AEARO CORP
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>ex1032.txt
<TEXT>
THIS INVESTOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAW. THIS INVESTOR NOTE MAY NOT BE SOLD OR OFFERED FOR SALE
UNLESS REGISTERED UNDER SUCH LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE.

                                  INVESTOR NOTE

                              Dated: ______________


     FOR VALUE RECEIVED, the undersigned (hereinafter called the "Maker") hereby
promises to pay to Aearo Corporation,  a Delaware  corporation  ("Aearo" and, in
its capacity as lender, the "Lender"),  or its registered assigns, at its office
at 5457 W. 79th Street, Indianapolis,  IN 46268, or at such other address in the
United States as the Lender or any subsequent holder of this Investor Note shall
stipulate in written notice to the Maker, the aggregate  principal amount of all
loans (individually,  a "Loan" collectively,  the "Loans") made by the Lender to
the Maker  evidenced  hereby,  all in accordance  with the  following  terms and
provisions.  This  Investor  Note is being issued to evidence  Loans made by the
Lender to the Maker on a recourse basis (as set forth  herein),  the proceeds of
which will be used by the Maker to purchase  shares of Aearo common  stock,  par
value  $.01.  Capitalized  terms not  otherwise  defined  herein  shall have the
meanings  specified in the Pledge and Security  Agreement  between the Maker, as
"debtor",  and the Lender as  "secured  party",  dated as of the date hereof (as
amended,  modified  or  otherwise  supplemented  from time to time,  the "Pledge
Agreement"),  in the Stockholders' Agreement,  dated as of July 11, 1995, and in
the Executive Security Purchase Agreement, dated as of the date hereof.

     SECTION l. Payment of Principal. --------------------

     1.1  Acceleration  of Note. Upon the sale or disposition of any Collateral,
the Maker shall be required to apply the Net  Proceeds (as defined in the Pledge
and Security  Agreement) realized from such sale or disposition to the repayment
of the Loans, and the Loans evidenced by this Investor Note shall become due and
payable in an amount  equal to such Net  Proceeds.  The Loans shall in any event
become due and  payable  on the date on which  payment  thereof  is  accelerated
pursuant to Section 7 of the Pledge Agreement.  All payments  hereunder shall be
made in lawful money of the United Stales of America.

     1.2 Right to prepay. The Maker shall have the right to prepay this Investor
Note at any time,  in whole or in part,  without  the  consent of the Lender and
without penalty or premium.

     1.3 Principal  Amount.  The principal  amount of the loan evidenced by this
Investor  Note is the  amount  set forth on  ----------------  Schedule 1 hereto
under "Principal Amount"

     1.4 Scheduled Payment Term. The Maker shall be required to repay the entire
principal  amount  hereof by making  payment  to the Lender in  installments  in
accordance with the schedule described on Schedule 1 hereto under "Installments"
and by repaying the entire  remaining  principal amount hereof  outstanding,  if
any, on the date set forth on Schedule 1 hereto under "Final Maturity".

     SECTION 2.  Interest.  Interest  will accrue on the  outstanding  principal
amount of this  Investor  Note at the rate per annum  set  forth on  Schedule  1
hereto under  "Interest  Rate",  and shall be payable as set forth on Schedule 1
hereto under  "Interest  Payments"  and at such other times as the  principal of
this Note becomes due and payable in accordance with the terms hereof.

     SECTION 3. Mandatory Prepayment. ---------------------

     3.1   Termination   of   Employment.   Upon  and   after   Termination   of
-------------------------  Employment  of the  Maker  with  Aearo  or any of its
subsidiaries,  the Maker shall be  required,  upon the demand of the Lender,  to
prepay the entire  outstanding  principal  or, if the  Lender has  demanded  any
lesser amount,  then such lesser amount demanded by the Lender. Upon the Maker's
Termination of Employment with Aearo or any of its subsidiaries in circumstances
where severance obligations are payable by the Lender,  whether payable pursuant
to an employment  agreement or a severance benefit policy of Aearo or any of its
subsidiaries (but excluding any pension or retirement benefit), the Lender shall
have the  right,  without  prior  notice to the Maker  (any  such  notice  being
expressly  waived by the Maker to the extent  permitted by  applicable  law), to
set-off and appropriate and apply against the aggregate amount of such severance
obligations  any and all amounts  (whether  then due and payable or not) held or
owing to the Lender and  evidenced by this Investor  Note,  and the Maker agrees
that the amount of such severance obligations may, under such circumstances,  at
the option of Aearo or the Lender, be reduced by such amounts.

     SECTION 4.  Security.  The Loans are and shall be secured  pursuant  to the
terms of the Pledge  Agreement.  The holder of this Investor Note is entitled to
the benefits of the Pledge  Agreement and the security  referred to therein,  to
which  reference is hereby made for a description  of the  properties and rights
included in such  security,  the nature of such  security  and the rights of the
parties with respect to such security.  The Lender may enforce the agreements of
the Maker  contained  therein and exercise the remedies  provided for thereby or
otherwise  available  in  respect  thereof,  all in  accordance  with the  terms
thereof.

     SECTION 5.  Consideration.  In order to induce  the  Lender to accept  this
Investor ------------- Note and with full knowledge that the Lender will rely on
the   representations   and  agreements   contained  herein,  the  Maker  hereby
represents,  warrants and agrees that this  Investor Note is a valid and binding
obligation of the undersigned, enforceable against the undersigned in accordance
with its terms and the Maker  agrees that he will make  indefeasible  payment in
full of all amounts due under this  Investor  Note as and when due  hereunder in
accordance  with the terms of this Investor  Note without  claiming or asserting
any set-off. The obligations represented by this Investor Note shall be absolute
irrespective of any set-off, claim,  counterclaim,  defense or other right which
the Maker may have against anyone for any reason whatsoever,

     SECTION 6.  Events of  Default.  In case an Event of Default (as defined in
the Pledge Agreement) shall occur and be continuing, the entire unpaid principal
balance of the Loans may become or may be  declared to be due and payable in the
manner and with the effect provided in the Pledge Agreement.

     SECTION 7. Miscellaneous. --------------

     7.1 Waiver of  Presentment  and Jury Trial.  The Maker and any  endorser of
this Investor  Note hereby  expressly  waive  presentment  for payment,  demand,
notice of nonpayment and dishonor,  protest, notice of protest and notice of any
other kind and waive trial by jury in any action or  proceeding  arising on, out
of, under or by reason of this Investor Note.

     7.2 Information.  The Maker hereby  acknowledges that neither Aearo nor any
of its affiliates has made any representations or recommendations  whatsoever to
the  Maker  concerning  Aearo  (including,  without  limitation,  the  financial
condition,  prospects  or any other  matters  relating  to Aearo) or the Maker's
purchase  of any shares of the Common  Stock of, or other  equity  interest  in,
Aearo.  The Maker  assumes  all  responsibility  of  keeping  himself or herself
informed of the affairs and  business of Aearo and its  subsidiaries.  The Maker
acknowledges  and agrees that Lender does not have any  obligation to inform the
Maker of any matter relating to Aearo and its subsidiaries or their business and
affairs.

     7.3  Successors  and Assigns.  This Investor Note shall be binding upon and
enforceable against the Maker and his heirs,  successors and assigns.  The Maker
shall not have the right to assign all or any part of its rights or  obligations
under this Investor Note without the consent of the Lender, which consent may be
withheld in the sole discretion of the Lender.  The Lender may assign its rights
and obligations under this Investor Note without having to obtain the consent of
the Maker.

     7.4  Obligations  Independent.  The  obligations of the Maker hereunder and
under the Pledge  Agreement  shall not be  contingent  upon or  affected  by any
similar  undertaking  of any other  employee of Aearo or its  subsidiaries.  The
Maker agrees that the Lender may proceed to enforce this  Investor  Note and the
Pledge  Agreement  without also  proceeding  to enforce any  comparable  note or
pledge agreement executed by any other such employee or employees.

     7.5 Governing  Law. The rights and  liabilities of the parties hereto shall
be determined in accordance with the laws of the Commonwealth of  Massachusetts,
without regard to conflict of law principles. The Maker hereby waives and agrees
not to assert in any such  proceeding  a claim that the Maker is not  personally
subject to the  jurisdiction  of the court  referred to above,  that the suit or
action  was  brought in an  inconvenient  forum or that the venue of the suit or
action is improper. 7.6 No Waiver, Remedies. No failure to exercise and no delay
in exercising,  on the part of the Lender, any right, remedy, power or privilege
hereunder  shall  operate as a waiver  thereof;  nor shall any single or partial
exercise of any right,  remedy,  power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.  The rights,  remedies,  powers and  privileges  herein  provided are
cumulative  and not  exclusive of any rights,  remedies,  powers and  privileges
provided by law.

     7.7  Severability.  If any  provision of this  Investor  Note is invalid or
unenforceable  under any  applicable  law, then such  provision  shall be deemed
inoperative  to the extent that it may  conflict  therewith  and shall be deemed
modified to conform with such applicable law. Any provision  hereof which may be
held  invalid or  unenforceable  under any  applicable  law shall not affect the
validity or  enforceability of any other provision  thereof,  and to this extent
the provisions hereof shall be severable.

     7.8 Amendment.  Except as expressly provided herein, this Investor Note may
not be amended or otherwise  modified except by a written  instrument  signed by
the Maker and the Lender.

     7.9 Waiver of Jury Trial.  The Maker and the Lender hereby  irrevocably and
unconditionally  waive trial by jury in any legal action or proceeding  relating
to this Investor Note or the Pledge Agreement and for any counterclaim therein.

     7.10 Notices.  All notices and other  communications  hereunder shall be in
writing and delivered,  telecopied,  or mailed  (certified mail,  return receipt
requested, postage prepaid) to the addresses set forth in the Pledge Agreement.

     7.11  Recourse.  The  obligations of the Maker under this Investor Note and
the Pledge Agreement are personal obligations of the Maker, and the Lender shall
have  recourse  to the  Maker or his  property  for  payment,  satisfaction,  or
discharge of this Investor Note or the Pledge Agreement.


     IN WITNESS WHEREOF,  the Maker has caused this Investor Note to be executed
as of the date hereof.
                      -------------------------

<PAGE>

                                   Schedule 1
------------------ ------------------ ------------    -----------------------
Principal Amount   Interest Rate and  Installments    Final Payment Date
                   Payment Schedule
------------------ ------------------ ------------    -----------------------

$                  7% per annum     20% of initial     September 30, ____
                   payable on       principal amount
                   September 30     setforth in the
                   of each year     first column,
                                    payable on
                                    September 30
                                    of each of 19__,
                                    19__, 20__, 20__
--------------------------- -------------------------- -------------------------







</TEXT>
</DOCUMENT>
