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                                  AEARO COMPANY

                             SUPPLEMENTAL EXECUTIVE
                                 RETIREMENT PLAN

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                                                                         Revised
                                                                 January 1, 1999


<PAGE>

                                TABLE OF CONTENTS

ARTICLE I             NAME, PURPOSE AND EFFECTIVE DATE.........................1

         1.01         Name and Purpose.........................................1
         2.02         Effective Date...........................................1

ARTICLE II            DEFINITIONS..............................................2

         2.01         "Actuarial (or Actuarially) Equivalent"..................2
         2.02         "Adjustment Date"........................................2
         2.03         "Beneficiary"............................................2
         2.04         "Board of Directors".....................................2
         2.05         "Code"...................................................2
         2.06         "Committee"..............................................2
         2.07         "Company"................................................2
         2.08         "Compensation"...........................................2
         2.09         "Eligible Employee"......................................3
         2.10         "Employee"...............................................3
         2.11         "Plan" or "SERP".........................................3
         2.12         "Plan Administrator".....................................3
         2.13         "Plan Year"..............................................3
         2.14         "Retirement Plan"........................................3
         2.15         "SERP Account"...........................................3
         2.16         "Taxable Wage Base"......................................3

ARTICLE III           PARTICIPATION............................................4

         3.01         Eligibility..............................................4
         3.02         Conditions of Participation..............................4

ARTICLE IV            CONTRIBUTIONS, ALLOCATIONS AND ACCOUNTS..................5

         4.01         SERP Account.............................................5
         4.02         Amount and Allocation of Company Credits.................5
         4.03         Interest Credits.........................................5

ARTICLE V             VESTING AND PAYMENT OF RETIREMENT AND DEATH
                      BENEFITS.................................................6

         5.01         Vesting of SERP Account..................................6
         5.02         Disability Benefit.......................................6
         5.03         Payment of SERP Account..................................6
         5.04         Small Amounts............................................7
         5.05         Applicable Adjustment Date...............................7
         5.06         Death Benefit............................................7

ARTICLE VI            COMMITTEE................................................8

         6.01         Appointment of Committee.................................8
         6.02         Committee Procedures.....................................8

ARTICLE VII           AMENDMENT AND TERMINATION................................9

         7.01         Right to Amend or Terminate..............................9
         7.02         Termination of Plan......................................9

ARTICLE VIII          MISCELLANEOUS...........................................10

         8.01         Non-Guarantee of Employment.............................10
         8.02         Funding.................................................10
         8.03         Rights Under Plan.......................................10
         8.04         Nonassignability........................................10
         8.05         Plan Administration.....................................10
         8.06         Successor Company.......................................10
         8.07         Claims Procedure........................................10
         8.08         Governing Law...........................................11



<PAGE>

                                    ARTICLE I

                        NAME, PURPOSE AND EFFECTIVE DATE

          1.01.  Name and  Purpose.  The plan set forth herein shall be known as
"Aearo Company Supplemental Executive Retirement Plan".

          The Plan is  established  and  shall  be  maintained,  solely  for the
purpose of providing unfunded deferred compensation benefits to certain Eligible
Employees  for periods of employment on or after July 1, 1993. It is intended to
constitute  a  pension  plan  for  a  select  group  of  management  and  highly
compensated  employees  within  the  meaning of  Section  3(36) of the  Employee
Retirement Income Security Act of 1974 ("ERISA") and is not intended to meet the
requirements of Section 401(a) of the Internal Revenue Code.

          1.02 Effective  Date. The Plan shall be effective  January 1, 1994 and
shall only apply to certain individuals who retire or terminate  employment with
the Company on or after the Effective Date.


<PAGE>


                                   ARTICLE II

                                   DEFINITIONS

          Wherever  used in this Plan,  unless  the  context  clearly  indicates
otherwise, the, following terms shall have the following meanings:

          2.01  "Actuarial  (or  Actuarially)  Equivalent"  shall mean a benefit
equal in value, as of the date of determination,  to the benefit for which it is
substituted,  the value of both such benefits being computed on the basis of the
actuarial  assumptions,  tables, and factors specified under the Retirement Plan
for the same purpose.

          2.02  "Adjustment  Date"  means  the  date  as of  which  an  Eligible
Employee's  SERP Account is to be adjusted for interest credit which shall occur
on the last day of each calendar quarter.

          2.03 "Beneficiary" shall mean the person,  persons, entity or entities
entitled to receipt of any death  benefit  payable  under the Plan,  pursuant to
Section 5.05.

          2.04 "Board of  Directors"  shall mean the Board of Directors of Aearo
Company.

          2.05 "Code" shall mean the Internal  Revenue Code of 1986, as the same
may be amended from time to time.

          2.06 "Committee"  shall mean the Company provided for in Article VI of
the Plan.

          2.07  "Company"  shall mean the Aearo  Company and also shall mean any
successor  to all or a major  portion of its  business  which  adopts  this Plan
pursuant  to an  agreement  with the Aearo  Company.  No  person's  status as an
Eligible  Employee shall be affected by mere changes in the corporate  structure
of  the  Company  and  its  affiliates  including,   without  limitations,   the
incorporation  of Company  divisions  as  subsidiaries,  or the  dissolution  of
subsidiaries in connection with the Company's assumption of their operations.

          2.08  "Compensation"  shall  mean the  total  remuneration  paid  (for
purposes  of Form W-2) during a Plan year for  services  rendered by an Eligible
Employee to the Company during a Plan Year, including overtime pay, commissions,
bonuses,  incentive  compensation,  and Short-Term  Disability pay. Compensation
shall exclude  severance  payments or other such payments made under  employment
agreements as well as payments which constitute direct  reimbursement of expense
allowances.  Compensation shall include,  however, any amount of salary deferred
by an Eligible Employee under any Company plan,  qualified under Section 125 and
Section  401(k) of the Code, in the year such amount would have  otherwise  been
paid to the Eligible Employee.

          If an  Eligible  Employee  is  entitled  to an  allocation  of Company
credits under  Section 4.02 in a Plan Year in which such Eligible  Employee does
not receive  Compensation  in all four (4)
<PAGE>

calendar  quarters  of the  Plan  Year,then  the  Compensation  limit  shall  be
pro-rated   accordingly   (i.e.,  the  number  of  calendar  quarters  in  which
Compensation is received divided by four).

          2.09 "Eligible  Employee"  means any Employee  employed by the Company
who is designated by the Board of Directors to participate in the Plan.

          2.10  "Employee"  means any person who is employed by the Company as a
common-law employee.

          2.11 "Plain" or "SERP" shall mean Aearo Company Supplemental Executive
Retirement Plan.

          2.12 "Plan  Administrator"  shall mean the Committee designated by the
Board to have the  primary  administrative  responsibility  with  respect to the
Plan.

          2.13 "Plan  Year"  shall mean the  twelve-month  period  beginning  on
January and ending on December 31 each year.

          2.14  "Retirement  Plan"  shall  mean  the  Aearo  Company  Employees'
Retirement  Account  Plan as in effect May 1, 1990,  and as amended from time to
time.

          2.15 "SERP Account" shall mean the individual account  established for
an Eligible Employee pursuant to Article III, reflecting all amounts credited on
behalf of the Eligible  Employee,  plus additions or reductions thereto pursuant
to Article IV.

          Wherever used in this instrument,  a masculine pronoun shall be deemed
to include the  masculine  and feminine  genders,  and a singular  word shall be
deemed to include  the  singular  and  plural,  in all cases  where the  context
requires.
<PAGE>


                                   ARTICLE III

                                  PARTICIPATION

          3.01  Eligibility.  The Board of Directors has  designated  any one or
more employees who has "Eligible  Compensation" greater than the "Qualified Plan
Compensation" limit set each year by the Internal Revenue Service to participate
in the plan. The Committee shall notify each Eligible  Employee so designated of
their  participation  in the Plan.  Each Eligible  Employee so designated  shall
continue to  participate  in the Plan until the earlier of (i) the date that all
benefit  obligations  hereunder in respect to such  Eligible  Employee have been
paid, or (ii) the date as of which such  designation is revoked by action of the
Board.

          3.02  Conditions  of  Participation.  An Eligible  Employee  shall not
participate  in the Plan unless he  furnishes,  within a  reasonable  time limit
established  by the  Company,  such  applications,  consents,  proofs of date of
birth, elections,  beneficiary  designations and other documents and information
as prescribed by the Company. Each Eligible Employee upon participation shall be
deemed  conclusively,  for all  purposes,  to have  assented  to the  terms  and
provisions of this Plan and shall be bound thereby.


<PAGE>


                                   ARTICLE IV

                             ALLOCATION AND ACCOUNTS

          4.01 SERP Account.  An Eligible  Employee's  SERP  Account,  as of any
determination date, shall be equal to the amount of annual Company credits under
Section 4.02,  adjusted for interest  credits under Section 4.03, and reduced by
benefit distributions under Article V.

          4.02 Amount and Allocation of Company  Credits.  As of the last day of
each  quarter,  the SERP Account of each Eligible  Employee,  who is an Eligible
Employee  at any time  during the Plan Year,  shall be  credited  with an amount
equal to 8% of his  Compensation  in excess of the Qualified  Plan  Compensation
limit set by the Internal Revenue Service each year.

          4.03  Interest  Credits.  Pro-rated  for the last day of each calendar
quarter,  each Eligible Employee's SERP Account shall be determined by crediting
the SERP Account  (determined as of the first day of the calendar  quarter) with
an interest credit at the rate specified and in effect under the Retirement Plan
for purposes of crediting the Participant's  Account  maintained under such Plan
with interest credits.

          Interest  credits  shall be  allocated  to the SERP  Account  for each
calendar  quarter and used to determine the benefit payable under the Plan as of
the Applicable Adjustment Date, until the calendar quarter in which the earliest
of the following events occur:

                    (i)       the   date   the   Eligible   Employee,   or   his
                              Beneficiary,  is no longer  entitled  to a benefit
                              under the Plan: or

                    (ii)      the date that the total credits  accumulated under
                              the SERP Account are paid out in a lump sum or are
                              used  to  provide  life  annuity  to the  Eligible
                              Employee or his Beneficiary,


<PAGE>


                                    ARTICLE V

              VESTING AND PAYMENT OF RETIREMENT AND DEATH BENEFITS

          5.01 Vesting and SERP Account.  Each Eligible  Employee shall be fully
vested in his SERP  Account  following  completion  of five (5) years of vesting
service (as defined in the  Retirement  Plan),  provided,  however,  an Eligible
Employee  shall be 100% vested in his SERP  Account  upon (i) death while in the
service of the Company;  (ii) attainment of Normal Retirement Age (as defined in
the Retirement  Plan); or (iii) upon a change in control (as defined below).  An
Eligible  Employee whose service with the Company  terminates before he is fully
vested in his SERP Account shall forfeit all right to a benefit under the Plan.

          In the event of a consolidation  or merger in which the Company is not
the surviving  corporation or which results in the acquisition of  substantially
all the Company's  outstanding  stock by a single person or entity or by a group
of persons  and/or  entities  acting in concert,  or in the event of the sale or
transfer of substantially all the Company's assets, each Eligible Employee shall
be 100% vested in the value of his SERP Account upon such change in control.

          5.02  Disability  Payment.  An Eligible  Employee may retire as of the
first day of any calendar month following the date as of which he has incurred a
disability.  Disability  for  purposes  of  the  Plan  shall  mean  an  Eligible
Employee's  permanent and total incapacity of engaging in any employment for the
Company based upon a physical or mental condition, Disability shall be deemed to
exist only when a written application has been filed with the Plan Administrator
by or on behalf of such Eligible Employee and where such disability is certified
to  the  Plan  Administrator  by a  licensed  physician  approved  by  the  Plan
Administrator.  An Eligible  Employee's  right to the value of his SERP  Account
shall be  nonforfeitable  upon  disability and may be payable  immediately  upon
request.

          5.03 Payment of SERP Account. If an Eligible Employee who is vested in
his SERP Account  terminates  employment with the Company,  he shall be paid the
amount  credited to his SERP Account in a single lump sum cash payment within 90
days  after  the  first  day of the  Plan  Year  following  his  termination  of
employment with the Company.

          Notwithstanding  the above, an Eligible Employee may irrevocably elect
to receive the benefit  attributable  to his SERP Account at a specified  future
date; provided, his election is made prior to the first day of the calendar year
in which the lump sum amount  would  otherwise  be payable  under the  preceding
paragraph.  The form of  benefit  payment  so  elected  may be either a lump sum
payment or an annuity payable monthly for life (single life annuity) terminating
with the payment  preceding his death.  If the annuity is elected,  such annuity
shall be the Actuarial  Equivalent of the Eligible Employee's SERP Account as of
the  Adjustment  Date  coinciding  with or  immediately  preceding  the date the
annuity  commences.  The amount of such lump sum  payment  shall be based on the
amount credited to an Eligible Employee's SERP Account as of the Adjustment Date
coinciding with or immediately preceding the date of payment of the lump sum.

          5.04 Small Amounts.  In the event the value of the Eligible Employee's
vested SERP Account is less than $5,000 as of the  Adjustment  Date  immediately
preceding the date of the Eligible  Employee's  termination of  employment,  the
Plan  Administrator  may direct that the value of such SERP Account be paid in a
single  lump  sum  payment  to the  Eligible  Employee  or his  beneficiary  (as
applicable).

          5.05  Applicable  Adjustment  Date.  For purposes of  determining  the
benefit payable under the Plan as of any date, the amounts  credited to the SERP
Account shall be the amount credits as of the Adjustment Date coinciding with or
preceding the date the determination is made.

          5.06 Death Benefit.  If an Eligible Employee dies before receiving any
payment  under the  Plan,  the  value of his SERP  Account  shall be paid to his
Beneficiary  in a lump sum as soon as  practicable  following his date of death.
Each  Participant  may designate  one or more  Beneficiaries  by completing  and
delivering to the Plan Administrator a form provided by the Plan  Administrator,
and may revoke any  previous  such  designation  by  completing  and  delivering
another such form.


<PAGE>


                                   ARTICLE VI

                                    COMMITTEE

          6.01  Appointment of Committee.  The Board of Directors of the Company
shall appoint such person(s) to act as the Committee  hereunder.  The members of
this  Committee  may, but need not, be the members of the Benefits  Committee of
the Retirement Plan.

          The Plan shall be operated and  administered  by the  Committee  whose
decision on all matters involving  interpretation and administration of the Plan
shall be final and  binding.  The  Committee  may  designate  an  individual  or
individuals to carry out any one or more of its responsibilities hereunder.

          6.02  Committee  Procedures.  No  Committee  member at any time acting
hereunder who is an Eligible Employee shall have any vote in any decision of the
Committee made uniquely with respect to such  Committee  member or the Committee
member's benefits hereunder.

          In the event of any  disagreements  among the Committee members at any
time acting  hereunder  and  authorized  to act with respect to any matter,  the
decision  of a majority  of said  Company  members  authorized  to act upon such
matter  shall be  controlling  and  shall be  binding  and  conclusive  upon all
persons.  including,  without  in any  manner  limiting  the  generality  of the
foregoing,  the other Committee member or Committee  members,  the Company,  all
persons at any time in the employ of the Company and the Eligible  Employees and
their Beneficiaries,  and upon the respective  successors,  assigns,  executors,
administrators, heirs, next-of-kin and distributors of all the foregoing.

          Subject to the provisions of the first paragraph of this Section 6.02,
each additional and each successor Committee member at any time acting hereunder
shall  have all of the rights and  powers  (including  discretionary  rights and
powers) and all of the  privileges  and  immunities  hereby  conferred  upon the
initial  Committee members  hereunder,  and all of the duties and obligations so
imposed upon the initial Committee members hereunder.

          Except  as  otherwise  may be  required  by  any  applicable  law,  no
Committee member at any time acting hereunder shall be required to give any bond
or other  security  for the  faithful  performance  of duties as such  Committee
member.


<PAGE>


                                   ARTICLE VII

                            AMENDMENT AND TERMINATION

          7.01 Right to Amend or  Terminate.  The Company  reserves the right at
any time and from time to time to amend or terminate  the Plan by majority  vote
of its Board of Directors. The Company shall deliver to the Plan Administrator a
copy  of  any  such  amendment  or  a  notice  of  termination.   The  foregoing
notwithstanding,  the Company shall have no power to amend or terminate the Plan
in such manner as would cause any  reduction in the SERP Account of any Eligible
Employee.

          7.02 Termination of the Plan. The preceding  section  notwithstanding,
the Plan shall automatically terminate upon the first to occur of dissolution of
the Company,  or payment in full of benefits  due to all  Eligible  Employee and
Beneficiaries.


<PAGE>


                                  ARTICLE VIII

                                  MISCELLANEOUS

          8.01 Non-Guarantee of Employment. Nothing contained in this Plan shall
be construed as a contract of employment between the Company and any Employee or
Eligible Employee, or as a right of any such Employee or Eligible Employee to be
continued in the  employment of the Company,  or as a limitation on the right of
the  Company  to deal with an  Employee  or  Eligible  Employee,  as to  hiring,
discharge, layoff,  compensation,  and all other conditions of employment in all
respects as though this Plan did not exist.

          8.02  Funding.  The  Company  shall  not be under  any  obligation  to
establish a fund or trust in order to pay the benefits under the Plan.  Payments
shall only be required as benefits become due and payable.

          8.03 Rights Under the Plan. Nothing in this Plan shall be construed to
limit, broaden, restrict, or grant any right to an Employee,  Eligible Employee,
or any Beneficiary thereof under any other plan sponsored by the Company, nor to
grant  any  additional  rights  to any  such  Employee,  Eligible  Employee,  or
beneficiary thereof under any other such plan, nor in any way to limit,  modify,
repeal or otherwise affect the Company's right to amend or modify any other such
plan.

          8.04  Misconduct.  If the Committee  finds that any Eligible  Employee
engages in conduct detrimental to the best interest of the Company or misconduct
involving  dishonesty or moral turpitude which results in detriment or financial
loss to the Company or in malicious  destruction of such employer's property, or
is convicted of a felony  committed  and arising out of the Eligible  Employee's
employment by such  employer,  the  Committee may direct  forfeiture of all or a
portion of the benefits of the Eligible Employee.

          8.05 Nonassignability. The SERP Accounts payable under this Plan shall
not be subject to alienation, assignment,  garnishment, execution or levy of any
kind and any  attempt to cause any SERP  Account  to be so subject  shall not be
recognized, except to the extent required by applicable law.

          8.06 Successor  Company.  In the event of a consolidation or merger in
which the  Company  is not the  surviving  corporation  or which  results in the
acquisition of  substantially  all the Company's  outstanding  stock by a single
person or entity or by a group of persons and/or entities acting in concert,  or
in the event of the sale or transfer of substantially  all the Company's assets,
provision  may be made by which a  successor  to all or a major  portion  of the
Company's  property or business shall continue the Plan, and the successor shall
have all of the power,  duties,  and  responsibilities  of the Company under the
Plan.

          8.07 Claims  Procedure.  An Eligible  Employee's rights under the Plan
shall be determined in accordance with the Claims  Procedures  applicable to the
Retirement Plan, which provisions are hereby incorporated by reference.

          8.08  Governing  Law.  This Plan shall be  construed  and  enforced in
accordance  with,  and governed by, the laws of the state in which the Company's
principal place of business is domiciled.


          In witness whereof Aearo Company has caused this instrument to be duly
executed  by  its  officer  thereunto  duly  authorized  as of  the  __  day  of
______________, 1999.


                  AEARO COMPANY


                  By:______________________

                  Title:___________________