listed above, no general solicitation was made by either the
Registrant or any person acting on its behalf; the securities
sold are subject to transfer restrictions; and the certificates
for the shares contained an appropriate legend stating such
securities have not been registered under the Securities Act and
may not be offered or sold absent, registration or pursuant to
an exemption therefrom.
Item 16.
Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number
Exhibit
1
.1*
Form of Underwriting Agreement.
2
.1
Agreement and Plan of Merger among Aearo Corporation, Aearo
    Technologies Inc. (formerly known as AC Safety Holding Corp.)
    and AC Safety Acquisition Corp. dated March 10, 2004
    (Incorporated by reference to Exhibit 2.1 of Aearo
    Corporation's Current Report on Form 8-K filed
    April 22, 2004 (File No. 33-96190)).
3
.1*
Form of Amended and Restated Certificate of Incorporation of
    Aearo Technologies Inc.
3
.2*
Form of Amended and Restated Bylaws of Aearo Technologies Inc.
4
.1
Indenture, dated as of April 7, 2004, among Aearo
    Company I, Cabot Safety Intermediate Corporation, VH
    Industries, Inc. and J.P. Morgan Trust Company, as Trustee
    (Incorporated by reference to Exhibit 4.1 of Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
4
.2
Form of Exchange Note (included in Exhibit 4.1).
5
.1*
Opinion of Dorsey & Whitney LLP.
10
.1
Credit Agreement among Aearo Technologies Inc., Aearo
    Corporation, Aearo Company I, the various Lenders party
    thereto, Bear Stearns Corporate Lending, as Syndication Agent,
    National City Bank of Indiana, as Co-Documentation Agent, Wells
    Fargo Bank, N.A., as Co-Documentation Agent, and Deutsche Bank
    AG, New York Branch, as Administrative Agent dated April 7,
    2004 (Incorporated by reference to Exhibit 10.1 of Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.2
First Amendment to Credit Agreement dated as of April 28,
    2005 by and among Aearo Technologies Inc., Aearo Corporation,
    Aearo Company I, the various Lenders party thereto, Bear
    Stearns Corporate Lending, as Syndication Agent, National City
    Bank of Indiana, as Co-Documentation Agent, Wells Fargo Bank,
    N.A., as Co-Documentation Agent, and Deutsche Bank AG, New York
    Branch, as Administrative Agent (Incorporated by reference to
    Exhibit 10 of Aearo Company I's Current Report on
    Form 8-K filed May 4, 2005 (File No. 333-116676)).
10
.3
Professional Services Agreement among Aearo Technologies Inc.,
    AC Safety Acquisition Corp., Aearo Company I and Bear
    Stearns Merchant Manager II, LLC dated April 7, 2004
    (Incorporated by reference to Exhibit 10.1 to Aearo
    Corporation's Current Report on Form 8-K filed
    April 22, 2004 (File No. 33-96190)).
10
.4
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Michael A. McLain
    (Incorporated by reference to Exhibit 10.3 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.5
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and D. Garrad
    Warren III (Incorporated by reference to Exhibit 10.4
    to Aearo Company I's registration statement on
    Form S-4 filed June 18, 2004 (File
    No. 333-116676)).
10
.6
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and M. Rand Mallitz
    (Incorporated by reference to Exhibit 10.5 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
II-3
Exhibit
Number
Exhibit
10
.7
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and James M. Phillips
    (Incorporated by reference to Exhibit 10.6 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.8
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Rahul Kapur
    (Incorporated by reference to Exhibit 10.7 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.9
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Jeffrey S. Kulka
    (Incorporated by reference to Exhibit 10.8 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.10
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and James H. Floyd
    (Incorporated by reference to Exhibit 10.9 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.11
Aearo Technologies Inc. 2004 Stock Incentive Plan (Incorporated
    by reference to Exhibit 10.11 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.12
Management Subscription and Contribution Agreement dated as of
    April 7, 2004 among Aearo Technologies Inc., D. Garrad
    Warren III, Jeffrey S. Kulka, and James M. Phillip and
    Carol E. Phillips as Trustee of the James M. Phillips Trust
    dated December 19, 2000.
10
.13
Management Contribution Agreement dated as of April 7, 2004
    among Aearo Technologies Inc., Michael A. McLain, James H.
    Floyd, Rahul Kapur, and M. Rand Mallitz.
10
.14
Stockholders' Agreement dated as of April 7, 2004
    among Aearo Technologies Inc. and the holders that are parties
    thereto.
10
.15
Aearo Technologies Inc. Deferred Compensation Plan (Incorporated
    by reference to Exhibit 10.10 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.16
Executive Employment Agreement dated as of July 13, 2004
    between Aearo Technologies Inc. and Thomas R. D'Amico
    (Incorporated by reference to Exhibit 10.13 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.17
Summary of Management Incentive Plan for Executives other than
    the CEO (Incorporated by reference to Exhibit 10.14 to
    Aearo Company I's Annual Report on Form 10-K for
    the fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.18
Summary of Management Incentive Plan for the CEO (Incorporated
    by reference to Exhibit 10.15 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.19
Aearo Company I Nonqualified Deferred Compensation Plan, as
    amended (Incorporated by reference to Exhibit 10.16 to
    Aearo Company I's Annual Report on Form 10-K for
    the fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.20
Summary of Executive Supplemental Severance Pay Policy
    (Incorporated by reference to Exhibit 10.17 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.21*
Performance Incentive Plan.
21
.1
List of Subsidiaries.
23
.1
Consent of Deloitte & Touche LLP.
23
.2*
Consent of Dorsey & Whitney LLP (included in
    Exhibit 5.1).
24
.1
Powers of Attorney (included on signature page).
*
To be filed by Amendment.
II-4
Item 17.
Undertakings
1. The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
2. 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
the foregoing provisions, 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 Securities Act of 1933 and is therefore
unenforceable. In the event that a claim for indemnification by
the registrant against such 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.
3. 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 of 1933 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-5
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 Indianapolis, State of Indiana, on
the 21st day of November, 2005.
AEARO TECHNOLOGIES INC.
By:
/s/ Michael A. McLain
Michael A. McLain
Chief Executive Officer and President
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Michael
A. McLain and Jeffrey S. Kulka, or either of them, his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities to sign any and
all amendments (including post-effective amendments) to the
registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing
requisite or necessary to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that each said attorney-in-fact and agent or any of them or
their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Michael A. McLain
Michael
    A. McLain
Chief Executive Officer,
President and Chairman
of the Board of Directors
(Principal Executive Officer)
November 21, 2005
/s/ Jeffrey S. Kulka
Jeffrey
    S. Kulka
Senior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
November 21, 2005
/s/ John D. Howard
John
    D. Howard
Director
November 21, 2005
/s/ Douglas R. Korn
Douglas
    R. Korn
Director
November 21, 2005
II-6
Signature
Title
Date
/s/ Nick White
Nick
    White
Director
November 21, 2005
/s/ Peter S. Cureton
Peter
    S. Cureton
Director
November 21, 2005
II-7
Exhibit Index
Exhibit
Number
Exhibit
1
.1*
Form of Underwriting Agreement.
2
.1
Agreement and Plan of Merger among Aearo Corporation, Aearo
    Technologies Inc. (formerly known as AC Safety Holding Corp.)
    and AC Safety Acquisition Corp. dated March 10, 2004
    (Incorporated by reference to Exhibit 2.1 of Aearo
    Corporation's Current Report on Form 8-K filed
    April 22, 2004 (File No. 33-96190)).
3
.1*
Form of Amended and Restated Certificate of Incorporation of
    Aearo Technologies Inc.
3
.2*
Form of Amended and Restated Bylaws of Aearo Technologies Inc.
4
.1
Indenture, dated as of April 7, 2004, among Aearo
    Company I, Cabot Safety Intermediate Corporation, VH
    Industries, Inc. and J.P. Morgan Trust Company, as Trustee
    (Incorporated by reference to Exhibit 4.1 of Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
4
.2
Form of Exchange Note (included in Exhibit 4.1).
5
.1*
Opinion of Dorsey & Whitney LLP.
10
.1
Credit Agreement among Aearo Technologies Inc., Aearo
    Corporation, Aearo Company I, the various Lenders party
    thereto, Bear Stearns Corporate Lending, as Syndication Agent,
    National City Bank of Indiana, as Co-Documentation Agent, Wells
    Fargo Bank, N.A., as Co-Documentation Agent, and Deutsche Bank
    AG, New York Branch, as Administrative Agent dated April 7,
    2004 (Incorporated by reference to Exhibit 10.1 of Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.2
First Amendment to Credit Agreement dated as of April 28,
    2005 by and among Aearo Technologies Inc., Aearo Corporation,
    Aearo Company I, the various Lenders party thereto, Bear
    Stearns Corporate Lending, as Syndication Agent, National City
    Bank of Indiana, as Co-Documentation Agent, Wells Fargo Bank,
    N.A., as Co-Documentation Agent, and Deutsche Bank AG, New York
    Branch, as Administrative Agent (Incorporated by reference to
    Exhibit 10 of Aearo Company I's Current Report on
    Form 8-K filed May 4, 2005 (File No. 333-116676)).
10
.3
Professional Services Agreement among Aearo Technologies Inc.,
    AC Safety Acquisition Corp., Aearo Company I and Bear
    Stearns Merchant Manager II, LLC dated April 7, 2004
    (Incorporated by reference to Exhibit 10.1 to Aearo
    Corporation's Current Report on Form 8-K filed
    April 22, 2004 (File No. 33-96190)).
10
.4
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Michael A. McLain
    (Incorporated by reference to Exhibit 10.3 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.5
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and D. Garrad
    Warren III (Incorporated by reference to Exhibit 10.4
    to Aearo Company I's registration statement on
    Form S-4 filed June 18, 2004 (File
    No. 333-116676)).
10
.6
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and M. Rand Mallitz
    (Incorporated by reference to Exhibit 10.5 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.7
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and James M. Phillips
    (Incorporated by reference to Exhibit 10.6 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.8
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Rahul Kapur
    (Incorporated by reference to Exhibit 10.7 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.9
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and Jeffrey S. Kulka
    (Incorporated by reference to Exhibit 10.8 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.10
Executive Employment Agreement dated as of March 10, 2004
    between AC Safety Acquisition Corp. and James H. Floyd
    (Incorporated by reference to Exhibit 10.9 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
Exhibit
Number
Exhibit
10
.11
Aearo Technologies Inc. 2004 Stock Incentive Plan (Incorporated
    by reference to Exhibit 10.11 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.12
Management Subscription and Contribution Agreement dated as of
    April 7, 2004 among Aearo Technologies Inc., D. Garrad
    Warren III, Jeffrey S. Kulka, and James M. Phillip and
    Carol E. Phillips as Trustee of the James M. Phillips Trust
    dated December 19, 2000.
10
.13
Management Contribution Agreement dated as of April 7, 2004
    among Aearo Technologies Inc., Michael A. McLain, James H.
    Floyd, Rahul Kapur, and M. Rand Mallitz.
10
.14
Stockholders' Agreement dated as of April 7, 2004
    among Aearo Technologies Inc. and the holders that are parties
    thereto.
10
.15
Aearo Technologies Inc. Deferred Compensation Plan (Incorporated
    by reference to Exhibit 10.10 to Aearo
    Company I's registration statement on Form S-4
    filed June 18, 2004 (File No. 333-116676)).
10
.16
Executive Employment Agreement dated as of July 13, 2004
    between Aearo Technologies Inc. and Thomas R. D'Amico
    (Incorporated by reference to Exhibit 10.13 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.17
Summary of Management Incentive Plan for Executives other than
    the CEO (Incorporated by reference to Exhibit 10.14 to
    Aearo Company I's Annual Report on Form 10-K for
    the fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.18
Summary of Management Incentive Plan for the CEO (Incorporated
    by reference to Exhibit 10.15 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.19
Aearo Company I Nonqualified Deferred Compensation Plan, as
    amended (Incorporated by reference to Exhibit 10.16 to
    Aearo Company I's Annual Report on Form 10-K for
    the fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.20
Summary of Executive Supplemental Severance Pay Policy
    (Incorporated by reference to Exhibit 10.17 to Aearo
    Company I's Annual Report on Form 10-K for the
    fiscal year ended September 30, 2005 (File
    No. 333-116676)).
10
.21*
Performance Incentive Plan.
21
.1
List of Subsidiaries.
23
.1
Consent of Deloitte & Touche LLP.
23
.2*
Consent of Dorsey & Whitney LLP (included in
    Exhibit 5.1).
24
.1
Powers of Attorney (included on signature page).
*
To be filed by Amendment.