Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

The aggregate value of the common stock held by non-affiliates of the registrant as of December 17, 2004 (based upon the book value per share of the common stock) was $0.

Documents incorporated by reference: None

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, timing and success of product upgrades and new product introductions, expected pricing levels, the timing and cost of planned capital expenditures and expected synergies relating to acquisitions. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond the Company’s ability to control or predict. Such factors include, but are not limited to the risks set forth under the caption “Risk Factors” in Item 7 of this Annual Report.

Aearo Company I (hereafter referred to collectively with its subsidiaries as “Aearo”, “we”, “our”, or the “Company”) is a global leader in the hearing, eye, face, head and respiratory protection segments of the $12.7 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 which are sold in more than 70 countries. 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 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. For the fiscal year ended September 30, 2004, our net sales were $362.8 million.

We operate three business segments:

Through these three segments we sell a wide range of products to industrial distributors, as well as into the consumer, construction and military channels and directly to industrial companies. We place a strong emphasis on new product development, innovation and protection of intellectual property. We manufacture approximately 75% of the products that we sell.

The Safety Products segment manufactures hearing protection devices, communication headsets, non-prescription safety eyewear, face shields, reusable and disposable respirators, hard hats, fall protection equipment and first aid kits which are sold in more than 70 countries under its well-known brand names AOSafety^®, E-A-R^®, Peltor^® and SafeWaze^™. The Safety Products segment accounted for approximately 76% of our net sales in fiscal 2004 and approximately 77% in fiscal 2003 and approximately 73% in fiscal 2002.

The Safety Prescription Eyewear 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, grind and shape the lenses to the end-user’s prescription, and then assemble the glasses using the end-user’s choice of frame. The Safety Prescription Eyewear segment accounted for approximately 11% of our net sales in fiscal 2004, approximately 13% of our net sales in fiscal 2003 and approximately 14% in fiscal 2002.

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. 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. Specialty Composites also produces specially formulated foam used in the manufacture of the Safety Products segment’s earplugs. Specialty Composites accounted for approximately 13% of our net sales in fiscal 2004, approximately 10% of our net sales in fiscal 2003 and approximately 13% in fiscal 2002.

Within Safety Products, we classify our products into five main categories:

These products serve a variety of end-users, such as in the construction, manufacturing, transportation, forestry, textile, mining, military, motor sports, health care and two-way radio markets.

Hearing Protection and Communication Headsets. Our hearing protection products primarily consist of disposable earplugs, reusable earplugs, passive earmuffs, and communication headsets. We have been a leader in hearing conservation research and development since 1972, when we first introduced the cylindrical disposable earplug. Today, this product is known as the “E-A-R^® Classic^®” and its yellow color is a registered trademark in the United States of America, Canada, Belgium, Netherlands and Luxembourg, and is recognized throughout the world. This product, as well as other of our disposable plugs such as E-Z-Fit^®, TaperFit^®, and E-A-Rsoft^® products, are designed to be “rolled down” or compressed before being inserted into the ear, and, as a result of its unique slow recovery characteristics, then slowly expand (or “recover”) to fill the ear canal and provide the desired protection. Our disposable earplugs are available corded and uncorded and in a variety of packaging options.

In the reusable earplug segment of the market, 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”^™ line of “semi-aural” banded products. These products feature articulating arms that allow for use in multiple positions and for easy storage around the neck. We manufacture, assemble and sell a broad line of passive earmuffs and communication headsets under our Peltor^® brand. We are a leader in providing noise attenuating headsets and wireless and hardwire communication headsets. These products provide protection from harmful high and low frequency noise and allow for easy communication in noisy or remote environments. We also offer auditory systems products, which are sold to audiologists and are used in the testing of hearing.

In 2003, E-A-R^® Push-Ins^™ were introduced, offering all the performance and convenience of a reusable earplug for the price of a disposable earplug. The product’s flexible stem allows for easy insertion and removal with no rolling down, and the patented foam tip is sized to comfortably fit virtually every size of ear canal. The quick and easy fit and sure seal combine to provide high noise attenuation. In 2004, we successfully introduced a line of hearing protectors under the Peltor Next^™ brand that are targeted against younger workers in the workplace. This new line includes both disposable and reuseable plugs in vibrant colors and shapes to appeal to the 18-35 year old worker.

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. We offer a large number of task-specific non-prescription safety eyewear products under the AOSafety^® brand. The basic categories of eyewear protection products are non-prescription, or “plano” eyewear and goggles.

Plano (Non-prescription) Eyewear. 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^® products feature our proprietary DX® coating, combining the benefits of chemical and scratch resistance with anti-fog properties. Flywear®, Maxim™, X-Series™, Metaliks^®, Fuel™, X-Factor^® and X.Sport™ eyewear offer modern sport styling with numerous comfort features. Nuvo™ eyewear has the classic dual lens look redesigned for today’s worker. Our Lexa^® eyewear blends a wrapping, single lens with a lightweight, frameless design. Virtua™ offers stylish eyewear at an economical price. Visitor spectacles and over-the-glass products are represented by our Seepro^® and Tourguard^® models.

Goggles. We manufacture and 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^™ for Lexa®, Splash GoggleGear^™ for Lexa^® and Centurion^®, all under the AOSafety^® brand.

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 dust, flying particles, metal fragments, chemicals, extreme glare, optical radiation and items dropped from above. The basic categories of face and head protection are faceshields and hard hats.

Faceshields. 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 AOSafety^® and Peltor^® brands. The patented AO TuffMaster^® line of faceshields is one of the leading brands in the market.

Hard Hats. We 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.

Respiratory Protection. Respiratory protection products are used to protect against the harmful effects of contamination and pollution caused by dust, gases, fumes, sprays and other contaminants. 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. Pleats Plus^™ offers the latest design in particulate respirators. QuickLatch^® half mask respirators offer an innovative, patented on-and-off latching system that can be accomplished with just one hand.

Fall Protection. We offer a line of fall protection equipment under the AOSafety^® SafeWaze^™ brand name as a result of the acquisition of VH Industries, Inc. in March of 2003.

Other Protection Products. We also offer first aid kits predominantly through the Consumer/do-it-yourself (DIY) market. First aid kits are either for general use or for industrial or commercial uses. Additional products in this group include safety vests, flagging tape, and safety cones.

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 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.

Our Specialty Composites segment manufactures a wide array of energy-absorbing materials that are incorporated into other manufacturers’ products to control noise, vibration and shock. Specialty Composites’ products fall into three broad categories:

Some examples of end-user applications for such materials include noise and vibration damping materials used in under-hood and cab treatments for transportation equipment such as Class 8 heavy trucks, shock protection parts for electronic devices such as computer hard disk drives and highly damped proprietary materials for the interior cabins of business and regional jet aircraft. Our products include Tufcote^® polyurethane foams for acoustical applications, Confor^® heavily damped viscoelastic foams for ergonomic cushioning applications and shock protection and Isodamp^® foams for the reduction of mechanical vibration, noise and shock. Specialty Composites also produces the specially formulated foams used in the manufacture of Safety Products’ earplugs. The principal strengths of our Specialty Composites segment are its specialized polyurethane formulations, its thin-sheet casting capability, its composite technologies and its applications and materials engineering. These strengths allow us to high value-added composites using casting, extrusion and molding processes.

We divide our sales and marketing force into our three business segments:

Within Safety Products, sales are managed through four channels: North American Industrial Distribution; Consumer; Europe and International. Each of these channels has its own sales force and its own distinct yet synergistic sales strategies.

North American Industrial Distribution. This is the largest channel for Safety Products and includes approximately 1,000 North American distributors and dealers, of which approximately 270 qualify for Dialog^™ program. The Dialog^™ program is a sales rebate and reward program that encourages North American Industrial Distributors to partner with Aearo. Participation in Dialog^™ 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 the Company’s products.

Consumer. Under the AOSafety^® brand name, we are North America’s leading supplier of personal safety products in the categories in which we compete. Within the Consumer/DIY marketplace, AOSafety^® is the primary personal safety products brand carried by The Home Depot, Ace Hardware, Lowe’s Home Improvement Warehouse and other retailers. AOSafety^® is also a supplier in the sporting goods safety marketplace and in the lawn and garden, paint, drug and mass merchandise channels.

Europe. We have a significant presence in Europe with manufacturing facilities in England and Sweden and sales offices in the U.K., Sweden, Norway, Germany, France, Italy and Spain. Our historical strength in this market has been in passive hearing protection products (E-A-R^®) sold through over 1,000 industrial distributors, and Peltor Communications products sold to the military, sport shooting, and rally sports market segments. AOSafety^® is the #1 prescription eyewear brand in France.

International. We export our products around the world, and this channel is managed through an inside sales team located in Singapore, Miami (covering the Caribbean and Central America), Brazil, Australia, New Zealand and South Africa (covering the Middle East) supplemented by independent sales representatives to enhance our coverage.

Our SRx segment employs its own sales force to sell our products throughout North America. Approximately 85% of our safety prescription eyewear are sold directly to more than 10,000 end-users, 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.

We utilize an inside sales and marketing team, independent manufacturers representatives and select distributors to identify global sales opportunities in target markets for Specialty Composites’ products and technologies. 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 for noise, vibration, shock, cushioning and/or comfort management problems. 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. Specialty Composites provides integrated thermal acoustic systems for aircraft manufacturers and refurbishers worldwide. Designed primarily for business and regional jets, the systems include high performance, weight-efficient, multi-function composites that we have developed specifically to meet the requirements of aircraft applications and FAA regulations.

Precision Electronic Equipment Market. This global market has increasingly focused on compact designs and highly portable devices. Specialty Composites’ engineering expertise and advanced energy-control materials and technology are critical to customers’ product development, helping in the design of quieter, more rugged, more accurate and faster devices. Key applications in the hard disk drive industry include portable and desk top computers, hand held devices, disk drives, data servers and data storage units.

Heavy-duty Truck Market. Focusing mainly on Class 5 through Class 8 vehicles, Specialty Composites’ strategy in the truck market has been to assist manufacturers in meeting regulatory pass-by noise standards and provide thermal systems to differentiate their vehicles. Incorporating acoustical foams, barriers and multi-function composite products, thermal and acoustical treatment packages are designed for maximum performance and minimum installation labor.

Industrial and OEM Market. Specialty Composites’ 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, ranging from noise control treatments for pumps, generators and compressors, to vibration damping and shock isolation in garage door openers, laboratory centrifuges and high-speed printers.

We have a strong emphasis on new product development, innovation and protection of intellectual property in each of our three business segments.

We believe that our research and development facilities, personnel and programs are among the best in the PPE industry. 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 developing 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 and active hearing protection products. Similarly, we believe that we have been a pioneer and leader in the development and testing of safety eyewear as we maintain and operate extensive facilities for the design and testing of these products. We also have facilities for the design and testing of respiratory safety equipment. 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.

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 development of frames, lenses and coatings.

Specialty Composites’ research and development efforts focus on developing proprietary materials and enhancing existing products in order to meet market and customer needs identified by our marketing, and sales staffs.

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.

We manufacture approximately 75% of the products that we sell. Our strengths include the manufacture of foams (casting, molding and fabricating) for Specialty Composites’ products (including the foam used in the manufacture of earplugs); high-speed assembly and packaging of earplugs; plastic injection molding, coating and assembly of non-prescription eyewear; and assembly, grinding, polishing and coating of prescription eyewear. We also utilize a limited number of contract manufacturers in the United States, Mexico, Asia, and Europe to supplement internal operations and to assemble and/or manufacture products where we do not have world-class processing capabilities. We use selected Asian suppliers for some product lines to complement products manufactured by us and fill in product families, where it is advantageous to minimize capital expenditures and accelerate new product introductions. We will 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, resulting in significant improvements in the areas of safety, quality, cost, and customer service.

Consistent across all of our manufacturing operations is an emphasis on producing high-quality products. Currently, all 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 ISO 14001 certification. We believe that ISO certification is an increasingly important selling feature both domestically and internationally, and certain customers require ISO certification from all their vendors.

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.

We believe our Indianapolis, Indiana plant is the largest earplug manufacturing facility 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 economies of scale present in this operation are unique in the hearing protection products industry and we believe that they offer us a competitive cost advantage. The plant’s high-speed robotic fabrication, assembly and packaging of earplugs facilitate 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. These manufactured safety products include respiratory, plug and muff type hearing, head and face, and a broad offering of safety eyewear protection.

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 customers and other subsidiaries of the Company.

We fill virtually all of our North American and certain 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 attractive service levels for customer orders. Recent freight studies, having taken into consideration our manufacturing locations, in conjunction with our domestic customer locations, have shown Indianapolis to be the ideal single warehouse and distribution location for our safety business. Over-the-road carriers are readily available in Indianapolis, which contributes to competitive pricing for both our inbound and outbound business. European orders are filled from distribution facilities near Manchester, U.K. and in Varnamo, Sweden.

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. The lenses are then fitted into frames and the finished product is shipped to customers, primarily by U.S. Postal Service for the U.S. market and similar express delivery providers elsewhere.

SRx production operations are comprised of two facilities located in the U.S., one in Canada and one in England. The U.S. locations are in Indiana and Oklahoma and both of these 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 the Safety Products segment’s 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 the line. Product development for this facility is onsite.

The PPE market is highly fragmented, as a large number of relatively small, independent manufacturers with limited product lines serve the PPE market. 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. Our advanced distribution center further facilitates timely and accurate deliveries. However, the industry has undergone some degree of consolidation that could potentially increase long-term competitive pressures.

10

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 bundling 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.

As of September 30, 2004, we had 1,582 employees, of whom 990 were primarily engaged in manufacturing, 401 in sales, marketing and distribution, 60 in research and development and 131 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 70 members of the International Union of Electronic, Electrical, Salaried, Maritime and Furniture Workers (out of a total of 79 employees), and our relations with these union members are fully satisfactory. The union contract expires on June 27, 2007.

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 of America, Canada, Belgium, Netherlands and Luxembourg and on our overall patent portfolio. However, no single patent or patent application is material to us. Our patents expire at various times in the future not exceeding 20 years.

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; and (iii) the Mine Safety and Health Administration and NIOSH, both of which certify 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 Normalization and Standards Australia in order to be sold in these markets. We believe we are in compliance in all material respects with the regulations and standards of these governmental bodies.

We are subject to various evolving federal, state and local environmental laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. 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. In October 2003, our Varnamo, Sweden facility achieved ISO 14001 certification.

11

The Company owns and/or leases facilities in the United States, Canada, and Europe. The following table sets forth the location of each, its square footage and the principal function as of December 15, 2004.

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

12

Various lawsuits and claims arise against the Company 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.

The Company 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. Most of these claims are covered by the Asset Transfer Agreement entered into on June 13, 1995 by the Company 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 $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. (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 the Company acquired in 1996.

At September 30, 2004 and September 30, 2003, the Company has recorded liabilities of approximately $5.4 million and $4.5 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. This reserve is re-evaluated periodically and additional charges or credits to results of operations may result as additional information becomes available. Consistent with the current environment being experienced by companies involved in asbestos and silica-related litigation, there has been an increase in the number of asserted claims that could potentially involve Aearo Corporation and its subsidiaries, including the Company. Various factors increase the difficulty in determining the Company’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 2009 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.

On October 10, 2004, the Company held a special meeting of stockholders. The stockholders approved the selection of Deloitte & Touche LLP as the Company’s independent registered public accountants for the year ending September 30, 2005 with a total of 2,459,403 votes in favor and 58,596 abstention votes. The stockholders voted to elect the following directors for the ensuing year with a total of 2,459,403 votes in favor of each director and 58,596 abstention votes for each director: Michael A. McLain, Douglas R. Korn and John D. Howard.

There is no established trading market for our common stock. As of December 1, 2004, one hundred percent of our stock was held by our parent, Aearo Corporation. As of December 1, 2004, there were outstanding 2,492,618 shares of common stock, par value $0.01 per share, of AC Safety Holding Corp. (“AC Safety Common Stock”) the parent of Aearo Corporation. Substantially all of the AC Safety Common Stock is held, collectively, by Affiliates of Bear Stearns Merchant Capital II, L.P., Vestar Capital Partners, L.P. (together with certain related persons, “Vestar”) and management. As of December 1, 2004 there were 56 shareholders of record of AC Safety Common Stock.

On April 7, 2004, the Company paid a dividend of $14.3 million to Aearo Corporation in connection with the Merger Agreement to retire the outstanding debt of Aearo Corporation.

On April 7, 2004, the Company’s parent, Aearo Corporation, was acquired by AC Safety Holding Corp. and its subsidiary AC Safety Acquisition Corp. for $409.1 million. AC Safety Acquisition Corp. was merged into Aearo Corporation. The Company continues to be wholly-owned by Aearo Corporation, however, on the acquisition date, 100% of the purchase price paid for Aearo Corporation was pushed down to the Company. Accordingly, the historical consolidated financial information of the predecessor Aearo Company I is not comparable to the consolidated information of the successor Aearo Company I for the period after March 31, 2004.

The selected historical financial data as of and for the periods ended September 30, 2000, 2001, 2002, 2003 and March 31, 2004 are derived from the consolidated financial statements of predecessor Aearo Company I and subsidiaries. The selected historical financial data as of and for the six months ended September 30, 2004 is derived from the consolidated financial statements of successor Aearo Company I and subsidiaries and should be read in conjunction with the consolidated financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included herein.