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                                                                   EXHIBIT 10.27

                                AEARO CORPORATION

                             1997 STOCK OPTION PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

         The name of the plan is the Aearo Corporation 1997 Stock Option Plan
(the "Plan"). The purpose of the Plan is to encourage and enable the officers,
employees, directors and consultants of Aearo Corporation (the "Company") and
its Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.

         The following terms shall be defined as set forth below:

         "Act" means the Securities Exchange Act of 1934, as amended.

         "Board" means the Board of Directors of the Company.

         "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.

         "Cause" means (a) the commission of an act of fraud or embezzlement,
(b) the unauthorized disclosure of confidential or proprietary information of
the Company or any of its Subsidiaries which results in material financial loss
to the Company or any of its Subsidiaries, (c) the commission of a felony, (d)
willful misconduct as an employee of the Company or any of its Subsidiaries
which is reasonably likely to result in material injury or financial loss to the
Company or any of its Subsidiaries or (e) the willful failure to render services
to the Company or any of its Subsidiaries in accordance with his employment
which failure amounts to a material neglect of duties to the Company or any of
its Subsidiaries.

         "Committee" means the Committee of the Board referred to in Section 2.

         "Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 15.

         "Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported, or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market

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Value on any date shall not be less than the closing price reported for the
Stock on such exchange or system for such date or, if no sales were reported for
such date, for the last date preceding such date for which a sale was reported,
and (iii) notwithstanding the foregoing, the Fair Market Value of the Stock on
the effective date of the Initial Public Offering shall be the offering price to
the public of the Stock on such date.

         "Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.

         "Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.

         "Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.

         "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

         "Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.

         "Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.

         "Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.

SECTION 2.        ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
                  PARTICIPANTS AND GRANT OPTIONS

         (a) Committee. The Plan shall be administered by a committee of the
Board of not less than two Independent Directors appointed by the Board from
time to time. On and after the date the Company becomes subject to the Act, each
member of the Committee shall be a "non-employee director" within the meaning of
Rule 16b-3(b)(3) promulgated under the Act, or any successor definition under
said rule. On and after the date the Plan becomes subject to Section 162(m) of
the Code, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and the regulations promulgated
thereunder. Notwithstanding the foregoing, the Plan may also be administered by
the Board, and all references to the "Committee" herein may also be deemed to
refer to the Board.


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         (b) Powers of Committee. The Committee shall have the power and
authority to grant Options consistent with the terms of the Plan, including the
power and authority:

                  (i) to select the officers, employees, Independent Directors,
         consultants and key persons of the Company and its Subsidiaries to whom
         Options may from time to time be granted;

                  (ii) to determine the time or times of grant, and the extent,
         if any, of Incentive Stock Options and Non-Qualified Stock Options, or
         any combination of the foregoing, granted to any one or more
         participants;

                  (iii) to determine the number of shares of Stock to be covered
         by any Options;

                  (iv) to determine and modify from time to time the terms and
         conditions, including restrictions, not inconsistent with the terms of
         the Plan, of any Option, which terms and conditions may differ among
         individual Options and participants, and to approve the form of written
         instruments evidencing the Options;

                  (v) to accelerate at any time the exercisability or vesting of
         all or any portion of any Option and/or to include provisions in
         Options providing for such acceleration;

                  (vi) to impose any limitations on Options granted under the
         Plan, including limitations on transfers, repurchase provisions and the
         like;

                  (vii) subject to the provisions of Section 5(a)(iii), to
         extend at any time the period in which Options may be exercised; and

                  (viii) at any time to adopt, alter and repeal such rules,
         guidelines and practices for administration of the Plan and for its own
         acts and proceedings as it shall deem advisable; to interpret the terms
         and provisions of the Plan and any Option (including related written
         instruments); to make all determinations it deems advisable for the
         administration of the Plan; to decide all disputes arising in
         connection with the Plan; and to otherwise supervise the administration
         of the Plan.

         All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.

SECTION 3.        STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

         (a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 10,000 shares of Stock. For
purposes of the foregoing limitations, the shares of Stock underlying any
Options which are forfeited, canceled,


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reacquired by the Company, satisfied without the issuance of Stock or otherwise
terminated (other than by exercise) shall be added back to the shares of Stock
available for issuance under the Plan. Subject to such overall limitation,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Options; provided, however, that on and after the date the Plan is
subject to Section 162(m) of the Code, Options with respect to no more than
2,500 shares of Stock may be granted to any one individual participant during
any one calendar year period. The shares available for issuance under the Plan
may be authorized but unissued shares of Stock or shares of Stock reacquired by
the Company.

         (b) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Options that can be granted to any one individual participant, (iii) the
number and kind of shares or other securities subject to any then outstanding
Options under the Plan, and (iv) the price for each share subject to any then
outstanding Options under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of shares) as to which
such Options remain exercisable. The adjustment by the Committee shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Committee in its discretion may
make a cash payment in lieu of fractional shares.

         (c) Mergers and Other Transactions. Unless otherwise provided in the
relevant option agreement with respect to the relevant Option, if (i) the
Company is acquired by another person or entity in a merger, consolidation or
reorganization or is merged into or consolidated with another corporation and
the Company is not the surviving corporation, (ii) shares of Stock are converted
into cash, securities or property other than shares of Stock, (iii) the Company
is liquidated, dissolved, or (iv) the Company sells or otherwise disposes of all
or substantially all of its assets to another entity while any portion of any
Option remains unexercised and unexpired (any transaction described in clauses
(i), (ii) or (iii) above is referred to herein as a "Transaction"), such Option
shall be assumed as of the effective date of such Transaction by the acquiring
or surviving entity, if any, with appropriate adjustment to the number and kind
of shares or other securities subject to such Option and, if appropriate, the
per share exercise price of such Option; provided, however, that in connection
with any of such Transaction the Committee may also take one or more of the
following actions:

         (i) The Committee may terminate the Option as of the effective date of
such Transaction, provided that notice of such termination is given to the
Optionee at least 10 days prior to the effective date of such Transaction, and
the Optionee shall have the right to exercise so much of the Option as is then
vested and exercisable during said 10-day period, including if


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the Option becomes exercisable due to acceleration of exercisability by the
Committee as provided in Section 3(c)(ii) below, except that in such cases, the
exercise of the Option shall be conditioned upon the effectiveness of such
Transaction;

         (ii) The Committee may accelerate the date of vesting and
exercisability of any unexercised and unexpired portion of the Option to a date
specified by the Committee prior to the effective date of such Transaction and
shall promptly notify the Optionee of such action;

         (iii) The Committee may provide for the repurchase of the unvested and
unexercised portion of the Option by the Company on the effective date of such
Transaction for a cash price per share of Stock equivalent to the value, as
determined by the Committee, of the cash, securities or other property received
with respect to each outstanding share of Stock in such Transaction by the
stockholders of the Company, less the exercise price of the Option;

         (iv) The Committee may provide that after the effective date of such
Transaction, the Optionee shall be entitled upon exercise of the Option to
receive in lieu of each share of Stock purchasable under the Option the same
cash, securities or other property received with respect to each outstanding
share of Stock in such Transaction by the stockholders of the Company, with or
without deduction for the exercise price of the Option.

         (d) Substitute Options. The Committee may grant Options under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
Options be granted on such terms and conditions as the Committee considers
appropriate in the circumstances.

SECTION 4.  ELIGIBILITY

         Participants in the Plan will be such officers and other employees,
directors and consultants of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries as are selected from time to time by the Committee,
in its sole discretion.

SECTION 5.  STOCK OPTIONS

         Any Stock Option granted under the Plan shall be pursuant to a stock
option agreement which shall be in such form as the Committee may from time to
time approve. Option agreements need not be identical.

         Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section


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424(f) of the Code. Non-Qualified Stock Options may be granted to officers,
employees, Independent Directors, advisors, consultants and key persons of the
Company and its Subsidiaries. To the extent that any Option does not qualify as
an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

         No Incentive Stock Option shall be granted under the Plan after
July   , 2007.

         (a) Terms of Stock Options. Stock Options granted under the Plan shall
be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:

                  (i) Exercise Price. The exercise price per share for the Stock
         covered by a Stock Option shall be determined by the Committee at the
         time of grant, but shall not be less than 100% of the Fair Market Value
         on the date of grant. If an employee owns or is deemed to own (by
         reason of the attribution rules applicable under Section 424(d) of the
         Code) more than 10% of the combined voting power of all classes of
         stock of the Company or any parent or subsidiary corporation and an
         Incentive Stock Option is granted to such employee, the option price of
         such Incentive Stock Option shall be not less than 110% of the Fair
         Market Value on the grant date.

                  (ii) Option Term. The term of each Stock Option shall be fixed
         by the Committee, but no Stock Option shall be exercisable more than
         ten years after the date the option is granted. If an employee owns or
         is deemed to own (by reason of the attribution rules of Section 424(d)
         of the Code) more than 10% of the combined voting power of all classes
         of stock of the Company or any parent or subsidiary corporation and an
         Incentive Stock Option is granted to such employee, the term of such
         option shall be no more than five years from the date of grant.

                  (iii) Exercisability; Rights of a Stockholder. Stock Options
         shall become vested and exercisable at such time or times, whether or
         not in installments, as shall be determined by the Committee at or
         after the grant date. The Committee may at any time accelerate the
         exercisability of all or any portion of any Stock Option. An optionee
         shall have the rights of a stockholder only as to shares acquired upon
         the exercise of a Stock Option and not as to unexercised Stock Options.

                  (iv) Method of Exercise. Stock Options may be exercised in
         whole or in part, by giving written notice of exercise to the Company,
         specifying the number of shares to be purchased. Payment of the
         purchase price may be made by one or more of the following methods;
         provided, however, that the methods set forth in subsections (B) and
         (C) below shall become available only after the closing of the Initial
         Public Offering:


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                           (A) In cash, by certified or bank check or other
                  instrument acceptable to the Committee;

                           (B) In the form of shares of Stock that are not then
                  subject to restrictions under any Company plan and that have
                  been held by the optionee free of such restrictions for at
                  least six months, if permitted by the Committee in its
                  discretion. Such surrendered shares shall be valued at Fair
                  Market Value on the exercise date; or

                           (C) By the optionee delivering to the Company a
                  properly executed exercise notice together with irrevocable
                  instructions to a broker to promptly deliver to the Company
                  cash or a check payable and acceptable to the Company to pay
                  the purchase price; provided that in the event the optionee
                  chooses to pay the purchase price as so provided, the optionee
                  and the broker shall comply with such procedures and enter
                  into such agreements of indemnity and other agreements as the
                  Committee shall prescribe as a condition of such payment
                  procedure.

         Payment instruments will be received subject to collection. The
         delivery of certificates representing the shares of Stock to be
         purchased pursuant to the exercise of a Stock Option will be contingent
         upon receipt from the optionee (or a purchaser acting in his stead in
         accordance with the provisions of the Stock Option) by the Company of
         the full purchase price for such shares and the fulfillment of any
         other requirements contained in the Stock Option or applicable
         provisions of laws.

                  (v) Termination. Unless otherwise provided in the option
         agreement or determined by the Committee, upon the optionee's
         termination of employment (or other business relationship) with the
         Company and its Subsidiaries, the optionee's rights in his Stock
         Options shall automatically terminate.

                  (vi) Annual Limit on Incentive Stock Options. To the extent
         required for "incentive stock option" treatment under Section 422 of
         the Code, the aggregate Fair Market Value (determined as of the time of
         grant) of the shares of Stock with respect to which Incentive Stock
         Options granted under this Plan and any other plan of the Company or
         its parent and subsidiary corporations become exercisable for the first
         time by an optionee during any calendar year shall not exceed $100,000.
         To the extent that any Stock Option exceeds this limit, it shall
         constitute a Non-Qualified Stock Option.

         (b) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.


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SECTION 6.  TAX WITHHOLDING

         Each participant shall, no later than the date as of which the value of
an Option or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.

SECTION 7.  TRANSFER, LEAVE OF ABSENCE, ETC.

         For purposes of the Plan, the following events shall not be deemed a
termination of employment:

         (a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or

         (b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.

SECTION 8.  AMENDMENTS AND TERMINATION

         The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Option (or provide
substitute Options at the same or reduced exercise or purchase price or with no
exercise or purchase price in a manner not inconsistent with the terms of the
Plan), but such price, if any, must satisfy the requirements which would apply
to the substitute or amended Option if it were then initially granted under this
Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Option without the holder's consent. If and to the extent determined by the
Committee to be necessary to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code, Plan amendments shall be
subject to approval by the Company stockholders who are eligible to vote at a
meeting of stockholders. Nothing in this Section 8 shall limit the Board's
authority to take any action permitted pursuant to Section 3(c).

SECTION 9.  GENERAL PROVISIONS

         (a) No Distribution; Compliance with Legal Requirements. The Committee
may require each person acquiring Stock pursuant to an Option to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.


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         No shares of Stock shall be issued pursuant to an Option until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of such
stop-orders and restrictive legends on certificates for Stock and Options as it
deems appropriate.

         (b) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Options do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.

SECTION 10.  EFFECTIVE DATE OF PLAN

         This Plan shall become effective upon approval by the holders of a
majority of the shares of Stock of the Company present or represented and
entitled to vote at a meeting of stockholders. Subject to such approval by the
stockholders and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options may be granted hereunder on and after adoption
of this Plan by the Board.

SECTION 11.  GOVERNING LAW

         This Plan shall be governed by Delaware law except to the extent such
law is preempted by federal law.

Adopted and Effective:                , 1997


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